These People Will Cause The Next Mortgage Bubble-burst
If you love hating on banksters and Wall Street types generally, this post is for you.
If you’re looking to buy, sell or rent a house, you had better read on.
A Wall Street darling called the Blackstone Group dove head-long into the real estate market in 2011, buying up properties in nine major markets where home prices plummeted during the 2008 recession: Atlanta, Chicago, Las Vegas, Phoenix, Northern California, Southern California, Miami, Orlando and Tampa.
Their business model involves purchasing “distressed” properties – foreclosures and short sales – about half of them in cash. Then they warehouse, renovate and rent or flip the properties. They’ve bought so much property, in fact, that in the 12-month period ending in October of last year, prices in those markets surged 22%. Higher interest rates followed.
As Blackstone Group implies, the operation conducts business with other corporate entities or under a number of different corporate names.
One of these entities is Colony Capital, which marketed itself as “a fund with a conscience”. In February, the Colorado Division of Securities filed suit against them for “investment adviser fraud, securities fraud, offer and sale of unregistered securities and unlicensed investment adviser activity” with regard to stock and real estate holdings. [Read the complaint]
Among Blackstone’s group members are Riverstone Residential Group and Invitation Homes. These are the public-facing entities in the rental market particularly. Although in the game for a relatively short time, their reputations have all but been set in cement. Numerous complaints have been lodged across the country. Invitation has a Better Business Bureau rating of C- in both Chicago and Dallas; it has a B in Tampa.
Let’s talk about Tampa for a moment. There, institutional investors have sunk nearly a billion dollars into home purchases. Invitation Homes accounts for $326 million of that, according to property transaction records. The surge in these purchases has caused prices to escalate from between $100,000-$125,000 to $160,000-$175,000 over the course of less than a year, depending on the source cited. Rents in Tampa had averaged $1200, with 85% of Invitation Homes’ properties coming in above that average.
Their profits secured and only about 51% of the properties rented, these investors are now “slipping out the back door” and dumping properties back onto the market. Mortgage Bubble 2.0 looms as a threatened decline in prices would follow any glut of inventory on the market. Blackstone and Invitation deny having the capacity to cause a future bubble-burst. Others are far less gracious, referring to them as “America’s New Slumlord”.
And slumlords they appear to be. Read the complaints from all over the nation regarding their business practices [link]. We personally know a family that tried to find a rental, could not get calls returned by Invitation Homes, but finally did apply. No one would tell them what the security deposit would be – only that they should “apply and find out.” They were told to pay $35 per member of the family as if each represented a separate application. The lease terms could be revealed only after the fee was paid, by which time, the family’s financial data were saved to Invitation Homes’ servers.
Some who completed the process claimed they were not granted access to their rentals even after a lease was signed. Once admitted, they could not get service – or had unlicensed contractors show up to perform service. Upon moving out, many did not receive their deposits back; instead, they were presented with bills – some amounting to $700 over their deposit – for “damage” that they say was a figment of someone’s imagination. One person claimed to have tried to return keys to a property, was not given access to the contact who customarily received them and then charged for each day that the keys were not returned.
These are bad actors – vultures who first prey on the misfortune of those with underwater mortgages or who are in foreclosure. They manipulate housing values in the markets in which they operate. They price-gouge and engage in poor business practices. And they will flood the market with unwanted inventory, potentially causing the next mortgage crisis.
Housing is a necessity. There ought to be a law.
Sources / Further Reading:
Occupy Our Homes / Atlanta video (hint: read the captions!)
How Wall Street Has Turned Housing Into a Dangerous Get-Rich-Quick Scheme–Again (Mother Jones)
Real Estate “Flopping” The New Corporate Screw Job (Daily Kos)
Blackstone Funding Largest US Single-family Rentals (Bloomberg)
Families Blocked by Investors From Buying U.S. Homes (Bloomberg)
Blackstone, big investors slow their $800 million Tampa Bay home-buying binge (Tampa Bay Times)
Investors still gobbling up thousands of Tampa Bay homes to rent out (Tampa Bay Times)
Giant investment funds fuel new boom in Pierce County real estate (News Tribune)
Big Investment Groups Buying Up Charlotte (Charlotte Observer)
Why What’s Happening in Atlanta Should Matter to You (Huffington Post)
Meanwhile, Big Investors Quietly Slip Out The Back Door On Housing As “Stupid Money” Jumps In (Zero Hedge)
Blackstone Denies It Is the Cause Of Housing Bubble 2.0 (Zero Hedge)
America, Meet Your New Slumlord: Wall Street (Blog)
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