- Laura Gottesdiener
author of A Dream Foreclosed: Black America and the Fight for a Place to Call Home. She’s an editor at Waging Nonviolence. Her most recent article for TomDispatch is called “When Predatory Equity Hit the Big Apple: How Private Equity Came to New York’s Rental Market — and What That Tells Us About the Future.”
- Benjamin Warren
a housing advocate who has been part of his building’s tenant committee in the South Bronx since the 1980s. He is a member of Community Action for Safe Apartments, or CASA.
The Blackstone Group, a private equity firm, is now the largest owner of single-family rental homes in the country. In one day alone, Blackstone bought up 1,400 houses in Atlanta. And as private equity firms gobble up huge swaths of the housing market, they are partnering with big banks to bundle the mortgages on these rental homes into a new financial product known as “rental-backed securities,” reminiscent of the “mortgage-backed securities” that helped cause the last financial crisis. Could this new private equity rental empire help spark the next housing crisis? We are joined by Laura Gottesdiener, author of “A Dream Foreclosed: Black America and the Fight for a Place to Call Home,” who calls this wave of purchases “a land grab.” Gottesdiener’s latest article focuses on New York City’s rental market, a case study in what critics call “predatory equity.” Large firms have used abusive tactics to oust tenants in a bid to hike up rents — and tenants have been resisting. We are also joined by Benjamin Warren, who, along with nearly 1,600 families in 42 buildings, is a victim of one of the largest single foreclosures in the city’s recent history.
JUAN GONZÁLEZ: You may not have heard of the Blackstone Group, but it’s the largest private equity firm in the world. And now it’s become the largest owner of single-family rental homes in the country. Over the last few years, Blackstone and other Wall Street firms have been quietly grabbing up huge swaths of the rental housing market, purchasing more than 200,000 cheap homes, hoping to turn a profit. At one auction in Atlanta, Blackstone swept up 1,400 houses in a single day. A new report released Wednesday by Right to the City Alliance found like Blackstone tenants in Atlanta had reported a range of issues, from burst pipes and exposed plumbing to bed bugs, which their Wall Street landlord has been slow to fix. In addition, 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,” reminiscent of the mortgage-backed securities that crashed the economy in 2007 and 2008.
AMY GOODMAN: Now a new article turns the spotlight on New York City, a case study on what critics call “predatory equity.” Here in New York, private equity firms have bought up rent-regulated properties, hoping tenants will leave so they can hike up the rent. When tenants fought to stay, the firms resorted to predatory tactics, from sending out fake eviction notices to shutting off heat or water. Right now in New York City, 1,600 families in 42 buildings are falling victim to one of the largest single foreclosures in the city’s recent history, after a conglomerate of private equity firms failed to pay its mortgage.
For more, we’re joined now by two guests. Ben Warren is with us. He’s a housing advocate who has been part of his building’s tenant committee in the South Bronx since the 1980s. He’s a tenant in one of those 42 buildings now being hit by the massive foreclosure, member of Community Action for Safe Apartments, or CASA. And Laura Gottesdiener is with us, the author of A Dream Foreclosed: Black America and the Fight for a Place to Call Home. It was published by Zuccotti Park Press. She’s an editor at Waging Nonviolence. Her most recent piece for TomDispatch is called “When Predatory Equity Hit the Big Apple: How Private Equity Came to New York’s Rental Market—and What That Tells Us About the Future.”
We welcome you both to Democracy Now! Laura, tell us about this particular case.
LAURA GOTTESDIENER: Sure. Thanks for having me. It’s—you know, as we’ve been looking at the growth of this single-family rental empire across the country, what we hear over and over again is that this is an utterly unprecedented phenomenon, that nothing like this has ever happened in the history of the United States. In many ways, that’s true. But in other ways, in New York City, we have this case study of what it’s looked like over the last decade when private equity firms have gone in and seen what they consider to be opportunities in the housing market to make a lot of money really quickly. I know this is something, Juan, that you’ve covered extensively for the Daily News. And what’s important to see, both in this case right now that Benjamin is living through and that 1,600 other families are living through and in a slew of other past very high-profile deals, is that this has been something of a disaster not just for tenants, but also from a financial perspective. These are deals that they were betting big—these private equity firms were betting big that they could turn these buildings around by pushing out hundreds of thousands of families. They weren’t able to push out families, because families organized. And as a result of that organizing, these deals failed, and it made a situation where the broader housing market in New York City got hit and these tenants had to live in completely inhumane conditions.
JUAN GONZÁLEZ: Well, what about the rise of this private equity involvement? Because, I mean, most of these private equity firms often depend on pension funds, on labor pension funds to invest in them to create the capital they amass to then do these cash buyouts. Hasn’t there been any reaction on the part of activists to tell—question these pension funds on how they’re investing their money?
