The rental home seemed so beautiful when McKayla Ferreira first laid eyes on it. The roof had three gables, fruit trees grew in the backyard, and the front porch gleamed with a fresh coat of paint.
Then Ferreira moved in.
First, she noticed water leaking through the bathroom and kitchen ceilings. Then she found a furry black mold spreading across the walls and raw sewage sluicing through the crawl space. Worst, to her, were the black widow spiders swarming her kitchen cupboards and linen closets. “Those spiders were so big you could hear them,” Ferreira said. “They sounded like fingernails scraping a table.”
Ferreira called her landlord, Invitation Homes Inc, a creation of private equity giant Blackstone Group LP. The spiders were a “housekeeping issue,” the company representative told her, and she should “clean the place up.” Invitation Homes wasn’t enthusiastic about fixing the leaks, either. Two months passed before it sent someone to cut through the ceiling and fix the pipes, Ferreira said. Then the company took seven more months to patch it all up.
Invitation Homes pitches itself as a singular landlord providing unprecedented ease and comfort for renters of its tens of thousands of single-family homes. But in interviews with scores of the company’s tenants in neighborhoods across the United States, the picture that emerges isn’t as much one of exceptional service as it is one of leaky pipes, vermin, toxic mold, nonfunctioning appliances and months-long waits for repairs.
Tenants also complain about excessive rent increases and fees that can add up to hundreds of dollars a year. In a proposed class-action lawsuit filed in May in the U.S. District Court for Northern California, renters accuse the company of “fee-stacking.” They allege that Invitation Homes charges tenants $95 if their rent is one minute late – even if the late payment is due to the company’s own nonfunctioning online payment portal – and then files an eviction notice to add more fees, penalties and legal costs if the tenant wants to stay in the home.
As a Blackstone vehicle, Invitation Homes led Wall Street’s charge into the single-family-home rental business, snapping up houses at fire-sale prices. After its merger last November with Starwood Waypoint Homes, another private-equity-backed foray into the market, Invitation Homes became the largest landlord of single-family homes in the United States by number of rental units.
Today, Invitation Homes manages 82,000 properties, most of them entry-level three- and four-bedroom houses in 17 metropolitan areas concentrated in the Sun Belt. Its portfolio – though still less than one percent of the overall single-family rental market – is 58 percent larger than that of its nearest competitor, American Homes 4 Rent.
Affordable-housing advocates, real estate professionals and other critics of Wall Street’s push into the rental market say the tenant complaints suggest that rapid growth has stretched Invitation Homes’ ability to manage its properties. They also assert that there’s a deeper problem: Invitation Homes, like some of its Wall Street-backed peers, adheres to a business model that pressures it to lean hard on tenants to satisfy investors.
These companies have financed their growth by selling billions of dollars in bonds – the rental-market equivalent of the mortgage-backed securities that led to the financial crisis – to pension funds and other big institutions. Industry critics say that to keep payments to bond investors rolling, companies like Invitation Homes must minimize maintenance costs and maximize rents and fees.
Among those tenants is Contrell Wethersby in Atlanta, who told Reuters she had to go for more than a year without heat or a functioning refrigerator, stove, microwave or garage door – not to mention having to endure a leaky ceiling and black mold.
Some renters, like Willie Jean Brister in Los Angeles, have seen their rent increase by as much as 50 percent over three years. During that time, Brister has filed work orders for an exterminator and repairs on a bathtub, faucets, bathroom door, cabinet doors, fence, hot water and garbage disposal – all of them reviewed by Reuters on the company’s web portal. The grandmother with five children in the house said the portal keeps saying “ ‘work completed,’ but the work is never completed. You get worn out, like you are paying all this rent and not getting any services.”
Invitation Homes has been raising rents by as much as an average of 10 percent a year in places like Oakland, California – nearly double the norm in that market – according to the Alliance of Californians for Community Empowerment (ACCE), an advocacy group. At the same time, the company has been adding to the types of fees it charges tenants – not just for late payments, but for things like rent paid on debit cards, which incurs a $30 charge.
Fees have helped lift earnings by 20 to 30 percent a year. In a recent earnings call, the company attributed rising profits in part to its “system” to “track resident delinquency on a daily basis.” This system allows the company to start charging fees and penalties the minute a tenant fails to pay on time.