The Obama Administration Bails Out Private Equity Landlords at the Expense of the Middle Class: Government Guarantees for Rental Securitization

So how much did Blackstone promise to give to the Obama library for this huge grift, um, parting gift?

As regular readers may recall, private equity firms piled into buying foreclosed single family homes on the belief that if the government (in this case, Fannie and Freddie) was selling, they wanted to be buying. And they also convinced themselves that technology would somehow allow them to manage geographically dispersed single family homes, which is inherently a hand-on business, more efficiently than mom-and-pop or small scale operators, many of whom had a cost advantage by having some of the principals provide services (as in doing their own plumbing and electrical, so effectively “buying” those services at wholesale prices).

The most disciplined operators did well by getting in early and buying only very discounted properties, so that they had a good cash on cash return on the rentals. It would be attractive for them to hold long term, which would also give them lots of latitude regarding an exit. The lack of time pressure would mean they could sell the homes individually, even through “rent to own” deals with the higher credit quality tenants.

But many of the early entrants kept on buying long after prices were bargain basement, and it was clear due to the press reports of widespread mis-management and tenant abuses that they were cutting corners on maintenance due to having underestimated costs and complexity. Any real estate manager will tell you that running down the asset is foolhardly.

The logical time to start to exit was 2014, but the private equity property owners were whacked by the Bernanke taper tantrum. The most straightforward exit was to turn the properties and the management compan into a REIT, but only a couple of deals got done before that window closed. The next strategy was rental securitization, which we regarded as a terrible idea given the awful track record of mortgage servicing, and that a rental securitization involved much more in the way of moving parts that mortgage servicing. Again, a few transactions got out the door, but the market foundered after a Blackstone securitization saw a big drop in rental income in the quarter immediately following the public offering.

So in its waning hours, the Obama Administration gave a completely unjustified bailout to private equity landlords, that Fannie Mae is guaranteeing the income of all but the bottom tranches of Blackstone’s latest rental securitization.

Let us stress that there is absolutely no policy justification for this. The mission of the government sponsored agencies is to promote home ownership, not to give real estate speculators a “get out of losses or underwhelming returns for free” card. Even worse, rather than forcing the private equity industry to take some well-deserved lumps for miscalculation, it will encourage them to continue to compete with lower-income prospective homeowners for purchasing properties. That means it will be even more difficult for young people to buy homes. Lambert has pointed out repeatedly in his stats wrap in Water Cooler that real estate markets are suffering from a shortage of homes. Having private equity continue to be on the prowl for lower priced properties that they know they can unload from an economic perspective means that the pauperization of the middle class is now official policy.

Even though this guarantee clearly had to have been worked out during the Obama Administration, Blackstone did not make it public until it updated its filing with the SEC this week. It looks an awful lot like the timing was designed to make sure that the disclosure came after the new Trump team was in charge, meaning Obama would be unlikely to face the criticism he deserves, and the Trump Administration would be certain to let the deal stand.

By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street

Invitation Homes, the 2012 buy-to-rent creature of private-equity firm Blackstone, and now owner of 48,431 single-family homes, thus the largest landlord of single-family homes in the US, accomplished another feat: it obtained government guarantees for $1 billion in rental-home mortgage backed securities.

The disclosure came in an amended S-11 filing with the SEC on Monday in preparation for Invitation Homes’ IPO. Invitation Homes bought these properties out of foreclosure and turned them into rental properties, concentrated in 12 urban areas. The IPO filing lists $9.7 billion in single-family properties and $7.7 billion in debt.

Some of this debt will be refinanced with the proceeds from the sale of the $1 billion of government-guaranteed rental-home mortgage backed securities.

The government agency that has agreed to guarantee the “timely payment of principal and interest” of these “Guaranteed Certificates,” as they’re called, is Fannie Mae, one of the government-sponsored entities (GSE) that has been bailed out and taken over by the government during the Financial Crisis.

This is the first time ever that a government-sponsored enterprise has guaranteed single-family rental-home mortgage-backed securities, issued by a huge corporate landlord. It’s an essential step forward in financializing rents: taxpayer backing for funding the biggest landlords.

Government guarantees allow the mega-landlord to sell these securities at a lower yield and thus offer landlords like Blackstone’s entity even cheaper financing for future home purchases, and thus lower costs and greater profit potential.

During the next severe economic downturn, Fannie Mae and its sister Freddie Mac would need between $49 billion and $126 billion in taxpayer bailout money, according to the stress test conducted by the Federal Housing Finance Agency. The results were released in August last year. So why fret about one more billion?

