REITs create rental refugees: The AIMCO case
Knut UNGER, 2006
It is 9am, December 6, 2005: Sheriff’s cars parade into the Lincoln Place Apartment complex in Venice, California. They are accompanied by private guards of property owner AIMCO, and pile into the hallways, pound on the doors. The sheriffs present court orders to vacate their homes to 52 resident households. Some are allowed 20 minutes to leave their apartment homes. Others are given even less time. Empty-handed, these locked-out and outraged mothers, kids and students gather angrily in front of their homes. Door locks are being changed1.
California has 52 new homeless families.
AIMCO is a large REIT, and one example for what financial lobbyists and a majority in the government would like to push onto their Fall agenda: Large REITs shares can be traded on the stock market; they do not pay corporate taxes; 90% of their profits are distributed among shareholders (banks, insurance companies, pension funds).
Lincoln Place was built in 1949 with plenty of trees and open spaces between architecturally perfect buildings. Property prices around Los Angeles rose 20% per year over the last five years. Stabilized rents in LA can only by increase by 3% each year. Since the acquisition of Lincoln Place Garden Apartments in 2003, AIMCO intends to demolish the complex and replace it with a mixture of expensive, high-rise condominiums and rentals. That plan, however, became difficult to realize due to protests of 800 renting households. In addition, the apartment complex was designated as a State Historic Resource in 2005. AIMCO filed suit against the State historic commission, got the designation voided. On May 5, 2006, the State Historical Resources Commission reinstated the designation. Eviction of the remaining households at Lincoln Place is planned for September 2006.
Thus AIMCO has made good use of their political influence and put renters on the street. AIMCO uses a California law that allows owners to cancel leases, if they are going out of the rental business. « They are misusing this law. AIMCO lies”, claim the renters, and try to stop even more forced evictions with petitions, lawsuits and political actions.
“Starting in the early 90’s, REITs targeted subsidized/HUD housing”, explains Michael Kane of the American Tenants Alliance, NAHT. “That resulted in a tremendous concentration of ownership of apartment complexes.”
With 240,000 rental units, AIMCO is one of the largest private apartment complex owner and operator in the USA: One speciality: buy-outs of HUD properties that are being demolished to make room for more lucrative buildings. It happens outside of California, too, as in Dallas, Sacramento or Baltimore.
In 2003, AIMCO implemented a plan to sell a third of its properties and buy apartments in hot real-estate markets such as Los Angeles and New York City, where rents are among the highest in the country. The company sold 118 apartment complexes – 47 of them affordable-housing properties – for $960 million, its 2005 annual report says. AIMCO purchased eight properties in New York, New Jersey and California where the average rents are three times higher than those for the properties sold2.
Another speciality is disinvestments, disrepair and bad maintenance on social-housing stocks. The “Charlotte Observer”3 reported on September 2006:
In 2000, a study found AIMCO’s taxpayer-subsidized properties in predominantly African American neighborhoods in Dallas received substantially lower HUD inspection scores than those in white areas, said Sandy Rollins, president of the Texas Tenants Union.
In 2002, HUD fined the company $129,580 for failing to alert tenants to lead-paint hazards at apartments around the nation.
In 2005, former tenants at Forest Ridge Apartments in Winston-Salem sued AIMCO and Goler Metropolitan Apartments, alleging apartment owners failed to provide safe and sanitary housing. The sides reached a settlement.
In a social housing complex in Charlotte tenants complain of roaches, chronic leaks from ceilings and broken toilets, and other disrepair. On stormy nights, rain leaks into bedrooms. Since 2000, city code enforcement inspectors have investigated 63 complaints of health and safety violations. Many tenants say they cannot afford to leave.
AIMCO is the largest player in Charlotte’s Section 8 housing program. Section 8 means: Landlords sign government contracts to shelter low-income tenants. In exchange, tenants put 30 percent of their income toward rent. Taxpayers pay the rest.
The profit motive « is at odds with providing decent affordable housing, » said Jim Grow, an attorney at the National Law Project in Oakland, Calif. « The strategy is to do as little (maintenance) as they can and keep HUD off their back. » But Lance Graber, executive vice president for AIMCO, said it’s « shortsighted » to think only socially motivated organizations can provide decent, affordable housing. The federal government, he said, has decided that the private sector can often do a better job than government agencies and nonprofit groups.
