- BLUM DEAL Richard Blum, who is married to Sen. Dianne Feinstein, has profited handsomely from the subprime mortgage debacle of 2008.
And now let us pause to contemplate Richard Blum's participation in the destruction of the American dream at the hands of a new phenomenon known as the "Wall Street landlord."
Blum's wife is Sen. Dianne Feinstein. The California legislator's latest financial disclosure report, filed with the U.S. Secretary of State on May 15, includes a 2014 Blum Family Partners investment of at least $1 million in Colony American Homes Holdings.
Blum is the billionaire founder of the private-equity firm Blum Capital Parnters. Colony homes are owned under the umbrella of Colony Capital, one of the largest investment firms in the world.
The senator's disclosure describes Colony American Homes as a "leading owner and provider of high-quality single-family residences for rental across the United States."
What it doesn't say is that the rental stock is made up of foreclosed homes purchased by a handful of investor groups and hedge funds in the aftermath of the 2007–08 financial crisis and real estate crash. The Blackstone Group and Waypoint Homes join Colony Capital in this business, along with American Homes 4 Rent and Silver Bay Realty.
Blum is often identified as a quintessential Democratic Party insider, with ties that run the gamut from Jimmy Carter to the Dalai Lama. His private-equity firm manages about $500 million in assets, and the bulk of the fund's portfolio is dominated by holdings in CBRE, the world's largest commercial real estate services firm.
Though Blum has taken pains to deny it, reports say he's worth at least $1 billion. According to a recent Roll Call survey, Feinstein's net worth is $45.3 million, which puts her in the top tier of wealthy Washington lawmakers.
Colony American Homes was one of several investor-owned landlords highlighted in a June report from the anti-poverty advocates at the California Reinvestment Coalition (CRC). That study focused on the rise of the Wall Street landlord and its impact on California renters and would-be homeowners.
The verdict from the CRC is that Colony American Homes has not been an especially good landlord: rents are above average, utilities generally aren't included, and maintenance is poor, at best. Moreover, would-be first-time homeowners in California often find themselves squeezed out by cash-rich corporate buyers like Colony American Homes. Rents are going up, and the landlord is nowhere to be seen.
"Neighborhoods are changing, income diversity is changing, the tenure of residents is changing," says CRC associate director Kevin Stein, an author of the report. The investor grab of housing stock, he says, "is destabilizing neighborhoods and creating a lot of displacement."
The CRC survey found that real estate investment trusts, private equity firms and hedge funds have spent $25 billion buying over 150,000 distressed homes around the country since 2012.
"This whole situation is only possible because of a financial crisis that was engineered by Wall Street," says Stein. "This is investors profiting off of foreclosure."
What can be done? Stein says Gov. Jerry Brown could "use his bully pulpit to talk about the importance of neighborhood stability, and to acknowledge that there's extreme gentrification and displacement going on."
Or Brown could pay back the $331 million he diverted from foreclosure relief for homeowners in 2012 to solve the state budget crisis. The Associated Press reported this week that lawmakers and community groups have called on Brown to repay the money, after a Sacramento judge ruled that he had illegally funneled the foreclosure monies into the state's general fund.
A May report from the California advocacy group Tenants Together also weighed in on so-called Wall Street landlords. The organization reported that Colony has, to date, purchased more than 2,000 formerly foreclosed properties in California and flipped them into rentals.
Banks help investors do this by converting future rental income on properties into securities, which are then turned back to the investors as loans. "Wall Street has also issued over $8 billion in securities tied to almost 60,000 homes," some owned by Colony, reports the CRC.
The loans are then used to purchase additional distressed properties, notes CRC. This has conspired to fuel a growing market in investor-purchased single-family homes.
The investor-led push to buy distressed single-family homes, says Stein, means individual buyers often get pushed out of the market. The CRC survey heard from numerous would-be first-time homebuyers, he says, "who could get decent loans but couldn't successfully bid on properties."
Nonprofits and developers who want to build affordable housing are often outbid, and local businesspeople, many of them from communities of color, "feel that they are being circumvented. These deals are going around local businesspeople," says Stein. "There is an issue of the amount that [investors] are bidding and that their offers are in cash."
Fair Housing of Marin was one of 70 signatories to the CRC report. Over the past few years the North Bay housing nonprofit has identified chronic maintenance failures at bank-owned homes in poor communities.
Fair Housing of Marin Executive Director Caroline Peattie describes a full-circle foreclosure dynamic that hit poorer communities in the North Bay. "Banks targeted communities of color with a disproportionate number of unaffordable subprime loans," she says. "Those same communities suffered a disproportionate number of foreclosures; the banks then failed to maintain and market those properties; and, finally, banks have been selling foreclosed homes in bulk to investors who care nothing about the property, the tenants who live in those properties, nor the neighborhood."
Just as Feinstein was putting the finishing touches on her May 15 financial disclosure report, Tenants Together released its study, "The New Single-Family Home Renters of California," on May 12.
The statewide tenants-rights organization found that renters of single-family homes from the three biggest corportate landlords in the state—Blackstone/Invitation Homes, Waypoint Homes and Colony American Homes—"pay higher rents than their neighbors and face challenges getting repairs."
Those companies together own about 9,500 properties in California, according to Tenants Together.
A scan of available investor-owned properties for sale or rent in the North Bay doesn't yield many hits—but that may not mean anything, says Stein.
"It could be that there's more happening than what you see, because some of the sales are happening before anybody even knows a property is available," he says, "and it's not known because it has already been sold to Colony."
Doug Henwood, an economics journalist and author of Wall Street: How It Works and for Whom, says investor-driven home purchases follow the general model of private-equity deals. "They are in it for the short-term, the medium-term," says Henwood. "They are not in it for the long haul. The incentive is to screw the tenants over completely, minimize repairs and maximize rents."
The senator's disclosure report lists the Colony American Homes investment in the section of Feinstein's "non-publicly traded assets and unearned income sources," which also includes another Colony distressed-asset fund, Colony American Homes War I, LLC.
According to the report, Blum Family Partners has a $50,000–$100,000 investment in Colony American Homes War I and no reported 2014 income from that investment.
The disclosure form exempts Feinstein from having to provide any further detail on Colony American Homes, since the investment is held independently by Blum. As such, Feinstein didn't have to indicate anything beyond that the investment eclipsed $1 million.
No surprise there, says Henwood. "This is entirely consistent with the Democrats. Real estate, and especially urban real estate, is one of the lifebloods of Democratic party financing."
The investment in Colony American Homes earned Feinstein and Blum between $50,000 and $100,000 in capital gains and interest in 2014, according to the disclosure report.
In contrast, the average down payment for a single-family home in 2014 was $32,000, according to the online real-estate service RealtyTrac.
In response to questions about the investment, Feinstein communication director Tom Mentzer says that "Sen. Feinstein has no involvement in her husband's business decisions. Her assets are in a blind trust, which has been the case since she arrived in the Senate, and I have no information on her husband's assets."
A phone call to Blum Capital Partners was not returned.