Blackstone is the trailblazer in financializing rents. It pioneered the post-Financial Crisis buy-to-rent scheme, explicitly encouraged at the time by Fed Chairman Ben Bernanke and the Department of the Treasury, as they were trying to bail out the banks by finding willing and able buyers for foreclosed homes – big institutional buyers that could feed at the nearly-free money-trough the Fed had put out there.

And Blackstone was a trailblazer in the next logical step: issuing the first rent-backed structured securities in November 2013. The deal was collateralized by rental income from 3,207 homes. Moody’s, Kroll, and Morningstar – all paid by Blackstone – rated nearly 60% of the securities AAA. The remaining tranches carried lower ratings. The deal flew off the shelf. Now all larger buy-to-rent companies are using rent-backed structured securities for funding.

This too is going to happen with government guarantees on rental-home mortgage-backed securities. It’s a sweet deal for the issuer: low-cost funding, made possible by government guarantees, is always welcome. Other corporate landlords will follow in Blackstone’s footsteps.

Not all of it will be guaranteed by the government: To satisfy “credit risk retention requirements,” Invitation Homes “would purchase and retain the Subordinate Non-Guaranteed Certificates,” amounting to 5%, or $50 million, of the $1 billion in securities. That’s all the cushion the taxpayer has before losses begin to hit home, so to speak.

The GSEs were founded to promote homeownership by subsidizing it with at first implicit, and since the Financial Crisis explicit, government guaranteed mortgages. But this deal represents a big shift: now, in a delicious Wall-Street irony, the government subsidizes the largest landlords and enhances their profits from renting out single-family homes that individual homeowners had lost during the housing collapse and foreclosure crisis.

There is a darker side to corporate ownership of single-family rental homes and the financialization of rents: soaring evictions, according to the Atlanta Fed, which explicitly blames the Fed and Bernanke. Read…  Evictions by Wall-Street Mega-Landlords Soar, Financialization of Rents Cause “Housing Instability”: Atlanta Fed

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    1. ambrit

      Give yourself a break. He talked a good game. And imagine the fallout from him suffering a JFK moment!
      This should be a guillotine moment, but ‘things’ haven’t gotten bad enough yet. Give it a few years.
      As for traveling back in time and meddling, well, this great little indie film should be fun.

    2. John Wright

      At the 2008 election, a liberal co-worker mentioned he might vote for McCain-Palin, because the USA was like a drunk that needed to hit bottom before anything would be fixed.

      He may have been right.

      McCain-Palin might have been the severe illness that American immune system might have already fought and nicely recovered from by 2017.

      I suspect Obama’s inflicted national malaise might be far more damaging, long-term, to the USA and world than a McCain-Palin administration would have been.

      I voted for Obama in 2008, but stopped listening to his speeches about 2 years later after I observed what he actually did.

      As G.W. Bush tried to say “Fool me Once”….

      1. Knot Galt

        It took me three years to realize Obama was a sly, silver-tongued charlatan and by 2016 there were a greater number of folks who thought just like your 2008 liberal coworker. I believe this rationale is another valid explanation of why Trump is The President.

        Troubling to me, Trump may very well get rid of the best Obama had to offer (which appears to be ‘not-much’) and extend out the worst of his policies. However, whereas McCain-Palin was the severe illness in 2008; now it may be our constitution and the middle class that are deathly ill. The notion that it was a constitutional law professor and community organizer that made this country less democratic and aided in further destroying the middle class is a modern tragedy that may have a lot of us dealing with shock.

        1. RUKidding

          Not to sound all whatever, but as soon as Obama chose the execrable Rahm Emanual as his Chief of Staff, I figured I’d been royally “had.” And I wasn’t wrong. It only took me about six months to realize what a complete charlatan Obama was, and it took that long because I didn’t want to admit how I’d bought his bs. In my defense, I was mainly pushed to voting for Obama because my loathing of Palin was so acute that I really felt Obama would be better than having her that close to the levers of power. Now I’m not so sure…

          As usual, though, we had hideous choices in 2008, and it only got worse in 2016. Ugh.

          1. Pat

            I bow to you. I actually told myself he picked Rahm because he needed an enforcer. *hits head on desk*

            I was never an Obama supporter, although I did think he was probably a modicum better than Clinton and at least wasn’t promoting bombing Iran. Still I knew it was a change election and I ignored reality to believe for awhile. Oops.

            1. RUKidding

              As soon as Obama larded his staff with Clintonites I knew the jig was up. I’ve never been a fan of the Clintons. I only voted reluctantly for Bill the first time, and then I voted third party after he gutted welfare programs and revealed himself for the shyster that he is.

