Sacramento is the land of corporate landlords
Wall Street, distant companies get public dollars while dominating local rental market
Under the brim of a cowboy hat, Curtis Pearl glances down 17th Street from the doorway of the Pensione K Apartments in downtown Sacramento. It’s Monday, February 5: This is the day the former oil rig worker is scheduled to be evicted. Ironically, Pearl has the money to pay his rent. He insists his predicament is one of principle—and geography.
Pearl showed SN&R photographs of apparent mold, wall-rot and clusters of cockroaches he says were infesting two units next to his apartment. Other pictures show the building’s common kitchen blocked off by construction debris. He also describes sewage leaking from the ceiling.
The issues drew Pearl into a battle of wills with the site’s property manager: Despite a 15 percent rent hike on some tenants in the winter of 2015, Pearl says, the living conditions never improved at the Pensione K. So he withheld his rent until repairs were made, which California tenants are legally entitled to do. The property manager responded with a three-day eviction notice that the Sacramento Superior Court upheld.
“They said it was a just-cause eviction,” Pearl says. “Yeah, just ’cause they wanted to.”
Pearl would like to appeal his case to the building’s actual owner, but can’t figure out how. That’s because Pensione K is owned by Barone Galasso & Associates Inc., a real estate development firm based in San Diego.
“There’s no way to get above the manager,” Pearl says. “It makes you feel very vulnerable. Powerless. And the communication between the people running this building, and the ownership, whoever they are, is nonexistent.”
The manager is Dennis Perez.
Pearl is one of thousands of Sacramento-area tenants renting from an out-of-town corporation—and suffering the consequences. The Southern California entity that owns Pearl’s apartment complex has gotten financial help from public agencies and elected officials in Sacramento. The vast majority of corporate rentals, however, are firmly in the grip of Wall Street.
An SN&R analysis of real estate data shows that one private equity firm—Blackstone Group—owns more than 373 different rental properties in Sacramento County, controlling well over 1,225 rental bedrooms and a half-million square feet of rental space. The estimated property value of Blackstone’s local holdings is $107.5 million. But that’s not the whole picture—not even close.
Those numbers are limited to properties registered to a string of limited liability corporations, or LLCs, linked directly to the Blackstone name, which may not account for Blackstone subsidiaries. Some real estate experts contend Blackstone’s local holdings are quadruple the figure SN&R uncovered.
City planning expert Maya Abood recently conducted a study as part of her master’s thesis at the Massachusetts Institute of Technology’s Department of Urban Studies. Abood’s research found that Blackstone is the second largest property owner in all of Sacramento County, behind only the city of Sacramento and ahead of the county itself.
“They’re merging for greater market power,” Abood said in a recent conference call with reporters. “They own a disproportionate amount of properties in certain places. … They’ve been investing in primarily African-American neighborhoods, including in California.”
Abood stressed that the phenomenon is causing unsustainable rent increases and extreme forms of fee-gouging.
Pearl says he set out to fight similar unfair practices. But the 58-year-old has had no luck bringing his side of the story to Barone Galasso & Associates Inc.
“The owners are zombies,” Pearl observes. “They just don’t react.”
Back on March 21, 2017, officials from the Sacramento Housing & Redevelopment Agency portrayed Barone Galasso & Associates Inc. in a very different light, recommending that the City Council lend the corporation roughly $2 million to renovate the Pensione K. SHRA program manager Susan Veazey told council members the corporation was “an experienced development and management company” that owned affordable housing units.
With no discussion at all, the council voted unanimously to lend the $2 million.
This week, SHRA Executive Director LaShelle Dozier said her agency hadn’t found any pattern of formal complaints against Barone Galasso & Associates Inc. prior to recommending the loan.
“We do vetting of every property management firm we work with, and it’s a pretty thorough investigation to determine if they meet our criteria,” Dozier said. “We monitor them every year, and if issues come for tenants, that monitoring is ongoing.”
