A worrisome housing trend: non-local investment firms buying Minnesota properties
Most people speeding past on Blaine’s busy Highway 65 likely don’t notice Blaine International Village, a community of about 500 manufactured homes tucked alongside the road. For almost a half century, the park has been a locally owned, family-run enterprise offering some of the lowest lot rents in the Twin Cities.
But quietly this year, in the midst of the COVID-19 pandemic, the community joined an increasing American trend. Earlier this month, the community, along with a similar park in Chaska, was bought by a Utah-based investment firm called Havenpark Capital Partners for the total of $ 71 million. Funded by veterans of the Nu Skin multilevel marketing operation, the parks will be just one small part of a financial portfolio of Midwestern manufactured home communities aimed at returning profits for its financiers, who have aggressively expanded over the last year.
If Minnesota follows the pattern in a dozen other states, the future for the Blaine tenants promises to be profit squeezing during the ongoing housing crisis. It’s an increasing trend pitting financial firms against people’s homes in cities across the country.
The growth of housing financialization
Real estate speculation is nothing new to American history, and should make any list of our nation’s founding principles. Indeed, US housing policy has long celebrated the idea of homes as investment vehicles for families. A great deal of government funding is predicated on the idea of building individual wealth through home ownership.
But there’s a difference in scale and precision between the practices of local landlords and national-scale institutions, which are increasingly using residential property as part of financial investment schemes. Over the last decade, real estate financialization is rapidly growing in parts of the country with acute affordability crises, including Minnesota.
Last year, at the dawn of the COVID pandemic, the New York Times Magazine ran an in-depth cover story on the growth of housing financialization. The piece, by Francesca Mari, looks at the practices of institutional landlords buying up homes in California as part of investment portfolios. As is the case with many Wall Street efforts, tracing the links between LLCs, mergers and acquisitions creates a maze of opaque names like Strategic Property Management, Colony Capital, Starwood Waypoint, and (one the largest) Invitation Homes.
As Mari describes, these firms total over $ 60 billion through the use of complex financial products like Real Estate Investment Trusts (or REITs) and private equity firms. In many cases, these institutions manage their housing portfolio with an eye on high returns, leading to rent hikes, maintenance cutbacks and opaque fees for unsuspecting renters of homes.
Control by the very wealthy
Meanwhile, economic inequality has increased over the last few years, particularly for the very wealthy, exacerbating the trend of real estate financialization that is increasingly affecting Minnesota. As one recent study out of California’s Institute for Policy Studies reports, a handful of very wealthy investors control over 4% of the nation’s housing stock, concentrated in areas of the country hit by high costs and low availability.
And California-style financialization of housing is increasingly becoming a trend in the Twin Cities.
“I have seen an increase in these kinds of investor-owned institutional phenomena probably since 2000,” explained Edward Goetz, the director of Center for Urban and Regional Affairs (CURA) at the University of Minnesota.
The 2008 financial crisis, itself caused by Wall Street manipulation of mortgages, triggered a foreclosure crisis that devastated home ownership as it swept through the working-class areas of cities like Minneapolis. According to Goetz, those foreclosures allowed financial institutions to step in with access to funding, purchasing hundreds of homes in places like Minneapolis’ hard-hit north side.
The largest of these institutional landlords – companies like Invitation Homes, which was started by the Blackstone private equity hedge fund – trace their roots back to this time. Associates at The Urban Institute are currently studying the phenomenon of investment firms buying homes, trying to calculate the scale and scope of the problem in the Twin Cities.
“Some of these non-local institutional buyers are in it to milk properties,” Goetz explained. “They tend to make purchases in the middle or lower end of the market, and often times will then milk those properties for whatever incomes they can get. They’re collecting rents and really not reinvesting in the building, trying [instead] to draw profits from them. ”
As the California report describes, the inequality spurred by the COVID crisis has made this kind of real estate financialization more commonplace in many cities around the country.
From the study:
In addition to converting single-family homes to rentals, in the mid-2010s, investors realized they could turn a quick profit by purchasing manufactured home communities (and the land under the trailers) and almost immediately raise the rent charged for the “lot” where people’s homes are located. Some of the richest private equity firms, including Blackstone, have already bought up tens of thousands of manufactured home lots.
In Minneapolis, a long list of disputes
For Minneapolis tenants, renting from the largest institutional landlords has exacerbated the problem of housing instability. According to Eric Hauge, the executive director of the Bloomington-based housing organization Homeline, these is a long list of disputes centering on the city’s two largest real estate financialization operations, Havenbrook and Front Yard Realty.
The biggest tenant complaints include rent increases, neglect of repairs, and excessive fees, all of which can lead to evictions and cascading problems stemming from that often one-sided legal process. On top of that, as Hauge describes, there have been problems around Executive Order 20-79, which has suspended evictions during the COVID pandemic for the last 10 months.
At the same time, it’s not easy to identify solutions for the problems posed by real estate financialization. On the one hand, groups like the Institute for Policy Studies call for state-level legislation aimed at curbing the power of corporate landlords. That kind of advocacy has not yet had an impact in Minnesota.
“Specifically on this phenomenon, we think more consistent, comprehensive, and rigorous rental licensing requirements, as well as aggressive enforcement of such licensing and inspections could help a lot,” Hauge told me.
At the very least, the increasing role of large real estate institutional owners is one reason for the push to solidify tenant protections in Minneapolis and St. Paul. The former passed in 2019, while the latter ordinance was recently struck down by a Ramsey County judge.
An especially vulnerable sector
Back in Blaine, the hundreds of residents of International Village remain in their quiet homes on alongside Central Avenue. Thanks to their gray area status, where residents often own their home but not the land that it sits on, these communities represent an especially vulnerable part of the housing market. Theoretically, people can move their homes to another location, but in reality that is a rare occurrence.
If the track record of Havenpark Capital in cities like Fargo, North Dakota and Des Moines, Iowa is to be believed, it’s a good bet that lot rents in the community will be going up soon, while evictions could increase as the new management works to increase profits for its investors. If and when that happens, it’ll be another sign that housing is increasingly becoming a front in the battle between financial firms and the middle-class. If left unchecked, institutionalized housing threatens to become a modern-day feudalism.