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Wall Street's Single-Family Home Grab, Phoenix — Part 2

The Phoenix Triple Threat

By Andrew McIntyre · 2022-10-18 13:06:19 -0400 ·

Phoenix - Taylor Stinson was looking for a new Phoenix rental in 2019 and came across a single-family home for rent on West Chanute Pass, 6 miles southwest of downtown.

The rent, at $1,295 a month, was good, but she encountered mixed reviews about the landlord when doing her due diligence.

She signed a lease swiftly, wanting to secure the home before someone else might jump in. The lease-signing process — which was all done online — was seamless.


Day 1

Doubling Down In The Valley Of The Sun

Increasing corporate ownership of Phoenix single-family homes impacts the real estate and rental markets.

Day 2

A Triple Threat

Increased rents, skyrocketing home prices, growing homelessness found in Phoenix.

A Changing Neighborhood

A ground-level look at a Phoenix neighborhood dominated by corporate-owned rental homes.

Day 3

The Local Response

Arizona's door remains open to the single-family home rental industry.

The Federal Response

The SFR industry impacts local to international markets, but has thus far evaded regulation.

Day 4

A Recessionary Hedge

The nation's largest single-family rental operators are bullish on their industry's future.


How we analyzed the data

The landlord was Invitation Homes.

While that initial rent was attractive to Stinson, Dallas-based Invitation has steadily raised it to the current level of $1,723, an increase of more than 33% over three years. The current rent, she said, seems high for her small home in the neighborhood.

Meanwhile, at a large homeless encampment 6 miles northeast, Sheila Starks, who's homeless, bemoans the fact that Phoenix doesn't have rent control.

"A studio? $1,500? Get out of here. That's crazy," said Starks, who has been homeless for a year. "People have been mentioning — like they did in New York City a long time ago — rent freeze. … Bring those prices back down to where people used to be able to afford them."

Such is one diptych landscape of Phoenix, which actually faces a triple threat of surging single-family home prices on top of rising single-family rents and record homelessness.

A Force Quietly Reshaping Phoenix's Real Estate Landscape

While such changes have unfolded in plain sight as record numbers of residents find home buying out of reach, struggle to make monthly rents and sleep on the streets, another change playing out in the background is akin to a rhizome, forging various complex and distant webs of connection with the former three.

The city's single-family rental stock is slowly and quietly being bought up by Wall Street corporations, and that's creating fundamental changes in supply as corporate buyers convert the properties to rentals, ostensibly taking them out of the for-sale supply.

Law360, through a monthslong investigation, found that 25 corporations each own at least 0.1% of the city's total single-family rental housing stock, and those firms collectively own more than 18% of all single-family rental homes in Phoenix and nearly 3% of all Phoenix primary single-family homes as a whole. That 18% figure climbs significantly when various smaller companies that own 10, 20, 30 or 40 homes are added to the mix, according to Law360's analysis of property records.

In June 2021, the city's average home price stood at $271,000, while the average home in June 2022 was at $344,000, an increase of nearly 27%, according to the S&P CoreLogic Case-Shiller home price index; U.S. home prices, by contrast, rose 18% over that same period.

Meanwhile, Phoenix's median single-family home rent stood at $2,141 in June 2021 and climbed 12% to $2,395 in June 2022, according to Zillow. That number as of September had fallen to $2,310.

Phoenix's homeless population has risen 30% in the past two years and 300% since 2014. (Andrew McIntyre | Law360)

"Because of these corporations coming in and driving prices up and making homes to be just unaffordable for locals, it just created a really big problem for … people who were trying to buy homes," said Katie Canar, a HomeSmart agent who's helped several clients sell homes to Progress Residential, which owns nearly 1,200 single-family rentals in Phoenix.

Changes to For-Sale Supply

Scottish economist Adam Smith's invisible hand can explain the supply and demand forces at play as Wall Street has gained a larger share of single-family rentals in Phoenix.

That city, with roughly 1.75 million residents, has seen a population boom over the past three decades. Thirty years ago, Phoenix was the 10th-largest city in the U.S. with roughly 1 million residents, but it is now the nation's fifth-largest. While the population has surged, new-home construction has not kept pace.

(Ben Jay | Law360)

Law360's Interactive Map

See where corporations currently own homes in Phoenix's neighborhoods.

In a 2020 analysis of housing needs, Phoenix said its population had grown by 820,000 in the past 30 years, while just 220,000 housing units had been added during that period. That disparity alone accounts for a large portion of the city's rising home prices.

But there's also a supply change at play when corporations buy homes and convert them to rentals. When these entities buy from individual owners who had occupied the home, which is often the case, such transactions represent a supply loss, putting additional upward pressure on home prices. That — coupled with high, all-cash offers from corporations — has made it even more difficult on first-time buyers.

And first-time homebuyers also now face another uphill battle with soaring interest rates.

