For some on Wall Street, the financial crash of 2008 represented a once-in-a-lifetime opportunity. Homeowners who’d been walloped by the very crisis Wall Street had created were struggling to pay their mortgages, so financiers swooped in and bought up foreclosed homes, knowing the assets would eventually rise in price again.
But with so many people foreclosed on and out of work, selling the homes was difficult, so Wall Street hit on a different approach: renting them out. Now, the biggest practitioner of this gambit is spending heavily to make sure it stays lucrative.
Blackstone Group, a private equity giant that is also now the world’s largest real estate management firm, has pumped in $6,859,747 so far to battle a ballot measure in California that would allow cities to re-establish rent control laws, including on single-family homes. That figure constitutes $1 out of every $7 supporting the “No on Prop 10” campaign and is part of a $45.5 million assault, mostly from corporate landlords and property developers, on the right of cities to determine their own rental laws.
Currently, cities in California are banned from pursuing rent control for apartments built after 1995 and for all single-family home rentals, of which there are 2 million in the state. Blackstone has a portfolio of over 12,700 single-family rentals in California, and if it helps defeat Prop 10, the firm can continue to jack up rents to an unlimited degree.
“If rent control on these properties really made housing more expensive, Wall Street landlords would love it, but Prop 10 specifically targets them by repealing the loophole that they rely on to extract profit from working-class people,” said Arielle Sallai, a member of the Los Angeles chapter of the Democratic Socialists of America, one of hundreds of groups trying to pass the initiative amid opposition from the likes of Blackstone.
To put the nearly $7 million investment into perspective, Blackstone CEO Stephen Schwarzman earned $786 million by himself in 2017. Though Wall Streeters have begun to swing their donations toward Democrats in 2018, Schwarzman has put millions into Republican campaigns and was a key adviser to President Donald Trump, chairing his CEO policy council until it was disbanded after the 2017 white supremacist rally in Charlottesville, Virginia.
Schwarzman’s company has bet big on real estate: It currently possesses $119 billion in assets, and a new fund is expected to generate another $18 billion in capital for more purchases. Blackstone has spent around $10 billion for its single-family home portfolio, “in a classic case of disaster capitalism,” according to Steve Ducey of DSA’s Los Angeles chapter.
Blackstone’s donations to fight rent control have come in waves. There are two primary accounts for the “No on Prop 10” campaign: Californians for Responsible Housing and No on Prop 10 – A Flawed Initiative. Blackstone began with a $250,000 donation to Californians for Responsible Housing on May 2, before the measure even qualified for the November ballot. On July 9, Invitation Homes — Blackstone’s residential property management subsidiary and, after a merger with Starwood Waypoint Homes, the industry leader in single-family rentals — gave $642,200 to the opposition effort.
On August 31, Blackstone dropped $325,499 into the Californians for Responsible Housing account and $2,999,998 into the Flawed Initiative account. Invitation Homes gave another $642,050 to Californians for Responsible Housing on October 3, and Blackstone closed out the contributions — for now — with $2 million to Flawed Initiative on October 5.
In all, Blackstone has donated $5,575,497 in its own name and $1,284,250 via Invitation Homes, for a total of $6,859,747, according to figures from the California secretary of state’s office. That comes to 15.09 percent of the “No” campaign’s total receipts in those two main accounts, and more than half of the $13.3 million that the “Yes on Prop 10” campaign has been able to raise in its two separate accounts.
This map of single-family rental properties in Southern California explains why Blackstone is making such an investment to block rent control. They have spent around $540 per California property on the “No on Prop 10” effort — a piddling amount to maintain the right to increase monthly rents by unlimited amounts.
“This is just another case of capitalism not only failing to provide shelter, a basic human need, but profiting off human suffering on a massive scale,” said Ducey. “With their donations to the ‘No on 10′ campaign, they are using tenants’ own money against them to ensure they can continue to gouge struggling families at will.”
Former tenants of Invitation Homes properties have complained for years about substandard conditions in the properties, like black mold, raw sewage, and swarms of giant spiders. Because the company targets and saturates specific neighborhoods, it can keep homes in bad condition and steadily increase rents, with tenants lacking alternative rentals.
