The housing crisis of 2008 wiped out a staggering amount of wealth, especially among minority and low-income Americans. Millions who had finally attained the multi-generational aspiration of home ownership and nominal suburban stability found themselves desperately clinging to whatever shreds of their lives remained, staying with family (if they were lucky) or in shelters, or even on the street.
In the meantime, the communities where the crisis hit hardest became the focus of aggressive police attention, ostensibly to combat the supposed crime waves which resulted from the decline of the neighborhoods.
While this was going on, Wall Street hedge funds, such as the Blackstone Group (identified in a recent Mother Jones article as the largest private equity firm in the world) were busy buying up the foreclosed homes, often outbidding families that qualified for traditional financing, because they were able to pay cash up front for the property, and turning those homes into rental properties.
These two occurrences—violently increased police presence and aggressive acquisition of foreclosed properties at the expense of actual families—were not unrelated.
In Charlotte, NC—where Blackstone has purchased over 2,000 homes—this manifested in a curious new strategy by local police. A friend who grew up in the southwest part of the city, where the foreclosure crisis hit like a jackhammer, described how police on dirt bikes started appearing out of nowhere.
“It was like they were trying to clear the place out,” he said.
These dirt bike cops would appear unexpectedly, at any time, executing their own southern variation on Stop-And-Frisk. The results were as expected, and the increased pressure did enough damage to the communities already reeling from the foreclosure crisis that there was little resistance when property management companies started clearing out entire blocks; the ones that hadn’t already been cleared from the foreclosures, anyway.
And thanks to the stepped-up law enforcement attention, the people being cleared out of their homes were successfully painted as criminals and junkies to the people who didn’t live in these neighborhoods (and had never so much as seen a cop on a dirt bike, much less been frisked by one). This led to a common perception that the police were simply trying to get a crime wave under control. Perhaps they might have gone overboard in their enforcement, but extreme circumstances require yadda yadda yadda.
That point of view might hold some kind of (morally bankrupt) water if the police aggression hadn’t precisely synced up with the finance world’s campaign to buy up as much property as possible. Instead, it seems more likely that the establishment in Charlotte (along with dozens of other municipalities around the nation) decided it was in their best interest to run the plays called by the financial world—which, in this case, meant paving the way for the most ambitious land grab since the Louisiana Purchase—and gave the police their marching orders accordingly.
So we’re left with a situation where millions of people who were doing exactly what they were told they were supposed to do—work their asses off and try to buy into the American Dream—were taken to the cleaners; a hustle that, perversely, only worked because it tied into that very dream. They lost everything, and even the ones who were able to get themselves together (or had escaped the fangs of the subprime bubble) were unable to get back into a home because private equity firms with virtually limitless cash were pricing them out of the neighborhoods where they could afford homes.
So what is the purpose of this grand new Wall Street strategy? Why cause all this suffering and hardship to people who would be lucky to make in a year what the average investment executive spends on prostitutes and cocaine over a long weekend?
Surely not because the financial world sees the rental property game as its future. As any landlord can tell you, while there are some definite upsides to property management (building equity using other people’s money, for starters), maintenance, deadbeat tenants and other liabilities often make that particular revenue stream somewhat of a pain in the ass. And, as has already become clear, private equity firms are shite when it comes to effective property management.
Among the homes owned by Blackstone, reports of pest infestation and poor maintenance run rampant, not to mention spurious (even fraudulent) evictions and fees levied on renters. This might produce a little scratch in the short term, but is ultimately a losing proposition, even by Wall Street’s typically shortsighted standards.
But this isn’t about some new direction for hedge fund strategy. When you dig deeper, it becomes clear that this is more of the same from our private equity overlords. They give two shits about property management, just as they gave two shits about facilitating home ownership. The rental properties are simply the foundation from which they’re building their current house of cards.
Next week: Let It Ride (again).
Alex Benson can be reached at alexb@theaquarian.com