“AIMCO keeps good contacts with right-wing Republicans”, reports Kane. “These corporations expect short-term profits and try to get rid of social contracts/structures as fast as possible.” Increasingly AIMCO also takes affordable but non-subsidized rental units off the market, evicts the tenants, fixes-up the properties to rent or convert to condos at luxury rates.
“Our portfolio includes many affordable apartments,” wrote AIMCO’s CEO in 1999. “Many subsidized programs will expire in a few years, and plenty of properties are prime targets for profitable conversions.”
There is one ‘locust’ of a special kind among those profiteering: According to some information resources in the US Deutsche Bank owns almost 8% of AIMCO stock and is one of the largest shareholders. Deutsche Bank made a socially responsible business commitment with the ‘UN Global Compact’. Deutsche Bank did not explain to those renters in Venice, CA (Germans are among them, incidentally) how ‘socially responsible’ it is to lock out disabled, elderly and children.
August 30, 2006, Lincoln Place Tenants Association (LPTA) took it’s campaign to prevent the imminent eviction of 40 elderly and disabled households to these major investors and lenders of AIMCO4.
“We’re concerned that the real owners of Lincoln Place, namely Aimco stockholders, are not aware that this travesty is being perpetrated in their name and for their benefit, » said Sheila Bernard, president of the Tenants Association. AIMCO before had announced it will file evictions with the court on September 1 and that the elderly and disabled could be subject to forcible removal by the sheriffs. Lucy Siam, a 77 year-old disabled resident who lives on $869 a month says, « If I am forced from my home, I have no idea what I’m going to do. Today’s rents are completely beyond my means. I can hardly make ends meet as it is. » Celia Harriman, an 84-year old low-income resident who has suffered a stroke and pneumonia says, « Facing eviction has exacerbated my health problems. I fear I will not survive all the pressures of a move. Won’t someone help us? »
« Lincoln Place is where the rubber meets the road on socially responsible investing (SRI) in real estate. Up till now, SRI has concentrated primarily on how the physical environment is affected. It’s time to look at the harm done to people, too » said Laura Burns, a member of the LPTA who was evicted by AIMCO last year.
Many of the banking institutions and mutual funds that are the largest investors in AIMCO have pledged that they will only engage in socially responsible investment. Deutsche Bank, for example, is a signatory to the UN Global Compact and JP Morgan Chase has committed to enacting policies that will not cause social harm. « We cannot believe that these companies consider the eviction of seniors and disabled on fixed incomes, who have no possibility of finding alternate housing anywhere in the Los Angeles area, a socially responsible thing to do. Many of these tenants have lived here for decades. Their entire lives, social and health networks are here in this place, » said Bernard, a teacher whose pension, ironically, will be administered by CalSTERS, a joint venture partner with AIMCO. « We are appealing to these institutions to live up to the public commitments they have made. »
AIMCO stock is held primarily by institutions and mutual funds. According to the current Yahoo Finance website, the largest institutional holders are Cohen & Steers, Inc., JP Morgan Chase & Co., Deutsche Bank AG, Goldman Sachs Group, Inc., The Vanguard Group, Security Capital Research & Management Co., Inc., Barclays Global Investors UK Holdings Ltd, State Street Corporation, Morgan Stanley, and FMR Corp. According to the same website, top mutual fund holders of Aimco stock are Fidelity Real Estate Investment Portfolio, Vanguard Specialized-Reit Index Fund, Goldman Sachs Mid-Cap Value Fund, American Century Real Estate Fund, Cohen and Steers Realty Shares Inc., Hotchkis and Wiley Large Cap Value Fund, DWS RREEF Real Estate Fd II, Cohen and Steers Realty Income Fund, Price (T.ROWE) Mid-Cap Value Fund, and Hotchkis and Wiley Mid-Cap Value Fund.
In October 2006 AIMCO posted notices to lock out last remaining Lincoln Place tenants, 40 households, all elderly and/or disabled.
3 Charlotte Observer , Sep. 26, 2006.