‘Almost a crime?’: Report finds Blackstone hiked rent nearly double market rate

Summary

Here's a summary of Blackstone's actions on their rental properties and how they relate to new laws in California:

Rent Increases: Blackstone increased rents on their San Diego properties by an average of 38% since acquiring them in 2021, nearly double the market average of 20%. Some properties saw increases of up to 80%.
Evictions: Blackstone reportedly ramped up evictions after ending a voluntary eviction moratorium in August 2022.
Affordable Housing Impact: Blackstone's actions have potentially reduced the availability of "naturally occurring affordable housing" by significantly increasing rents on previously affordable units.
Use of Pricing Software: The report alleges that Blackstone uses RealPage's YieldStar software for rent-setting, which is under investigation for potential price-fixing.

Regarding new California laws:

1. Rent Control: The Tenant Protection Act caps rent increases at 10% total or 5% + CPI increase (whichever is lower) over a 12-month period. Blackstone's 38% average increase over about three years may comply with this law, depending on when the increases occurred and the specific CPI figures.

2. No-Fault Evictions: New laws prohibit no-fault evictions and place restrictions on owner move-ins and remodels as grounds for eviction.

3. Security Deposits: New law caps security deposits at one month's rent, effective July 1, 2024.

4. Tenant Screening: New laws prevent discrimination based on credit history for applicants receiving government rental subsidies.

It's not clear if Blackstone is doing anything explicitly illegal. Their rent increases, while significant, may still fall within legal limits if spread over multiple years. However, their practices appear to be pushing the boundaries of what's allowable and potentially contributing to housing affordability issues.

The use of YieldStar software, while not inherently illegal, is under scrutiny for potential anti-competitive effects. More information would be needed to determine if Blackstone's specific use of this software violates any laws.

It's worth noting that Blackstone claims their average rents are still 20% below the San Diego market average and that they've invested in improving living conditions. However, the rapid rate of rent increases and potential displacement of lower-income tenants remain concerning from a housing policy perspective.

‘Almost a crime’: Report finds Blackstone hiked rent nearly double market rate | FOX 5 San Diego & KUSI News

SAN DIEGO (FOX 5/KUSI) — As county leaders are looking to crack down on private equity firms buying up properties, a new report released on Thursday is shedding light on one corporate landlord that may have contributed to higher housing costs in San Diego.

The analysis, which was released by tenant advocacy groups Private Equity Stakeholder Project and the Alliance of Californians for Community Empowerment, zooms in on Blackstone Inc., an investment firm who acquired nearly 6,000 local rental units across San Diego County in 2021.

Using real estate data, it found the corporation hiked rent prices of the units it owns in San Diego by an average of 38%, or $600, since its acquisition of the buildings — nearly double the 20% median rent increase for apartments in the county during the same period.

For some Blackstone-owned buildings, including several located in historically low-income areas like San Ysidro and National City, these rent increases neared upwards of 80% over a three-year period, according to the report.

These buildings, which previously had an average rent of about $1,500 per month three years ago, now have median rent prices of over $2,500.

“Given that there already is such a crisis of affordable housing and that there were such a large number of affordable units, it’s really almost a crime that they are now no longer affordable,” Jordan Ash, housing director at the Private Equity Stakeholder Project and lead author on the study, told FOX 5/KUSI on Friday.

As Ash explained, these units were what is often referred to as “naturally occurring affordable housing,” or a type of housing — often of a lower quality — that reflects a reasonable price for low or middle-income renters.

This differs from other types of affordable housing that are tied to government subsidies or require tenants to apply for the unit through an affordable housing program.

“They’re kind of disappearing, there’s not very many of them,” Ash said of these below-market priced units, noting that this is in part due to corporations acquiring them often with the goal of renovating to attract higher-income renters to turn a greater profit.

