This story was originally published by ProPublica.
Amid a national housing crisis, giant private equity firms have been buying up apartment buildings en masse to squeeze them for profit, with the help of government-backed Freddie Mac.
Daniel Cooper could barely afford a tiny apartment at the 13-story Olume building in downtown San Francisco. But the expansive view from the roof deck captivated him.
Raised in a small city in Kentucky, Cooper was struck by the grandeur of the skyline before him, from the soaring heights of Salesforce tower, San Francisco’s largest skyscraper, to the gleaming gold cupolas atop St. Joseph’s Church, one of the city’s historic landmarks.
The sense of opportunity he felt when looking out on his new hometown helped convince the software engineer to become one of the glassy new building’s first tenants in 2016. He joined Mévis Mousbé, a driver for a ride-sharing service who had been the first to move in. She admired the high ceilings in her new junior studio on the sixth floor, which she shared with her Shih Tzu, Roxie-Jolie. A few months later, “Specs” Titus, an entrepreneur whose eyeglasses inspired her nickname, settled happily into a corner unit on the eighth floor with her daughter. She’d won it in a lottery for apartments with below-market rents.
But prospective tenants weren’t the only ones eyeing the new apartment building, with its 121 units, gym and rooftop fire pits.
In July 2017, Cooper received an email announcing that Greystar, the property management and real estate investment behemoth, was taking over the building. The private equity-backed firm was buying the Olume’s owner, Monogram Residential Trust, and its investments in four dozen properties
scattered across 10 states. Cooper worried his new community was about to change.
As Greystar took charge, his alarm grew. Rents soared. Trash collected in the hallways and on the rooftop deck, Cooper said. The security guard showed up less often. One tenant said she was frightened when she encountered a large, seemingly drunk man she didn’t know dancing in a leotard and tutu in the parking garage. Another renter described having to heat her bathwater on the stove after she woke several times to find only cold water flowing from her tap.
“I understand that rent goes up, cost of living goes up, everything goes up,” Cooper said. “But with that, we would expect the quality of the building, and the quality of the management, would stay the same, and that was not what we saw.”
Greystar did not respond to questions about tenant complaints, except to say that resident satisfaction was “very important” to the company.
Cooper and his fellow tenants were experiencing firsthand the effects of a dramatic, though mostly unnoticed, shift in control of a vital portion of America’s housing stock, according to a first-of-its-kind analysis by ProPublica.
During the past decade, private equity-backed firms such as Greystar have stormed into the multifamily apartment market, snapping up rentals by the thousands and becoming major landlords in American cities, according to ProPublica’s analysis of National Multifamily Housing Council data on the nation’s biggest owners of apartment buildings with five or more units.
Private equity is now the dominant form of financial backing among the 35 largest owners of multifamily buildings, the analysis showed. In 2011, about a third of the apartment units held by the top owners were backed by private equity. A decade later, half of them were.
Private equity-backed firms in the top 35 cumulatively held roughly a million apartments last year, the analysis showed. That is likely an undercount, because private equity giants like Blackstone, Lone Star Funds and others don’t participate in the National Multifamily Housing Council’s annual survey.
Private equity firms often act like a corporate version of a house flipper: They seek deals on apartment buildings, slash costs or hike rents to boost income, then unload the buildings at a higher price.
The influx of private equity comes during a national affordable housing crisis and has dire consequences, tenants and their advocates say. Such firms use economies of scale to more aggressively squeeze profits from their buildings than traditional landlords usually do, tenant advocates say. The firms’ tactics can include sharply increasing rent or fees and neglecting upkeep. Sometimes landlords force out existing tenants and replace them with those who can pay more. Continue Reading