"It was really a difficult time for me to be a listing agent," Canar said, speaking of the last several years, and noting that the pace of acquisitions has slowed in the past several months. "Part of what I love about my career is helping buyers get into their first homes. Into any home."

She said she felt badly "because of all the people I had to turn away because of these corporate investors."

Part of corporations' success in winning bidding wars in the red-hot Phoenix market traces to their ability to offer all cash, which, all things being equal, sellers prefer. All-cash deals avoid the potential dealbreaker of an appraisal not coming in on target, and in a surging local market, out-of-state appraisers sometimes don't bring their estimates in line with what buyers, who are paying over asking, are offering.

And corporations often jump in quickly with high offers to secure properties before other offers come in.

"A lot of things enter into the seller's judgment like price, concessions, closing date, likelihood of required repairs, cash vs. loan, etc.," said Alan Holly, an agent at Rickel Realty. "Most sellers don't care who buys their home, just that they receive an offer that they can accept."

Corporations Forge Ahead, Even When Problems Percolate

A flooded bathroom during the recent listing period for a home west of downtown didn't stop Progress Residential from moving ahead with its purchase.

8036 W. Forest Grove lies at the end of a leafy street, and it and other houses on the block have red terracotta roofs, a contrast to the lighter terracotta tiles builders in other neighborhoods have used. Two pigeons stand guard, one above the house and a second above the garage. A mesquite tree leans toward the street with such force that it has toppled several bricks at its base. Spiky plants line the walkway to a side gate, and a small circular wall appears to have once offered protection to a plant or tree.

When the owner of that home listed it for sale last year, offers soon followed.

"Progress Residential came in that first weekend it was on the market. It was a time when you would get a flood of offers that came in very quickly. I think there were 13 offers," Canar said, recalling the events of April 2021. "Progress Residential came in pretty substantially over any of the next-highest offers."

But around the time the property hit the market, a bathroom pipe burst and caused flooding. Canar, who represented the seller, informed all parties that had made offers of the incident.

8036 W. Forest Grove flooded during the listing period, but that didn't stop Progress Residential from snapping up the home. (Andrew McIntyre | Law360)

The seller had several cash offers but couldn't pass on the premium Progress was offering. And Progress couldn't pass on the home, despite the flood.

The 1,763-square-foot home listed for $320,000, and the seller soon after agreed to sell to Progress for $339,500. The house went to the pending stage six days after listing.

Progress Residential did not respond to requests for comments by the deadline for publication of this article.

In May 2021, an owner listed a 1,220-square-foot, three-bedroom home at 4654 N. 84th Lane for $319,900, and Progress five days later scooped that one up for $330,000. That home is now worth roughly $472,000, or a 43% jump from the closing price in June 2021, according to Redfin's estimate.

That same month, Las Vegas-based American Homes 4 Rent, which owns more than 400 single-family rental homes in Phoenix, grabbed a 1,446-square-foot home at 9429 W. Highland Ave. for $404,500, buying that property two weeks after it had listed for $395,000 and using the entity AH4R Properties Two LLC.

American Homes 4 Rent couldn't be reached for comment.

A 1,839-square-foot home at 16205 S. 17th Drive also hit the market that month for $354,900, and six days later, the seller accepted an offer from Invitation Homes, which used the entity SFR Javelin Borrower LP, for $380,000, more than 7% above asking.

Invitation Homes owns roughly 2,700 such properties in Phoenix, or nearly 6.5% of all the city's single-family rental homes.

Critics of such corporate ownership stress that the renters who end up in those homes are not building equity from homeownership, while wealthy corporations reap the benefits of home price increases.

"Part of what we're seeing now is this transfer of wealth from potential individual families to corporations, which I think is most likely going to exacerbate the racial and ethnic and socioeconomic wealth disparities that we already know exist," said Lora Phillips, an associate professor of research at Arizona State University.

"The average corporation — large corporations, particularly — has more resources than the average household to work with, and it's been difficult or impossible for your average middle-class household to compete with the sheer amount of money that these corporations have," Phillips added.

And property taxes, the main financial burden that's shifted from would-be individual owners to corporations, just fell in Maricopa County, from the already low 1.35% rate to 1.25%, the largest decrease the county has seen in four decades.

"These corporations coming in and driving prices up, making homes to be just unaffordable for locals, it just created a really big problem for any people who were trying to buy homes at the time," Canar said, speaking of the landscape before June of this year, when the trend cooled due to rising interest rates. "The poor locals trying to get into a home at the time who were just maxed out, it was a hard time for them."

And despite having to now pay a healthy premium on prices from a year earlier, corporations continue to buy single-family homes in Phoenix, as Wall Street still views the sector as a hedge against various headwinds, including a potential recession.

In April, 14411 S. 47th Place, a 1,309-square-foot home, hit the market for $455,000, and three days later Progress Residential swooped in with an offer. Progress paid $459,000 for that relatively small house.

"It's very standard language that they all have that they write into their contracts. … They fill the entire page. A lot of it is very repetitive with stuff that's already in the contract," Offerpad agent Dawn Marthini said of corporate buyers. "It's always weird to us."

