A Housing Rescue Mission: Taking on Institutional Investors in Ohio
Corporations have been buying real estate in record numbers in recent years. The surge in investor ownership has been keenly felt in Ohio, where one out of every six homes sold in 2022 was purchased by a corporation. The issue has inspired action in the state legislature, with two bills recently introduced to stem the wave of corporate purchases, and LISC’s Ohio offices are working together at the state level to address investor ownership concerns and advocate for tenants.
Institutional investors harm local communities
Corporations have been buying real estate in record numbers in recent years. With deep pockets backed by private equity or other investors, institutional investors can easily outbid individual homebuyers and acquire properties at a speed and scale that competitors can’t match. Investors bought nearly a quarter of homes sold in the United States in 2021, and recent experience in many cities has shown these absentee landlords are more intent on making a profit than making a decent home. Tenants in these properties often suffer from poor maintenance, excessive fees, and sudden rent hikes, and researchers have found that neighborhoods with more corporate owners are 1/3 more likely to experience an eviction spike and are also more likely to gentrify. Sometimes the properties merely sit vacant and deteriorate, keeping needed units out of the market while contributing to public health and safety challenges, increased maintenance costs for local government, and suppressed property values, particularly in BIPOC neighborhoods.
The surge in investor ownership has been keenly felt in Ohio, where one out of every six homes sold in 2022 was purchased by a corporation. In Columbus, that figure was one in four during the first quarter of 2022. The issue has inspired action in the state legislature, with two bills recently introduced to stem the wave of corporate purchases. LISC’s Ohio offices are working together at the state level to address investor ownership concerns and advocate for tenants.
Cincinnati
Cincinnati mostly has single-family homes; 95% of Hamilton County is zoned for single-family. But with an owner-occupancy rate at 39%, single-family rentals comprise a large part of the market. Many large landlords grow their holdings by acquiring foreclosed homes, and one of the neighborhoods where LISC focuses had the highest number of foreclosures in the state during the Great Recession and that began in 2008. LISC Cincinnati Executive Director Kristen Baker explains, “The recipe for investors to move in was all here: Low prices and lots of properties in or near foreclosure.” The situation has been developing for years, but Baker says housing advocates in the city really began to understand the scale of it in the last three to four years.
When the market began to improve, many properties that might be affordable for homeownership did not re-enter the market. They either remained vacant or were rented and poorly maintained. A large real estate investment trust (REIT) that controlled about 1,500 houses in Cincinnati recently made national news for its allegedly abusive tactics toward tenants. Baker explained that properties were in poor condition, with some even lacking HVAC systems. The corporate landlord did not perform maintenance and failed to respond to tenant complaints. “It’s not right from a moral perspective,” she said. “Our legal aid society has many stories of mistreated clients. [The REIT] would argue they are providing an important service because rent is really low, but that doesn’t mean it’s safe and healthy housing.”
With a declining population, the City of Cincinnati has been focused since the Great Recession on repopulating the city. However, the city’s strategy so far has focused attention on luxury, market-rate housing concentrated in the city center, rather than affordable homes for people making $50,000 or less. LISC has worked over the last five years to raise awareness about the affordable rental crisis, digging deeper into the investor ownership issue and bringing other stakeholders into the conversation.
Toledo
Like many post-industrial cities in the Midwest, Toledo is still seeing some of the effects of policies like redlining, with core central city neighborhoods affected by disinvestment and vacancy. Toledo has had a shrinking metro area for a long time, but there has been more emphasis on revitalizing downtown in the last few years. LISC focuses its investments on the neighborhoods around downtown, which are lower-income and majority communities of color.
As in Cincinnati, a high proportion of Toledo’s rental market is in single-family, scattered-site properties. This rental housing includes a portfolio of 747 single-family homes funded by Low Income Housing Tax Credits (LIHTC), which represents about two-thirds of the current 9% LIHTC projects in the city, according to LISC Toledo Senior Program Officer Sarah Allan. In 2012, the condition of the portfolio received local attention when some properties reaching the end of their 15-year LIHTC compliance period were foreclosed and demolished because the nonprofit owner lacked the capacity to refinance and rehabilitate them. That incident and the subsequent publicity generated a call to action to prevent further loss of affordable rental housing.
