September 22, 2023
The DAO of Real Estate
Joseph Bizub and I posted The DAO of Real Estate to SSRN (and BePress). The abstract reads,
Real Estate Investment Trusts (REITs) have long proven their worth as liquid securities that give investors access to many real estate asset classes. Decentralized Autonomous Organizations (“DAOs”) are one of several blockchain real estate innovations seeking to provide a new path to those searching to invest in real estate. While the success of the DAO model of real estate investment is far from assured, these new investment options could offer real competition to REITs one day.
September 22, 2023 | Permalink | No Comments
July 14, 2023
Housing Supply and The Housing Crisis
Opportunity Now interviewed me about how limited housing construction impacts the housing crisis:
Dynamic metropolitan areas like the Bay Area, LA, and New York City suffer from longstanding mismatches between the supply of housing and demand for it. Local communities control the zoning, and local voters (typically existing homeowners) have little incentive to increase the supply of housing. After all, more supply will likely increase the tax burden as new residents increase the demand for services (more schools, more infrastructure, more public safety). Homeowners are already in the market and generally like the way things are, notwithstanding their political views about the high cost of living for others and the epidemic of desperate homelessness that plagues all of these areas. The result of all of these local land use decisions is that very few units of housing are built in these communities, given the size and growth of the population.
Many coastal cities are high-opportunity areas, offering jobs to immigrants, young adults, and strivers of all stripes. They drive up the demand for housing even hours from urban centers, living in overcrowded units in many cases.
When demand outpaces supply, prices rise. Government can try to limit the effect of this pressure through a variety of means: rent controls, housing subsidies, right-to-shelter legislation. All of these interventions can assist certain segments of the housing burdened — current renters, new renters, homeless people — but to a large extent, they just reallocate scarce housing from one burdened group to another. That is not necessarily bad public policy given the current political realities, but it does not address the fundamental problem these communities face: There is not enough housing for all of the people who live in them. A broad coalition of decision-makers needs to face this reality and develop long-term strategies to build a lot more housing where all of these people want to live — for access to economic opportunity, for proximity to family, for all of the reasons that people want to relocate and build a life for themselves and their loved ones.
July 14, 2023 | Permalink | No Comments
July 12, 2023
Rent-to-Ow!
Insider quoted me in Private Equity Sold Them a Dream of Home Ownership. They Got Evicted Instead. It reads, in part,
Erica Hines-Denson had no idea how bad the odds against her were.
Student loans and a recent divorce had dinged her credit score. But she and her new husband, Elquinton Denson, were building a blended family and they dreamed of buying a home in the greater Atlanta area. After lenders turned them down for a traditional mortgage, a realtor told her there might be another way. Something called a lease-purchase, or rent-to-own, agreement.
“This was our way to own a home finally,” Hines-Denson said. “It was like we found a loophole.”
It took just a weekend of house hunting to find a house they loved: a stately four-bedroom, 30 miles southeast of Atlanta, with a built-in bar in the basement where they pictured hosting family and friends. Listed at $275,000, it was in their price range.
There was a catch. The couple wouldn’t be buying. Instead, a Chicago-based company called Home Partners of America would make a cash offer and rent the house back to them, with an option to buy within five years.
Home Partners supplied a lengthy agreement detailing the terms, including built-in annual increases to their rent and to the eventual purchase price. The document was more than 50 pages long; Hines-Denson said the company gave them just 24 hours to review it and sign. But the opportunity seemed too good to pass up. “You’re like, ‘Oh Lord, this is my chance,'” she said. “So you’re moving quick.”
The deal quickly turned sour. The company locked her out of the online payment portal after she missed a single month’s rent, adding hefty fees that made it impossible to catch up. After she missed a second month, the company swiftly filed for an eviction.
While a judge stayed her legal case under the federal COVID-19 eviction moratorium, the company’s management agency continued to call, Hines-Denson said, threatening to remove her belongings. In a final insult, the company kept their two-month security deposit when she and her family finally moved out.
Private Equity Moves In
Home Partners, which launched in 2012, now owns more than 28,000 homes nationwide. It is the largest of a handful of new companies promising “a clear path to homeownership” for families not yet ready or able to buy.
The company’s success has inspired startup competitors such as the New York-based company Landis, which boasts of investments from entertainers Will Smith and Jay-Z. Once dominated by fly-by-night operators, rent-to-own is now attracting some of the biggest players from Wall Street and Silicon Valley. Andreessen Horowitz led a Series A funding round for a rent-to-own competitor, Divvy Homes, in 2018. BlackRock and KKR purchased a majority stake in Home Partners by 2014, before private-equity giant Blackstone Group bought the company in 2021 for $6 billion.
