Predatory Billionaires Are Destroying What's Left of New York's Affordable Housing Rental Market
Photo Credit: FRANCE 24 English (L, Harlem teacher and resident Warren Bradley); blackstonegroup (R, Blackstone Group CEO Steve Schwarzman); Composite Screenshot / YouTube.com
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Things are heating up inside Wall Street’s new rental empire.
Over the last few years, giant private equity firms have bet big on the housing market, buying up more than 200,000 cheap homes across the country. Their plan is to rent the houses back to families — sometimes the very same people who were displaced during the foreclosure crisis — while waiting for the home values to rise. But it wouldn’t be Wall Street not to have a short-term trick up its sleeve, so the private equity firms are partnering with big banks to bundle the mortgages on these rental homes into a new financial product known as “rental-backed securities.” (Remember that toxic "mortgage-backed securities" are widely blamed for crashing the global economy in 2007-2008.)
All this got me thinking: Have private equity firms gambled with rental housing somewhere else before? If so, what happened?
It turns out that the real estate market in my New York City backyard has been a private equity playground for the last decade, and the result, unsurprisingly, has been a disaster for tenants and the market alike.
“They’re Warm Wherever They Are”
In the Bronx, Benjamin Warren fears that he and other residents could burn to death in a fire because management has blocked both sides of the passageways between buildings designed to offer ways out of the massive apartment complex. (Warren has called the city and management multiple times to complain, but the routes remain shut.) Nearby, Liza Ash found herself intimidated by nearly a dozen hired men when she and other residents of her building, which had heat or hot water only sporadically this past winter, attempted to organize a tenants' meeting in the lobby. A little farther south, Khamoni Cooper and her neighbors receive a constant stream of fake eviction notices ordering them to vacate their apartments within five days, even though all of them have paid their rent.
These three tenants — and nearly 1,600 more families in 42 buildings — are living through one of the largest single foreclosures to hit New York City since the financial crisis began seven years ago. But here’s the twist. The owner of these buildings is far from a traditional landlord. It’s actually a conglomerate of private equity firms that bet it would be able to squeeze more money out of these buildings than it ultimately could — and ended up unable to pay back the $133 million mortgage.
The problem is that, when things go bust, the tenants, far more than these private equity owners, end up shouldering the costs.
“They don’t care if we freeze,” said Khamoni Cooper, speaking of the owners, Normandy Real Estate Partners, Vantage Properties, Westbrook Partners, and Colonial Management, who have consistently failed to pay for even basic necessities, including heat and hot water, throughout the winter. Cooper had just learned from a neighbor that management cut off all the water in her building, a move she and others believed was retaliation for a protest they had helped to organize at City Hall earlier that day. “They’re warm wherever they are,” she added bitterly.
Around 2005, private equity firms began amassing real estate mini-empires across the city, chasing outlandish projections of future profit. And when these deals started to fall apart, it was tenants, public pension funds, or the city that took the hit, while the private equity owners sometimes succeeded in walking away from the financial wreckage with cash in hand. The story of how those private equity players bet so wrong on housing in New York City is one that, despite the quirks of real estate in the Big Apple, is important to understand now that private equity has taken its rental market show on the road nationwide, and may soon be coming to a town near you.