Purchases of residential properties in Newark by corporations have led to higher rents and lower owner occupancy, prompting city officials to announce countermeasures, according to a new study from Rutgers.
The action includes transparency requirements for buyers and a surcharge on rent increases, even for houses and apartments not subject to rent control.
The trend, largely in single-family homes and 2-, 3-, and 4-unit homes or apartment buildings, is alarming, researchers say, as rising rents in the struggling Newark neighborhoods where it is concentrated put pressure additional on tenants struggling with persistent unemployment or economic downturn related to the pandemic. Officials said these additional pressures could lead to increased homelessness, displacement and other forms of neighborhood and housing instability.
Other consequences of corporate ownership could include physical deterioration of property and living conditions for tenants and a desire to evict defaulting tenants, said David Troutt, director of the Rutgers Center on Law, Inequality, and Metropolitan Equity in Newark, which published the study. Monday.
“National studies have shown there’s a distinct decline in areas where an increased number of properties are owned by corporate buyers, and landlords are much more aggressive toward tenants,” Troutts said.
The report, titled “Who Owns Newark?” Transferring Wealth from Newark Owners to Business Buyers,â is posted on the CLiME center website.
Troutt, who co-authored the report with CLiME’s Katharine Nelson, said business ownership drives up housing costs, both for rent and purchases. He said business owners are less reluctant to raise rents to boost margins or claw back improvements they have the money to make. This, in turn, allows them to demand even higher rents.
Troutt said growing business demand for residential properties, like any increase in demand, drives up prices. Large institutional investors have a distinct advantage over potential homeowners when bidding on properties, as they can borrow at lower interest rates and offer higher purchase prices. Or, Troutt points out, they can pay in cash, which is usually attractive to sellers.
Mayor Ras Baraka, who is due to be elected on May 10, held a press conference at City Hall on Wednesday to address the issue.
Baraka and Troutt, who were not at the press conference, stressed that there was nothing illegal about what the property buyers were doing. Even so, they insisted that companies had an advantage over individual buyers. The end resultâfewer first-time homeowners and buyers and lower homeowner occupancy ratesâhas been detrimental to individual neighborhoods and the city as a whole.
The two agreed that, to some degree, Newark has been a victim of its own success, with a two-decade gong renaissance in real estate development, arts and culture, and even that has made the city attractive to new residents and potential investors who would seize on the demand they generate.
“These people expect to be able to get the kind of rents that they couldn’t get before in Newark,” Baraka said.
Baraka said New Brunswick is experiencing a similar public housing seizure. So he said his administration would urge Gov. Phil Murphy and lawmakers to address the issue at the state level. He said new state laws may also be needed to protect ordinances or other local initiatives in Newark and other municipalities.
These initiatives will include fees, or surcharges, on rents that landlords raise by more than 5% per year in buildings with four units or less, which are not subject to rent control. Revenue from these fees would be directed to the city’s Affordable Housing Trust Fund, which helps fund income-qualified residential development.
Baraka said deed restrictions would be placed on city-owned properties and on properties owned by the nonprofit Land Bank of Newark to ensure they are developed by buyers as affordable housing and that they remain so.
And the mayor said the city will convene a gathering of investors, “developers of color” and nonprofit groups to devise additional strategies.
The study found that from 2017 to 2020, 47% of purchases involving 1-, 2-, 3-, or 4-family homes in Newark, or approximately 2,500, were made by institutional investors, typically limited liability companies or LLC, opaquely named after the address of the property with no name attached.
At the same time, Troutt said that one-third of sellers in the years studied were also corporations, implying that many transactions were between corporate buyers and sellers and not simply a matter of the outbidding LLC. on individual buyers.
Many homes had been seized and released, then later bundled up by a corporate buyer and sold to another corporate owner, Troutt said. In some cases, Troutt said, it was unclear exactly what was gained from the transaction, and some transactions were so complex that even real estate analysts hired by CLiME were unsure of the purpose.
Home ownership is an essential means of building and preserving intergenerational family wealth and the benefits that flow from it in terms of stable housing, good credit and the ability to borrow for business, educational or other investments. So, Troutt said, business ownership has consequences beyond simply raising rents and house prices and poses a particularly insidious threat to black and brown communities that have traditionally had lower occupancy rates. the depressed owner where they live.
While many Newark corporate property buyers remain anonymous under nondescript LLC names, Troutt listed several companies that market themselves to investors and therefore have names, logos and offices in New York and New Jersey. Three he identified were Adar Capital, Lexington Property Group and Harness Homes.
None responded to requests for comment on Wednesday.
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Steve Strunsky can be reached at [email protected]