California Free Press

Blackstone’s Evil Scheme to Profit Off Every American Crisis

 

 

 

How Stephen A. Schwarzman got rich, from More Perfect Union's series The Class Room

 

Narrated by JT Chapman from Second Thought

March 1 2023, from More Perfect Union

In January a massively powerful landlord sued to evict hundreds of tenants across the country. 

The landlord had bought up billions of dollars of real estate when prices were low during the pandemic–taking advantage of the economic downturn that hurt so many. 

And now that eviction moratoriums are lifting, that landlord is starting to kick people out of their homes. 

Here he is at the height of the pandemic.

Stephen A. Schwarzman is the co-founder, chairman, and CEO of Blackstone Group, the world’s largest alternative asset firm with almost a trillion dollars in assets–including real estate.  The firm has made Schwarzman very, very rich. 

And he’s not afraid to flaunt it. 

One example: his 60th birthday party reportedly cost between 3 and 5 million dollars. 

It was hosted by Martin Short. Patti LaBelle sang a song written for Schwarzman. And it was held in an exact replica of Schwarzman’s apartment built for the party.

Here’s the egregious part: Schwarzman’s big bash was in 2007, just as the economy was on the precipice of a disaster caused by people like Schwarzman. 

That same year Blackstone had their IPO, netting Schwarzman hundreds of millions of dollars instantly. 

Sensing a theme here? It’s not just COVID and recession profiteering: 

Major economic downturns and national crises have coincided with hugely profitable milestones for Blackstone… and Stephen Schwarzman

This is The Class Room from More Perfect Union, and today we’re looking at how Stephen A Schwarzman got rich.

Like many great stories of people plundering America, this one starts at Harvard Business School. 

Schwarzman was raised in the suburbs of Philadelphia then went to Yale, where he joined Skull and Bones, the infamous and… kind of corny secret society.

Then to Harvard Business School and then on to the finance world. Schwarzman landed at Lehman Brothers, then a vastly powerful investment bank shortly after getting his MBA. 

At Lehman he worked in mergers and–helping the firm scoop up other businesses–until he eventually oversaw the absorption of Lehman Brothers itself into American Express. 

He left Lehman, and in 1985 started his own firm–Blackstone. He teamed up with his Lehman colleague Peter G. Peterson, former Secretary of Commerce under Nixon.

Despite the founders’ pedigree, they tried to push the scrappy startup image in the press. The New York Times wrote in 1987 that Blackstone “operates out of cramped quarters… where secretaries and bankers share offices and boxes are stacked in the hallways”

Blackstone started as a mergers and acquisitions consulting firm before transitioning into merchant banking and private equity. 

It wasn’t a great time for investing—but Blackstone got lucky: they had finished raising money for their investment firm just days before the crash. 

And it was all part of their strategy. The New York Times pointed it out that year with the headline, “A Big Fund Ready to Capitalize on Hard Times”

In the early profile, published right after Black Monday, Schwarzman’s business partner admitted that their strategy involved taking advantage of economic downturns. 

”There are going to be fascinating opportunities… There’s a good chance the dollar will continue to fall, interest rates over the long term will go up and we will experience slow growth… You raise capital when you can raise it, and then you move in opportunistically and make investments in distressed industries.” 

It’s a business model based on profiting when everyone else loses.

If we fast-forward through 20 years of Blackstone pioneering and perfecting the private equity and leveraged buyout, tearing apart businesses to maximize profit, we get to their IPO–that’s when a company goes from private to public so that anyone can buy shares on the stock market. 

The IPO made Schwarzman 500 million dollars. 

Once again months later, the greed of Schwarzman’s colleagues in finance made this happen

Because the collapse was directly linked to housing millions of working Americans had their homes foreclosed, meaning they were available to buy for cheaper-than-usual rates.

So Blackstone swooped in. According to reporting from the Neighborhood Assistance Corporation of America, “Blackstone was one of the first private equity firms to begin buying foreclosed homes in the wake of the financial crisis, fixing them up and renting them out.”

So as Americans suffered, Blackstone profited three times: their backers and investment companies were directly responsible for the crash, some of those entities got government bailouts, then after everything crashed, they bought up property at rock-bottom prices.

It’s the exact strategy Schwarzman’s business partner outlined in 1987: “you move in opportunistically and make investments in distressed industries.” 

Blackstone was able to buy millions of dollars in cheap housing, which gave a jumpstart to their real estate business. 

Post-recession exploitation was just one big push in Blackstone’s journey towards becoming one of the biggest landlords in America. 

Today, they own nearly 300 billion dollars in real estate. 

Real estate accounts for nearly half of their earnings. Schwarzman called their profiteering on housing “the most remarkable results in our history on virtually every metric.”

But then another downturn: COVID. When the pandemic that killed nearly 7 million people drove down real estate, Blackstone scooped up billions of dollars worth of homes.

And now that eviction moratoriums are starting to lift, Blackstone is kicking tenants out of their homes. And they’re happy about it: the Financial Times reported that on a global call with Blackstone staffers, the head of real estate optimistically shared that they’re allowed to start evicting people again.

They even brag about how inflation lets them jack up rents, gleefully pointing out in this investor document that rent went up more than inflation. 

Blackstone makes money when the rest of us suffer. It’s by their own admission a huge part of their business strategy. 

