Readers may recall that we’ve been writing regularly about the single family home land grab by private equity firms. Blackstone has been far and away the biggest, though its Invitation Homes business. Readers and many institutional investors have been skeptical of PE landlords’ claims that they can manage single family homes cost effectively; it’s hard enough for mom and pop landlords, who often have some relevant maintenance skills, like plumbing or construction, to make a go of it.
But as reports come in from abused tenants, Blackstone looks not only venal in its efforts to shift costs on to tenants, but positively incompetent. As we’ve written, in most jurisdictions, even in red states, residential landlord can’t shift property maintenance obligations onto the tenant. They are required to keep the rental at least habitable. There’s good reason for these provisions: communities like to encourage homeownership, since they are considered to have a stake in their town and owned homes are almost always at higher price points than rentals, providing for a better tax base. Badly maintained rentals quickly drag down property values in the ‘hood and can lead to middle class flight. So local communities have strong economic incentives to come down hard on slumlords.
Consider this letter from Occupy Our Homes, via Lisa Epstein:
Dear Home Defenders,
We delivered a giant rent check to Invitation Homes today for our newest resident fighter, Nefesh Chaya, but they turned her away when she tried to pay.
Nefesh signed a two-year lease with Invitation Homes so that she and her service dogs could settle into a peaceful Atlanta neighborhood. She didn’t know the home she had rented wasn’t in good repair or that there were limits to what Invitation Homes was willing to spend. The company promised to fill in the pit in the backyard and remove the mold before move in day, but they didn’t, and Nefesh had to push the company to follow though. Last month, Invitation Homes decided they weren’t going to spend any more money on repairs and added the cost of a kitchen plumbing fix to Nefesh’s online bill. She couldn’t pay without accepting the charge! Invitation Homes refused her rent at the office. Then they filed an eviction and called her to tell her she had to get out that day.
Please sign Nefesh’s petition: http://start2.occupyourhomes.org/petitions/accept-my-rent-invitation-homes .
For the last two years, private equity firms have been buying up foreclosed homes across the country and converting them to single-family home rental properties. In Atlanta, the largest investor of this kind has been The Blackstone Group, which owns companies like Sea World, The Weather Channel, and Hilton Group. They purchased 1,400 Atlanta homes at auction on a single day! Now they own thousands of houses in Metro Atlanta, and tens of thousands across the United States, and manage them through their subsidiary Invitation Homes. Invitation Homes has become America’s landlord! It has never been more important to demand fair rental practices.
Nefesh’s roof started to leak yesterday. We must not allow Invitation Homes to finance their repairs by extracting even more money from our communities! Please sign the petition here: http://start2.occupyourhomes.org/petitions/accept-my-rent-invitation-homes .
Invitation Homes acquired their Atlanta homes for pennies at foreclosure auctions, has driven up rent in our communities, and is willing to threaten eviction to get even more money. Occupy Our Homes Atlanta is concerned that Invitation Homes’ predatory rental practices undermine stability in our neighborhoods and promise to transform an unusually large number of single-family homes in our communities into revolving doors.
Please take a moment to sign this petition and help us fight for justice: http://start2.occupyourhomes.org/petitions/accept-my-rent-invitation-homes.
This letter does not discuss specifically whether this lease falls afoul of state or local requirements in Atlanta. I’d very much appreciate it if any real estate attorneys in Georgia who know the pertinent statutes would pipe up in comments.
As we wrote earlier, it’s not uncommon for landlords even in strongly pro-tenant jurisdictions like New York City to put unenforceable provisions in their leases and try to convince tenants that they have to live with them. Essentially, Invitation Homes is trying to make commercial lease terms the standard for residential leases. Lawyers in Chicago (again, not a terribly pro-tenant town) have found that Invitation Homes’ standard leases violate several provisions of its Residential Landlord Tenant Ordinance.
But aside from the fact that the maintenance provisions of these leases probably won’t hold up in court, there is the even more glaring issue that the practice of trying to get a tenant who can’t be assumed to know how to operate a screwdriver to fix their own rental is shockingly poor property management on multiple levels.
For instance, notice the effort to make Nefesh pay for fixing plumbing problem. That sort of behavior will induce tenants to try to fix leaks themselves. The last thing you want is tenants attempting their own patchwork repairs. It’s likely to lead to long term damage to the property, well in excess of any rental deposit. And as we’ve discussed in earlier posts, Invitation Homes has been sued for being slow about repairing properties, including fixing leaks. Water does lots of damage quickly. Not rushing to address a report of a leak is a sign of a landlord who doesn’t understand the basics of property management.
Reader MBS Guy similarly pointed out how foolish it was to harass a tenant like Nefesh:
This runs counter to what every landlord has told me about their business – you always want the rent paying tenant over an occupancy and unknown future tenant.
It makes me think Blackstone doesn’t really know what they are doing. Is there a strong rental market in Atlanta? Are there that many borrowers desperately looking for a leaky roofed, moldy house in a neighborhood where most other people probably own their homes?
Is it any wonder that the first Invitation Homes rental securitization showed a 7.6% fall in income a mere three months after the deal was floated? And as more stories like Nefesh’s become public, Invitation Homes and other rental slumlords are getting a bad reputation. Prospective tenants will avoid them, and only the most clueless and weakest credit prospects will rent from them. Whether they recognize it or not, they are trashing their own business, not just their properties.