              Obama and Clinton were adversarial during the 2008 election, so I was hopeful that Obama would bring in some new blood – hopefully people who would help empower Obama to do the best job. As soon as he announced Rahm, my heart sank. Ugh. Then Obama kicked Howard Dean, who was mainly responsible for the massive GOTV with his 50 state strategy, to the curb.

              Lesson learned. I knew that there were some big red flags with Obama. I wasn’t blind to them, but I must confess I really didn’t think he’d be as bad as he turned out to be. Really one of the worst Presidents in my lifetime, and that’s saying a lot.

              But most D voters are still very starry eyed about him, and I doubt that will ever change. Sadly Trump presents that foil to Obama, and the M$M has played up Trump’s awfulness. This just inures to the burnishing of Obama’s vaunted “image.”

              Not a huge fan of Trump; very leary of what he’ll do (or what the Rs will get away with under his Admin). But really Obama is a huge part of the reason why Trump won. That Obama’s slavering fans refuse to countenance this simple fact is damning for us all.

              Wake up sheeples, indeed.

          2. KYrocky

            Keep what you said and what you are reading here when you find yourself asking: why would anyone vote for Trump.

            I too listened to what candidate Obama had to say and he struck the chord I wanted to hear. I began questioning myself almost immediately when the meaning of “looking forward, not back” began to materialize, and I understood no fingers were to be pointed and no actual assessment and accountability of who and what caused financial crimes, war crimes, profiteering, etc., would ever take place.

            Many Trump voters were duped, nothing more, nothing less. Just like I was.

            1. JustAnObserver

              Every time I hear that phrase “looking forward, not back” I’m reminded of the line from a John Lennon (?) song (approx):

              “How can I go forward if I don’t know which way I’m facing”

          3. HopeLB

            Same here. Once I saw Rubin,Summers,Geitner, Rahm I wrote Obama a letter telling him how disapointed I was that I had been fooled and that I should have listened more closely to his banker whistling speech here in Pittsburgh which lauded Alexander Hamilton, the Bankster’s favorite founder. I think that was one or two days into his administration.
            Adolf Reed saw Obama for what he was even earlier;


        2. nikto

          Probably half of the Democratic Party can’t even deal with the reality of Obama,
          and hold him in a fantasy-myth status,
          like Conservatives do with Reagan.

          In discussions with mainstream centrist-Dems, I have noticed an “oppositional tendency”—-That is, anything Trump is FOR, they are automatically AGAINST, and anything Trump opposes, they are automatically FOR.

          Hence, the effectiveness of the Russia hacking propaganda, and the tendency of many Dems to still defend TPP.
          When I, as a Progressive “Bernie-Democrat”, say that we are fortunate TPP is dead, they get angry and insist untrue things, such as, TPP had significant input from labor unions, environmental groups, etc, which it obviously and plainly did NOT.

          It is hard for a Progressive to feel much solidarity with “centrist” Dems these days.

          Arguing with them these days is, sadly, much like arguing with Republicans.

      2. Altandmain

        Well if McCain had been in power, we might have seen the US go to war with Russia over Georgia. It’s possible that we would not be here had the war escalated to nuclear strikes.

        That was also a big reason why Trump was liked by many NCers over Clinton. Reduced risk of nuclear war.

        1. Cleopatra

          Are you saying that Trump represented less of a risk than Clinton for a nuclear war?

          NCers may have liked Trump over Clinton because he was a man, or because he was a contrast to Obama, or because he was going to build a wall, or because they believed the false memes about Hillary, an intelligent woman, propagated by Republicans–none of which attest to NCers’ insight–but your premise is Incredulous, and transparent.

          You’re fooling no one.

          1. Yves Smith Post author

            Sorry, he* has a solid case for his view.

            Hillary repeatedly called for enforcing a no-fly zone in Syria. This is tantamount to starting a hot war with Russia, since it would entail shooting down Russian jets, who would not cede control of the airspace. Everyone who understood what a no-fly zone entailed got that. A hot war with Russia risk a nuclear war.

            Even though Trump is aggressive re China, this is all posturing. He may well do something provocative and stupid, but Hillary promised to do something belligerent, repeatedly and clearly. And and a former Secretary of State, she knew damned well what she was promising.