And Schwarzman fights to keep as much wealth as possible. When the Obama administration almost started taxing people like Schwarzman fairly, he compared them to Nazis.

That’s why he donates so much money to the GOP: they protect his interests. Blackstone earnings reports even say that a Democratic government is bad for their business. 

Blackstone admits they need unfair taxation legislation to make as much money as they do, they write to investors, “If we were taxed as a corporation, our effective tax rate would increase significantly…. it would materially increase our tax liability, which would likely result in a reduction of the value of our common units.”

And meanwhile Schwarzman tries to launder his image by making big donations to some of America’s most iconic institutions, and slapping his name all over their buildings–like at the New York Public Library, Yale, Harvard, and more. 

But like so many like him, Schwarzman will continue to exploit tax law, exploit economic tax returns, and continue to get richer while the rest of us suffer. 

Effective legislation hitting Schwarzman’s main sources of income–like carried interest–would make it harder for his entire industry to profit off working Americans’ losses.

Off the Top of My Head

Is Private Equity Firm, Blackstone Group, Taking Over San Diego's Rental Market?

by John Lawrence

In a deal with the Conrad Prebys Foundation, Blackstone Group, CEO'd by Steven Schwarzman, is buying 5800 rental units in San Diego. According to the San Diego Union, "The deal makes Blackstone one of the biggest real estate holders in San Diego County. It already owns $4.5 billion in assets here — including Legoland and the Hotel del Coronado. The transaction, which also includes Los Angeles-based investment firm TruAmerica as a partner, is expected to close in the next few weeks. The sale of the apartments was praised by Dan Yates, the president of the Conrad Prebys Foundation, who said the portfolio was assembled by Conrad Prebys — a San Diego developer — himself. Yates said the money from the deal will be used for grants primarily in San Diego."

“Conrad Prebys was a sharp businessman who found true joy in the act of giving, and I believe he would be honored to see the result of his life’s work dedicated to continuing his philanthropic legacy,” Yates wrote in an email." Billionaire Conrad Prebys died in 2016 so it's very unlikely he "assembled the deal himself." But, even if he did, and the money will be used for philanthropic grants, Conrad Prebys has his name on half he buildings in San Diego already. It seems that billionaires can't get enough of charitable giving when it gets their names on buildings even though it will probably mean that relatively affordable rental units will become unaffordable after Blackstone Group "fixes them up" and raises the rent and that the true beneficiaries will be the investors in the Blackstone Group. It is to be noted that California sanctions on evictions, put in place during the pandemic, will expire this June 30.

San Diego real estate analyst Gary London said, “To my knowledge, this is the largest real estate transaction in San Diego County history.” So the process goes like this: the tenants in Blackstone's newly acquired rental units will be given 30 day notices to leave so that Blackstone can do badly needed renovations. This is all perfectly legal. There is no need to "evict" unless the tenants refuse to leave even after given proper notice. The Union article goes on,"All the apartments are market-rate but Blackstone says it plans to partner with nonprofit Pacific Housing to provide services for residents, including after-school tutoring, financial literacy classes, and health and wellness initiatives at no cost. It did not address it directly, but the move seems to counteract earlier concern with the foundation’s sale of these holdings." The key word here is "market-rate." This means that once Blackstone puts in its "improvements," they can charge whatever rent they can get even if it's 50% more than what tenants were previously paying. This is how the game is played, and this is why there are fewer and fewer affordable apartments in San Diego. Investors buy up apartments with affordable rents and convert them into apartments at "market-rate." Ironically, Blackstone intends to provide new tenants with "financial literacy classes." Presumably this would mean tutoring them to the advisability of investing in the Blackstone Group. And what were the "earlier concerns with the foundation’s sale of these holdings." Could it be that the newly converted "market-rate" apartments would reduce the stock of affordable rental units in San Diego?

The most pathetic aspect of this deal was this: "A letter was sent to the foundation in early February from San Diego Mayor Todd Gloria, San Diego County Supervisors chair Nathan Fletcher and California Senate President Pro Tem Toni Atkins to urge them to take into account future affordability of the apartments when considering a sale." I'm sure they'll do that even if it means their investors will take a slight hit to their profuts. Get real, politicians! Your letter is a fig leaf and is worse than useless. The letter went on: “A substantial number of these units are home to working individuals and families,” they wrote, “and are some of the limited inventory in the region of non-deed restricted, naturally occurring affordable housing options for San Diegans.” And the most egregious oxymoron of the letter: "non-deed restricted, naturally occurring affordable housing options." There is no such thing as "natyrally occurring affordable housing" at least not when private equity firms like Blackstone see a profit-making opportunity. The fact that they are "non-deed restricted" means that they are fair game. In any event affordable housing is in the eye of the beholder. It means absolutely nothing unless it is deed restricted or publicly owned.

The article concludes with: "The Conrad Prebys Foundation gave more than $71 million to 112 organizations across San Diego County in March to bolster the arts, health care, medical research, animal conservation, education, and the welfare of young people. The biggest grant — $15 million — went to the San Diego Symphony." Of course! The symphony will always profit as long as billionaires want their names on more buildings and symphony programs. Meanwhile working class tenants lose.

Tents Changed Everything About Homelessness. Will San Diego Acknowledge It?

