After losing $500 million on a controversial New York real estate deal, CalPERS is being asked to put more money into the same property.

A New York City councilman is urging the California pension fund to participate in a tenant-led buyout of a Manhattan apartment complex - the same complex that cost CalPERS $500 million and damaged its reputation as a socially responsible investor.

The earlier investment depended on driving middle-class tenants out of rent-controlled apartments, critics said. CalPERS has said it won't invest in such deals again.

Councilman Daniel Garodnick, who lives in the complex, says CalPERS could repair its image by helping tenants buy the property from its lenders.

"This would send a message to the investment community that you are serious - and it will help end the uncertainty about the future of our homes," Garodnick said in a letter this week to CalPERS Chief Executive Anne Stausboll.

CalPERS' investment staff will analyze the tenants' proposal, said fund spokesman Brad Pacheco.

At the height of the property boom, the California Public Employees' Retirement System and other investors paid $5.4 billion for Stuyvesant Town and Peter Cooper Village, a massive apartment complex governed by New York's rent-control laws.

Investors were counting on hefty returns based on planned increases in rents. Generally speaking, rents can go up when apartments turn over, and longtime tenants complained that they were harassed and driven out of their units.

After the real estate market collapsed, the investors defaulted on their mortgage in February and the property was taken over by lenders. Credit analysts have said the property is now worth less than $2 billion.

CalPERS lost $100 million on a similar deal in East Palo Alto.

The New York tenants are talking to other potential investors and will likely approach the California State Teachers' Retirement System, said Garodnick's spokesman, Dan Pasquini. CalSTRS lost $100 million on the original deal.

Like CalPERS, the teachers' fund is developing a policy to prohibit future investments in deals that depend on ousting middle-class tenants from their apartments.