Gen Z Eying Real Estate Trends

photo by Thomas Tolkien

The Washington Post along with its content partner National Association of Realtors quoted me in Eye on the Future. It reads, in part,

The suburbs as we know them are in flux. Many of the country’s bedroom communities have traditionally been known for their single-family homes and a lack of walkable public spaces. That’s changing as condos, sprawling townhome complexes and apartment buildings now dot areas where single-family homes would have been built.  Developers are building walkable public spaces to accommodate young families leaving cities but still seeking urban-like amenities.

 Another wave of change is expected in the next five to 10 years. That’s when members of Generation Z-those born on the heels of millennials-will become homeowners. Experts say they’ll transform areas that are sandwiched between major cities and suburbs into districts with an urban feel and amenities, without the hefty price tags major metros demand.

That transformation is already starting to happen. “Many of our ‘suburbs’ are actually neighborhoods in Los Angeles, particularly the San Fernando Valley,” said Kathryn Bishop, a real estate agent with Keller Williams Realty in Studio City, Calif. and member of the National Association of Realtors. “In the Valley, many neighborhoods have become mini ‘cores.’ Sherman Oaks, Encino and Woodland Hills have office towers, good restaurants and night-life business creating their own city areas.”

It’s no surprise that the younger generation needs to find an alternative to the sky-high costs of urban living. The Economic Policy Institute noted in 2016 that folks who live in San Francisco face a cost of living that’s 52.9 percent above the national average. For New Yorkers, living costs were 49.4 percent higher. The country’s least-affordable place to live was Washington D.C., where residents faced costs 63.5 percent higher than the national average.

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“Since the financial crisis there has been an increase in multigenerational households, driven in large part by financial limitations and insecurity as well as by marital status and educational attainment,” said David Reiss, professor of law and research director at he Center for Urban Business Entrepreneurship at Brooklyn Law School.  “Young adults are more likely to live at their parent’s home in recent years than they have been for more than a century.”

Kushner Conflicts with Fannie & Freddie

photo by Lori Berkowitz

Jared Kushner, Senior Advisor to President Trump

Bloomberg quoted me in Kushner’s Use of U.S.-Backed Apartment Loans Poses Conflict Risk. It opens, 

Jared Kushner relinquished control of his family’s multibillion-dollar real-estate business in January to eliminate conflicts of interest when he became a top White House adviser to his father-in-law, President Donald Trump.

Yet Kushner Cos. has apartment buildings from New Jersey to Maryland with more than $500 million in government-backed mortgages financed by Fannie Mae and Freddie Mac. That could put officials at those agencies in an awkward spot: If Kushner Cos. applies for a new loan, or wants to refinance, would Freddie turn them down? If Kushner Cos. fails to comply with the terms of a loan, will Fannie seek to foreclose on a property owned by the president’s in-laws?

“It clearly represents a conflict-of-interest because the government or the president can take actions that would benefit his family,” said David Reiss, a professor at Brooklyn Law School who has written about issues related to Fannie and Freddie.

Hope Hicks, a White House spokeswoman, said Kushner would comply with applicable ethics rules and would recuse himself from any discussions about overhauling Fannie and Freddie, which lawmakers have sought to do in recent years. Jamie Gorelick, an attorney who has represented Jared Kushner, didn’t respond to a request for comment.

Kushner Cos. says Jared’s White House position won’t have any effect on the family business. “The election has not changed Kushner Companies’ relationship with Fannie Mae and Freddie Mac,” said Kushner Cos. spokesman James Yolles. “And we will respond to policy changes like any other private company in the marketplace.”

The federal government took over Fannie and Freddie in 2008, amid the financial crisis, putting them under the control of the Federal Housing Finance Agency, an independent regulator.

New Landlord in Town

Lionel Barrymore as Mr. Potter in "It's A Wonderful Life"

Lionel Barrymore as Mr. Potter in “It’s A Wonderful Life”

Bloomberg quoted me in Wall Street, America’s New Landlord, Kicks Tenants to the Curb. It opens,

On a chilly December afternoon in Atlanta, a judge told Reiton Allen that he had seven days to leave his house or the marshals would kick his belongings to the curb. In the packed courtroom, the truck driver, his beard flecked with gray, stood up, cast his eyes downward and clutched his black baseball cap.

The 44-year-old father of two had rented a single-family house from a company called HavenBrook Homes, which is controlled by one of the world’s biggest money managers, Pacific Investment Management Co. Here in Fulton County, Georgia, such large institutional investors are up to twice as likely to file eviction notices as smaller owners, according to a new Atlanta Federal Reserve study.

“I’ve never been displaced like this,” said Allen, who said he fell behind because of unexpected childcare expenses as his rent rose above $900 a month. “I need to go home and regroup.”