As homelessness has emerged as the city’s most pressing problem, massive tent encampments have become its lasting signal. But the persistence of encampments even as we expand shelters offer a lesson, if we’re willing to listen.

by Scott Lewis March 14, 2022

Something happened 10-15 years ago to homelessness. I don’t know exactly what triggered it. But I remember walking through the Occupy San Diego protests – the tent encampments that sprang up at City Hall in 2011 demanding Wall Street accountability for the recession – and realizing many of the campers were not necessarily activists but homeless people who had come to live in what became a supportive village.  

After that, the tent – the personal tent, the nylon or polyester Coleman, Marmot or REI camping tent – came to define street homelessness across the country. It drastically changed the visibility and experience of street homelessness. 

Tents and homelessness are not a 21st Century combination. Tents and campers once filled the entirety of Mission Valley in the early 1940s as migrants from across the country clamored into San Diego to get the many jobs the defense industry created.  

But the tent encampments that sprang up in East Village, along the Navy Broadway Complex and throughout San Diego’s hundreds of canyon river beds, started to frame the conversation here differently. It was as if the unsheltered population were tired of two things: tired of hiding and tired of being cold.  

The tents privatized public rights of way and asserted homelessness into the public consciousness. 

They were a protest – a manifestation of our failure.  

The tents helped people create community and provide mutual aid. They created a sense of safety, privacy and even family life but also offered cover for crime and violence.  

Worse, though, are the concentrations of death and disease. An outbreak of the feces-borne hepatitis A led to suffering on such a scale in 2017 that it provoked city and regional leaders to take homelessness seriously in a way they had not, though the tent villages had expanded for several years. Now, even those most sympathetic to the tent encampments and the plight of their residents can’t deny the gruesome deaths they often host, whether it’s at the hands of murderers and traffickers or errant drivers who lose control of their vehicles.  More than 10 years on, we’re only now, barely, grappling with what the tents changed about homelessness. 

San Diego Mayor Todd Gloria said something recently about them that should provoke thousands of conversations and a wholesale rethinking of what we’re doing about this crisis.  

In an op-ed in the San Diego Union-Tribune March 28 about the homeless crisis plan he is pursuing, Gloria acknowledged the reality the tents have created: 

“One of the central challenges we face is that many of the folks camping on our sidewalks or in canyons don’t want to live in a congregate setting – which most of our shelters are – so they refuse offers of beds in these facilities,” he wrote.  

The city, right now, has 1,468 beds under contract in congregate or shared settings.  

People who have been working on homeless outreach and services have known that many people prefer their personal tents to congregate shelters for many years. There’s nothing particularly insightful about the mayor’s claim, except that he said it. And if he believes it, and he should, then it has enormous implications far beyond the city of San Diego. If others agree, we need to rethink how we are deploying millions of dollars meant to address the problem and how we are talking to people on the street.  

It’s like a taboo has finally been broken. People who are living in tent encampments don’t want to move to shelters. The data is overwhelming. Every time the city sweeps out a huge encampment, the vast majority of people outreach workers offer shelter to refuse. Why? Not because they want to remain homeless necessarily. But because their personal tents offer them dignity, privacy and enough shelter to survive.  

The congregate shelters, by contrast, can often be dystopic, dangerous and restrictive. Their incompatibility with healthy living became obvious, again, when disease struck. The very first thing former Mayor Kevin Faulconer realized as COVID-19 began spreading in the United States was that he needed to clear the congregate shelters. A bunch of people jammed into a poorly ventilated setting would have been ideal for the spread of the disease.  

COVID left homeless residents even less interested in those options as alternatives to their own camps.  

“If the environment they are coming into isn’t safe, clean or comfortable, what makes that different than being on the street?” said Hanan Scrapper, the regional director at People Assisting The Homeless, the city’s primary partner in many homeless outreach and assistance efforts. “When we do traditional shelters and response efforts, we’re not always thinking about dignity.” 

It turns out, unhoused residents are a lot like people who have homes. They want privacy. They want, though, to be close to community. They like pets. They like being together with loved ones. And yes, some of them like to do drugs or drink. All of these things, however, can be restricted or difficult in a congregate setting.  

So what are we even doing? Just last month, County Supervisor Nathan Fletcher announced the county was going to help prop up a new mega-tent shelter for 150 people in the Midway area. The mayor is supportive. But if the mayor agrees that congregate settings can’t compete with the tent encampments, why are we still supporting them? I asked his team.  

“Our goal on shelters is not to create the ideal situation but to put them in position to access services to become part of the system that ultimately leads them to housing and to get them off the street. It is not safe on the street,” said Rachel Laing, the mayor’s spokeswoman.  

But, the mayor himself said that’s not working? 

“Well, that’s where enforcement comes in. If we have enough beds, we are allowed to compel people to move,” she said.  

Now we are getting somewhere. We’re saying the quiet parts more loudly now. The congregate shelters, while helping some, provide a tool to the city. In a world where the personal tents changed everything and the widespread adoption of recreational camping gear by the homeless made life just comfortable enough, with just enough dignity, the large shelters allow the city to make homeless residents uncomfortable again.  

That’s what the mayor has decided to do. The tents make sense to some, he wrote.  