Landlords Look Beyond Base Rents for Profits

Lily Chavarria has been happy with the rent at her former and current Invitation rentals.

She paid $1,200 a month for her previous rental in Avondale, a Maricopa County city 18 miles east of Phoenix, and now pays $1,300 a month for her home on North 84th Lane, 12 miles east of downtown, having found the current one from a listing on Zillow.

She's in the middle of a two-year lease that's locked in.

"Considering how the market is, it's pretty fair," she said, of the current rate.

But while corporations may start their renters at fair rates, they often seek other means of pocketing additional cash. One, as detailed in a prior article in this series, is to attempt to squeeze additional cash out of sellers during the inspection and closing periods, sometimes using aggressive tactics.

But when it comes to renters, the use of a two-year contract can also be a cash-saving strategy on the part of corporate landlords. Such leases guarantee both rental income for two years as well as fewer trips to the unit and less cleaning to prepare it for new renters.

Such leases, however, give tenants less flexibility.

Sheenah Becerra, who rents from Invitation Homes on North 84th Avenue, has had two-year agreements from the start, and recently signed her third.

"We initially started off at $1,080 and our new lease we just signed is at $1,563, and they said if we only signed a one-year agreement, then next year it would go up an extra $100," Becerra said. "With the pandemic and everything going up, we just went ahead and signed the two-year agreement."

Meanwhile, Chavarria told Law360 she didn't get her security deposit back at the Invitation Homes Avondale rental, and she couldn't put her finger on the reason. Given that history, she's concerned now she won't get the present security deposit back.

"It's a really thick contract," she said, of her current lease agreement.

While the security deposit is one concern, experts say that corporations also often profit when it comes to the eviction process.

"There can be a business model that focuses on the generation of more fees that happen when a tenancy hits that eviction process," said Michael Lucas, executive director of Atlanta Volunteer Lawyers Foundation. "That doesn't lead to more displacement, but it does lead to more costs to the tenants. Late fees, eviction or dispossession fees, legal fees, other fees that get charged. And if you do it by volume, like a lot of these companies can across the country and across markets, there's an increase in profits as a result."

In April, a tenant who had just moved out of an Invitation Homes rental in the Phoenix area posted a Better Business Bureau complaint, noting a mysterious $850 charge for a water heater and an additional charge for a trash pickup, despite the tenant earlier clearing that pickup with Invitation Homes.

Invitation Homes responded several days later to that BBB complaint, saying it had reversed both charges.

"We work hard to ensure that our residents have a great experience with us," an Invitation Homes spokesperson told Law360.

A Shift in Rental Supply

Phoenix has roughly 41,000 single-family rental homes, representing 15% of the total number of primary homes, and the city has 1,488 single-family rental homes available, according to Zillow.

U.S. Census Bureau estimates show the number of detached single-family rental homes in the city actually declined by 13% from 2011 to 2021. The city couldn't comment on the question of why it has lost a sizable percentage of detached single-family rental homes over the past decade.

"While interesting, I think it's very hard to draw any specific conclusions," said Joseph MacEwan, housing manager at the City of Phoenix Housing Department. "Especially when considering the very large margin of error that Census has for this data, almost 5,000 units up or down in many cases."

While the overall trend in Phoenix, per Census estimates, has been a loss of single-family rental homes over the past decade, that loss would be even steeper if corporate purchases and conversions to rentals were taken out of the equation.

Not surprisingly, given the loss in supply and surging population, single-family rental rates have risen by double digits in the last year in Phoenix.

Joanna Siravo-Hamric

Rents at properties owned by Invitation Homes, the biggest player in Phoenix, vary widely: The company lists 502 houses available in the greater Phoenix area, and of those, 56% rent for between $2,000 and $2,500.

"There is no rent cap in Arizona, so they can charge whatever they want," said Joanna Siravo-Hamric, a broker at Coldwell Banker.

Homelessness Also on the Rise

Phoenix had 3,096 homeless people as of early 2022, a 30% increase from the city's 2,380 homeless population in 2020 and a 300% increase from 2014, according to the Maricopa Association of Governments, which didn't collect data in 2021 due to the COVID-19 pandemic.

Sheila Starks has been homeless for a year. (Andrew McIntyre | Law360)

Its homeless population is largely concentrated in an area between Ninth and 13th avenues and West Jackson and West Jefferson streets. That encampment, known as "The Zone," has grown to nearly 1,000 people, and is the largest homeless encampment in Arizona.

Tents and tarps of all shapes, sizes and colors line the streets for blocks as people without homes seek shade from the scorching and unrelenting Phoenix sun.

"All these people got greedy and jacked people's rents up and people were getting pushed out of their homes, because all these landlords got greedy," Starks said, at the Phoenix homeless encampment. "What is that?"

--Additional reporting by Emma Whitford. Editing by Orlando Lorenzo.

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