Private equity has been rapidly growing its share of the housing market, taking advantage of a housing crisis and in some cases exacerbating it. But as large corporate landlords grow in power, tenants are increasingly rallying together and finding creative ways to hit them in their pockets. This includes taking their complaints to regulators and to the public retirement funds that pour their money into private equity funds.
For a long time, large corporate landlords—including private equity, real estate investment trusts and hedge funds—mostly ignored the low-end housing market, which they viewed as risky. But that began to shift during the 2008 housing crash and again during the pandemic when they began to put more resources into multifamily and single family homes.
According to census data analyzed by the National Multifamily Housing Council, a lobby representing landlords who own multifamily properties, 38 percent of multifamily units were owned by individual investors in 2021, and 42 percent are owned by corporate entities. Another 3 percent were owned by Real Estate Investment Trusts (REITs).
The pandemic’s disruption in the housing market led to a frenzy of investment by mega-landlords in properties that briefly saw their value dip. Investors have been rushing up to buy affordable housing, particularly units where rent restrictions are set to expire. By the end of the decade, half a million units funded by Low Income Housing Tax Credits (LIHTC) are set to become market rate. The private equity giant Blackstone alone spent $5.1 billion on 80,000 units of LIHTC housing in 2021 as part of a pandemic buying spree.
In a statement, Blackstone said it intends to preserve the housing as affordable and said the goal of its affordable housing portfolio is “unlocking new paths to preserving our nation’s affordable housing supply.”
A report from the Federal Reserve Bank of New York surveyed private investors in affordable housing and found the majority of respondents expected to raise more money in the next two years than in the past 6 years combined.
The growth has been especially fast in single family homes, though most are still owner-occupied. Investors bought 24 percent of single family homes sold in 2021. While investors only account for 5 percent of the single family market as of 2022, at this pace they could account for 40 percent of the market by 2030 according to one analysis. (Not all of those investors are mega-landlords, and that number could include first time investors and amateur real estate hustlers flipping properties.)
While mega-landlords often point to the relatively small slice they own of the housing market when deflecting blame (3.6 percent of all apartment units across the country), this obscures the damage that private equity can wreak when they consolidate enough housing within a small geographic area, allowing them greater leverage to raise rents. One report found 10 census tracts in the Twin Cities area where 20 percent of single family homes are investor-owned rentals and one tract near a university, 43 percent of homes were investor-owned rentals.
Yet across the portfolios of many large corporate landlords, there are burgeoning tenant associations, actions and organizing. It’s a sign that as large landlords slowly increase their share of the market, they’re potentially creating shared communities aggrieved with their tactics.
“It's essential to organize across portfolios because the power imbalance is so vast,” said Caroline Nagy, a senior policy counsel for Americans for Financial Reform.
Last year, tenants in Minneapolis single family homes owned by real estate giant Progress Residential—the largest landlord of single family homes in the country—banded together to address their landlords’ lack of communication and failure to make timely repairs by withholding rent. Under Minnesota law, tenants can pay their rent to a court administrator when repairs are not being made, and the court can award the rent back to the tenant if the landlord doesn’t make those repairs.
“Connecting with other tenants in this way—it is life changing,” one tenant withholding rent said.
Progress Residential, which is owned by $30 billion NYC-based hedge fund Pretium Partners, has been under fire for years for skimping on repairs, raising rents and understaffing, all in an effort to make their purchases more profitable. Progress was sued by Minnesota attorney general Keith Ellison in 2022, who accused the company of “systematically misrepresenting its property-repair practices and keeping its properties uninhabitable for tenants.” A Facebook group called “Victims of Progress Residential” has over 11,000 members.
Regarding AG Keith Ellison’s lawsuit, Progress told Motherboard, "We continue to believe that the action filed by the Minnesota AG’s Office lacks merit, and we remain focused on engaging with and serving the residents in all of our Minnesota communities."
After two years of organizing, including press conferences, repair requests, 311 calls and meetings, tenants were able to secure agreements in December between Progress Residential and the city promising timely repairs and better communication.