“But we simply can’t be a city that lets people set up camp wherever they please. It’s unsafe, it’s unsanitary and it speaks poorly of us all if we do nothing to address the destitution and despair,” he wrote.  

He’s also right about this but merely uprooting encampments sets off an endless cycle of uprooting and re-rooting. The people don’t disappear, they just regroup. The process is hard on the people on the streets, hard on the police who have to carry it out and if the ongoing presence of so much human suffering on our streets is itself a form of violence that traumatizes all who have to move through it, then the approach ensures the most people possible experience it.  

It may be worth, instead, rethinking this paradox. Sometimes when you are fighting something, you have to channel its energy rather than keep trying to destroy it. The personal tents are not good. But they represent a human desire to take care of oneself and to build community. The tents reveal not a desire to be on the street but a very human desire to build a home.  

There’s no reason our unsheltered population would not continue to do that on their own if given the space.  

“From our experience, what we’ve seen is when clients come into a clean, well-kept environment with good food and healthy culture, they try to take care of it. They see people care for them and it gives them hope,” said Scrapper.  

They want to build homes and yet we are spending so much of our resources and energy on trying to tear them down and force them into our system.  

It would be one thing if it were working but it’s not. Despite a mobilization of city, county and state resources, it is getting worse. More people are suffering. More are dying. More are living in filth. 

It’s no coincidence that our already extraordinary cost of living is skyrocketing just as the problem deepens. Homelessness is the lowest rung on the housing ladder. In place of cheap housing, they’re putting up personal tents.  

The mayor doesn’t want to accommodate them in a safe camping village, Laing says, because the city and providers cannot afford the support personnel needed to keep it safe. But he has also proven incapable of winning the war on the tents in the streets. 

If you’re losing a war and wasting money fighting it, it may be time to rethink it.  

The people on the streets are telling us they want space to set up their own lives. 

Whatever dollars we spend forcing them to consider our approach instead may be better spent keeping them safe and clean as they pursue their own.

Off the Top of My Head

The Three Principles of Conservative Government and Free Market Capitalism

by John Lawrence, May 11, 2020

1) Ronald Reagan said the 9 most feared words in the English language are "I'm from the government and I'm here to help."

2) Grover Norquist said, "My goal is to cut government ... down to the size where we can drown it in the bathtub."

3) We're not all in this together. There are no meaningful public solutions, only private solutions.

4) There is no such thing as "public health" or public anything else. Everything should be privatized including police, fire, ambulance services and health care. There is only private health, not public health. That's why Trump tried to slash funding for the Center for Disease Control and Prevention (CDC).

The latest problem is that there is not enough Remdesivir to go around. Therefore, it has to be rationed. Well who decides how many units go to each hospital and which patients get Remdesivir? Using the above conservative, free market principles, the obvious answer is to let patients bid on Remdesivir with the units going to the highest bidder. That's the free market, capitalist solution to the problem. If the patient is intubated and can't do the bidding themselves, they could have a proxy like a family member bid for them. The problem is totally solved because, according to free market principles, the Remdesivir will go to the highest bidder.

Evidently, the only country that really understands free market capitalism is China. China manufactures all the PPE and test kits. So it set up a bidding war for US states and municipalities so that they all had to bid against each other for the necessary supplies to deal with the coronavirus. US conservatives should be proud that they have exported their ideas around the world so successfully especially to the world's largest Communist nation where free market principles seem to have prevailed.

It was China who partnered with the US to solve the inflation problem during Ronald Reagan's administration. The 1970s were an era of high inflation. Paul Volcker, Chairman of the Federal Reserve, had struggled mightily to get inflation down to a reasonable level during the Carter administration. Finally, during the Reagan administration inflation was finally gotten under control. There was a two part strategy. Reagan broke the union movement by firing all the air traffic controllers in 1981. It was the beginning of the end for the union movement. Since unions essentially vanished, so did wage inflation. The next thing was that laws were changed making it possible for US corporations to export most manufacturing jobs to China. The imported products were much cheaper than products "Made in America." Therefore, price inflation was solved. Cheap products and ineffectual unions allowed to US to get inflation finally under control where it has been ever since thanks to Volcker, Reagan and China.

The only problem is that inflation with regard to asset prices did not go down. Real estate, and therefore, rents continued to go up, but they don't count in the inflation index so while Americans are treated to cheap products imported from China, you can't import real estate from China, so these prices continue to skyrocket. Hence you have a growing homeless problem which is only exacerbated by the coronavirus pandemic. Another asset, the stock market, also continues to inflate wildly beyond where any price to earnings ratio would indicate it should be. In fact it is totally detached from any economic reality as it remains high despite the fact that the economy is in shambles.

Conservatives can rest comfortably, however, in the knowledge that China has finally adopted free market capitalist principles at least in regard to the prices it charges the US for PPE and test kits. That's why there are few of them available. As conservatives have taught them and us, the most important principle of all is profit. Profiting from a pandemic is just par for the course for capitalism. Remember, drown government in a bathtub, blah, blah, blah. We're not all in this together.