LAURA GOTTESDIENER: Yeah, I think that’s one of the most important aspects of this story that is very rarely reported. So, for example, one of the most spectacular private equity deals, predatory equity deals, to fail in New York City happened in complexes in Manhattan called Stuyvesant Town and Cooper Village. And these were—these are massive properties, you know, in lower Manhattan where a private equity firm, the BlackRock Group, or BlackRock—which is different than Blackstone, but they’re often confused—believed that it could buy up these properties, transition these families out, force these families out—
AMY GOODMAN: Thousands of families.
LAURA GOTTESDIENER: Yeah, tens of thousands. We’re talking about tens of thousands of families. We’re talking about one of the largest deals in New York City history, in U.S. history. And it completely failed because the tenants did an incredible job of organizing for the fight to the right to stay. But what’s interesting is BlackRock, at the end of this $5.4 billion deal, lost just over $100 million. However, the California public pension fund lost $500 million. The California teachers’ retirement fund lost $100 million.
AMY GOODMAN: Because?
LAURA GOTTESDIENER: Because they had invested in this deal, and because these deals are often rigged, such as that if the private equity firm loses, they don’t lose very much money, and if they win, they win an incredible amount of money. So, again, it’s one of these examples of these perverse incentives where private equity firms, big banks, are able to eliminate risk for themselves through these complex financial products, through these securities, but meanwhile, our own lives, our own communities, are getting significantly less secure.
AMY GOODMAN: Why rental properties? Why are they—turn a profit for these equity companies?
LAURA GOTTESDIENER: In New York, the bet was that private equity firms could buy up an incredible number of rent-regulated buildings and force the tenants to leave. And by forcing them out, they—based on New York City tenant law, these owners now have the opportunity to raise the rents dramatically. The tenant laws in New York City is that if you’ve been living in an apartment for a long time, there’s a cap on the amount that the rent can go up each year. If a long-term tenant goes out, leaves, then you can raise the rent dramatically. So the bet by these private equity firms was that they could buy up these apartments and just force people out—at a rate that was, I mean, spectacular. In one deal, they bet, essentially—Rockpoint, a private equity firm, bet that in five years they would be able to force 50 percent of the tenants out of their properties. The turnover for rent-regulated properties in New York City is 5 percent. So, the reason we call this a predatory equity deal is because there is no way—and you can testify to this—there is no way that they could hit these financial projections without doing things like cutting off the heat, cutting off the water, cutting off the hot water, allowing vermin infestations to fester—all of these abuses to push people out of their homes.
JUAN GONZÁLEZ: Well, Ben Warren, tell us your story and the buildings that you have been helping to organize now for quite some time.
BENJAMIN WARREN: Well, I’m in 1511 Sheridan, 1511-1521 Sheridan Avenue. And that building—
JUAN GONZÁLEZ: This is in the Bronx.
BENJAMIN WARREN: In the Bronx, correct, the South Bronx. Well, in that building, we have problems with—one is—one time it was a problem with the heat, hot water. They found a way of just shutting off the heat, turning it on at a certain time, shutting it off at a certain time. They have a thing about rent. Tenants will move in those apartments. They say, “OK, you have to pay three rents. You have to pay a month’s rent, a month’s security and a month’s broker’s fee.” Now, I make it clear to the tenants that if you didn’t—
JUAN GONZÁLEZ: Now, this is for tenants who are already living in the apartments?
BENJAMIN WARREN: No, tenants that’s coming in for the first time.
JUAN GONZÁLEZ: Oh, coming in, OK.
BENJAMIN WARREN: They would charge them a broker’s fee. And I tell them, “Now, wait a minute. Did you see a broker? Did you contract with a broker?” They say, “No, I just came to the building. I saw the super. And, OK, we end up paying a broker’s fee.” “Why? Did you know that broker’s fee was illegal, because you did not contract with a broker?” They don’t know this.
But then, we have other problems, like tenants moving into a new apartment. If the previous tenant was there, and he’s only paying $626, the new tenant come in, they’re paying a thousand dollars, which is way above the equity price of that apartment. Yet, if a tenant bring in another relative or another member to live in that apartment with them, they will raise the rent again, to $120, $160 more. And this is going on kind of rapid, you know, just regular with Colonial Management.
AMY GOODMAN: You’ve called the city to complain about conditions like not having fire or proper routes to get out?
BENJAMIN WARREN: That’s correct. I—
AMY GOODMAN: What’s the issue?
