Private Equity Firms: Drowning in Profit


| 6/27/2014 11:44:00 AM


Tags: housing market, TomDispatch, equity firms, economy,

Private Equity Firm

Reprinted with permission from TomDispatch.

Security is a slippery idea these days—especially when it comes to homes and neighborhoods.

Perhaps the most controversial development in America’s housing “recovery” is the role played by large private equity firms. In recent years, they have bought up more than 200,000 mostly foreclosed houses nationwide and turned them into rental empires. In the finance and real estate worlds, this development has won praise for helping to raise home values and creating a new financial product known as a “rental-backed security.” Many economists and housing advocates, however, have blasted this new model as a way for Wall Street to capitalize on an economic crisis by essentially pushing families out of their homes, then turning around and renting those houses back to them.

Caught in the crosshairs are tens of thousands of families now living in these private equity-owned homes. For them, it’s not a question of economic debate, but of daily safety and stability. Among them are the Cedillos of Chandler, Arizona, a tight-knit family in which the men work in construction and the oil fields, while the strong-willed women balance their studies with work and children, and toddlers learn to dance as early as they learn to walk. Their story of a private equity firm, a missing pool fence, and the death of a two-year-old child raises troubling questions about how, as a nation, we define security in housing and why, in the midst of what’s regularly termed a “recovery,” many neighborhoods may actually be growing increasingly vulnerable.

A Buying Frenzy

In early August 2013, the Cedillo family threw a pool party at their house in Chandler. It was the sixth birthday of Brenda Cedillo’s son, Jesus, and the family gave him a Batman-themed celebration, complete with a piñata in the driveway and a rented waterslide for the small pool in the backyard. Brenda, her brother Bryan, and her sister Christine had signed a one-year lease on the two-story structure three weeks earlier, which made the party special. It was the first family celebration that could be held in a house.