Calling Economic Crisis 'Five-Alarm Fire' for Millions of Families, 600,000 Sign Petition Demanding Rent and Mortgage Cancellation

Published on Wednesday, April 29, 2020

by Common Dreams

"Congress needs to act at the scale of the crisis, and they should start by canceling rent, mortgage, and utility payments for the duration."

by Julia Conley, staff writer

 

11 Comments

Protesters supporting the rent freeze circle City Hall during the coronavirus pandemic on April 23, 2020 in Los Angeles, California. (Photo: Tommaso Boddi/Getty Images)

As families across the U.S. struggle to pay for necessities during the coronavirus pandemic and the corresponding economic shutdown, an intensifying call is being directed at Congress to cancel rent, mortgage, and utility payments—in tandem with a full moratorium on evictions and shutoffs—until the crisis is over.

As part of that movement, the parent-led group ParentsTogether Action presented 600,000 petition signatures it had gathered after conducting a survey of 1,200 families across the country about their financial wellbeing since the coronavirus began spreading across the U.S. over the last two months, forcing millions of businesses to close and lay off or furlough workers.

About half of the families surveyed said they won't be able to pay their rent, mortgage, or utility bills on May 1 without cutting back on other essentials such as groceries, while 43% percent of the respondents said they also expected to be unable to pay in June.

"This economic crisis is a five-alarm fire and our government is just letting it burn. Millions of families can't afford rent or other basic necessities," said Justin Ruben, co-director of ParentsTogether. "They are begging for relief that, for many, just isn't coming. Congress needs to act at the scale of the crisis, and they should start by canceling rent, mortgage, and utility payments for the duration."

Many households are still anxiously awaiting the arrival of unemployment benefits and the $1,200 one-time payment the federal government is sending to many Americans. But 60% of those surveyed said they had yet to receive either, and more than a quarter said they had already spent their stimulus check.

On social media, ParentsTogether posted a video showing several parents describing their struggles amid the public health and economic crisis.

No family should be worried about losing their home during a pandemic. Congress should #CancelRent! pic.twitter.com/V5RuBPEEHV

— ParentsTogether Action (@ptogetheraction) April 29, 2020

One woman at risk for severe illness or death if she contracts Covid-19 said her husband had to stop working at his essential job to avoid exposing her. 

"He's not working, therefore that means either no bills or no rent, no food, and no medication," she said.

"Right now I am unable to return to work because I have to take care of my daughter," another said. "We need the elected people out there to understand that this crisis is really taking a toll on our family."

Local officials across the country have urged for a rent cancellation, while at the federal level Rep. Ilhan Omar (D-Minn.) introduced legislation to cancel rent and mortgage payments during the crisis. The bill has been endorsed by several national economic justice groups and is co-sponsored by progressive lawmakers including Reps. Alexandria Ocasio-Cortez (D-N.Y.), Pramila Jayapal (D-Wash.), and Jesus "Chuy" Garcia (D-Ill.).

No family should be worried about losing their home during a pandemic. Congress should #CancelRent! pic.twitter.com/V5RuBPEEHV

— ParentsTogether Action (@ptogetheraction) April 29, 2020

In a video posted to social media, Ocasio-Cortez expanded on how rent and mortgage payments could be suspended temporarily during the crisis.

Rep. @AOC: "Here's the path to canceling rent -- we're going to lay it out right here.

WATCH: @RepAOC lays out a method by which rent and mortgages can be suspended to help both renters and mom and pop landlords. pic.twitter.com/2mzG593PmD

— The Hill (@thehill) April 28, 2020

"When you think about how this is structured, it's not hard," the congresswoman said. "Let's say we want to start with three months. Suspend mortgage payments for three months, tack that on to the end of the repayment period. So let's say you have a ten-year mortgage, just suspend it three months and make it a ten-year and three-month mortgage."

ParentsTogether said their polling shows that the coronavirus relief passed by Congress so far "isn't reaching the people who need it most."

"Representative Ilhan Omar has responded by introducing legislation that would cancel rents and home mortgage payments nationwide," Ruben said. "It's time other members of Congress join her in bringing tangible relief to the millions unable to pay their bills."

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Off the Top of My Head

The Rent is Too Damn High!

by John Lawrence

It's the reason so many people are living on the street or in their vehicles. Rent control's time has arrived, my friends. Right now in San Diego and most cities in California, a landlord can double the rent overnight. There is no rent control. That is about to change, at least in Los Angeles where a rent control law is going into effect. The scenario is very simple. Wealthy investors and hedge funds are moving into the real estate business. They identify marginal properties on the periphery of good neighborhoods, then move in, buy them up, rebuild or renovate and upgrade or upscale the area. They then can double the rent having converted cheap real estate into more expensive real estate. This process upscales and upgrades marginal neighborhoods, but outprices tenants who were already living there.

The New Republic reports:

If you’ve signed a lease in the past year, there’s a good chance your landlord wears a tailored suit and works on Wall Street. One of the hottest trends in the financial sector is known as “REO-to-rental.” Over the past couple years, hedge funds, private equity firms and the biggest banks have raised massive amounts of capital to buy distressed or foreclosed single-family homes, often in bulk, at bargain prices. Their strategy is to convert them to rental units for a while before reselling them when prices appreciate. The Wall Street firms are scooping up properties in the hardest-hit areas, promising high returns for the rental revenue streams—up to 10 percent annually —and starting bidding wars that have driven up some prices well above national averages. It’s the next Wall Street gold rush, with all the warning signs of a renewed speculative bubble.

