The Rise of the New Land Lords 

After gobbling up foreclosed homes in Oakland and other communities, wealthy corporate investors are now creating what Wall Street calls the "rentership society."

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Steve King, coordinator of housing and economic development at the Oakland-based Urban Strategies Council (and no relation to Cheri King), said that while the city and groups like his have helped struggling homeowners and neighborhoods, these efforts fall far short of what's needed. "The resources made available by the federal government to cities like Oakland, they just didn't match the scale of the problem," said King.

Urban Strategies Council and residents affiliated with the local chapter of ACORN set up the Oakland Community Land Trust (OakCLT) during the height of the housing crisis in 2009 in an effort to purchase foreclosed homes and get them back into the hands of low-income Oaklanders. Initially, they envisioned a program to buy hundreds of homes, renovate them, and move in hundreds of low-income Oakland residents. "There were over 13,000 foreclosures in Oakland," said King. "We've acquired seventeen houses and have all but two in contract with homebuyers who fall within 50 to 80 percent of the area median income — $46,000 to $67,000 a year for a family of four," said King.

The Oakland Community Land Trust is a long-term solution. It didn't have much impact on the foreclosure crisis in Oakland.

"We looked at over four hundred properties just to acquire the seventeen we now have, and we had to compete with investors," explained King. Many times they were priced out of an otherwise good deal; investors like Colony, Waypoint, and others have deep pockets, billions in private equity and university endowment cash, and now access to Wall Street's equities market. The Community Land Trust depends on federal loans and operates on a small budget. Even so, King believes the model his group has established is superior to the status quo of allowing large investors to buy up all of the East Bay's foreclosures.

"When you talk about the rents these investors are charging, they are unreasonable for many longtime Oakland residents," King said. "Monthly mortgage payments, including taxes and insurance, for a typical OakCLT homebuyer average around $1,000 per month. These are affordable and sustainable asset building opportunities for families of modest means — assets that stay in the community." According to King, a typical house acquired by the OakCLT cost $76,000, and his group has poured twice this amount — about $155,000 — into rehabbing each property, proportionally much more than the corporate landlords. With a sales price averaging $132,000, the mortgage payments on an OakCLT home are about $850 a month.

Rents charged by the new corporate landlords vary. Waypoint's website has listed multiple houses in Oakland over the past several months, with rents ranging from $1,499 to $2,249. Colony American Homes has listed three Oakland houses for rent priced between $1,575 and $1,650.

Giant for-profit corporate investors are also looking toward the future, socking away housing in single-family home rental platforms, and seeking billions more in cash to grow their real estate holdings. Besides Colony and Waypoint, there are several more corporate investors active in the East Bay housing market.

The Blackstone Group, a New York private equity giant that describes itself as an "alternative asset manager," incorporated Invitation Homes in 2012. Since then, the company has scooped up more than 30,000 foreclosed houses across the country valued in excess of $7.5 billion. Blackstone recently sold a portion of Invitation Homes' property holdings to investors as a part of a securitized bond, which is similar to the mortgage-backed securities sold by banks in the 2000s, which bundled home loans of thousands of borrowers around the country into one trade-able security. The bond included 239 houses valued at a quarter-billion dollars in Phoenix. The bond's income stream also derives from 239 homes worth a total of $50 million in Sacramento, 43 homes in Vallejo and Fairfield worth $11 million, and 10 houses in Oakland worth $2.6 million.

"Through Invitation Homes, we are providing a much-needed service for communities across the nation," wrote Blackstone's executives in their most recent annual report to shareholders. "We are removing from the market distressed inventory, which has been suppressing national home prices, creating jobs and providing high quality, affordable housing for families."

Whether or not they are "positively impacting communities," as Blackstone claims in their company reports, large investors are poised to take over more of the national market for single-family homes. A 2011 report by the investment bank Morgan Stanley reported that homeownership rates have been falling dramatically and are likely now below 60 percent, creating what the authors call a "rentership society." The report concluded that "[e]ach distressed single-family liquidation creates a potential renter household, as well as a potential single-family rental unit."

Starwood-Waypoint commissioned a study by the John Burns Real Estate Agency, a respected consultant, to estimate the fortunes of the single-family-home-rental industry. According to the report, published in January in a company securities filing, "for every 1% decline in the homeownership rate, the occupants of approximately 1.1 million homes become prospective tenants," and therefore potential customers. Figures published by the US Census Bureau last month show that the nation's homeownership rate has dropped by 4 percent since 2006.

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