            And I am tired of women playing the sexist card to attack those who didn’t vote for Hillary. Many people, including diehard Dem supporters like blacks, turned out in way lower numbers than they did in past Presidential elections. And the propensity to vote for Trump correlated strongly with local indicators of economic insecurity: negative home equity, high levels of drug use, lousy wages and high unemployment. The Dems failed catastrophically at all levels of government in this election. Hillary failed due to her and her surrogates repeatedly kicking Sanders voters (nearly half the Dems) and calling Trump voters “deplorables” and promising the status quo with a few tweaks when the status quo was badly failing large swathes of the US. Telling voters you despise them is pretty much guaranteed to not get you their vote.

            I have long been opposed to Hillary because she is obviously corrupt. Anyone with any experience in finance will tell you her turning $1000 into $100,000 in commodities trading was a payoff. No one has a record like that. I know someone personally (a heavyweight commodities trader) who reviewed her trading record, and she repeatedly traded at the best price of the day. That means her broker allocated the trade to her, a violation of exchange rules.

            She did those trades in 1978. They weren’t disclosed till 1992.

            Please do not give me your Saint Hillary as victim of prejudice canard. I know many older professional women, mainly left-leaning, and to a person they loathe Hillary. They see her as demeaning hard working women by having failed upwards and for trashing the women that Bill misused sexually.

            * I use “he” as standard English usage for singular when uncertain re gender, as I always have on this site; you by contrast you depict the writer and anyone else who did not vote for Hillary as a sexist male. Here we have an open display of bias, since the handle was gender neutral.

          2. Lambert Strether

            > Are you saying that Trump represented less of a risk than Clinton for a nuclear war?

            Given that Clinton already has a track record of helping start the war in Iraq, tipping the balance toward war with Libya, fomenting a coup in Honduras, and signing off on Nuland’s hare-brained scheming in Ukraine, that’s a perfectly rational position to take, especially given her support for a No-Fly Zone in Syria, which risked war with Russia.

            > but your premise is Incredulous

            I am incredulous that a person of your evident intelligence would confuse “incredulous” with “not credible.”

            > You’re fooling no one.

            I supported Clinton in 2008 because I felt — and still feel — that she was marginally better than Obama on domestic policy, and I felt that foreign policy was a wash. Of course, in 2016 we had a true alternative, so Clinton’s limitations became quite evident. So your smear of all NCers does not include me, at least.

    3. tegnost

      the former prez is the worst and most duplicitous scoundrel politician in my lifetime. Watching the hagiography and “to sir with love ” on SNL made me look for a bucket to throw up in. As bad as trump is portended to be I can’t imagine him being worse, and we all know that had hillary won yesterdays headlines would have been touting the passage of the TPP and open borders to drive those deplorable peoples wages down more so they would die sooner. Yeah, this move should fix that homeless problem. When listening to the rants about alternative facts in the environ where I currently labor (upper middle sf) I have the good sense to keep my mouth shut, but am secretly overjoyed that we experienced this outcome.

      1. Pat

        I managed to shut up most of the Obama worshippers and apologists I know with details of the decline of the Democratic Party and the facts that he got to pick the people in charge, kept them on after epic failures and that he had his operation take over the grass roots organizing in 2008. Since this clearly stopped any expansion of local and national Democratic growth, there was much that could be said. One person still happily blamed Kaine and DWS along with Israel and Schumer but said I was being ridiculous blaming Obama, even when I pointed out and provided links that he was behind the choices of Kaine and DWS AND the OFA information her reaction was “I love Obama and I refuse to listen to anything bad about him.” When my response was “even if it’s true?” She was all he is such a good man any failure comes down to racism, Republicans and people like you.

        What gets me is that I’m pretty sure she no matter how bad things get she will never get that Obama opened the gates wide for everything that comes, similar to that small segment of the population that still loves W. And she will be abetted in all this by the press although the myths surrounding Obama will also crumble as time goes by. (For instance, more and more people are going to get that if his administration had killed Keystone and DAPl outright as they could have, Trump would not be in a position to push them through. And that is just one instance…)

        1. Ivy

          Cognitive dissonance is a bitch, better to deny and delay than to seek diagnosis and treatment. There are many hurting puppies hunkering down now, soiling carpets and whimpering. They need to be walked more often.

          1. Arizona Slim

            Hurting puppies? Yeesh, you’ve described my Facebook feed to a tee.

            OTOH, this is a good thing. Now I know which friends are actual adults as opposed to the chronological adults.

            1. Radical Lefty


              I’m a 10-year veteran of the oddity that is Daily Kos. It was easy when we all railed against Bush. As others have said, Obama choosing Rahm, Geithner, HRC at the start was a huge red flag to the charade he played.

              DKos, Facebook etc are filled with squealing Dems retching up Putin talking points and Trump outrage while ignoring what Obama wrought 2009-16 (TPP, bankster bailout, historic losses) and how backing HRC was a suicide pact.

