The rains of June 19 still haunt Christine Anderson.
The deluge began by wending its way through the cracks of her four-bedroom home at the corner of Stryker Avenue and Winona Street in St. Paul. Inch by inch, her basement filled. Water pushed its way through the laundry room. In minutes it flowed through the bathroom, shoving the toilet hard enough to dislodge it from its base.
Anderson and her three teenaged sons rushed to protect what they could. They dragged mattresses and dressers upstairs. As she held the phone to her ear to speak to her landlord, Invitation Homes, she heard a scream from her oldest son, Josh.
"Mom! There's mold on my bed!"
This wasn't normal mold. This was black, toxic. The kind that causes vomiting, wheezing, pneumonia, and lung infections. It crept like vines along baseboards, beds, mattresses.
A month earlier, the basement had filled with water but was dried out. This, Anderson suspects, was the root cause. Now it grew into a dark cancer, spreading ever larger as the rains poured in.
"This was where we lived!" Anderson says. "For months!"
Looking back, she should have seen it coming. Her children were suffering nose bleeds, migraines, diarrhea. One's coughs and wheezes got so bad that she had to buy an oxygen monitor.
A month later, Anderson walked across her patio toward a ragged tent pitched beneath a tree in her backyard. This was now her home. After the mold was uncovered, she couldn't bear to live in the house. She sent her boys to stay with her ex-husband. The tent was wet and windy. But it was safer than inside.
The weeks in transition hadn't been kind to Anderson. Her body had disappeared underneath a baggy sweatshirt with ripped sleeves. Circles traced her eyes, sunken from weeks of worry and little sleep.
Anderson received a brief respite when Invitation Homes provided her with a hotel while the company spent two weeks cleaning her basement. But when she returned, she felt like nothing had changed.
"I went back to the house, and there was still construction and debris everywhere," Anderson says.
Her ex-husband, Joe Anderson, an insurance adjustor familiar with damaged structures, toured the basement and saw the mess. The mold was still there, coloring baseboards and walls. Streaks of water damage splattered walls like a giant impressionist painting. "I just felt like it was done at the lowest cost possible," he says.
Adds Christine: "It was disgusting."
Still, Invitation Homes stood by the work, claiming it adhered to EPA guidelines. It pointed to two tests showing that while mold was still present on the walls, the air was safe.
The Andersons' eyes told them otherwise. They brought in an industrial hygienist to conduct their own tests, which found the basement drenched in mold. It was bad enough that Anderson wouldn't enter the house without being fully covered — respirator, Tyvek suit, goggles, and gloves.
Then she talked to Mike Kopesky, the contractor Invitation originally called to handle the flooding. He says Invitation just wanted the mold taken out. Get rid of it. Do enough to pass inspection. Be done.
Kopesky said it wasn't that simple. This mold was embedded deep in the walls, posing minacious health risks. To get rid of it for good, the home needed to be cleaned, sanitized, monitored to make sure it wouldn't come back. But Invitation Homes wanted a cheap fix. Kopesky left the project.
"The job has to get done right the first time," he says. "When you're dealing with occupants with illnesses, they have to be handled in a way to make sure they're protected. Make sure you're leaving it in a better situation than when you went in."
To this day, Invitation Homes insists it adhered to all the right procedures. The home is safe, it says.
"It's scary," says Anderson, pacing outside the tent. "Where do I go next?"
THE CONNECTION BETWEEN Anderson's landlord, Invitation Homes, and the Wall Street firm the Blackstone Group isn't obvious. Houses are only a tiny part of the global investment firm's business. The company invests in a little bit of everything — real estate, hotels, the Weather Channel, Sea World. Name it, and there's a chance Blackstone's got a stake in it.
The company entered the landlord game only two years ago. Wall Street's last foray into the housing market had left the nation strewn with abandoned and foreclosed homes. Add declining incomes and tightened credit, and people could no longer afford to buy. They wanted to rent.
For Blackstone, the solution was obvious. Take all that big Wall Street cash. Buy homes in bulk. Rent them out.
Thus emerged Invitation Homes, a first-of-its-kind national landlord trading in single-family homes.
Blackstone saw itself as a savior. It would be ridding cities of blight, making abandoned properties whole again.
"I think at its heart, we're making a bet on America with this investment strategy," said John Gray, Blackstone's head of real estate, in a video announcing the new venture.
It was a giant bet. In just two years, Invitation purchased nearly 45,000 homes, spending $8.7 billion from Phoenix to Chicago, Tampa to St. Paul. Twelve hundred houses have been purchased in the Twin Cities alone.
Yet "absentee landlord" is not a phrase often linked with saviors. How could a New York company play realtor and landlord from hundreds of miles away? And how could this possibly be good for neighborhoods, given Wall Street's fealty to the primacy of profit?