At a time when investor purchase activity was becoming more noticeable, these homes reaching the end of their LIHTC affordability restrictions were also at risk of being scooped up by investors. “We’re seeing investors acquiring properties that need significant investment, doing the bare minimum and then charging pretty high rent” for substandard housing, Allan explained. Without action, LISC and its partners realized “we were going to be in trouble.” The Ohio Housing Finance Agency, Lucas County Land Bank, National Equity Fund, Ohio Capital, LISC, property owners, and community-based organizations came together to create the “Year 16 Task Force” to make sure properties could be preserved as affordable homes.
Stemming the tide
Cincinnati
In addition to fulfilling the functions of a port, the Port Authority of Greater Cincinnati is heavily involved in real estate development and land use. The Port holds the county land bank and has a community development corporation that does both new construction and rehab.
The Land Bank was approached in 2021 by the receiver of a national portfolio with tens of thousands of properties. The receiver asked the Port to consider purchasing 194 properties in Hamilton County. It was a good opportunity to find housing to put back to productive use and a good use of the Port’s capacity acquire properties at a scale no one else in the area could match, so the Port purchased the portfolio with a bond issuance, outbidding other investors in the process.
Some of the new properties were vacant, but many were occupied with renters at the time of purchase. The Port’s initial goal was to convert all the renters to homeowners as part of an effort to create more affordable homeownership opportunities for BIPOC families. However, despite its expertise in property development, the Port had no experience as a residential landlord, and quickly encountered some challenges. In assessing the properties, the Port found many in worse shape than previously thought due to years of deferred maintenance from the investor owner, and the resulting costs of rehabilitating and stabilizing the homes could put sales prices out of reach for low and moderate-income buyers without additional subsidy. Additionally, current tenants face numerous barriers to qualifying for homeownership, from pandemic-related income losses and rent arrears to poor credit to a justifiable mistrust in government and banking institutions following years of disinvestment and discrimination.
Recognizing these challenges, the Port reached out to LISC for support with the project. LISC Cincinnati provided grants to a local community-based organization and certified housing counseling agency, Working In Neighborhoods, to do outreach to the renters in the newly purchased portfolio. “There’s not a lot of trust of the Port in the communities, so they need the community-based partners to help make the connections,” Baker said. “We wanted to make sure that interactions with families and neighbors were done appropriately.”
Despite the difficulties, the Port still hopes to sell many of the homes to first-time homebuyers so they can start building generational wealth. Baker believes the purchase was an appropriate use of the Port’s power, to keep nearly 200 homes out of the hands of corporate investors.
Toledo
With the loss of manufacturing and other economic opportunities, Toledo has seen a shift from homeownership to a higher proportion of rentals. Toledo’s housing stock is older and includes many properties built before the advent of lead laws and other safety measures, and landlords are not always diligent about ensuring the properties are safe for the families who live there.
The goal for the new Year 16 Task Force was to figure out how to preserve affordable housing assets and transition them out of the year 15 compliance period as safe, livable properties. The task force spent several years working together on a solution. LISC hired a regional preservation director to convene the Year 16 stakeholders, which include the Toledo Fair Housing Center, Advocates for Basic Legal Equality, developers, banks, and neighborhood anchor institutions like medical centers. The task force designed a plan to transition expiring units to homeownership by giving existing tenants the opportunity to purchase their homes and the support to do so successfully. They set concrete goals for dealing with properties:
- Inspect each house and ensure it is livable before sale, or that vacant units are renovated and compliant before sale.
- Prepare tenants by connecting them to LISC’s Financial Opportunity Center or homeownership training programs, ensuring understanding and communication during all steps. This includes outreach to inform people about property management changes.
- Model new transactions with long-term feasibility by negotiating on existing debt with banks, the city, and Ohio Housing Finance Authority.