              Pathetic fools and loyalists. Ugh

        2. RUKidding

          I have quite a few friends who have told me basically to just STFU and never ever ever say one bad word about their hero/savior Sainted Obama. I learned quickly to never ever approach a conversation about Obama’s policies in any negative or attacking or hostile fashion. Rather, I’d attempt to start a polite discussion about some policies or decisions that he’d just made – which could be easily verified. No matter what the issue was, these friends have endlessly found ways to either just ignore the “bad” parts and/or blame whatever bad things might be there on Republicans or the media or whatever.

          They simply do not want to know. They want to enjoy their fantasy fairy tale about clean, scandal-free Mr. Obama with his gorgeous wife and well behaved daughters who brought so much charm and dignity to the White House. Any issues or problems could easily be blamed on the awful Republicans, and that was that.

          So many friends and acquaintances recently waxed lyrical about Obama’s last speechifying event. I stayed far away from that and have no idea what he said and could frankly care less because it’s meaningless.

          Obama surely fooled a helluva a lotta people, and that’s for sure. Of course, most of these same friends are major-league Hillary supporters.

          I give up. No ability to reason with these people and no different from anyone entranced by Fox/Rush (like most of my family members).

          And the Oligarchs rub their greedy grubby mitts with glee: just what the doctor ordered!

        3. Paul Art

          I have realized that in order for people to understand a wrong they should have suffered from that wrong in some way or at least investigated the wrong to its roots. You cannot tell Obamabots or Clintonistas the story of Glass Steagall and Robert Rubin and expect them to understand it. They are of that ilk because they have not suffered from it or they have not taken the time to investigate their suffering and trace it to its source. It takes a hell of lot of reading to understand how Wall Street manipulates governance. A very large majority of teachers and professors fall into this category – especially if they are the tenured bubble world type. Their lot has kept improving so they think everything is hunky dory. Some who had the misfortune to lose a ton of money via 401Ks in the GFC understand it to some extent. The mischief that Wall Street does is well hidden and opaque and defies translation to layman’s language. This is their strength.

          1. gepay

            I used to think that the JFK assassination and the 9/11 inside job were the biggest conspiracies. I now have come to the conclusion that the financial system as it is today is the biggest conspiracy in plain sight. Hidden from most people’s consciousness like water is to fish.

    1. susan the other

      This is the house at the end of private enterprise capitalism… it’s now part of a quintessential private-public-partnership, and for a social necessity. The FIRE industry has no place left to go but here. It’s a perfect partnership for the pirates that destroyed the world. Future housing projects will join this model of guaranteed handouts to private equity. All that money has to go someplace, just like people :-)

  1. Sluggeaux

    Even MY jaw dropped — names need to be named. This has got to be a case of classic grifting by the Kenyan socialist. No other rational explanation.

  2. David Carl Grimes

    When are people ever going to realize that Obama was a “wolf in sheep’s clothing” during his entire eight years as President? I’m tired of hearing from other people that he was the greatest President that ever lived when he has accelerated the pauperization of the middle class. In contrast, people have already called Trump a the worst President of the United States even before he set foot in the Oval Office. Who knows? Maybe Trump is a “sheep in wolf’s clothing” and will enact policies that will benefit the middle and working classes.

    1. johnnygl

      The obama-worship really went into overdrive after trump won. It’s really telling how many people just want a president that looks respectable and presentable. Policy be damned!

      I’m trying remind everyone that trump IS the legacy of obama. Trump could not win in ’08, nor ’12. It took eight years of obama being awful and republicans being awful to get the public in such a state that trump was even possible.

  3. bmeisen

    Please correct me if I am wrong but rental-home MBS securitize projected rental income, creating tradeable paper that formalizes bets across a range of risk and return profiles. The guarantees must narrow the range – is it all AAA now?

    3 scenarios could threaten risk/return pairing:

    A) Rents fall i.e. new tenants sign on for less than previous tenants, due to an event like economic downturn across the markets involved. The Sprawl element in the US housing market might be a vulnerability that issuers underestimate. Triple the price of gasoline and people will stop commuting an hour both ways.

    B) Tenants organize and act to definancialize housing. Tenants generally have weak positions in most US markets. This scenario might involve a variation on rent control, or minimally create a counterweight to the thumb of the landlord. Seems like an opportunity for tenants of Invitation Homes to leverage, especially with the IPO approaching.

    C) The MERS silverfish scampers out from behind the stove. it has mutated and wants more than the greasy old hamburger chunks bach there.