The cracks were soon to show.
ALISHA PEREZ shuffles around the kitchen of her two-story rental in Blaine. She points to the window, the counter, the door. Every five feet there's another problem. A crack in her kitchen counter took weeks to repair, she says. Blinds for her kitchen window? Two months. "It's all just an ordeal," she sighs.
Perez opens the sliding glass door and walks to her yard, which is backdropped by a makeshift fence of orange tape and wooden stakes. Behind it, cars whiz along Highway 51. The grass is covered in gravel, soot, and rotted wood.
Perez says the backyard used to be twice this size. Tall, booming oaks and fresh grass made the perfect playground for her son. But only a few weeks after she rented the home from Invitation, her backyard was cleaved in two as part of a highway expansion.
Fences were removed. Trees were demolished, replaced with stumps and piles of dirt. Invitation failed to mention the coming upheaval before she signed the lease.
"I would never have moved here if I had known that," says Perez.
When Mark Gruppa moved into an Invitation property with five roommates in March, he suffered similar problems. Invitation failed to get a rental license until the summer. That's when it discovered it was following the laws of the wrong city.
Invitation thought the property was in Maplewood. It was actually in North St. Paul.
North St. Paul only allows five unrelated people to live in one home. One roommate would have to be booted from the house, while the others would see their rents jacked, all due to landlord incompetence.
"I can kind of laugh it off," Gruppa shrugs. "It's obnoxious, sure. But this is something they should have told us."
The same problems — shoddy maintenance, legal troubles, slow response times, and infestations — have cropped up in Invitation properties from coast to coast. One California couple is suing after their renovated home fell apart within months, filling with cockroaches, water leaks, asbestos, and mold.
An April report from the tenant group Occupy Our Homes Atlanta showed that in a survey of 25 Invitation renters, 18 had maintenance problems: exposed plumbing, mold infestations, broken refrigerators. One didn't have hot water for four months.
Being a good landlord isn't easy. It takes cash, staff, a zeal for swift aid. And when you're an out-of-state company, rushing to buy, renovate, and rent homes by the thousand, pulling it all off can be tricky. So tricky that it's left many renters in the same place as Anderson: confused, angry, and ready to leave.
Invitation Vice President Denise Dunckel defends the company's Minnesota problems as tiny. In Perez's case, she says Invitation was unaware of a deal Blaine made with the previous homeowner. As for Gruppa's situation, the company merely misread the border between neighboring towns.
Dunckel wouldn't discuss the Anderson case on the record, but the company sent a statement saying it "provided the highest quality of care to the home and the resident" while it treated the home. It also points to its own test results, saying it went by EPA guidelines and "any mold has been removed."
Mike Vraa, managing attorney for HOME Line, a Twin Cities tenant legal service, says Invitation doesn't rank among the worst landlords. "These guys aren't slumlords," he says. "They don't have nanny cams. They're not locking people out."
But that doesn't mean they're okay.
JEAN BAIN SITS AT THE EDGE of the small stage in the back room of the Warren artist's habitat in north Minneapolis. A bright message flashes on the wall behind her, projected from a small computer. "Havenbrook Homes Investment in Northern Minneapolis," it reads.
She's a realtor and consultant for the Northside Home Fund, a group the city helped create to boost housing and neighborhoods in north Minneapolis. Some 20 people from the Victory Neighborhood Association have come to hear her speak. Bain brings an ominous message to this crowd of wrinkles, gray hair, and jeans.
"I'm gonna talk to you about the good, the bad, and the ugly," she warns.
She flips to the first slide, identifying the presumed source of that ugly: Havenbrook Homes, an investment group from Duluth, Georgia.
The company is new to the Twin Cities, but its background is eerily familiar. It was founded by another Wall Streeter, Oliver Chang, a former head of housing strategy at Morgan Stanley. Havenbrook buys up homes on the cheap with straight cash, fixes them up, then rakes in the rent.
Bain doesn't like the strategy, nor the focus of Havenbrook's hunt: north Minneapolis. In only a few short months, she says, the group has bought up nearly 200 properties in the Twin Cities. More than half lie on the North Side.
She flips to a slide titled "Concerns." The list seems to go on and on. Can Havenbrook manage well? Will its investment strategy work? But most importantly, does it understand Minneapolis?
"They are not invested in any other way in this community and know NOTHING about North Minneapolis," it says.
Bain takes off her glasses and lifts herself from the edge of the stage. "It doesn't matter to them," she says. "It's all a numbers thing."
Bain admits Havenbrook probably won't be awful. She says the company is interested in coming to community meetings, talking with residents, hearing their concerns.
Yet Bain isn't leaving that to chance. She's here to recruit, to build a team of watchdogs, which will bear down on Havenbrook as it scoops up new properties. With enough defenders, she says, Havenbrook will have to behave.