BENJAMIN WARREN: Well, first of all, as everybody knows, we have—you must have a secondary exit to get out of the building. If you have emergency where you can’t leave the front of the building, you must be able to have a secondary way to get out. In my building, 1511-1521, they blocked off the secondary exits. So, one time, they actually blocked off the secondary exits for 1511, so you couldn’t get out if there was an emergency. They blocked off the CDC and C&D [phon.] side, where if they had to get out of the building through a secondary exit, they can’t get out. They’re blocked. They’re stuck.
AMY GOODMAN: So what is the city doing about it?
BENJAMIN WARREN: Well, first of all, we had the fire department come in. They issued violations that these are illegal gates. As of yet, they’re still there.
AMY GOODMAN: Can you tell us about Ocelot, Laura?
LAURA GOTTESDIENER: Sure. Ocelot was a real estate company based in New York that was backed by private equity money from Israeli private equity companies. It—I’m using the past tense because it essentially all but disappeared in the midst of this crisis that it orchestrated. It bought up a number of properties up in the Bronx and immediately started creating unlivable situations, with the goal of forcing tenants out. We’re talking about no heat. We’re talking about no hot water. Sometimes we’re talking about no water at all. We’re talking about ceilings caving in, pipes bursting. One tenant organizer who went up and did a site visit said that she found a family living with no bathroom and three small children.
And, you know, people always ask, “Well, why don’t people just move?” But we have to contextualize this in the midst of a much broader housing crisis that we’re very much still living through. So, you know, when people have this rent regulation or they have a housing voucher and it’s affiliated with a building, it’s attached to a building that they can afford, but even if it’s unlivable, people will stay and fight for the right to live in the city where their job is, where their community is, where their family is. And so, Ocelot really made headlines by highlighting the fact that these private equity firms were creating situations that people can’t conceive families are living through in New York City.
JUAN GONZÁLEZ: And what’s been the response of the regulatory officials on some of these issues? I know when Eliot Spitzer was attorney general, he went after some of the groups, but he actually himself is from a landlord family, and he didn’t go after them too vigorously. And now with attorney general—then Andrew Cuomo came in as attorney general; now you have Eric Schneiderman. What’s been their response to these abuses?
LAURA GOTTESDIENER: Yeah, that’s a great question. I mean, we did see the Attorney General’s Office sue Vantage, which is one of the landlords of Benjamin’s building, for a systemic attempt to force people out by sending illegal eviction notices. We really have to highlight: These are illegal actions. Sending illegal eviction notices, cutting off the heat, cutting off the hot water, all of these are illegal. Why haven’t we seen sort of more, you know, prosecution of these crimes? It’s a question I get all the time. At the same point, I ask back, you know, “Why are we surprised that they’re getting away with these types of abuses?” These are the exact same types of crimes and abuses that we saw rampant during the mortgage crisis. This is part of a too-big-to-fail mentality. I would also say this is part of a process that the Bloomberg administration really made its official housing policy, to gentrify the city, to rezone it, to push low-income and working-class people out of it, people of color, to turn it into a gilded city. And so, you know, I talked to a lot of people, for this article, who work inside city agencies. They say that the city agencies that would sort of prosecute these are underfunded, but there’s also a lack of political will.
JUAN GONZÁLEZ: Well, one of the things that you raise in your article is that there’s been—the housing market has rebounded, but homeownership has not increased nationwide.
LAURA GOTTESDIENER: Yeah.
JUAN GONZÁLEZ: Talk about that.
LAURA GOTTESDIENER: Sure. I mean, so, with that, that, we’re going to the national level, at which we talk all the time—every single news article is about this housing recovery. And it never asks who is it a recovery for. But, you know, this discrepancy between homeownership and rising prices, I think, really gets to the heart of the matter. We’re seeing home prices rise very rapidly in many cities across the country. That said, the national homeownership rate is still falling. So, who’s buying these homes? Well, it’s these private equity firms like the Blackstone Group, like American Homes for Rent, that are buying up an incredible number of homes, about 200,000 homes across the country, in what, in my opinion, can really only be described as a land grab.
AMY GOODMAN: And bundling them.
LAURA GOTTESDIENER: Bundling them and selling off, you know, a bond as a security to investors all around the world in these rental-backed securities. What’s exciting to me in the New York City case is that even though, you know, it’s created an untenable situation for many tenants, we have an example of everyday, ordinary people organizing and beating these private equity firms.
AMY GOODMAN: We want to thank you both for being with us. Laura Gottesdiener, who is the author of A Dream Foreclosed: Black America and the Fight for a Place to Call Home, we’ll link to your article at TomDispatch, “When Predatory Equity Hit the Big Apple.” And thanks so much, Benjamin Warren. We will continue to follow your case, as well as so many others in the city and around the country.
This is Democracy Now! When we come back, there is a vast banner that’s been laid out in a field in Pakistan that can be seen from the heavens, or at least from satellites. It’s a picture of a girl. She lost her family in a drone strike. Stay with us.