Since hedge funds have unlimited monies available to them - they can borrow money at 0% interest -, they can pay premium prices for distressed and marginal properties, then tear down a one family home and build 16 apartment units on the same property. This process has been going on for years but now it's at an accelerating rate. There is a snowball effect: the more a neighborhood gentrifies, the higher property values become, the higher rents become. So renters are being priced out of the market. Single room occupancy hotels, the last resort of the poor, are being converted to regular hotels and other more expensive rentals. In San Diego there is much soul searching and hand wringing over the closure of one of the last SRO hotels. Voice of San Diego reported:

City housing officials are rushing to aid dozens of residents who will soon be booted from the downtown Plaza Hotel, the latest historic single-room occupancy hotel set to shut down in anticipation of a redevelopment project.

For the first time, the Housing Commission board earlier this month voted to sink up to $500,000 into relocation assistance for low-income San Diegans who must move out within weeks – a move that a top official there described as “the right thing to do” amid a regionwide affordable-housing shortage.

Despite that assistance, the closure follows a familiar pattern: Low-income San Diegans paying meager rents – in this case, $635 to 780 a month – will be left to find new homes as their small units are demolished or converted into more lucrative hotel rooms or apartments.

Many of the people kicked out of these SRO hotels will inevitably end up on the streets. Rents will skyrocket as a city loses its cheap neighborhoods and the city's neighborhoods gentrify. At least in Los Angeles they have temporary rent control.

The Los Angeles County Board of Supervisors voted 4 to 1 recently to extend—and expand—an ordinance that bars landlords from raising rents more than 3 percent in most apartments built prior to 1995.

Originally set to expire on June 18, the measures will now remain in effect until December 31. That gives county officials more time to flesh out a permanent ordinance, and Supervisor Sheila Kuehl said it would continue to help “prevent people from slipping into homelessness.”

A provision that requires landlords to have “just cause” before evicting tenants was also expanded to cover all rental units in unincorporated Los Angeles, including single-family homes. That primarily means that tenants can’t be booted unless they have not paid rent or have violated the terms of their lease.

It seems that rent control is an idea whose time has come. Without it rents will continue to skyrocket due to the hedge fund money coming into the market and the aggressive stance that these entities are taking in tearing down marginal housing and replacing it with higher priced units.

Off the Top of My Head

The American Dream of Owning Your Own Home is Fast Fading

by John Lawrence, April 26, 2019

Single family homes are being bought up by hedge funds while young people entering the housing market have too much in student loan and credit card debt to afford to buy one. So they are in the position of renting from a hedge fund most of which are ruthlessly and relentlessly raising rents through the roof. Few if any college graduates these days will ever own their own homes unless they go into the FIRE sector of the economy: that's finance, insurance or real estate. The financialization of the economy has left little room for anyone else except celebrity athletes and movie stars to own real estate.

Sovereignman writes:

Single-family homes were one of the last bastions of investment freedom for the little guy.

Last week a huge merger was announced between Invitation Homes (owned by private equity giant Blackstone Group) and Starwood Waypoint Homes (owned by real estate giant Starwood Capital).

If the deal goes through, the combined entity would be the largest owner of single-family homes in the United States with a portfolio worth over $20 billion.

And this is only the latest merger in an ongoing trend.

Three years ago, for example, American Homes 4 Rent bought Beazer Pre-Owned Rental Homes, creating another enormous player. A few months later, Starwood Waypoint bought Colony American Homes.

And of course, Blackstone was one of the first institutional investors to start buying distressed homes, forking over around $10 billion on houses since the Great Financial Crisis.

At one point, Blackstone was reportedly spending $150 million a week on houses.

So is it any wonder that the middle class is disappearing? US Census Bureau statistics show that over the last decade there have been an increasing number of rental households and a decresing number of households which own their own homes. Sure we're approaching full employment, but most of the new jobs being created are for waitresses and bartenders. Wages are totally stagnant. They have about the same purchasing power as they did 40 years ago. Most wage gains have gone to the top tier of wage earners. Since 2000, usual weekly wages have risen 3% (in real terms) among workers in the lowest tenth of the earnings distribution and 4.3% among the lowest quarter. But among people in the top tenth of the distribution, real wages have risen a cumulative 15.7%, to $2,112 a week – nearly five times the usual weekly earnings of the bottom tenth ($426).

So it's clear what's happening. Foreclosed on homes and distressed properties are being scooped up by the likes of Blackstone Group. Or in other words - Wall Street. The very financial firms that caused the 2008 financial crisis which caused many people to lose their homes to foreclosure are now buying up those homes and turning them into rental properties. Then they raise the rent. Home prices and rental prices are increasing by the day. Those lucky enough to own their own homes are prospering. Everyone else is faced with the situation of paying higher and higher rents. The money being poured into the economy by the Federal Reserve, which goes mostly to the rich like those operating hedge funds, raises asset prices across the board. This does not help the average wage earner who is having his rent go up or is trying to buy his first home.

Off the Top of My Head

Mass Evictions in Long Beach so Investors Can Double the Rent

by John Lawrence

A recent LA Times article elucidated how investors are buying up old apartment buildings in Long Beach, evicting current tenants, doing some refurbishing and then doubling the rent for new tenants. These older units had been renting for about $800. a month. There are seniors living there on fixed incomes who can barely pay $800. Nevertheless, it's an investment opportunity for investors in a white hot California housing market. Rents are skyrocketing, and tenants can easily be removed with a 60 day notice because there's no rent control in Long Beach.