"We just gotta stay on them!" she says. "So they know. They gotta follow the rules. We're all gonna call. We're all gonna email. That's just what it takes."
IN ONLY A FEW MONTHS, Havenbrook has transformed the rental market in north Minneapolis.
For years, North Side housing was run by small fish — local realtors selling to other locals. But Havenbrook has turned the process upside down. Realtors say the company seems to be forever waiting by a computer. Often within hours of a home posting for sale, Havenbrook pounces with an offer, sight unseen.
"It seems like they're close to buying almost half the properties that are on the market," says David Brown, a realtor specializing in north Minneapolis.
Once an offer is made, the company brings in inspectors, then makes a final offer. That figure is usually below asking price, but it's cash, huge for a seller. It means no mortgage, no meddling bankers.
"And that's worth to a seller five or ten thousand dollars more," says Brown. "So it's challenging to compete if you're buyer who doesn't have that same kind of financing."
This is the advantage of Wall Street. "We're very patient about how we buy the properties," says Robert Lee, CEO of Havenbrook. "It has to meet the right criteria. It has to be in good areas where people want to live."
But on the North Side, that's leaving the normal homebuyers grasping for leftovers.
So far, the buying spree has focused on the Folwell and Webber-Camden neighborhoods. "I think they're good for neighborhoods." says Herb Tousley, head of the Shenehon Center for Real Estate at the University of St. Thomas. "There were a lot of vacant homes, and these have stabilized the market."
Neighbors are less enthused.
Over the past few years, Folwell and Webber-Camden have endured foreclosures, violence, murder — even acts of God, like the tornado that roared through in 2011. Some homes still bear the scars: boarded windows, torn-off roofs.
The way to fix those problems, they say, isn't through renting. Homeowners stick around. They care more about the upkeep of their property — not to mention parks, libraries, and their neighbors.
"An owner-occupant brings to a neighborhood or a community a different kind of stability and intention than a tenant," says Roberta Englund, executive director of the Folwell Neighborhood Association.
Bain says if Havenbrook can do everything right — renovate houses, pick the right tenants, make themselves a part of the community — she'll feel comfortable. But this is new. And moving fast, which is scary. "Could you just stop and pause and see how it goes?" she pleads.
So far, Havenbrook is saying no. But Lee notes that the company has a dozen people in Minneapolis to address problems. "I think it's a valid concern," he says. "You don't want to be an absentee landlord. So that's why our local team and local offices are so important. You have to be able to respond."
But behind the scenes, Wall Street is papering up another scheme, one that looks strikingly similar to the way it crashed the economy six years ago.
HUNDREDS OF MILES AWAY from Minnesota, in the hands of investors across the globe, the monthly rental payments from Invitation's tenants are already flowing. Blackstone has brought a new twist to an old game.
In the early 2000s, Wall Street came up with the idea to band huge piles of mortgages together and sell them off as bonds. The investments were supposed to be safe, backed by homeowners' payments on those mortgages. But since banks were making a fortune, they began tossing out loans to anyone willing to sign — whether they could pay the money back or not.
Homeowners naturally stopped paying. The bonds crumbled, the economy along with it.
Now it's happening again. And Blackstone is leading the charge.
Last year, the company created a brand new bond, a hybrid called a rental-backed security. Blackstone took out mortgages on roughly 3,000 of its rental homes, pooled them together, then sold them off as a giant, $500 million bond. Renters pay the interest. Think of it as the same investment strategy that imploded in 2008, only with a rental housing twist.
And just like during the run-up to the mortgage crisis, many of the agencies who rate these bonds are in love. Moody's, Morningstar, and Kroll have all given the new bonds the same, supreme grade: Triple-A. Wall Street also jumped aboard.
But only months later, worries are beginning to emerge.
First it was the ratings agency Fitch. Then Standard & Poor's. Both were floored at the lofty ratings being thrown at new bonds never tested before.
There are simply too many variables, the agencies say. The homes are situated in different neighborhoods, different cities, in different rates of repair and different regional economies. And since they're sold in huge pools, it's impossible to know the true value of any home within.
"Well, a lot of the one-family homes, it's do-it-yourself," says Steven Ricchiuto, chief economist at Mizuho Securities. "And you don't know they've done the right work. There's a lot of additional cost structures. It's why it's the product we're most worried about."
Even more perilous: When times get tough, homeowners take a beating. People default on rent. Property taxes rise. And vacant houses beg thieves to strip and sell their innards for scrap.
Multiply these hardships across 40,000 properties, and it begins to look like 2008 all over again.
"This will be a real problem in the next downturn," says Ricchiuto. "That's when the costs will really accelerate."
A report from the Federal Reserve put it bluntly: "Despite these benefits, the large-scale rental of single family homes is still a new business with a short track record and, thus, carries significant risks."