In a statement to FOX 5/KUSI, Blackstone pointed to renovations and repairs done at the nearly 70 buildings it owns in San Diego under its ownership as an example of the improvements to “living conditions for thousands of San Diego residents who live in our communities.”

However, the speed at which rents have been increased to foot the bill of these upgrades, as the report illustrates, have exacerbated the financial burden placed on tenants whose income has not been raised at the same rate.

“We’re concerned that the rent increases are aimed at basically forcing people out so that Blackstone can increase the rent even more,” Ash said.

Blackstone in San Diego

Blackstone first came into the San Diego housing market in 2021, when it bought up 66 buildings with 5,800 units from the nonprofit Conrad Prebys Foundation. As the San Diego Union-Tribune reported at the time, the acquisition cost roughly $1 billion.

It was part of a wider effort by the company to expand its rental portfolio nationwide during the pandemic. According to the Private Equity Stakeholder Project report, the firm purchased over 250,000 units during that time.

“There was a lot of concern and fear that when Blackstone bought it that they would increase rents,” Ash said. “They assured the community that was not the case, but in fact what Blackstone did was to raise the rents.”

As a result of the price changes, working families and other low-income tenants reported struggling to make ends meet with the new costs, taking on additional jobs or working extra hours. Some were pushed out entirely, Ash said, both willingly or through eviction.

According to Blackstone, the company did have an eviction moratorium in place throughout the pandemic, in part due to federal, state and local regulations preventing companies from initiating the proceedings to keep people in their homes during an uncertain time.

However, in August 2022, the Private Equity Stakeholder Project said the company began evicting tenants again, apparently in an effort to create vacancies so they could remodel the unit.

The incentives for remodels

Remodels and renovations have long been used as a means to transform a property to attract higher-income renters.

“Renovation is a unique project, because it transforms lower-quality housing units into higher-quality housing units,” said Michael Reher, assistant professor of finance at the UCSD Rady School of Management. “By definition, this reduces the supply of lower quality units.”

Reher likened the practice to an almost “flattening” of the relationship between quality and rent, although he noted that investment like Blackstone’s in multi-family housing is nothing all that new — despite an uptick in taking on high-risk, high-reward real estate investments.

Private equity and investment firms have been seeking out these types of below-market housing for years, with the goal of adding value to it and in turn create more revenue, Reher explained.

While some current tenants may enjoy updates to their unit, it can have the effect of pushing them out of the unit all together, with some even ending up on the street. As Ash said, these updates are often something that will be “enjoyed by the next tenant moving in.”

“This borders on the topic of gentrification, which is a complicated issue,” Reher said. “What I think is less controversial to say is that these type of investments occur in areas where there is the potential for income growth from an investment perspective.”

What solutions are there

San Diego County officials have initiated an exploration of measures it can implement to crackdown on corporations buying up properties. However, there are already a few tools in their toolbox that Reher says can be utilize to at least off-set the impact of value-add strategies.

For one, easing restrictions to add new housing units has a significant downstream impact, as it eases supply pressures.

According to Reher, one study conducted in an East Coast city showed that adding just a single new unit of housing in an area, regardless of its general income level, created new “naturally affordable” units by freeing up space in existing units.

He also noted that improving transportation infrastructure should also go hand-in-hand with these efforts.

For tenant advocates like the Private Equity Stakeholder Project, the proliferation of value-add development has renewed arguments for additional statewide rent control protections.

As they argue, these caps remove the incentive for large landlords to create vacancies so they can significantly raise rent above what the state allows when a tenant is actively living in a unit.

“Blackstone is a perfect example of what happens when there isn’t rent control and the existing restrictions have actually prevented them from increasing rents even more and making the housing less affordable,” Ash said.

Blackstone’s full response

The full statement from Blackstone can be found below:

“The reality is that average rents at these San Diego communities are 20% below the San Diego market average. Resident review scores have increased ~40% under our ownership and resident retention rates are significantly higher than the national average. We have invested approximately $100 million to improve living conditions for thousands of San Diego residents who live in our communities; we have already completed over 44,000 repairs, including those that were previously unaddressed.

