Hedge funds buy swathes of foreclosed subprimes, force up rents, float rent-bonds


#1

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#2

there will never be a governmental WOFT (War On Financial Terrorism) b/c it’s the financial industry itself who declares war.


#3


#4

From the article: “It’s just like a residential mortgage-backed security,” says one hedge fund investor whose company does business with Blackstone."

The starry-eyed nincompoop who made this analogy is an investor, not a Blackstone, rep; he’s a mark, not a dealer. It shows.

Rental property-backed securities are not “just like” mortgage-backed securities. Renters have no skin in the game and will not kill themselves to keep up on untenable payments. They do not maintain properties as carefully as owners and more often than not, they leave a mess behind when they move on.

The Masters of the Universe at Blackstone (and its imitators) are betting that renters from our recently decimated middle class will continue to behave “middle class” rather than risking further hits to their credit ratings. That they’ll go the extra mile to make rent on time even when they run short of money. Maybe. Maybe some of them will still pony up as readily as “homeowners” did in 2007.
But, I think what will happen over a few years is that people who used to be too proud to “behave like trailer trash” will find themselves moving frequently, leaving broken crap behind, and generally, incrementally ceasing to care about metrics of social status that used to make them good customers.

If you put this to Invitation Homes marketing personnel, I’m sure they’ll insist that they can maintain renter quality, that they will employ all sorts of credit checks and the like to maintain a high quality renter base. But, they can’t over the long haul. They cannot provide the incentives that ownership once did. The incentives that they do provide will drive customer behavior in the opposite direction - towards short-term thinking. They’ll set up a dynamic that will degrade the residential property base wherever they dominate the market.


#5

I don’t see how this is any different from paying rent to any real estate investor. My apartment is owned by a corporation, and I will never see the landlord. All that means to me is that, for better or for worse, they’re a little more professional than a landlord who lives downstairs. They’re very good about repairs, but they’re probably a bitch if you get behind on rent. Would any of that be any different if they securitized my rent?

Like any tenants, these people have rights. In many places it’s pretty hard to evict tenants, and can take months. Also, owners don’t actually want to evict anybody - they’d much rather have a steady income stream than a legal bill.

So, for my money, this is kind of a non-story, except as @hmclachlan pointed out, the derived securities are crap. I wonder if S&P rates them AAA?


#6

Blackstone isn’t a hedge fund. You’re using ‘hedge fund’ as a dog-whistle.


#7

I don’t think that phrase means what you think it means. The linked article also conflates hedge funds with private equity. How many Americans do you suppose can explain the difference?


#8

The real story is something simple like: as the share of all wealth owned by the rich approaches 1 nobody else can own anything of lasting value (like land).

Hedge funds are just one expression of this.


#9

The ones that write about it should understand and explain. Or get someone who does to write it for them. He’s clearly saying hedge funds (read minions of satan) are buying up property to rent. And all bien pensants will say ‘ooh, hedge funds. Bad bad bad.’


#10

I don’t think pricing out the models here requires that a renter have “skin in the game” – it’s sufficient to understand what the total occupancy rates are to get a good bead on what the total revenue stream from a collection of properties.


#11

I don’t know if it’s a vast hedge fund conspiracy, but the housing situation in San Francisco and Silicon Valley is just as insidious. Landlords can be utterly unreasonable, eager for evictions so they can jack their rates beyond rent control limitations. Meanwhile, if you do get sick of it and look to move, you quickly realize the starting rates on even smaller apartments in your area are higher than what you’re paying now.

It might be manageable if you’re a well paid Google engineer, but the barrista at Starbucks is faced with an unbearable situation.


#12

From their site:
Blackstone Alternative Asset Management (BAAM®) is the world’s largest discretionary allocator to hedge funds, with $66 billion in assets under management as of March 31, 2015.

Hmm, they’re not a hedge fund, but they invest heavily in hedge funds. Potato, potato.


#13

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#14
  1. Revenue streams from mass quantities of SFR rentals aren’t as well modeled as apartments yet. They simply can’t be when this bundling for securitization is so new.

  2. Securitization of individual mortgages developed into a disaster 7 years ago; a bubble in rental property has every chance of doing the same.

The problem isn’t bundling and securitizing, per se, the problem is unrealistic expectations regarding returns, and the cost of managing vast numbers of separate, formerly individually owned properties. These financial geniuses would like investors to believe that the previously artisanal industry of maintaining all these “little pink houses for everyone” can be scaled up without loss of quality. I doubt it. Neighborhoods will get quietly, persistently shabbier over time as individual units are minimally maintained, rather than ever improved.

Unlike Boundegar, I don’t think it’s a total non-story. It is terrifically illustrative of how the wealth of the lower middle class has been transferred upwards en masse over the past ~8 years.


#15

This.

The primary takeaway here is Blackstone and others like it continue to exhibit parasitic behavior while extorting rents out of the lower and middle classes. People need housing - whether they are homeowners without equity or renters the money flow only goes upwards towards those that already own the lion’s share of assets. Rentier capitalism by definition.


#16

In documents sent to investors, Blackstone has stated that it expects that 95 percent of its homes will be occupied at all times, with an average monthly rent of around $1,300

Ha ha ha ha!


#17

Perhaps not, but this scheme seems like the sort of thing that a hedge fund would use to hedge, in the sense of http://en.wikipedia.org/wiki/Hedge_(finance)#Hedging_a_stock_price

i.e. if they think that there will be a recovery in home buying, this would be the thing that they would short-sell.


#18

‘‘You are a hard man Mr. Scrooge.’’ This is the sort of thing that starts revolutions, let us hope they get visited by the three ghosts before they get a visit from the guillotine. Greed is not good.


#19

I see. So my uncle is a mutual fund because he invests heavily in mutual funds. Interesting.


#20

there might be a difference in that blackstone is a publicly traded firm, and that their primary business is not rentals nor even real estate, but money.

the parallel i’d draw is: some companies buy other companies to expand a product line, while others do to saddle them with debt, and then sell that debt to make a profit.

blackstone doesn’t likely care about the renters, or even the property – they care about ways to repackage the system itself as a commodity.

also, there could be a question of scale. according to wikipedia, blackstone is “the largest alternative investment firm in the world”. that kind of scale can lead to regulation capture. you mentioned renter’s rights. if they own enough property in one area – those rights can be bent.

whether it is in fact different than the company that owns your place is hard to say. but, it might be. blackstone is definitely a company operating in the land of the 1%.