Apr 12

From today’s Milwaukee Journal Schneider: Desmond’s ‘Evicted’ is a flawed masterpiece

The article misses the mark in some aspects.
 
Homes in Milwaukee’s poorest areas often can be bought for as little as $8,000, with rents running upwards of $500 a month. In virtually no time, landlords can own the properties free and clear and the rent they collect is pure profit — as long as they can collect. As succinctly put by one of the landlords featured in the book, an African-American woman named “Sherrena,” (pseudonyms are used throughout the book) “The ‘hood is good.”
 
This furthers the misperception that landlording is a “get rich quick” scheme. Sherrena made statements to Desmond that sent up red flags, at least to us in the industry,  that she was already in the throes of failure at the time of the interviews.  

Attorney Heiner Giese did the research to discover Sherrena’s identity.  She was not becoming wealthy on these properties.  Instead, Sherrena began losing her buildings to foreclosure shortly after the Desmond interviews and was out of business well before the book was published.  Many of her properties have since been razed.

However, Schneider does recognize a fact that is missed by many who look at rental housing and urban issues from the outside

 

Further, despite the book’s grim portrayal of landlords, one can only imagine how far these neighborhoods could fall if landlords weren’t there to keep at least some semblance of order. If housing laws were to squeeze the amount of money property owners could make on their rental units, they may simply abandon these homes altogether, leaving a lawless landscape devoid of structure.

 

Jan 07

Recently the Milwaukee Journal ran a series “Landlord Games” that inaccurately portrayed LLCs as being used simply to avoiding paying property taxes and fines.  The result is the Milwaukee Common Council is creating a committee to study LLCs and rental housing. Text of proposal. The rental industry is again, noticeably absent from those invited to the table.

View as formatted pdf with footnotes

Let’s agree that all property owners pay a cost when someone fails to pay their taxes or their property is foreclosed and abandoned.

The Apartment Association does not support bad actors. None of those owners featured in the Journal article are members of the Association.

Rather we see the importance of the city, and private investors working together to make rental housing, and therefore neighborhoods, succeed for the mutual good of both.

Rental housing is an important and integral element of Milwaukee. About 58% of the residents of Milwaukee are tenants. In some neighborhoods, such as 53233 the number of renters exceeds 97%. The success or failure of neighborhoods and rental housing are closely tied.

Rental Housing is the largest small business in Milwaukee with over $7 billion invested in Milwaukee. (MPROP assessor records October 2015) Rental properties account for well over a half billion dollars a year of economic impact, starting with $190 million in property taxes, sewer and water charges, maintenance, insurance and everything else that goes into running rental housing. The Census Bureau found the yearly median operating costs per unit for multifamily rental properties vary between $3,600 per unit for small properties and $5,170 per unit for large properties, adjusted to 2016 dollars. These numbers exclude interest and mortgage servicing.

Providing rental housing in older, poorer neighborhoods is difficult, challenging and unappreciated work. Many have failed, some are opportunists or worse, but the majority were simply overwhelmed financially and mentally by the task at hand.

Owners are impacted by the financial and social problems of their tenants, the high costs of maintenance and lack of capital to address those problems. It is not the owner’s lifestyle that contributes to insect infestations or broken windows, yet it is the owner and not the occupant that is accountable both financially and recently in the media.

Not only do private owners suffer these burdens. One only needs to look at the long history of failure among Milwaukee’s nonprofit housing providers. (see excerpt below) These groups had every advantage over the small private investor. They had significant financial resources, typically through Block Grant and other government funding and grants; they had well-paid and well-educated staff; they often obtaining properties without costs, and they had access to the best tenants on Rent Assistance. Nearly all of Milwaukee’s nonprofit housing providers failed financially.

These groups had every advantage over the small private investor. They had significant financial resources, typically through Block Grant and other government funding and grants; they had well-paid and well-educated staff; they often obtaining properties without costs, and they had access to the best tenants on Rent Assistance. Nearly all of Milwaukee’s nonprofit housing providers failed financially.

Or one could look at the Milwaukee’s Housing Authority budget to see the costs they incur housing low-income Milwaukeeans. Here too is an organization that gets Rent Assistance tenants, tenants who risk losing their housing subsidy if they fail to comply with the rules or pay their rent. HACM does not rent to the populations with bad histories, leaving the segment most in need of housing to the private sector.

Milwaukee should strive to encourage a successful private rental housing market in this once great city, but since the mid-1980s’ the city adopted a culture of hatred towards private rental owners. That has not produced positive results, but instead, discourages the right people from participating.

If Milwaukee rental housing became more sustainable, where people willing to invest their time and money were to make reasonable profits, it would be harder for the few charlatans to exist because of increased competition for available properties. An added benefit is more interest in investing in Milwaukee’s rental housing will result in an increase in values and therefore an increase in the tax base.

