Wednesday, April 10, 2013

Blackstone in Sacramento

The basketball "whales" aren't the only whales who've come to town.  Our local paper reports that Blackstone, the investment group, has purchased more than a thousand houses in the region.  Most of them were foreclosures, either purchased at auction or in bulk sales from lenders, and Blackstone intends to fix them up and rent them out.  While the article isn't bad overall (this is high praise from this critic of the Bee), we get the usual "omigod they're going to let tenants live here" mantra, as well as the "will the landlord keep the place up" junk.  Sacramento, a city which is 48% tenants, likes to believe that it's really made up of respectable homeowners who spend their time on home improvement and civic involvement, while the lowlife tenants put their junked cars up on blocks, never clean the bathroom, and deal drugs out of the garage while running a bordello out of the living room.

Blackstone, much like several other hedge funds and the like, saw an opportunity to buy foreclosed houses on the cheap, fix them up, and rent them to former homeowners.  This enables them to charge relatively high rents, as the former homeowners have credit problems that preclude them from renting elsewhere.  They buy in bulk, standardize their improvements, and manage the properties much like apartment complexes.  This isn't necessarily a bad management model, as small landlords often hire as needed or, heaven forfend, try to make repairs themselves.  (I remember once having a prospective landlord tell me that it had taken five attempts to fix the shower in a unit he wanted us to rent.  We didn't move there.)  Having regular staff to take care of maintenance and repair problems is a good thing.

So,the most curious construction was the complaint of unnamed "tenant advocates" who were concerned that Blackstone might not be able to fix a broken kitchen faucet.  Now the faucets are new, so they aren't likely to break anytime soon, unless you believe that the first thing a tenant does on moving in is to head for the kitchen faucet with a hammer.  (I should note here that my husband has replaced two kitchen faucets, one of them in our present rental.  It wasn't that it was broken.  It produced two water temperatures, tepid and scalding, and I wasn't willing to live with that.  He proceeded to the hardware store, purchased a new faucet and the needed supplies, and replaced it for me.  He noted that all you have to do is follow the instructions.)

But getting back to the main point, that isn't what the named tenant advocates said.  In fact, one of them, Dean Preston, said that "he wasn't surprised that a multibillion-dollar investment fund could hire competent property managers and fix toilets."  Preston, Executive Director of Tenants Together, and Melody  Simpson, of, were more concerned about the expected return on investment--some 15%--and what would happen to the tenants when Blackstone decided to liquidate their investment (sell the houses).  Now a 15% ROI might be possible, not because of their superior management, but because they have a captive group of tenants who have few options, and will pay any price for housing.  I couldn't find any information on their income/credit requirements, but one of the other groups will allow tenants to pay 41% of their gross income for rent.  For most people that would leave them precarious every month.

Finally, it always irritates me when reporters don't do simple research to check the assertions of their interviewees.  Blackstone, unlike some of the investor groups, regularly files unlawful detainer actions against the former homeowners, although they asserted that they were filing eviction actions against tenants.  I found at least ten for 2012, and at least 12 more for 2013.  (Yes, I know it's only April, and I can only search for UDs through the beginning of February.)  I know this because I did a simple search of the Sacramento County records, and found Notice of Default and Notice of Trustee Sale for many of those evicted.  It's likely that many of the former homeowners had already moved, so Blackstone's action was simple cruelty, as it makes it much harder for the evicted to find new housing.

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