Barone Galasso & Associates’ director of property management, Leo Hurmiz, denied Pearl was evicted out of retaliation, claiming the issue arose from Pearl not cooperating with construction-related unit switching at the site. He also said all roach, mold and leakage issues Pearl complained about have now been fixed.
On Monday, Pearl stood outside the apartment complex preparing to dismantle the special medical bed he sleeps in. He says he’s suffered severe spinal problems since being electrocuted during the cleanup of the Exxon Valdez oil spill. He shakes his head, the curls of his beard grazing his army-green shirt as he wonders if a sheriff’s deputy will come tonight to change the locks. In any case, he’s planning to sleep in his car.
Pearl says he offered to pay his rent in full in a last-ditch attempt to stay in his home, but was declined by the property manager. Apparently, Sacramento’s housing crisis had meant the Pensione K was in huge demand.
“He told me to think of this as a learning experience,” Pearl says.
No one felt the shift as it was happening. But at the height of the Great Recession, the rental landscape was fundamentally changing for local “mom and pop” landlords. They were about to have direct competition from the wolves of Wall Street, relying on tactics similar to those that caused the financial meltdown.
This was Abood’s main finding while conducting her study at MIT. With support from Alliance of California for Community Empowerment, Americans for Financial Reform and Public Advocates Making Rights Real, Abood’s research was published last month as a report called, “Wall Street landlords turn the American Dream into a nightmare.” It documents how, as 9 million families faced foreclosure during the recession, private equity firms like Blackstone and Colony Capital were buying tens of thousands of distressed properties for a song. Abood notes that, starting in 2013, these companies began bundling their portfolios together, securitizing them, and then presenting them to investors as “single-family rental bonds.”
“For these Wall Street speculators, the recession of 2008 was not economically and emotionally devastating,” Abood wrote. “It was a market opportunity.”
According to Abood’s study, since Wall Street landlords are under pressure from both shareholders and bond-rating agencies, they’re incentivized to “minimize ’loss’ through speedy evictions and aggressive fee collections.”
And to maximize profits through rent hikes and deferred maintenance.
One local Blackstone tenant Abood interviewed was Maricella Castillo. Castillo spent three years living in a Starwood Waypoint Homes rental with her two small children and husband, a disabled veteran. Castillo says her family lived with a broken stove, leaky pipes, unsafe floors, ventilation issues and rot spreading through their shower. She recalled that it took months, sometimes years, for the problems to get fixed. During that time, the Castillos’ monthly rent was raised from $1,200 a month to $1,600 a month.
They finally decided to move out, which Castillo says allowed her to buy her kids clothes again.
Real estate records show that corporate-owned properties spread from Galt to Rio Linda, with a high concentration in south Sacramento. The majority are owned by Blackstone subsidiary Invitation Homes and registered under an array of LLCs. Blackstone also owns scores of additional properties in neighboring Yolo and Placer counties.
Blackstone’s takeover of the Sacramento region was part of a wider initiative. In November, it merged with Starwood Waypoint, another Wall Street real estate titan, to create a super company that owns more than 82,000 properties in the United States. The corporation continues to make statements to reporters defending its approach as a way to “professionalize” the renting experience in “a very positive” manner.
While advocates from organizations as diverse as the South Oak Park Community Association and Tenants Together have expressed concern about the displacement of renters, Blackstone does have investment ties to one public agency: Records indicate that the Sacramento County Employees Retirement System is invested in three different divisions of Blackstone.
SCERS CEO Eric Stern, who’s new on the job, said Blackstone and its divisions are so multilayered and global, that he’s still investigating whether his agency’s investments in it are direct or indirect.
Tristan Brown, a City Council candidate running in District 7, views Blackstone’s spread across Sacramento with alarm. Unlike the current council, Brown strongly supports bringing rent control to the city, and says the inability of renters to reach Wall Street landlords is one of the reasons.
“I don’t see the fight for rent control as really being tenants versus local landlords,” Brown said. “I see it as being us versus Blackstone.”