Private Equity Vultures Eye Real Estate During Coronavirus Crisis
It’s been well documented how private equity firms profited from the 2008 economic crisis. After millions of people lost their homes to foreclosure, private equity firms swept in, buying commercial, single- and multi-family properties at a steep discount, and later raising rents, gouging tenants with fees, skimping on maintenance, and using aggressive collections and evictions strategies. Some private equity landlords continued to file eviction cases as coronavirus cases began mounting and even after many jurisdictions suspended evictions because of the pandemic. By 2019 private equity landlords owned at least one million apartment units and at least a quarter million single-family homes estimated to be worth nearly $40 billion.
Now, with 26 million workers unemployed and countless businesses closing indefinitely, private equity firms are salivating at the potential business opportunities that might arise from the expected economic fallout. Unless we take immediate action to prevent it, private equity firms will take advantage of this unprecedented crisis to make even greater asset grabs.
“Coronavirus distress is the ‘opportunity of the century’ for real estate investors,” according to a recent headline in The Real Deal, a New York real estate news publication. The article quotes Meridian Capital Group’s David Schechtman saying “But I will tell you, real-estate investors — when you take the emotion out of it — many of them have been waiting for this for a decade.”
With a combined estimated $2.5 trillion in capital to invest (also known as “dry powder”), private equity firms giants like Blackstone are well positioned to swoop in to profit. In fact, at its recent quarterly earnings call Blackstone announced they have $44 billion to deploy to buy up other people’s real estate losses.
Private equity firms use large amounts of debt, or leverage, to purchase companies and real estate, putting the debt on the assets the firms are purchasing. With interest rates at near historic lows, leverage is relatively cheap. This will sustain continued demand for real estate, as noted in a recent feature in GlobeSt. According to real estate investment and services giant JLL, apartment buildings may be especially attractive, leaving millions of families at the mercy of an industry that has proven to be ruthless in extracting every cent of profit they can.
The policy choices we make now and as we start to emerge from the health emergency will shape whether private equity gains a stronger foothold in residential real estate. A more powerful group of Wall Street landlords that hold sway over even more families would worsen the affordable housing crisis. We should stand up against a private equity takeover and instead advance towards secure affordable housing for all.