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Is There Truth Behind Elizabeth Warren’s Rally Cry Against Institutional SFR Investors?

Recent lawsuits allege operators like Invitation Homes are slow to respond to repair requests and practice aggressive eviction tactics.

Institutional operators of single-family rentals (SFR) have come under public fire recently.

“Since the mortgage crisis, large private equity firms have become some of the country’s biggest landlords… a huge loss for America’s renters,” according to Sen. Elizabeth Warren (D-Mass.), currently a leading Presidential candidate. On her website, Warren goes on to criticize operators such as Invitation Homes for their “aggressive eviction tactics,” alleged discrimination against tenants of color and efforts to stymie legislation that would offer more protection for renters.

It’s true that several of these companies, including American Homes 4 Rent and Invitation Homes, currently face unresolved lawsuits from dissatisfied residents and criticism from the Better Business Bureau (BBB). However, real estate industry experts point to high occupancy rates and low rates of turnover in the sector as proof that their property management policies can’t be that bad.

“If their performance was a bad as that, then occupancy rates for these companies would not be in the 90 percent range,” says John Pawlowski, lead residential analyst for Green Street Advisors, a research firm based in Newport Beach, Calif.

Several large-scale SFR landlords still face more than a dozen lawsuits originally filed against them by residents in 2018. These include both American Homes 4 Rent and Invitation Homes, as well as several other firms that have since merged with the two giants. The lawsuits allege, among other problems, that many rental homes have been badly maintained by unresponsive property managers.

However, these lawsuits have yet to have any impact on expert performance forecasts for these companies, according to Green Street. “I don’t take them all that seriously,” says Pawlowski.

For example, the judge in one case has granted a motion to dismiss a class-action lawsuit against Invitation Homes that was still moving through the California courts in November 2019, though lead plaintiff Jose Rivera has amended his complaint. Rivera alleges that Invitation Homes charges excessive late fees of $95 for rent payments made even just one hour past the deadline, including late payment of prior late fees.

Meanwhile, large-scale institutional landlords manage just a fraction of the millions of SFRs in the United States. The maintenance provided by large SFR companies probably compares well to the services provided by many mom-and-pop operators, notes Pawlowski. Many smaller owners operate just one or two properties and may live far away from the houses they rent out. In contrast, larger, better-capitalized companies are more attractive subjects for a lawsuit. “They are an easy target,” Pawlowski says.

However, Invitation Homes has also been criticized by the BBB, which “identified multiple patterns alleging that Invitation Homes does not provide a timely response to fix damages when a tenant has brought it to their attention,” according to the agency website. “As of March 2019, the pattern of complaints remains.”

Dallas Tanner, Invitation Homes’ president and CEO, insists the company remains “committed to the resident experience.” In the third quarter, the rate of resident turnover on lease renewals dropped below 30 percent for the company for the first time. Invitation Homes’ roughly 80,000- rental home portfolio is 96.3 percent occupied. That’s up from 95.8 percent in 2018. Average rents grew by 4.0 percent from the beginning of 2019 through the third quarter.

Invitation Homes and many of its peers are investing in technologies to help them manage their scattered portfolios more efficiently, including installing smart locks to allow contractors to safely enter and leave houses to perform repairs, says Pawlowski. The REIT also plans to invest capital to “enhance risk-adjusted return, asset durability and resident loyalty,” says Tanner.

For its part, American Homes 4 Rent is hiring more call center staff and technicians to help address the complaints it’s facing. “Consumers allege having requested a repair for months with no response,” according to the BBB. The 53,000 rental homes operated by American Homes 4 Rent had an average occupancy of 95.1 percent in the third quarter. Rents grew by 3.6 percent compared to the year before.

“More companies are using technology to improve their customer service for both owners and residents,” says Doug Brien, CEO of Mind Property Management, based in Oakland, Calif. “They’re leveraging more big data than ever before to help owners maximize their rental income and returns, and manage their properties more efficiently.”

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