Progress tenants—organized by Inquilinx Unidxs Por Justicia (United Renters for Justice), a grassroots organization that focuses on housing issues—also organized an email campaign in March asking the Tennessee Consolidated Retirement System to divest from Pretium partners, citing their poor living conditions. The Tennessee retirement system had invested $125 million in Pretium 2020.
Progress Residential told Motherboard that all of the concerns brought to Tennessee Consolidated Retirement System have been resolved. In an email to Motherboard, Progress Residential said, "Much of the information Vice has been provided is inaccurate and incomplete. Customer service is an every-industry challenge, and we take every opportunity for feedback seriously to understand our residents' pain points and how we can best resolve their issues. In fact, we are proud to have a current A+ rating with BBB.” Notably, the customer reviews section of Progress’ Better Business Bureau profile show an average 1.06 out of 5.
The movement of corporate tenants organizing to defend against displacement is nationwide. The San Diego Blackstone Tenants Union formed in 2021, focusing on a cluster of multifamily apartments owned by the private equity fund, which is also the largest owner of real estate in the U.S. The tenant union pushed back on the company’s attempts to quickly raise rents through evictions and neglect. Organizers said they are open to building with other Blackstone tenants in California.
“Since our ownership of these communities began, we have completed over 26,000 work orders, invested $40 million to make them better places to live, and implemented financial literacy and after school programming on-site free of charge to residents,” Blackstone said in a statement. “In total, we intend to invest more than $100 million in these communities, which will create 500 jobs for San Diego County.”
In New York City, more Blackstone tenants in Stuyvesant Town Peter Cooper Village organized a tenant association in 2020 and sued their landlord to keep their units rent stabilized after the company attempted to deregulate them. A judge ruled in their favor in January.
Some buildings are purchased by large landlords through debt, and owners crank up rents to address ballooning interest rates on mortgages. But this can arguably make landlords more susceptible to organizing and rent strikes because overleveraged corporations need the cash to pay back debt.
“I think the best way to combat corporate landlords is to make their model less profitable,” Nagy said. She said stronger tenant protections and rent stabilization laws are ways to achieve that. Tenants may also withhold rent when repairs aren’t being made. And more tenants are speaking directly to pension funds or universities that pool their money into hedge funds and real estate investment trusts to get a profit.
That strategy was taken by Greenbrook Tenants Coalition, where residents are organizing across 240 Brooklyn buildings snatched up by the private equity-backed real estate firm Greenbrook in the course of a few years.
Greenbrook tenants appeared at hearings for the Texas Permanent School Fund, an entity that invests on behalf of public schools in Texas. Greenbrook did not respond to a request for comment.
“We've made appearances at their board meetings to say ‘Hi, we're tenants and this is how your investments are affecting your neighbors,” said LT Tierney, a tenant organizer and Greenbrook resident who also works as a tenant attorney. Despite some board members expressing concern, the school fund has not pulled back its funding.
When Greenbrook began snatching up apartment buildings during the pandemic, it almost immediately drew criticism from tenants and from the city for rent hikes, neglecting maintenance and for performing early morning construction as a form of tenant harassment. The Department of Housing Preservation and Development (HPD) sued the company, alleging that it was attempting only evicting tenants to take advantage of a loophole that lets them deregulate rent stabilized units if a building is 80 percent empty and in need of rehab.
Tierney said that tenants at Greenbrook homes are a mix of long-time residents and higher-income transplants, all of whom have been united by Greenbrook’s neglect and attempt to evict tenants. It was hard to locate all the Greenbrook owned buildings both because the company expanded its portfolio so fast and because most of the buildings are owned by LLCs with different names,Tierney said, though they all name Greenbrook CEO Greg Fournier as their principal. The tenant coalition has been knocking on doors and holding monthly meetings to update each other on building conditions and strategies.
“Most folks who answer the door when we tell them that we are tenants who live in buildings owned by the same company… they're immediately wanting to talk about all the problems they're having with the conditions in their building,” Tierney said.