In its marketing, Home Partners emphasizes that it offers “flexibility, choice and transparency,” providing the opportunity to “rent your dream home” without making a long-term commitment. “Home Partners has created a path to home ownership for tens of thousands of people who may not otherwise have had one,” a company spokesperson told Insider. “We are tremendously proud of our business.”
Yet Home Partners tenants, in interviews and court documents, say they got stuck in barely livable dwellings, with leaking sewage, broken air conditioners, filthy carpets, or nonworking electrical outlets. They describe being blocked from seeing home-inspection reports and facing swift eviction filings for a single late payment. One tenant filed a lawsuit claiming she suffered injuries when the ceiling of her home collapsed.
Hines-Denson said she felt like she’d been “set up to fail.”
More than 4,000 Home Partners tenants have purchased their homes over the past decade, according to a July 2022 paper from Moody’s Analytics, coauthored by an advisor to the company. But over the same time, nearly four times as many tenants — roughly 15,000 — moved out without buying.
An analysis of contracts and sales and eviction data shows that rent-to-own tenants are often left with the worst of all worlds. They have to shoulder many of the costs and responsibilities of homeownership, and the financial odds are stacked against them to end up as owners. Meanwhile, many are paying above-market rent.
“I’m very sympathetic when someone says they’ve identified a large segment of the population not being served by the current housing and mortgage landscape,” said David Reiss, the research director for the Center for Urban Business Entrepreneurship at Brooklyn Law School.
“What you don’t want to hear next is, ‘Therefore, we can do whatever we want to them.'”
*. *. *
“Rent-to-own has this really sordid history,” said Reiss. “It’s an area of the housing market that remains underregulated. That’s part of the attraction for many operators.”
July 12, 2023 | Permalink | No Comments
June 29, 2023
Suffolk Law Hiring A Tenure-Track Real Estate Professor
John Infranca of Suffolk University Law School asked that I post this because one of the positions is focused on Real Estate Transactions:
Suffolk University Law School in Boston expects to fill up to three tenure-track or tenured doctrinal faculty positions, starting in 2024-2025. We seek candidates with a strong record or promise of significant scholarship and a demonstrated commitment to excellence in teaching. Our search will focus on Property; Constitutional Law; and a third position open to a range of teaching and scholarly interests. Our needs in the area of Property include the first-year course plus advanced courses in Trusts and Estates and Real Estate Transactions. Our needs in the area of Constitutional Law include the first-year course plus advanced courses in First Amendment and Civil Rights (including the intersection of law and race, gender, and sexual orientation). Our additional needs include Family Law, Business Law, Technology Law, Professional Responsibility and Health Law.
Interested candidates should include in their application a curriculum vitae with a cover letter and scholarly agenda addressed to Professors John Infranca and Linda Sandstrom Simard, co-chairs of the Appointments Committee. Candidates are invited to share in their cover letter how they would advance the law school’s commitment to diversity and inclusion through their teaching, scholarship or service. When you post materials on Jobvite, do not send duplicate materials to the Chairs of the Appointments Committee via email.
Suffolk University does not discriminate against any person on the basis of race, color, national origin, ancestry, religious creed, sex, gender identity, sexual orientation, marital status, disability, age, genetic information, or status as a veteran in admission to, access to, treatment in, or employment in its programs, activities, or employment. Suffolk University is an affirmative action, equal opportunity employer. The University is dedicated to the goal of building a diverse and inclusive faculty and staff that reflect the broad range of human experience who contribute to the robust exchange of ideas on campus, and who are committed to teaching and working in a diverse environment. We strongly encourage applications from groups historically marginalized or underrepresented because of race/color, gender, religious creed, disability, national origin, veteran status or LGBTQ status. Suffolk University is especially interested in candidates who, through their training, service and experience, will contribute to the diversity and excellence of the University community.
June 29, 2023 | Permalink | No Comments
May 8, 2023
Blockchain Coming To Your Block
Joseph Bizub, Justin Peralta and I wrote the lead story for latest issue of N.Y. Real Property Law Journal, Blockchain Coming to a Block Near You: How FinTech is Changing Real Estate Investing. You can find it on page 5: . It argues, bit.ly/BlockchainStory
Until recently, real estate with a small footprint – one-to-four-family homes as well as small retail, office, and industrial buildings – were generally within the purview of small investors who invested locally. Today, because of technological advances, these owner-occupants and investors face competition from an emerging class of decentralized finance (DeFi) investors. Fintech companies are presenting DeFi investors with new approaches to the challenges that real estate investing traditionally poses: illiquidity, high capital requirements, lack of diversification, and opaque markets. This article focuses on how fintech companies are meeting those challenges and suggests that while much of their vaunted innovation is simply old wine in new bottles, there is good reason to think that they will be driving a lot of investment in small real estate transactions in the future, in no small part because people like shiny new bottles.
You can also find the draft on SSRN and BePress.
May 8, 2023 | Permalink | No Comments