Hedge funds, large investment firms and private equity companies helped the U.S. housing market recover after the crash in 2008 by turning empty foreclosures from Atlanta to Las Vegas into occupied rentals.

Now among America’s biggest landlords, some of these companies are leaving tenants like Allen in the cold. In a business long dominated by mom-and-pop landlords, large-scale investors are shifting collections conversations from front stoops to call centers and courtrooms as they try to maximize profits.

“My hope was that these private equity firms would provide a new kind of rental housing for people who couldn’t — or didn’t want to — buy during the housing recovery,” said Elora Raymond, the report’s lead author. “Instead, it seems like they’re contributing to housing instability in Atlanta, and possibly other places.”

American Homes 4 Rent, one of the nation’s largest operators, and HavenBrook filed eviction notices at a quarter of its houses, compared with an average 15 percent for all single-family home landlords, according to Ben Miller, a Georgia State University professor and co-author of the report. HavenBrook — owned by Allianz SE’s Newport Beach, California-based Pimco — and American Homes 4 Rent, based in Agoura Hills, California, declined to comment.

Colony Starwood Homes initiated proceedings on a third of its properties, the most of any large real estate firm. Tom Barrack, chairman of U.S. President-elect Donald Trump’s inauguration committee, and the company he founded, Colony Capital, are the largest shareholders of Colony Starwood, which declined to comment.

Diane Tomb, executive director of the National Rental Home Council, which represents institutional landlords, said her members offer flexible payment plans to residents who fall behind. The cost of eviction makes it “the last option,” Tomb said. The Fed examined notices, rather than completed evictions, which are rarer, she said.

“We’re in the business to house families — and no one wants to see people displaced,” Tomb said.

According to a report last year from the Harvard Joint Center for Housing Studies, a record 21.3 million renters spent more than a third of their income on housing costs in 2014, while 11.4 million spent more than half. With credit tightening, the homeownership rate has fallen close to a 51-year low.

In January 2012, then-Federal Reserve Chairman Ben Bernanke encouraged investors to use their cash to stabilize the housing market and rehabilitate the vacant single-family houses that damage neighborhoods and property values.

Now, the Atlanta Fed’s own research suggests that the eviction practices of big landlords may also be destabilizing. An eviction notice can ruin a family’s credit and make it more difficult to rent elsewhere or qualify for public assistance.

Collection Strategy?

In Atlanta, evictions are much easier on landlords. They are cheap: about $85 in court fees and another $20 to have the tenant ejected, according to Michael Lucas, a co-author of the report and deputy director of the Atlanta Volunteer Lawyers Foundation. With few of the tenant protections of places like New York, a family can find itself homeless in less than a month.

In interviews and court filings, renters and housing advocates said that some investment firms are impersonal and unresponsive, slow to make necessary repairs and quick to evict tenants who withhold rent because of complaints about maintenance. The researchers said some landlords use an eviction notice as a “routine rent-collection strategy.”

Aaron Kuney, HavenBrook’s former executive director of acquisitions, said the companies would rather keep their existing tenants as long as possible to avoid turnover costs.

But “they want to get them out quickly if they can’t pay,” said Kuney, now chief executive officer of Piedmont Asset Management, a private equity landlord in Atlanta. “Finding people these days to rent your homes is not a problem.”

Poor Neighborhoods

The Atlanta Fed research, based on 2015 court records, marks an early look at Wall Street’s role in evictions since investment firms snapped up hundreds of thousands of homes in hard-hit markets across the U.S.

Researchers found that evictions for all kinds of landlords are concentrated in poor, mostly black neighborhoods southwest of the city. But the study found that the big investors evicted at higher rates even after accounting for the demographics of the community where homes were situated.

Tomb, of the National Rental Home Council, said institutional investors at times buy large blocks of homes from other landlords and inherit tenants who can’t afford to pay rent. They also buy foreclosed homes whose occupants may refuse to sign leases or leave.

Those cases make the eviction rates appear higher than for smaller landlords, according to Tomb, whose group represents Colony Starwood, American Homes 4 Rent and Invitation Homes. The largest firms send notices at rates similar to apartment buildings, which house the majority of Atlanta renters.

Staying Home

Not all investment firms file evictions at higher rates. Invitation Homes, a unit of private equity giant Blackstone Group LP that is planning an initial public offering this year, sent notices on 14 percent of homes, about the same as smaller landlords, records show. In Fulton County, Invitation Homes works with residents to resolve 85 percent of cases, and less than 4 percent result in forced departures, according to spokeswoman Claire Parker.

The Fed research doesn’t say why many institutional investors evict at higher rates. It could be because their size enables them to negotiate less expensive legal rates and replace renters more quickly than mom-and-pop operators.

“Lots of small landlords, when they have good tenants who don’t cause trouble, they’ll work with someone who has lost a job or can’t pay for the short term,” said David Reiss, a Brooklyn Law School professor who specializes in residential real estate.