Peter Sabonis, a Baltimore-based tenant organizer, said residents in homes owned by corporate landlord Oaktree Capital Management similarly found themselves face to face with a state pension fund investing in their displacement. Oaktree had purchased bundles of distressed mortgages before either foreclosing or refinancing them at rates that homeowners could not afford.
Sabonis remembers one resident who was being displaced by Oaktree after inheriting a home from his mother, a public school teacher.
“His mother who left the house to him when she died and probably got a pension, her investments were in the entity pushing her son out,” Sabonis said.
Organizers in Alexandria, Virginia, also focused on pension funds when their apartment towers were purchased by corporate owners CIM Group in 2020. A group of mostly immigrant tenants organized by African Communities Together wrote letters to pension funds and appeared at board meetings to talk about the company’s rent hikes and failure to make repairs, which led CIM to promise rent caps and assurances that some maintenance would happen more quickly.
CIM Group positions itself as a socially responsible company and on its website touts,”We believe we’re changing the world for the better by improving the environment and enhancing the lives of people in communities across the Americas.”
“It was not until we started engaging their investors that CIM Group agreed to actually sit and meet with tenants and African Communities Together,” Assefash Makonnen, an organizer with African Communities Together said over email. “Prior to those meetings, tenants developed petitions, spoke to elected officials, held protests and rallies, and CIM Group refused to even sit with tenants.” Makonnen said that the group reached out to pension fund investors of CIM, including the San Francisco Employees’ Retirement System, Pennsylvania’s Public School Employees’ Retirement System (PSERS), and the University of California Board of Regents.
They also filed a complaint with Freddie Mac, which had provided CIM with a $346 million federal loan guarantee. The complaint alleges insufficient notice to vacate and steep rent hikes. “CIM is using the federal funds received from Freddie Mac to finance predatory behavior in an affordable community that African immigrants call home,” ACT wrote in the complaint.
In an email to Motherboard, CIM Group said, “Southern Towers is not now, nor has it ever been subsidized affordable housing. The residents at Southern Towers are our clients and they have chosen to live in this community and enter into a lease agreement with rents that are below the market average.”
Regarding the lack of notice, CIM said that it was in full compliance with the CARES Act as “no resident at Southern Towers has been removed from the property in 30 days or less.”
The San Francisco Employees’ Retirement System did not respond in time to a request for comment. A representative from UC Investments, which handles the University of California’s portfolio, told Motherboard, “We have sent CIM a letter from the tenant group and our CIO has reached out to the CIM co-founder. Also please know that UC Investments is not invested in the Southern Towers property.”
Steve Esack, press secretary for the PSERS said in an emailed statement that the pension fund only invested in a CIM Infrastructure Fund, which does not cover real estate. Esack said PSERS had invested $250 million into CIM Infrastructure fund, and “The Board asked its Investment Office staff to follow-up with CIM about the tenants’ concerns.”
Sosseh Prom, state policy manager of ACT, told Motherboard by email, “Some pension funds have reached out to state that they are not invested in the portfolio that is involved with Southern Towers, essentially telling us that this doesn't concern them. We've made it a point to let them know that we believe any investment in CIM is a tacit endorsement of their predatory practices, especially when you consider that it is not unheard of for funds from one portfolio to be transferred to another.”
Prom said some pension fund investors were willing to meet with ACT outside of board meetings and listen to concerns, and some took their concerns to CIM Group. ACT has also met with FHFA, city officials and members of congress; Prom estimates tenants have spoken at 20 meetings in the past year. Prom said at one conference where a Southern Towers tenant was speaking about responsible investing, CIM Group distributed flyers defending themselves.
Some organizers have also tried to make it more expensive to sell buildings to deter speculation. Sabonis said Baltimore tenants and advocates pitched a real estate transfer tax to the city council that would be targeted to private equity, real estate investment trusts, and other speculative entities. The idea was to use taxes to either deter predatory house-flipping or raise money for the city’s affordable housing fund. Ultimately, the mayor signed a watered-down version of the law that raised taxes on transfers above $1 million. Sabonis said he doesn’t believe this law has deferred private equity from making purchases.