Alderman Witkowski, who is the co-author of this proposal, created a Local Business Action Team to help small business succeed. Rental housing is the largest segment of small business within the city and one that may have the greatest impact on the well-being of the city. With our half billion dollars a year of economic impact, a similar effort should be undertaken towards making private rental housing more successful.

Let’s look at the recent Journal Sentinel series on landlords.

This investigative reporting – using easily available public records – showed that the individual owners behind LLCs could be revealed and that other properties owned by these individuals or different LLCs could also be exposed. Changes in the LLC laws are not necessary, contrary to the assertions of Aldermen Murphy and Witkowski that bad landlords are operating in secret. The City Attorney’s office has recently been successful in having a receiver appointed for the various ownership entities used by inner city landlord

Within existing laws, the city could have caused most of the featured landlords out of business, through docketing and enforcing code enforcement fines, and foreclosing f tax delinquencies. For whatever reason the city allowed these owners to continue unabated.

Perhaps most troubling is the relentless attack on James H. Herrick, who works for Baird, that went as far as the Mayor calling for the guy to be fired. He is not a member of the Association nor known to us.

The Journal reports that inspectors show up and find basement doors illegally padlocked. In the article, the owner’s manager states he did this in an attempt to keep drug dealers from entering the property.

There is no argument that inoperable fire doors are an unreasonable risk to occupants. Clearly, this was a novice mistake made by someone who did not understand fire codes.

The correct response by DNS would be for the inspector to explain the problem and demand the owner’s rep immediately remove the padlocks. If the owner did not comply, the Department of Neighborhood Services has an essential services program where the city can contract a repair and then bill the owner.

Instead, the inspection supervisor chose to placard the building and force 50 families out onto the street. Closing a 50 unit building would not have been the DNS response had the property been located on the Eastside, Bayview or the Southwest side. In these more affluent neighborhood they would have compelled a solution that kept the tenants safely in their homes.

But this building is in a poor, minority neighborhood.  The city’s response was harsh as it typically is in these neighborhoods. The DNS employees who acted out of spite towards the owners and a disregard of the tenant population, instead of attempting to protect the homes of 50 low income, primarily minority tenants, should lose their jobs.

The 50 unit building remained closed for a couple of months. It is no surprise that the building ended in foreclosure and sold at a distressed price due to this.

The owner’ use of single property LLCs, in this case, were an advantage to the city. Because the owner had his properties in separate LLCs, this allowed only this one to be foreclosed upon, instead of all 13.

It is a lending industry practice in larger real estate deals to require single asset entities to separate liability from one project and others with a similar ownership interest.

It would actually be in Milwaukee’s best interest if every investment property was in a properly segregated LLC. That way a failure at one property would not have a domino effect and bring down perhaps dozens or more other properties that are under similar ownership.

Then the Journal and Mayor put pressure on Baird, Herrick’s employer, placing his job in jeopardy. What advantage does the city receive in this? If he loses his job, his remaining properties will likely fall into financial problems as well, resulting in more boarded buildings, displaced tenants, and distressed sales.

Similarly, what did the city gain by the public attack on NBA basketball star Devin Harris? While it may have been expedient in causing the payment of some fines and taxes, overall it sent a clear warning to others with capital “Do not invest in Milwaukee. If you fail, you will be ridiculed and perhaps lose your career.” Similar results could have been obtained with a private conversation with Harris, thereby not discouraging outside investment.

Journal article on non-profit failures

West End joins a list of other nonprofit housing organizations that have failed in the last 10 years, including Walker’s Point Development Corp., East Side Housing Action Coalition and Community Development, and the Westside Conservation Corp.

 

Mar 13

The Milwaukee Journal Editorial based on Matt Desmond’s new book Evicted builds upon some misperceptions about the rental industry.

A NYT reader’s comment on Desmond’s Evicted more closely follows what typical owners see when trying to run lower income housing.

The Journal editorial echoes Desmond’s advocating for legal representation for tenants in most evictions.  If you frequent eviction court you seldom see a day without Legal Action representing tenants.  ATCP 134 provides enticement for attorneys to represent tenants  tenants tin cases where the owner is doing wrong.

Implying tenants need legal representation simply perpetuates a myth that wrongful evictions are common and owners somehow benefits from an eviction. In fact by the time it is over the owner has lost two to three months rent and often more.  Legal representation for tenants in evictions seldom does more than simply let the tenant get another month of nonpayment before leaving.
 
In an average month eviction judgments in Milwaukee County exceed $847,000 – every month.  But this is but a fraction of the losses suffered by property owners.  Of those evictions, only a third of the cases had money judgments other than the court applied fees.  Was this because the tenant did not owe rent?  No, more likely because the owner did not want to waste more time chasing a judgment they will never collect.  Those in our industry as well as those outside of the rental business will tell you that less than a quarter of uncollected rent ends up in eviction court.
 
