Wall Street is moving into the landlord business — and the results aren’t pretty, according to a new study by a coalition called Housing For All.
Nearly half of the renters interviewed reported problems with their plumbing. Four in 10 reported insect problems including roaches. One in five had rodent problems. The roofs leak in 18 percent of the homes surveyed, and 21 percent had heating or air conditioning problems.
Only one in 10 of the Los Angeles tenants surveyed — and one in four Riverside renters — has ever met her landlord in person, according to the report.
The report is based on visits to 292 houses owned by Blackstone — a major Wall Street hedge fund that recently became the country’s largest landlord — and interviews with scores of Blackstone tenants in Riverside and South Los Angeles. The interviewees live in homes owned by a Blackstone subsidiary called THR California and pay rent to Invitation Homes, one of the several on-the-ground management companies that Blackstone uses around the country. The hedge fund needs those rent checks to clear in order to sell its real moneymaker: financial products called securities that wrap thousands of rental leases into a single package that can be sold, subdivided, and resold to other investors in much the same way that mortgage-backed securities were during the run-up to the housing crisis.
A spokeswoman for the company’s property manager denied the report’s findings to the Huffington Post and claimed the company provides “unparalleled service.”
Blackstone and other Wall Street firms have bought up more than 200,000 houses to rent in recent years, taking advantage of rock-bottom real estate prices brought on by the financial crisis. Tenant advocates have been warning that the financial industry’s incentives would lead to poor conditions on the ground for renters with the financial industry acting as a sort of absentee slumlord that hires cut-rate third parties to manage the properties. As a result, the same people who were forced into the rental market by the financial crisis, subprime scandals, and foreclosure fraud epidemic would find themselves neglected by distant, faceless corporate landlords, critics warned. The Homes For All report is the first attempt to test that hypothesis. Investigators identified 1,402 Blackstone-owned properties, visited 292 of them, spoke with tenants in 79 of the houses, and got full survey responses from 51 households.
The report’s two areas of focus are different in some important ways. In Riverside, which was among the hardest-hit cities when the housing bubble burst and the foreclosure crisis exploded, Blackstone got its hands on the vast majority of its homes through foreclosure sales. The investigators found that the people who lost their homes to Blackstone in foreclosure sales had lived in them for longer than 10 years on average. Seven out of 10 of the Blackstone properties the report identified in Riverside were bought through foreclosure, compared to just 33 percent of the South Los Angeles homes investigated.
That disparity in foreclosure sales is especially notable given the report’s statistics on renters who used to be homeowners. More than a third of Riverside respondents are former homeowners who now rent their housing from Blackstone, compared to 16 percent of renters surveyed in Los Angeles. The survey group in Los Angeles was made up almost entirely of racial minorities — just 4 percent of respondents are white — and in Riverside, 85 percent of respondents were Black, Hispanic, or part of another non-white race or ethnicity.
The report offers a first formal glimpse at how Wall Street’s experiment with the landlord business is working out for tenants. From maintenance problems to absentee landlords to unaffordable rents and illegally high security deposits, the report’s findings correspond to some of the anecdotal horror stories routinely cited in the past by critics of Blackstone and its fellow investors-turned-landlords in the financial sector.
But while the people on the ground are dealing with neglect and poor living conditions, the investor class is salivating over how much money there is to be made off of that suffering. A report in a magazine for industry insiders back in the spring projected that the rental-backed securities market Blackstone pioneered will be ten times larger at year’s end than it was in January, and will grow by 40 times in the next few years.