    Otherwise, No problems, where can I biy a slice?

    1. Hen Kai Pan

      During the last couple of years, I have been watching the rentals in a university/college city in upstate NY (Rochester). There are at any one time dozens of inner city, old houses on the rental market that may have been ‘repainted’ – for monthly rents that are ridiculously high, such that no normal, lower income family can actually afford these rents. It has been clear to me, that they are owned by PE firms, and that they were probably snatched up for ridiculously low prices. I cannot imagine that these houses cost more than 50K when they were bought, they rent for 1200 at least and often more. I guess eventually they find some students as tenants, who share these places, and are probably likely to overlook maintenance issues. The rental rates equal the amount one would pay for much better suburban rentals. But in the suburbs, the (corporate) management firms of apartment units now often ask for proof of income that is at least three times the rental amount.
      These houses are being used to suck rental money out of poorer people, are not available for possible low end first time buyers who actually may have interest in maintaining them.
      And now in addition, these PE firms get free access to a gold pot from the government. It’s disgusting.

      1. LT

        People need to stop buying the “hype” about just having a home.
        Reality check needs to sink in that they are currently debt slave traps (unless you know for sure you can maintain a six figure plus income for 15 years or more).
        Leave that crap sitting empty.

      2. bob

        Yeah, it stark in upstate NY. High rent? Half the houses are abandoned. They are usually warehoused by HUD, then the city, county or state authority, after which they may or may not return to the market.

        In a lot of places, if the entire block is vacant, and they can’t get a bid on the house, how is anything worth anything? They are liabilities to the cities, towns or counties, who have to keep some floor under their mortgage markets, for their betters.

        There should be some sort of homesteading movement. Give the house away to someone who might take care of it. But no, King Andy just announced a program to give college grads a tax deduction on a mortgage for a house, because prez.

        Building in the demand for debt.

    2. oh

      The silverfish is starting to show signs of jumping. Quicken loans have been saturating the radio ad time with “refinance and take out your equity from your home…”. It’s a matter of time before we replay the 2007-2008 debacle.

  4. Kris Alman

    Financializing rents?

    Is this happening in the commercial sectors as well.

    CBRE was the middleman brokering the sale in 2013 of Regence Blue Cross Blue Shield corporate headquarters in Portland. Cambia is the parent company, where they sell insurance products in OR, WA, ID and UT. I discuss this here:
    Cambia sold its Portland headquarters in December, 2013 to the California State Teachers’ Retirement System (CalSTRS) for $48,800,000, recording the “bargain and sale deed” in Multnomah County. A spokesman for CBRE, the global real estate company that brokered the deal said, “Corporate America frequently sells real estate because they’re in the business of doing other things. There’s plenty of capital, low interest rates. It’s not a bad time to sell.” Cambia has contributed to Portland’s commercial real estate bubble. In June 2016, CalSTRS valued the property at $26,872,000. On October 31, CalSTRS sold the property to Wealthcap, a German company, for $94,350,000. That means the price nearly doubled in less than 3 years. The real market value of this property is $66,464,280, while the taxable assessed value is only $36,156,980

    The original terms were with a lease-buyback.

    Cambia sold its commercial real estate in Seattle too for $76.5 million in 2011.

    In December 2013, that building was resold for $150,375,000 to Hart 1800 9th Avenue LLC (which was also the buyer, go figure!) with a special warranty deed.

    The property value has skyrocketed.

    All these shenanigans resulting from a “nonprofit” insurance company–one that retains egregious surpluses and skims off huge distributions to the parent company.

  5. Kris Alman

    Financializing rents?

    Is this happening in the commercial sectors as well.

    CBRE was the middleman brokering the sale in 2013 of Regence Blue Cross Blue Shield corporate headquarters in Portland. Cambia is the parent company, where they sell insurance products in OR, WA, ID and UT. I discuss this here:
    Cambia sold its Portland headquarters in December, 2013 to the California State Teachers’ Retirement System (CalSTRS) for $48,800,000, recording the “bargain and sale deed” in Multnomah County. A spokesman for CBRE, the global real estate company that brokered the deal said, “Corporate America frequently sells real estate because they’re in the business of doing other things. There’s plenty of capital, low interest rates. It’s not a bad time to sell.” Cambia has contributed to Portland’s commercial real estate bubble. In June 2016, CalSTRS valued the property at $26,872,000. On October 31, CalSTRS sold the property to Wealthcap, a German company, for $94,350,000. That means the price nearly doubled in less than 3 years. The real market value of this property is $66,464,280, while the taxable assessed value is only $36,156,980

    The original terms were with a lease-buyback.