Of the 747 single family homes in the LIHTC portfolio, 653 have now reached their 15-year compliance period. All of the portfolios have been transitioned to reputable local partners who renovate and sell them as affordable homeownership opportunities. When properties are sold, they are under a restrictive affordability covenant. Year 16 partners are also exploring creating a local acquisition fund that community partners could quickly access to outbid investors and purchase distressed homes, rehabilitate them, and preserve them as affordable.
There is still a considerable work to be done in the neighborhoods where home sales are concentrated, so LISC developed the Core City program to acquire, rehabilitate, and sell vacant homes as an additional boost to the neighborhood housing stock, bringing together partners including the housing authority, the local NeighborWorks affiliate, and the land bank. The goal, according to Allan, is to increase property values in the neighborhood and narrow the appraisal gap, removing a barrier to accessing private capital for homebuyers in the community. LISC and the Core City partners identify properties collaboratively, and then the development partner acquires and rehabs the property, supported with LISC grant dollars. The strategy is beginning to pay off, says Allan, as “we are starting to see increasing property values in the market,” while also expanding affordable homeownership for families of color.
Advice from the field
Baker and Allan offered some advice for community practitioners who are facing high rates of investor ownership in their areas.
Understand your market
Understand your community’s housing landscape. LISC Cincinnati made a practice of analyzing the market in the communities where it works over several years and researching property ownership. Having both current and historical knowledge helped them spot the decline in individual ownership of properties and prompted them to dig into what was happening. “That is a super-sleuth endeavor,” said Baker. “There are multiple layers of LLCs, etc. But that’s the first step to understanding the issues and what is needed.”
Work together
Working toward a common goal together will get results faster for everyone, so LISC is active as a convenor in both the Cincinnati and Toledo markets. Doing the research to get a deep understanding into the issue can also help you identify the other organizations that are working on it and what additional partners need to be at the table. Look for an opportunity to bring in a partner with the resources to acquire properties and preserve them, such a government entity or a mission-minded investor. Identify partners who can help with tenant organizing, advocacy, financial counseling, home repair, and other necessary parts of the strategy. And start early, even if you have not yet identified properties to purchase. Together you can define a strategy based on what you know about the local market and build the infrastructure to be successful when opportunities do come your way.
Organize
Acquiring and preserving portfolios from corporate ownership will be easier with the tenants on board. “The issue is investor properties will change hands behind the scenes,” Baker said. “It is important for us to have a ground game. We aren’t going to be able to stop this, unfortunately, but we at least can make it harder for these folks to be successful, and that requires community organizing.” Many investor-owned properties, like the portfolio in Cincinnati, have significant code enforcement issues and other violations. LISC Cincinnati and its partners work with renters, making sure they understand their rights and they are doing what they can to report issues. Support renters to be able to document the problems they see. Figure out what tenants’ rights are in your jurisdiction, and advocate for expanded protections or for better enforcement. Tenant organizing groups throughout the country have fought and won protections like renters’ bills of rights, right to counsel, good cause eviction protections, and rent regulation, and are pushing for the adoption of Community and Tenant Opportunity to Purchase Act (COPA and TOPA) policies, modeled on their success in Washington, D.C and San Francisco. When you elevate concerns to government officials, that can start to put the heat on investors. Tenant organizing can be more challenging in the scattered-site context, but not impossible. It just requires diligence and understanding.
Be persistent
“This is the bread and butter of community development,” Allan observes. “You just have to break down large-scale challenges into bite-size pieces you can rally partners behind and just rise and grind. Do it every day and know you are not going to see life-changing, miraculous results in a couple of years. It’s the long game.” Allan advises practitioners to have patience, even when progress seems slow, and keep doing the work. It’s also important to share any and all successes with your funders so they can see progress. “Overcommunicate success stories,” she says, and make sure funders see the stories of the real people affected by your work. “Humanizing it has been essential,” according to Allan. There have been 29 homes sold in the last couple of years through the Core City program. “That may not look like much on paper, but it’s huge for the 29 families.”