The article continues:

Life at The Driftwood apartments was far from perfect. Tenants said the plumbing was prone to leaks and once in a while a cockroach might scamper through the kitchen.

But rent, at $800 or less a month, was doable. And the cream-colored building on Pacific Avenue in Long Beach held special memories.

But in January 2017 the last of those owners died and soon after a commercial brokerage posted an online advertisement: “CBRE is pleased to present The Driftwood Apartments, a 13-unit building located in non-rent control Long Beach.”

The ad said it was a “unique” investment opportunity with rents about 30% below market — the clear implication there was plenty of room to hike.

Orange County investors purchased the property in May 2017, and in January, a firm they hired, Beach Front Property Management, told all residents they had 60 days to leave.

A week later, Beach Front followed with the same notices at another property just two blocks away, and the clock started ticking on what advocates say is an increasingly common crisis for California renters: a mass eviction.

Driven by a white-hot real estate market, investors are snatching up older apartment buildings and clearing out tenants to renovate units and re-market them at sometimes double the rent. Other times, buildings are leveled to build pricier apartments or condos.

Displaced residents must find more expensive lodgings — if they can.

For the dozens of people living at The Driftwood and the unnamed 26-unit complex on Cedar Avenue, the drama played out over the next six months in scenes of quiet desperation and public pleas.
Sources: Nextzen, OpenStreetMap

Emotions of the residents — who include seniors on Social Security, blue-collar workers and college students — could swing from helplessness to anger in the course of a day.

I’Esha Caldwell, 35, who works as an account manager and hair extension specialist, said her blood pressure skyrocketed when she discovered the eviction notice on her door.

Neighbor Victor Chacon, 81, and his wife Marlene, 69, who live on fixed incomes, say they can’t sleep and Victor’s heart problems have worsened.

For Harvey and her daughter, the notice tipped a precarious existence into acute crisis. The 58-year-old cancer survivor struggles with the effects of a stroke, lung disease, diabetes and chronic back pain. Unable to work, she sometimes uses a walker and relies on disability payments of about $911 a month. That makes it a constant challenge to pay the monthly $750 for a one-bedroom with worn brown carpet that smells of their two dogs.

Chadwick has tried to help. But the recent high school graduate said applications for retail jobs turned into dead ends.

Finding another home after their 19 years at The Driftwood looked impossible: In early June, Zillow advertised only three non-subsidized rentals in all of L.A. County for less than $800 — all studios or single rooms.

“We are going to be homeless,” Harvey said, tearing up as she sat on the stairs leading to her apartment.

This is exactly why homelessness is skyrocketing in California. Rents have become unreasonably high. People just can't afford them, and homelessness is the only alternative. For people living paycheck to paycheck it is impossible to come up with first and last month rent plus security deposit when they are forced out of their current rental situation. Rent control in any meaningful way is probably not going to happen. Even if it did, a whole lot of people would not be able to afford the initial rent even if it did not go up.

The only solution is government supported housing or public housing, but politicians and taxpayers are loathe to set aside any money for that unless it's a tourist town and the amount of homelessness starts to overwhelm the tourists. Then business interests might do something. Maybe it will be a coalition of businessmen and billionaires that will solve the problem. In the meantime people are forced out onto the streets or are trying to live in their cars despite city ordinances against that.

San Diego Vacation Rentals Take a Hit

From Voice of San Diego:

Councilwoman Barbara Bry at the San Diego City Council meeting July 16. / Photo by Adriana Heldiz

In a dramatic shift, the San Diego City Council voted 6-3 Monday to allow only residents who live in homes in San Diego to rent them out to visitors up to six months every year. Councilmen David Alvarez, Chris Cate and Scott Sherman voted no.

It was a huge win for Councilwoman Barbara Bry, who first proposed a framework like this last year but got very little support from colleagues, besides Councilwoman Lorie Zapf. The tide changed with Councilman Chris Ward’s decision last week to switch his long-held more liberal position on the matter. Ward recommended that residents with accessory dwelling units, aka granny flats, should also be able to rent those out.

That will have to come up later.

The Council rejected a carve-out for Mission Beach. And existing Mission Beach vacation rentals were not grandfathered in.

The Council decisively rejected Mayor Kevin Faulconer’s proposal that people be allowed to rent out their own place plus one other. Faulconer had also proposed the Mission Beach carve-out. The policy vastly changes what someone has to go through to rent out a home they own to visitors. Unless they find a loophole, it will eliminate all vacation rentals owned as second homes or investment properties.

City Attorney Mara Elliott cheered the move in a tweet. “Congratulations to the mayor and City Council for stepping up to regulate short term vacation rentals, an issue that dragged on 11 years.”

But it Depends on Enforcement …

Councilman Chris Cate said, in a written statement, a compromise would have provided resources to regulate the industry.

“Instead, the Council chose a path that is not only unenforceable and subject to legal challenge, but would drive the activity underground, resulting in the loss in millions of dollars in revenue that funds public safety officers and the repairing of city streets,” he wrote.