    Cambia sold its commercial real estate in Seattle too for $76.5 million in 2011.

    In December 2013, that building was resold for $150,375,000 to Hart 1800 9th Avenue LLC (which was also the buyer, go figure!) with a special warranty deed.

    The property value has skyrocketed.

    All these shenanigans resulting from a “nonprofit” insurance company–one that retains egregious surpluses and skims off huge distributions to the parent company.

  6. Hayek's Heelbiter

    Disclaimer: I am a member of the economically advantaged, highly educated and privileged class.

    But I am pulling the hair out by my roots trying to enlighten my peers as to why the “basket of deplorables” voted so overwhelmingly for Trump.

    Although the deplorables might be uninformed and not so-well educated, on some fundamental, visceral level, they understand how their lives, homes and livelihoods have destroyed by the neoliberals, as article after article in NC such as this one (which i will be forwarding far and wide) make abundantly clear .

    I cannot make my dear friends understand that the deplorables were not especially voting for Trump, they were voting for the classic “Ham Sandwich,” i.e., anyone who WASN’T a neoliberal.


    Keep up the great work, you guys.

  7. johnnygl

    Thanks for cross-posting. A full 8 years after the crisis and the bailout train is still rolling. Qe and zirp create the conditions where the securitization business model is still viable, in spite of the ongoing trust/fraud issues.

    This episode brings back memories of how obama’s team turned the gse’s into bailout vehicles to shield from public scrutiny after the political backlash set in and crushed dems in 2010 midterms.

    The lies have continued with trump, but now they’re ridiculous and obvious instead of sophisticated and subtle.

  8. Hana M.

    Another Obama/Wall Street ‘innovation’ in securitized loans–very hot since they come with green certification and high ratings.

    Property Assessed Clean Energy (PACE) is an Obama-era Department of Energy program designed to help residential and commercial property owners finance renewable-energy systems and energy-efficiency improvements. PACE, according to The Wall Street Journal, has become the nation’s fastest-growing loan category. Along the way, the property-tax assessment and payment system has morphed into a home equity loan repayment process, posing new perils for property owners and localities alike.

    …PACE loans aren’t repaid like a car loan or a mortgage. Instead, localities serve as the middlemen by collecting payments once or twice a year as an assessment in the property owner’s tax bill. Localities earn a fee and then forward the proceeds to finance companies….

    …PACE financing has been used to purchase everything from furnaces to pool covers to artificial turf. The National Consumer Law Center has reported abuses with the program, including some in which elderly homeowners were victimized….

    Even worse, localities fear that, if the home market goes bust again, they may be forced into wide-scale foreclosure proceedings, possibly leaving taxpayers on the hook to cover resulting loan-repayment shortfalls. And if and when a backlash comes from taxpayers or investors, it’s likely to be local governments, the middlemen in all of this, that will have to deal with it.

  9. cnchal

    Socialism for Pirate Equity, raw capitalism for the peasants.

    Perhaps the former president can get a jawb in the rental office of “Invitation Homes” at a few million per year?

    Yesterday from Watercooler:

    . . . Still it was a good year, but lack of inventory is going to continue to drive home prices higher and constrain real growth in this sector” [Econintersect]. And: “Two of the key reasons inventory is low: 1) A large number of single family home and condos were converted to rental units…. Many of these houses were purchased by investors, and rents have increased substantially, and the investors are not selling (even though prices have increased too). Most of these rental conversions were at the lower end, and that is limiting the supply for first time buyers. . .

    When the landlord raises the rent ever higher, it becomes exponentially more difficult to save for a down payment, thereby reducing competition for those less expensive properties, which is where first time home buyers shop. Now, that’s government guaranteed.

    Bernie Sanders: The business of Wall Street is fraud and greed.

  10. Brian Lindholm

    Gah. I thought it was bad when the Obama administration and Federal Reserve conspired to prop housing prices up.

    And it was bad. They somehow forgot that lower housing prices make housing more affordable. Who the hell wants to make housing less affordable? Now it’s true that rising housing prices are a symptom of rising wages (which we actually want), so they can be viewed as a signal of a healthy economy, but in reality they’re an unwanted side effect. Alas, the idiots in DC got things backwards and imposed the unwanted side effect without having the happy root cause. Housing became less affordable than ever before and home ownership rates plummeted. Go figure.

    But this is worse. Bailing out the private equity firm that slurped up the housing inventory and jacked up prices for both buyers (who faced a more constrained market) and renters (who faced a near monopoly when seeking a house to rent)? Insane. I truly wonder what the hell they were thinking.