Others say the risks are worth it. Abandoned homes are being rehabbed by companies they trust more than the average landlord. "They're not mom and pop places," says Tousley of the University of St. Thomas. "They've really professionalized the market."
But the biggest fear is still the worst-case scenario: What if there's another economic downturn, and the housing market dives?
"Because they have such a vast portfolio, if they decide to walk away, what does that mean for them?" says Nuria Rivera-Vandermyde, the director of Minneapolis's department of regulatory services.
Havenbrook and Invitation Homes insist this won't be a problem. They're not leaving. They've put money and maintenance into these houses. Flipping them or leaving just doesn't make sense.
The rhetoric is encouraging. But Folwell's Englund isn't convinced. She saw the aftermath of the last housing bust. The weed-infested yards with stripped homes sitting empty for years on end.
"I have watched the deterioration of properties that are still snarled in that bundled mortgage bullshit," says Englund. "And this smells the same."
MIKE VRAA LEANS BACK IN his chair in the Minneapolis offices of the tenant aid group HOME Line. His large fingers move from line to line, paging his way through a lease from Invitation Homes. When he gets to the third page, he chuckles.
"These guys like fees for virtually everything," he laughs.
Vraa points to a $100-a-day late fee. A $250 fee for another occupant. A $50 per day pet fee. In Minnesota, he says, they'll be ignored in court.
"They can put it in there," he says. "But they can't be enforced."
Yet the clauses do raise questions.
"It strikes me as a very national approach to lease writing," says Vraa. "They have references to local statutes, so they're clearly aware of them, but you feel like those are plugged in. Like you get an email, and it says 'Dear so-and-so,' and they just fill that in."
Housing experts say that in places like Georgia, where landlord laws are weak, the strategy can work. But take those ideas to a Minnesota courthouse and that lease goes right out the window.
"I think it's fair to say that Minnesota laws on habitability and protection against retaliation are some of the strongest in the country," says Larry McDonough, a Minneapolis lawyer who helped to write many of those statutes.
Specifically, McDonough points to something called the "covenant of habitability." The idea behind it is simple: A home has to be fit to live in. A renter doesn't have to put up with health hazards. No broken toilets or busted heating systems. That's the landlord's job.
"A place has to be habitable!" says Andrew Larson-Wille, a landlord-tenant attorney who represented Christine Anderson in court. "It's got to have heat, electricity. It can't be a place infested by mold."
Minneapolis has become something of a landlord watchdog. After being dragged down by shady landlords for years, the city reined them in by expanding its "good cause" policy, which allows for pulling rental licenses in egregious cases. If a landlord has a second license revoked, he or she is banned from renting anywhere in Minneapolis for five years.
When Havenbrook and Invitation entered the city's radar, officials held meetings with the company, regulators, even police. The message was clear: No matter how big you are, you follow our rules.
FOR WEEKS, THE MONDAY morning routine was the same for Christine Anderson. Wake up early, get to Ramsey County housing court by 9 a.m. Approach the housing referee. Argue.
The first week, Anderson was fighting Invitation to get back a bit of the rent she lost while being forced to sleep in a tent.
Seven days later, she was back to talk eviction. Invitation wanted Anderson out. That was fine. She had no interest in staying.
Anderson had long since moved out of the ragged tent. She'd become a nomad, living night-to-night between hotels and friends, relying on bank loans until her money ran out. She hadn't entered the house since it tested positive for mold in July. Invitation Homes refused any more repairs.
On a Friday afternoon in late August, things are finally looking up. Anderson's voice is light. The circles under her eyes have begun to recede. Everything from her old house — clothes, dishes, paintings — has been packed away. Her months-long fight in housing court is nearing a decision. She expects to get a little money back, hopefully enough for a deposit on a new place. For the first time in weeks, she seems upbeat.
Then her phone rings. A reporter is on the other end. "Hey!" she chirps. But her newborn smile soon dims.
It's bad news. Housing court referee Jo Anne Yanish has filed a decision. It's not good.
Yanish seemed to ignore Anderson's independent assessment of her home, which showed it still slathered in mold. Her decision only mentions Invitation's test, which showed the water damage fixed and the air safe. Because "essential services" remained — heat, water, electricity — Invitation didn't owe Anderson a cent. (Yanish's office said she couldn't comment on the case.)
Anderson's voice starts to waver. She was counting on this money for so much — her rent, her hotel stays for the past month. It was supposed to help get her children checked for lung problems.
"The doctor. Their tests..." she quivers, then stops, exhales.
"I don't know what I'm gonna do. I don't want to be homeless."
Anderson's fight isn't over. She still may head to court again to try to get back what she paid for the mold removal, or any possible medical effects on her children. But at the moment, none of that matters.
Once again, Wall Street has won.