This is money removed from housing and increases costs for the rest of the tenant population. While some tenants may use the money for real needs like shoes for kids, some use it for other things that further harm the community.
 
Then there is the comments about constructive (illegal) evictions.  While statements like this flame the fires of hatred against landlords, such acts seldom occur and when they do there is adequate remedies for the tenant.  I own two duplexes that a guy walked away from his 1/3 down and eight years of payments after he spent a weekend in jail because he threw the tenants’ belongings out on the front yard and changed the locks.  Seems the tenant did not pay rent and when he went to find out why, he also found they broke the front picture window.  His first stop after getting out of jail was my office to see if I would buy them for the remaining mortgage.  Small owners take these things too personally…
 
Desmond’s book has brought the issue to the forefront. And this is good.  Its is our industry’s job to make sure this does not turn from what it is, the bringing a real problem to light, into yet another excuse to bash the rental housing industry.
 
The part of the discussion that would be helpful to the overall community is increased housing vouchers.  Universal food stamps for people in need was a good first step many years ago. Housing and utilities vouchers for those who need them the most would be a good next step.
 

Feb 22

Bill Lauer writes on the Apartment Association email discussion group:

I was having breakfast with a friend familiar with landlord issues and we were agreeing that in this business, our tenants are our customers, low vacancy rates are cyclical, and things always change.
 
“The enemy of my customer is my enemy”.  The issues that conflict with my customer buying more product are issues that I need to be concerned about.
 
In the rental housing industry the issues that cause my tenant to not pay rent, are my issues too. We are joined at the hip.  To think otherwise is foolish.
 

I have thought about this often from a political perspective.

Why are the Democrats typically the political polar opposite to providers of lower cost housing and the Republicans often more supportive of our issues?  Every proposal that increases costs or decreases competition in that market adversely impacts the lower income residents, a constituency the the Dems purport to be theirs.  If you think about it the Dems should be the allies of rental housing.

A decade or so ago I hired former Governor Schreiber to  represent the Association at the statehouse.  More than a few people thought I lost my mind.  But it was a good choice as he understood the dynamics of the market and could explain to other Democrats how our bill was good for  the lower income families. We succeeded with a major piece of legislation at a time that even Green Bay Packer stadium financing was at a stalemate.


Tim Ballering
Oct 30

As many of you know I like data.  Okay – maybe “like” is a little weak.  Perhaps its love, or at least a dangerous obsession.

Our industry, at least in regard to small properties,  shies away from meaningful data collection and utilization.  However, you can do so much with the right data – from setting your rents in the sweets spot between charging too little and losing money to charging too much, having your units remain vacant and … losing money.  What is that house you are looking buying at really worth and how much rent can you really expect to receive? In many neighborhoods paying assessed value is paying two to three times what everybody else is paying.  In a few high valued neighborhoods assessed value is a steal.  Ask the listing broker how much rent you can expect and some will tell you the sky.

Lately we’ve been looking at a lot of data points from rents, to evictions, to city orders, to special assessments, to tax assessments in general, to foreclosures and a ton of other interesting things.

For example we are developing an internal tool for suggesting rents that is using for rent ad data, including rent amount as well as other thing such as how long the ad has appeared, how many times in the past two years has the unit been for rent and mashes that up with property data – age, size, assessed value, date of last sale, how many units are owned by that owner and a dozen other metrics. Then combine this data with city order data, eviction data, tax delinquency and foreclosure information for the subject property.  While we haven’t finalized the algorithm, we are getting close.

Another fun project is trying to identify properties that will fail.  We look at when they were purchased, if they are tax delinquent, if they are on the DNS monthly reinspection list, if there are evictions, if the water bills have been placed on the tax roll, etc.

We started doing this with database tools, Python scripts and a lot of manual acquisition.  We’ve found a lot better methods since.

One of the tools we use for data acquisition is import.io. Today I was in San Francisco for their Extract conference.  The theme was “Data Stories Worth Sharing”  There were 600 in attendance, with what appeared to be an equal distribution of data scientists, data analysts, and application developers. Oh and there was one landlord.

I wanted to attend the last two but either the timing was bad or the event was in London, which is quite a trip for a one day conference.  Today was so great I regret not attending the previous events.

If people thought I was a pain in the butt before with my data obsession, I’ll be downright dangerous now. 😉

If you want to play with the tools I play with, another one to look at is Mirador, a data visualization tool developed by Harvard and others primarily for things like Ebla research.  This is a radically cool tool  for seeing patterns in data.  Before that we were only testing patterns against assumptions.  Mirador points out the patterns for you.  

To visualize the results there is Tableau or for the more adventuresome there is a Javascript library D3

I think I should call this “Big data about small properties.”

If you are interested in data and rental hosung and want to talk about this more, drop me an email at Tim@ApartmentsMilwaukee.com

 

 

 

 


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