“While we are operating as if this is a pre-foreclosure rental market, the Wall Street landlords found EVERY loophole in our system — a system that previously had laws in place that kept the power in check between landlords and tenants,” wrote Dana Chisholm, a former Invitation Homes renter in La Mirada, California.
Chisholm, a Trump-supporting conservative, says her Invitation Homes rental had rats and roaches, an air conditioning unit that was too small to cool the house, and a pool that leaked water, with the water bill paid by the tenant. “There are NO REMEDIES to fight your landlord because the landlord has more money than god!” Chisholm said. “So they can out wait you, out frustrate you, out threaten you with homelessness and ruined credit and an eviction on your record and sit pretty driving their Teslas living in one of their mansions.”
She has organized to help other Invitation Homes tenants and initiated a class-action lawsuit against Invitation Homes for “stacking” fees. The suit alleges that the company charges $95 if the rent is one minute late, and maintains an online payment portal that frequently goes offline, leading to those late payments and triggering more penalties and fees. The lawsuit is one of several around the country accusing Invitation Homes of imposing excessive fees, carrying out illegal evictions, and being slow to make repairs.
In a statement, an Invitation Homes spokesperson said they are “proud to provide quality, affordable housing choices for our residents in California and around the country.” The spokesperson referred to $2 billion in upfront renovations on the properties, adding, “Those investments play an important role in stabilizing local housing markets and supporting economic growth and job creation in California communities.” They also cited high renewal rates and self-generated resident survey scores of 4.3 out of five stars.
Prop 10 would repeal the Costa-Hawkins Act, a 1995 state law that blocked cities and counties from establishing new rent control laws. Costa-Hawkins also incentivizes evictions, allowing landlords to raise rents to market rates when units become vacant, even if that unit was previously rent-controlled. Critics contend that the law has contributed to a housing crisis in California. In every metropolitan area in the state, between 30 and 60 percent of the population cannot afford local rents.
If Prop 10 passes, rent control would not automatically be instituted; instead, cities would merely have the opportunity to pass their own local ordinances. State law requires that landlords get a “fair rate of return” on their properties, which Prop 10 would not affect.
The opposition to Prop 10, which includes Blackstone and numerous other property managers, admits that there’s a state housing crisis, but argues that rent control would exacerbate it by halting needed construction and leading to conversions to owner-occupied units, taking rental housing off the market. For example, the Invitation Homes spokesperson said, “We agree with the economists and housing policy experts who have stated that the solution to affordable housing is not rent control but more housing. … [R]ent control dampens new housing starts and investment in existing housing.”
Supporters believe rent control can be part of a toolbox to prevent rents from soaring. They cite studies showing that construction rates in rent-controlled cities mirror rates in cities without rent control. Cities could also exempt new units from rent control in order to incentivize building.
Meanwhile, reports indicate that landlords in several California cities are threatening their own tenants by giving 60-day eviction notices and instituting rent increases. Some tenants have been told that these measures would only be canceled if Prop 10 fails. “Landlords are using their position of leverage in providing housing to sway the tenant vote,” said a spokesperson for Tenants Together, a renters’ rights organization.
Despite the affordable housing crisis, public polling shows Prop 10 trailing by double digits. In California, initiative campaigns typically fail when the opposition has significant financial support. That’s good news for Blackstone, which looks to get a huge return on its nearly $7 million investment.
The $45 million from the “No on Prop 10” campaign is not the most expensive opposition campaign to an initiative on this year’s ballot, incredibly enough. Two outpatient dialysis companies, DaVita and Fresenius, have donated $90 million as part of a $99.3 million campaign to defeat Proposition 8, which would put a cap on their profits.
Though Invitation Homes provided a statement, Blackstone did not return requests for comment. Blackstone’s Schwarzman may have been preoccupied with preparing for an investor conference in Riyadh, Saudi Arabia — days after the alleged state-sponsored murder of journalist Jamal Khashoggi, a critic of the Saudi regime — held at the same Ritz-Carlton Hotel where Crown Prince Mohammed bin Salman jailed dozens of rivals for weeks last year in a bid to consolidate power.