We hold ourselves and our operators to the highest standard of care. During the pandemic, Blackstone recognized that many were experiencing extreme hardship. We believe we are the only major landlord in the US that did not evict a single tenant for non-payment during those 2+ years.”

Summary of Shelter Report

This document is a report titled "HELTER SHELTER: How Blackstone Contributes To and Profits From California's Broken Housing System" by Jordan Ash, published in July 2024. Here are the key points:

Blackstone is described as the largest landlord in the US, owning nearly 350,000 rental housing units.
Since 2021, Blackstone has been on an aggressive buying spree, adding over 256,000 units to its portfolio.
In San Diego, Blackstone acquired 66 properties with 5,800 units in 2021. Since then, rents at these properties have increased by 38% on average, nearly double the market average.
The report claims Blackstone has ramped up evictions since late 2022, after ending a voluntary eviction moratorium.
Blackstone is accused of benefiting from and contributing to the affordable housing shortage, with executives quoted celebrating declining new housing supply.
The company has spent millions opposing rent control measures in California.
The report alleges Blackstone uses RealPage's YieldStar software for rent-setting, which is under investigation for potential price-fixing.
Recommendations include limiting rent increases, providing relocation assistance, and working with tenants who are behind on rent.

The report is critical of Blackstone's practices, arguing they contribute to housing affordability issues while profiting from the crisis. It includes data on Blackstone's acquisitions, rent increases, political spending, and business practices.

Senators Had Questions for the Maker of a Rent-Setting Algorithm. The Answers Were “Alarming.”

This article discusses concerns raised by U.S. senators about RealPage, a real estate technology company that provides rent-setting software called YieldStar. Here are the key points:

1. ProPublica's investigation in 2022 revealed how landlords share proprietary information with RealPage, potentially facilitating cartel-like behavior in rent pricing.

2. Senators Elizabeth Warren, Bernie Sanders, Tina Smith, and Ed Markey questioned RealPage and found its responses "alarming."

3. YieldStar is used to price more than 4 million rental units, about 8% of all U.S. rental units.

4. The senators expressed concern that the software may be driving rent inflation in major markets.

5. Multiple federal lawsuits have been filed by renters alleging antitrust violations by RealPage and landlords.

6. The Department of Justice's antitrust division has opened an investigation into RealPage.

7. RealPage denies that its software always pushes rents higher, stating it's designed to "manage revenues" based on owners' needs.

8. The company acknowledges using non-public data from "executed leases" in its algorithm.

9. Senators are concerned about the extent of information sharing among large institutional landlords facilitated by RealPage.

10. The senators have called on the DOJ to closely review rent-setting algorithms like YieldStar for potential anti-competitive effects.

The article highlights the ongoing debate about the impact of such technologies on the rental market and potential antitrust implications.

RealPage Acquires YieldStar Multifamily Revenue Management System

By RealPage News

July 19, 2002

This document is a press release from July 19, 2002, announcing RealPage's acquisition of YieldStar, a revenue management system for the multifamily housing industry, from Camden. Key points include:

YieldStar optimizes apartment pricing using yield models that adjust rents in real-time based on supply and demand.
RealPage plans to incorporate YieldStar into its OneSite© Revenue Management system, to be released later that year.
The acquisition aims to provide a foundation for a fully functional yield management system for the multifamily industry.
RealPage intends to make the system more affordable than existing solutions to ensure a rapid return on investment for clients.
The company is organizing executive-level summits to demonstrate the system and gather input for future development.
Eight elements of revenue management are outlined, including competitive rent analysis, lease management, supply and demand forecasting, pricing engine, and various price adjustments.
RealPage is described as a combination of five industry leaders in property management software, web design, market research, facilities management, and revenue management.
Camden, the seller of YieldStar, is introduced as a large real estate company owning and operating numerous multifamily apartment communities across the United States.