The mayor was optimistic: “As I’ve said repeatedly, the most important thing is that we have an established set of rules that protects neighborhood quality of life through increased oversight and enforcement.”

The losers: HomeAway, one of the platforms people use to rent out to visitors, said in a written statement it was “extremely disappointed” and hinted it may consider legal action.

Former City Attorney Jan Goldsmith, who was hired by vacation rental advocates to review the proposed regulations, argued Monday the city could face a fight in court over its decision to treat people with second homes in San Diego differently than those who spend more of the year here. The Constitution requires that all people be treated the same. Elliott had previously raised similar concerns and recently reiterated some of them.

Deputy City Attorney Shannon Thomas has said the City Council can apply different regulations to people but it must describe a legitimate purpose for doing so.

Last hurdle: The new vacation rental rules could face another major roadblock too. The California Coastal Commission, which has rejected multiple cities’ regulations, could take issue with a measure that significantly curtails rentals along the coast.

In 83 Million Eviction Records, a Sweeping and Intimate New Look at Housing in America

From the New York Times:

by EMILY BADGER and QUOCTRUNG BUI, APRIL 7, 2018

The heat in Whitney Gulley’s apartment does not work well, so on cold days she leaves the oven on. Matt Eich for The New York Times

RICHMOND, Va. — Before the first hearings on the morning docket, the line starts to clog the lobby of the John Marshall Courthouse. No cellphones are allowed inside, but many of the people who’ve been summoned don’t learn that until they arrive. “Put it in your car,” the sheriff’s deputies suggest at the metal detector. That advice is no help to renters who have come by bus. To make it inside, some tuck their phones in the bushes nearby.

This courthouse handles every eviction in Richmond, a city with one of the highest eviction rates in the country, according to new data covering dozens of states and compiled by a team led by the Princeton sociologist Matthew Desmond.

Two years ago, Mr. Desmond turned eviction into a national topic of conversation with “Evicted,” a book that chronicled how poor families who lost their homes in Milwaukee sank ever deeper into poverty. It became a favorite among civic groups and on college campuses, some here in Richmond. Bill Gates and former President Obama named it among the best books they had read in 2017, and it was awarded a Pulitzer Prize.

But for all the attention the problem began to draw, even Mr. Desmond could not say how widespread it was. Surveys of renters have tried to gauge displacement, but there is no government data tracking all eviction cases in America. Now that Mr. Desmond has been mining court records across the country to build a database of millions of evictions, it’s clear even in his incomplete national picture that they are more rampant in many places than what he saw in Milwaukee.

Mr. Desmond’s team found records for nearly 900,000 eviction judgments in 2016, meaning landlords were given the legal right to remove at least one in 50 renter households in the communities covered by this data. That figure was one in 25 in Milwaukee and one in nine in Richmond. And one in five renter households in Richmond were threatened with eviction in 2016. Their landlords began legal proceedings, even if those cases didn’t end with a lasting mark on a tenant’s record.

For landlords, these numbers represent a financial drain of unpaid rent; for tenants, a looming risk of losing their homes.

In Richmond, most of those evicted never made it to a courtroom. They didn’t appear because the process seemed inscrutable, or because they didn’t have lawyers to navigate it, or because they believed there is not much to say when you simply don’t have the money. The median amount owed was $686.

Inside the courtroom, cases sometimes brought in bulk by property managers are settled in minutes when defendants aren’t present.

“The whole system works on default judgments and people not showing up,” said Martin Wegbreit, director of litigation at the Central Virginia Legal Aid Society. “Imagine if every person asked for a trial. The system would bog down in a couple of months.”

The consequences of what happens here then spread across the city. The Richmond public school system reroutes buses to follow children from apartments to homeless shelters to pay-by-the-week motels. City social workers coach residents on how to fill out job applications when they have no answer for the address line. Families lose their food stamps and Medicaid benefits when they lose the permanent addresses where renewal notices are sent.

The Fed Says There's No Inflation

by John Lawrence

Then Why Are Housing Prices and Rents Going Up 10% Per Year

The San Diego Union reports on July 26, Section C, that the median home price in San Diego County increased 9.8% in the last year to $543,500. And yet the Consumer Price Index did not reflect this? Why? Simple answer. Home prices are not considered in the CPI. But rents are, and rents have gone through the roof. Asset inflation like real estate and the stock market which are both bubbles at this point are not considered. So why hasn't the astronomical increase in rents, which has exacerbated the homeless and affordable housing problems, not indicated to the Fed that there is indeed inflation going on? Maybe because the huge coastal rent increases in California are balanced out by lower rents and housing prices inland. Could be.

The Fed keeping interest rates low does not mean that consumers are getting a break. It means that banks are being charged low interest rates while at the same time they are bilking consumers and making a healthy profit off of the spread. It also means that interest on the national debt which is ginormous is less than what it would be if interest rates set by the Fed go up. It also means that seniors on social security will not get a cost of living increase because consumer prices supposedly have not gone up.

So banks and hedge funds, many of them associated with banks, can borrow money at essentially zero interest while at the same time paying no interest on savings accounts, but charging huge interest rates on credit cards and student loans. The Fed keeping interest rates low has little if any benefit to the average consumer while at the same time savers, who are mostly seniors, get nothing on their savings accounts.