A Worrying Housing Trend: Non-local Investment Firms Are Buying Minnesota Properties

Most people speeding down Blaine’s busy Highway 65 probably don’t notice Blaine International Village, a community of about 500 manufactured homes nestled along the road. For nearly half a century, the park has been a locally owned family business, offering some of the lowest rents in the Twin Cities.

But quietly this year, amid the COVID-19 pandemic, the community joined a growing American trend. Earlier this month, the community, with a park similar to Chaska, was bought by a Utah-based investment firm called Havenpark Capital Partners for a total of $71 million. Funded by veterans of the Nude Skin multi-level marketing operation, the parks will be just a small part of a financial portfolio of Midwestern manufactured home communities aimed at generating profits for its financiers, which have grown aggressively over the past year .

If Minnesota follows the pattern of a dozen other states, the future for Blaine’s tenants promises to be a profit squeeze during the ongoing housing crisis. It’s a growing trend that pits financial companies against people’s homes in cities across the country.

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The growth of the financialization of housing

Real estate speculation is nothing new in American history and should be on any list of our nation’s founding principles. Indeed, housing policy in the United States has long celebrated the idea of ​​homes as investment vehicles for families. Much public funding is based on the idea of ​​creating individual wealth through home ownership.

But there is a difference in scale and precision between the practices of local landlords and national institutions, which increasingly use residential real estate as part of financial investment schemes. Over the past decade, the financialization of real estate has grown rapidly in parts of the country experiencing severe affordability crises, notably in Minnesota.

Last year, at the dawn of the COVID pandemic, The New York Times Magazine published detailed coverage on the growth of the financialization of housing. The article, by Francesca Mari, examines the practices of institutional owners who buy California homes as part of investment portfolios. As is the case with many Wall Street efforts, tracing the ties between LLCs, mergers and acquisitions creates a maze of opaque names like Strategic Property Management, Colony Capital, Starwood Waypoint and (one of the biggest ) Invitation Homes.

MinnPost photo by Bill Lindeke

If Minnesota follows the pattern of a dozen other states, the future for tenants in Blaine International Village promises to be a squeeze on profits during the ongoing housing crisis.

As Mari describes, these businesses total more than $60 billion through the use of complex financial products such as real estate investment trusts (or REITs) and private equity firms. In many cases, these institutions manage their housing portfolio by ensuring high returns, resulting in rent hikes, maintenance cuts and opaque fees for unsuspecting tenants.

Control by the very rich

At the same time, economic inequalities have widened in recent years, especially for the very wealthy, exacerbating the trend towards the financialization of real estate that is increasingly affecting Minnesota. As a recent study from California Institute of Political Studies reports, a handful of very wealthy investors control more than 4% of the country’s housing stock, concentrated in parts of the country hit by high costs and low availability.

And the financialization of California-style housing is increasingly becoming a trend in the Twin Cities.

Edward Goetz

Edward Goetz

“I’ve seen an increase in this kind of investor-owned institutional phenomena probably since 2000,” explained Edward Goetz, director of Urban and Regional Affairs Center (CURA) at the University of Minnesota.

The 2008 financial crisis, itself caused by Wall Street’s manipulation of mortgages, sparked a foreclosure crisis that devastated homeownership as it swept through working-class neighborhoods in cities like Minneapolis. According to Goetz, these foreclosures allowed financial institutions to step in with access to financing, buying hundreds of homes in places like Minneapolis’ hard-hit North Side.

The largest of these institutional owners – companies like Invitation Homes, which was started by private equity hedge fund Blackstone – date back to this time. Associated with The Urban Institute are currently studying the phenomenon of investment firms buying homes, trying to calculate the size and scope of the problem in the Twin Cities.

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“Some of these non-local institutional buyers are there to operate properties,” Goetz explained. “They tend to shop at the mid to low end of the market, and often they then mine those properties for whatever revenue they can get. They’re collecting rent and really not reinvesting in the building, they’re trying [instead] to take advantage of it. »

As the California report describesinequality spurred by the COVID crisis has made this kind of real estate financialization more common in many cities across the country.

From the study:

In addition to converting single-family homes to rentals, in the mid-2010s investors realized they could make a quick profit by buying communities of manufactured homes (and the land under the trailers) and almost immediately increase the rent charged. for the “lot” where people’s houses are located. Some of the wealthiest private equity firms, including Blackstone, have already purchased tens of thousands of manufactured home lots.

In Minneapolis, a long list of conflicts

For Minneapolis tenants, renting from larger institutional landlords has exacerbated the problem of housing instability. According to Eric Hauge, executive director of the Bloomington-based housing organization Lifelineit’s a long list of disputes centered on the city’s two largest real estate financialization deals, Havenbrook and Front yard real estate.

Eric Hauge

Eric Hauge

The main complaints from tenants relate to rent increases, neglect of repairs and excessive charges, all of which can lead to evictions and cascading problems resulting from this often one-sided legal process. On top of that, as Hauge describes, there have been issues around Executive Order 20-79which has suspended evictions during the COVID pandemic for the past 10 months.

At the same time, it is not easy to identify solutions to the problems posed by the financialization of real estate. On the one hand, groups like the Institute of Political Studies request state level legislation aimed at limiting the power of landowners. This type of advocacy has yet to have an impact in Minnesota.

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“Specifically on this phenomenon, we believe that more consistent, comprehensive and rigorous rental license requirements, as well as aggressive enforcement of these licenses and inspections could help a lot,” Hauge told me.

At the very least, the growing role of large institutional real estate landlords is one reason for the desire to strengthen tenant protections in Minneapolis and St. Paul. The first was adopted in 2019, while the second was recently struck down by a federal judge.

A particularly vulnerable sector

Back in Blaine, the hundreds of residents of International Village remain in their quiet homes along Central Avenue. Thanks to their gray zone status, where residents often own their home but not the land it sits on, these communities represent a particularly vulnerable part of the housing market. Theoretically, people can move their house to another location, but in reality, that’s a rare occurrence.

If Havenpark Capital’s track record in cities like Fargo, North Dakota and Des Moines, Iowa Believe it, it’s a safe bet that lot rents in the community will soon rise, while evictions could increase as new management strives to increase profits for its investors. If and when that happens, it will be another sign that housing is increasingly becoming a front in the battle between financial corporations and the middle class. If nothing is done, institutionalized housing threatens to become modern feudalism.