This acquisition marks an early step in RealPage's development of its revenue management software for the multifamily housing industry.

The office of California’s Governor Newsom had a busy, bill passing year in 2023! This means there are new rental laws in California coming into effect in 2024. It’s big news for landlords, especially those who self-manage a rental home as there are new rules around security deposits, anti-discrimination laws and tenant screening in California.

If you own a rental home in the Golden State, it’s important to know what a landlord can and can’t do in California and any tenant-protection laws you should be aware of.

In this article, we’ll dive into 5 changes that Californian landlords should know in 2024. But first, here’s a quick summary of things that a landlord can’t do in California:

At a glance: What a landlord cannot do in California in 2024

The Tenant Protection Act caps rent increases for most residential tenants in California. Landlords can’t raise rent more than 10% total or 5% + CPI increase (whichever is lower) over a 12-month period.
No-fault evictions are prohibited, so landlords can’t evict a tenant without cause.
If a landlord ends a tenancy agreement to move back into the home, it can’t be put back on the rental market within 12 months.
Landlords can’t end a tenancy to remodel the rental property without supplying details of planned works.
Landlords in California can’t charge more than one month’s rent for a security deposit. On vacating, you can’t hold a security deposit for more than 21 days or deduct any costs for wear and tear. An itemized list of deductions must be supported by receipts or evidence of costs for repairs and cleaning.
Landlords in California can’t discriminate against an applicant based on their credit history if they receive a government rental subsidy.
Landlords can’t charge more than $62.02 in tenant application fees in 2024 (this is adjusted yearly).
Landlords can’t neglect maintenance or repairs, especially if it affects a tenant’s health or safety. Tenants are allowed to use a “repair and deduct remedy” in California, making emergency repairs and deducting the costs from the rent if a landlord fails to address the problem.

City-based ordinances and state laws override any lease agreements, so you can’t avoid any tenant-protections with a clause in your lease. It’s also important to check the rules at a local level, as they may include further tenant protections than those outlined above. What’s true in San Diego may not apply in San Francisco.

5 changes to California tenancy laws that landlords should know about in 2024

1. Changes to no-fault eviction rules will affect owner move-ins and remodels

Legislation: Senate Bill 567

Changes come into effect: 1 April, 2024

The California Tenant Protection Act of 2019 has been amended, altering rules around “no fault” evictions or termination of a residential lease agreement. As of April 2024, more details will be required if a homeowner wants to end a tenancy due to moving-in or undergoing a major remodel of the property.

If you wish to reoccupy the home as an owner-occupier, you must move in within 90 days of your residents moving out. You must also remain in the home for at least 12 months before the home can go back on the rental market. Same goes for the close family of the homeowner (e.g. spouse, parents, children, grandchildren). Their names and your relationship will need to be disclosed in the termination notice and the same rules will apply. If you or family already occupies a rental unit on the property, or if there is a similar unit available on the property, you may not use this as grounds for termination of a lease.

For remodels, owners of the rental home must provide more details of the planned work, such as providing the existing residents with copies of permits or signed contracts for the planned works. If the work isn’t carried out, you will legally be required to contact the former tenants and give them the opportunity to move back in. Make sure you get a forwarding address if you plan to remodel your rental home!

2. Security deposits are now capped at one month’s rent

Legislation: Assembly Bill 12

Changes come into effect: July 1, 2024

As of July 2024, security bonds will be capped at an amount equal to one month’s rent. Previous laws allowed up to three months rent to be collected in bond, on top of the standard first month paid before occupancy. With rents skyrocketing across the states, move-in costs were becoming unaffordable for renters, especially for furnished properties. Going forward, if you charge a monthly rent of $2,500 p/m, the move in cost will be capped at $5,000 inclusive of security deposit and first month rent. This cap applies to both furnished and unfurnished homes.

