By Casey Cora on November 17, 2014 7:59am
GARFIELD RIDGE — Neighbors on the Northwest and Southwest sides have unwittingly found themselves living among investor-owned rental homes, thanks to a new nationwide gambit by Wall Street.
“It just feels like they are capitalizing on this neighborhood’s misfortune,” said Janja Taylor, a 33-year-old mom-to-be and Garfield Ridge homeowner.
The Blackstone Group, a worldwide private equity firm, has spent an estimated $8 billion since 2012 buying up roughly 44,000 homes at rock-bottom prices nationwide, according to DePaul’s Institute for Housing Studies, which collects and researches housing data. The homes are marketed under the name Invitation Homes.
The company has bought more than 1,300 homes in Cook County.
Casey Cora says neighbors fear the uncertainty of one company owning thousands of homes:
Unlike the quick-flips of foreclosed homes in otherwise blighted areas, Blackstone has targeted Chicago’s reliably middle-class suburbs and city neighborhoods — places like Garfield Ridge, Jefferson Park, Galewood and Beverly — to buy financially distressed properties and rent them out.
With its buying spree slowed down, Blackstone is now launching its newest side business as landlords.
No one seems to be sure how that’s going to work out.
Think of it as the difference between one landlord owning a building with a handful of tenants and one global corporation trying to manage tens of thousands of properties in multiple states.
“There hasn’t been a single-family scattered-site rental strategy that’s been perfectly successful,” said Geoff Smith, director of DePaul’s housing studies institute.
National news outlets are awash in stories about rocky relations between Invitation and its tenants, including claims of neglect on the part of property managers and swift evictions for those who can’t make the rent.
A recent Huffington Post investigation revealed a host of tenant complaints about shoddy cosmetic repairs and poor customer service.
Created by the DePaul Institute for Housing Studies, this map shows the prevalance of investor-owned homes in the city and suburbs. The gold dots on the Northwest and Southwest Side represent homes bought by The Blackstone Group. View Full Caption
Factor in “securitization” — Blackstone’s investment is layered with mortgage-backed securities that are somewhat similar to the types that nearly collapsed the world economy — and experts say there is cause for alarm.
“With the participation of Wall Street, there’s a lot of red flags,” Smith said.
But fears over the untested business model and its impact on the national economy aren’t what has homeowners like Taylor worried.
She’s more concerned about the potential for a high tenant turnover and the possibility of Invitation Homes not taking good care of its properties, which are scattered throughout her well-kept neighborhood.
She’s also angry about those big blue signs the company has staked into the front yards of its rental homes.
“Whenever you have a whole bunch of homes for sale on a block you don’t necessarily want to advertise that. They’ve apparently agreed to pull the large yard signs out and use smaller signs in the window,” she said.
An Invitation Homes spokeswoman responded to a series of questions from DNAinfo Chicago with a brief statement, saying the company is “committed to providing our residents with a quality product at a competitive price that is typically as much as 30 percent less than multi-family rentals per square foot.
“In addition, Invitation Homes has seen much less frequent tenant turnover than multifamily [buildings], indicating our tenants like our homes and want to stay longer.”
Experts say there are some obvious upsides to having formerly empty homes suddenly occupied.
For starters, a large supply of rental homes means some families can move into good neighborhoods.
And Blackstone’s flood of buying has stabilized prices in some regional housing markets and boosted them in others, and municipalities are expected to benefit from additional tax revenue.
Still, the future remains unclear for the emerging market.
“It really is contingent on how these institutional investors act,” Smith said “If you’re an optimist, you say these [rental homes] are assets and part of the business model is resale of the property and you’d think they’d have the incentive to maintain their assets to maximize the resale value.
“On the cynical side, you could say that this is a business and it’s tied to securitization and they’re trying to maximize profits and that means not maintaining it properly, and maybe they are problem properties, and then they divest and then the problem properties get sold to other investors who might not take such good care of them.”
