Blackstone is the largest private equity fund in the world; when the 2008 crash hit and banks used the trillions in taxpayer bailouts to fund mass evictions of working people who'd been tricked into taking out predatory mortgages, Blackstone started bulk-buying them, creating rent-backed bonds (called Single-Family Rental Securities or SERS) that are the even-shittier successors to the mortgage-backed securities that detonated the world economy in 2008.
In many towns, Blackstone has cornered the market on rental properties, meaning that once you've settled somewhere for work or your kids' school, you are going to be renting from Blackstone.
They are shitty, shitty landlords.
Reuters spoke with dozens of tenants of Blackstone's "Invitation Homes" (Blackstone's business unit that rents out these properties) and the litany of complaints is amazing, and familiar to anyone who's ever rented from a slumlord: floods of raw sewage, rising toxic mold, leaks, problems with heat and AC and everything else. And, of course, tenants face massive, unbearable rent-hikes year after year, as Blackstone squeezes them to ensure that the bonds they've floated continue to generate big returns for investors.
But the modern twist here is that Invitation Homes has an all-digital system for reporting maintenance issues, a website that is part of the company's "worry free" environment. According to Blackstone's tenants, you can list as many maintenance issues as you'd like with this portal, and Blackstone's property managers will wait a brief interval, then mark the issues as resolved, without ever visiting your house or dealing with the knee-deep raw sewage.
The one part of Blackstone's digital infrastructure that works superbly is a system for assessing fines against tenants — if you are one minute late with your rent (even if the delay is caused by their payment portal repeatedly crashing), they assess huge fines against you. There are fines for everything, and the company boasts to its bondholders and to analysts about how much money it's making from fining its tenants.
Another important difference between Blackstone and a traditional slumlord is that slumlords were relatively petty grifters, milking tenants in a handful of buildings. Blackstone is giant, and able to coordinate massive lobbying campaigns to relax limits on rent increases and to chip away at tenants' rights.
Blackstone disputes all of this and told Reuters it had lots of happy tenants. Reuters asked the company to name five tenants, out of all the tens of thousands the company has, who were happy with the company as a landlord. Three of the tenants Blackstone named wouldn't even return Reuters' phonecalls.
The bonds that were spun out of the rents from these 82,000 homes are your basic Wall Street financial engineer junk-paper. Blackstone exploited a regulatory loophole that lets them package up rental properties whose interiors have never been inspected: the unlicensed contractors who do an external visual inspection are "told to assume that the interiors had been remodeled to the standards advertised on the Invitation Homes website."
The bonds are taxpayer backed, guaranteed by Fannie Mae. Tenants who live in these 82,000 homes are routinely terrorized by having eviction notices staplegunned to their doors because the company's website didn't record their rent payments (the system for dispatching eviction notices is incredibly well-tuned, the system for deciding whether someone deserves to be evicted is a lot less well-maintained).
While Invitation Homes' portfolio represents less than one percent of single-family rental homes nationwide, the figure can be much higher in markets where the company's inventory is concentrated. In some neighborhoods in California, for example, Invitation Homes owns as much as 25 percent of single-family rentals, according to an analysis of Census and property data by Maya Abood, a former researcher with the Massachusetts Institute of Technology's Urban Planning Program who co-authored a recent study titled "Wall Street Landlords Turn American Dream into American Nightmare."
Invitation Homes has been raising rents by as much as an average of 10 percent a year in places like Oakland, California – nearly double the norm in that market – according to the Alliance of Californians for Community Empowerment (ACCE), an advocacy group. At the same time, the company has been adding to the types of fees it charges tenants – not just for late payments, but for things like rent paid on debit cards, which incurs a $30 charge.
Fees have helped lift earnings by 20 to 30 percent a year. In a recent earnings call, the company attributed rising profits in part to its "system" to "track resident delinquency on a daily basis." This system allows the company to start charging fees and penalties the minute a tenant fails to pay on time.
The company's stock price has risen about 11 percent since last year's initial public offering. Wall Street analysts have almost uniformly rated the stock a "buy."
Spiders, sewage and a flurry of fees – the other side of renting a house from Wall Street [Michelle Conlin/Reuters]
(via Naked Capitalism)