What happens if you’re already holding a large security deposit of more than one month’s rent? Don’t stress, there’s no need to return the difference. If you (or your property manager) hold a security deposit or collect one more than one month’s rent prior to July 1, 2024, you may hold on to this amount even if it exceeds the new caps.

Pro Tip: Take the hassle out of collecting rent and security deposits by letting Belong take care of it (and everything else!). With guaranteed rent and the easy option for residents to pay their security bond in installments, find out why homeowners are ditching outdated property management in Los Angeles, San Diego, San Francisco, Sacramento and more to Belong instead.

3. Homeowners will be better protected from illegal occupancy

Legislation: Senate Bill 602

Changes come into effect: January 1, 2024

Trespassing and ‘squatting’ can be a real concern to homeowners with vacant properties. From 2024, a homeowner can alert local law enforcement that their property is uninhabited, allowing law enforcement officials to remove any trespasser who attempts to take up residence or claims to be a legal occupant. Previously a trespass notice was only valid for a period of 30 days. The amendment to SB 602 extends trespass letter validity to a full 12 months and it can be submitted electronically (if your local jurisdiction allows). When a valid letter is on file, homeowners won’t need to go to court to evict anyone living illegally on their property.

Pro Tip: When it comes to vacant homes, prevention is often better than the cure! Read 10 Proven Ways To Reduce Vacancies & Keep Great Rental Tenants Long-Term

4. New screening laws will prevent credit history discrimination

Legislation: Senate Bill 267

Changes come into effect: January 1, 2024

If you manage your own tenant screening, make sure you update your process for 2024.

If an applicant is receiving a government rental subsidy, you will need to revise how you consider their credit history and application to rent your home. To avoid discrimination, amendments to SB 267 prohibits landlords from using a person’s credit history unless they are given the option to provide alternative evidence of their ability to pay their portion of the rent. This could be benefit statements, pay records or bank statements. You must also give them a reasonable amount of time to provide this information and reasonably consider it instead of their credit history when deciding whether to offer them a lease agreement.

5. San Francisco introduced an “empty home” tax

Legislation: Proposition M

Changes come into effect: January 1, 2024

From 2024, Bay Area property owners with at least three units that have been vacant for more than six months will be taxed $2,500 - $5,000 per empty unit. Penalties will increase yearly to up to $20,000. Money collected will be invested in subsidizing affordable housing in the city, including for people over the age of 60.

Individual investors, like those that Belong supports, are less likely to be financially impacted by the measures at this stage, with single-family homes and duplexes exempt. That said, it’s a timely reminder that many counties are actively taking steps to reduce empty homes while the homelessness crisis continues to bite and more families are priced out of home ownership.

It’s not uncommon for homeowners to sit on a vacant home for a variety of reasons. Some have inherited a family home and aren’t sure if they’re cut out for property management. Others move for work and plan to return to the home and feel unsure about renting the home out. If this is the case, Belong has a solution. We find people that will love and respect your home as much as you do, while also doing all the work to ensure it’s looked after and maintained. Learn more about Belong’s unique residential network and homeowner services here.

Belong guarantees rent and offers eviction assistance

Belong homeowners don’t have to worry about constantly changing regulations, as our team of experts do all the work for you and are available 24/7 to answer any questions.

Belong homeowners earn guaranteed rent, paid to them each month even when residents are late to pay. And, in the unlikely event that residents must be evicted, Belong assists with the process so homeowners are never left stuck in the confusing legal system on their own.

Interested in learning more about Belong services and availability in California? Check out one of our local pages below:

Disclaimer: This article is not intended as legal advice. Your local city is the best place to find information on local ordinances that apply to you and your rental property. In an effort to flip outdated property management on its head, we prefer to use the terms ‘homeowner and resident’ over ‘landlord and tenant’. But as this article discusses legislation, we have stuck to the old monikers.

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