Tenant organizing is an uphill battle, as many states offer no protections from retaliation. Tenants in all of the country’s public housing do have protections; HUD forbids “obstruction, harassment, or retaliation from property owners or management” when tenants organize. Public housing tenants are also allowed to use common spaces for meetings and have the right to be recognized “as having a voice in residential community affairs.”
Tenants in properties with large corporate landlords may not know who owns their building because of byzantine layers of LLCs, and a rotating cast of property managers that makes communication confusing.
Betty Gabaldon, a tenant organizer with East Bay Alliance for a Sustainable Economy (EBASE) said she’s sat in on housing court watch and seen tenants confusingly try to explain which agent they were speaking with.
“They see a rotation of 8 different people, that creates confusion for people, they don't know who they're going to see tomorrow,” Gabaldon said.
Some states have more robust protections than others: New York preserves the right for all tenants to form tenant organizations and protects them against retaliation, allowing tenants to leaflet or knock on doors.
Only one city, San Francisco, has a law that requires landlords to recognize tenant unions and bargain with them in good faith. That law, which went into effect last year, was spear-headed by the Veritas Tenant Association, formed in 2017 by residents of the city’s largest landlord. “The San Francisco law is the one that's really pushing it forward,” Nagy said.
Yet as we covered last month, Veritas has been refusing to recognize many of the buildings in the tenant association. (The law only requires that landlords negotiate with building-wide tenant associations, but VTA says buildings that organize in the portfolio have the option of joining their larger city-wide association.)
This is why tenant protections need to come with resources, including attorneys. “These laws only have teeth if tenants have access to attorneys and can go to court and sue because otherwise no one else is going to be really advocating for them,” Nagy said.
And lawsuits against corporate landlords have been increasing, particularly in relation to controversial rent-setting software. In Seattle, tenants are filing a class action lawsuit against ten large landlords, among them Greystar, Crow Holdings, and Avalon Bay, alleging that they colluded to set prices by using the RealPage price-setting software, as ProPublica revealed in October. About 20 lawsuits have been filed against RealPage and its corporate clients, according to Law 360.
Changes to tax law could also help by disincentivizing speculative investment. Private equity funds and hedge funds pool investments from pension funds, universities, and other sources, invest the money and maximize profits for a share of the revenue. It can mean large entities—like pension funds—can end up in the spotlight if they invest in slumlords.
But Real Estate Investment Trusts allow anyone to invest in real estate speculation. REITs are pooled investments analogous to mutual funds. They invest money into a diverse array of real estate that they own. The REIT is required by law to deliver at least 90 percent of its profits to shareholders, and all of these payments are tax exempt. As a result most REITs pay no corporate tax. REITS were created in 1960 in an effort to allow any American to profit from income-generating real estate.
Some of the largest apartment owners in the country are REITs: they include Mid America Apartment Communities, which owns over 100,000 units of residential housing, and Avalon Bay Communities, which owns 81,000 units and where tenants have protested rent increases.
Blackstone, a private equity firm, also owns a REIT called Blackstone Real Estate Income Trust (BREIT.) The trust was the subject of a controversial internal call in which the company’s head of real estate assured shareholders that evictions would help improve cash flow. Another large REIT, Invitation Homes, spun off from Blackstone and is the second-largest owner of single family homes in the country.
“We navigated the pandemic with the most accommodative resident policies in the country, which included choosing not to make a single non-payment eviction for over 2 years, exceeding federal regulations as well as certain local regulations,” a Blackstone spokesperson said in a statement.
Barry Sternlicht, the CEO of Starwood Capital Group, the largest owner of apartment units in the country, noted the role that REITs play in setting rents during an earnings call in 2022: “They have been very important drivers of what is acceptable pricing,” Sternlicht said.
“We have to think much more deeply as a society about how we view housing and whose interests are worth protecting the most,” Nagy said. “Looking at our tax and finance policy and seeing that we're incentivizing the exact opposite is a very difficult, problematic place to be in.”
Update: This story has been updated with comment from Blackstone.