  11. Adam Eran

    Oy! No wonder home prices are relatively static while rents continue to rise!

    Meanwhile, the State of California is going to build two big office buildings in downtown Sacramento. Ideally, they would be mixed use (housing, commerce and offices), and financed by the State’s infrastructure bank. Mixed use diminishes commutes, actually taking cars off the road. The Southern California Association of Governments mathematically modeled all congestion remedies, up to and including double-decking the freeways. The only thing that made a significant dent in congestion: mixed use.

    Here’s the (sorry, snail mail) address for any comments:
    Ms. Stephanie Coleman
    Dept. of General Services, Environmental Services Section.
    P.O. Box 989052
    West Sacramento, CA 95798

    Meanwhile, anyone want to bet that instead, they build single use, and finance the thing with a sale lease-back (so private investors get a return even better than holding the mortgage)?


  12. Skip Intro

    This has the added ‘benefit’ of further destroying the credibility of programs intended to help the 99% own homes. When this all goes south, will the bailouts look like they are going to fanny and freddie? Remember how widespread the claim that the subprime crash was due to the Community Reinvestment Act?

  13. JimTan

    Wow – Blackstone lines up US Agency guarantees to protect the downside of its real estate deals like clockwork. They arranged a similar deal almost one year ago in December 2015:

    “Mortgage giant Fannie Mae is backing the Blackstone Group and Ivanhoe Cambridge’s acquisition of Stuyvesant Town-Peter Cooper Village with a $2.7 billion credit guarantee, the government-backed company announced Monday. Behind the story: Fannie Mae Stuyvesant Town and Peter Cooper Village Wells Fargo’s multifamily division will originate the acquisition loan and pass it on to Fannie Mae, which will then sell it off to investors in the form of commercial mortgage-backed securities stamped with its repayment guarantee. This means the U.S. federal government will in effect back the $5.3 billion acquisition, on top of New York City’s $225 million subsidy package for the buyers.”

    Fannie Mae’s guarantee converted a 65 percent loss on Stuyvesant Towns previous purchase price ( reported in 2009 ) to a near break-even for its original investors:

    This was taxpayers subsidizing big Wall Street deals, to privatize profits and socialize losses. Blackstone’s just lined up another deal to do the same. All should expect a new mega subsidy of Blackstone’s profits by Fannie Mae same time next year ( unless Blackstone has lost its inside track at Fannie Mae with the new administration ).

  14. Chauncey Gardiner

    This is beyond disgusting! That this was done without any public discussion and lacks any discernible public benefit also sets precedent for further corruption. Makes me wonder where the other roaches are hiding.

  15. Krupskaya

    Congress and the Trump administration need to undo this, pronto. Show the financial sector there’s a new sheriff in town, and that masters of the universe will no longer have the privilege of shifting risks onto the taxpayers. .

  16. steelhead23

    Apparently, this piece was sufficiently hard on Obama to be picked up by ZH.

    I’m a bit curious about the duration of the securities being guaranteed. The longer the duration, the greater the risk. Are these Fannie Mae guarantees a functional equivalent to credit default swaps? Wasn’t it the swaps, not the CDO collapse itself that forced the gov to bail out AIG? If so, Obama truly is a slow learner.

    What I see here is a ridiculous fear of Wall Street suffering crushing losses – a reasonable fear for the elite – not so much for everyone else.

  17. Tom Stone

    Fannie and Freddie gave sweetheart deals to Blackstone and the other big players when they sold these homes, which kept prices up by reducing the supply available to ordinary buyers.
    And now this.
    It does guarantee Obama will make his first $100MM faster than the Clinton’s did, and the timing was excellent.
    But the shameless corruption is another indication that the USA is a rapidly failing state.
    Are there any vital institutions that are not failing due to corruption?
    I can’t think of any.
    Full Disclosure, I’m a Real Estate Broker a few miles North of Wolf Richter.

  18. David Carl Grimes

    If you look at the single family home REITS, none of these guys make money. Despite owning as many as 30,000 homes, they have no economies of scale as far as maintenance expenses are concerned. To minimize losses, they will have to cut a lot of corners. Defaults will come sooner or later

  19. Jim

    Obama was smart enough to follow the “agenda” otherwise a Black President was in the crosshairs of what happened to JFK.

  20. SA

    Well if there ever is a revolution in the US, which I doubt, these terribly smart folks might want to consider the pressures that the US could bring to bear on NZ for their return.

  21. Richard H Caldwell

    Sigh… Fannie’s and Freddie’s perversion is now complete. Thank you, Democrats, thank you, Republicans.

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