European Tenants vs. Wall Street Landlords

DUBLIN—The Tobun family never missed a
rental payment on their modest brick rowhouse in eight years. But in February,
the couple, who have two young children, received a letter warning that they
would have to leave their home when the lease expired. Forty of their neighbors
got the same notice.

they went to investigate, the tenants, in the working-class suburb of
Tyrrelstown, discovered a trail that led all the way to Wall Street.

After Europe was ravaged by a financial and
economic crisis, the giant investment bank Goldman Sachs snapped up huge swaths
of distressed debt in Ireland, including the loans of Tyrrelstown’s developer
in 2014. The developer now wants out of the rental game and is selling the
properties. As the owner of the loans, Goldman will reap a large portion of the

has nothing to do with the actions here. But because American banks have played
such a large role in Europe’s housing recovery — and have made huge profits in
the process — they have become the main target of a growing backlash among
homeowners and renters.

these funds have gotten involved in our community,” Funke Tobun said. “They’re
profiting, but it’s the people who are being made to suffer.”

Street has become the biggest new landlord in Europe, as American financial
firms have swept into cities, suburbs and towns to take to advantage of the
fallout from the worst economic
 since World
War II. In the last four years, Goldman Sachs, Cerberus Capital Management,
Lone Star Funds, Blackstone Group and others from America have bought more than
223 billion euros’ worth of troubled real estate loans around Europe, nearly 80
percent of the total sold.

firms have made the usual calculation: buy distressed investments on the cheap
during tough times, betting that the outlook will eventually turn and riches
will follow. And the firms are paying little or no tax, by employing complex
strategies that often involve subsidiaries with no operations or staff.

huge profits and dubious tax strategies have made Wall Street a major object of
frustration and anger, as people grapple with evictions and higher mortgage
payments. In some cases, the Wall Street firms are passive players, the money
men behind the landlords, developers or banks that are exerting force. In other
cases, they are direct participants taking action.

the controversy, the firms — and their purchases — have played a vital role in
the cleanup of Europe’s mess.

places like Ireland and Spain, governments and banks for years fostered
reckless, debt-fueled property booms. When the bubbles burst, the countries
were saddled with bad loans and their economies

Street stepped in, buying mortgages on commercial properties, rental
developments and even individual homes. The much-needed cash helped mend
national finances, halt plunging property values and clean up banks’ books.

by foreign capital has helped restart the system and accelerate the adjustment
and recovery,” a spokesman for Goldman, Sebastian Howell, said.

But the
recovery has been uneven, leaving homeowners and renters with few options after
they run into trouble.

who have fallen behind are being pressured to accept harsher terms that could
tilt them toward foreclosure. Residents are
being plied with fees that make it harder to stay in their properties. And even
tenants who have not missed rental payments are being forced out at a time when
rising property values make it difficult to find affordable housing.

or not Wall Street is directly involved, activists are invoking the firms to
fire up the masses. “It’s important to remember that these funds are not
mainstream banks or charities,” said David Hall, director of the Irish Mortgage
Holders Organization, a nonprofit that helps troubled homeowners. “They sell to
make profit and they exit.”

have occupied empty apartments in Barcelona whose mortgages had been bought by
Blackstone, and rallied around tenants in Madrid who were served eviction
recently by a Goldman-run subsidiary. In Ireland, homeowners seeking protection
have demonstrated outside Parliament.

deals are now getting a second look. The Spanish authorities are putting in
place protections for tenants and homeowners. The Irish finance minister
introduced legislation in October to tighten oversight of Wall Street’s tax

Tyrrelstown, tenants have asked the government to intervene, so they can remain
in their homes. After receiving their lease termination notices, several
families moved into a hostel.

couldn’t stand the pressure,” Mrs. Tobun said. “They were scared of ending up

From the Bust

decades, Tyrrelstown was a blank slate on the northwestern edge of Dublin,
acres of rolling fields with just a few homes dotting the landscape.

Ireland joined the euro currency union in 1999, it all changed. Foreign capital
flooded the country, and the economy soared. With seemingly endless growth in
this so-called Celtic Tiger, banks made freewheeling loans to property
developers like Rick and Michael Larkin, the brothers behind Twinlite, the
developer that built Mrs. Tobun’s home.

brothers undertook one of Ireland’s most ambitious developments. More than
2,000 cookie-cutter-style homes were erected over vacant land that had at one
point been targeted for a landfill. With three floors, modest kitchens and tidy
backyards, the properties attracted teachers, police officers and other
working-class tenants to an increasingly multicultural enclave.

2006, the Larkins had added a sprawling retail center to Tyrrelstown along with
a $40 million luxury four-star hotel, with 155 rooms, a fusion restaurant and
an oak-paneled boardroom. At a ribbon-cutting ceremony, Bertie Ahern, then
Ireland’s prime minister, promoted the construction as “a vote of confidence by
its developers in the future of our economy.”

developments sprouted up across the country. By 2006, bank lending for
development had grown in Ireland to more than €95 billion, from €5.5 billion in
1999. Construction comprised a quarter of the country’s economic activity.

the global financial crisis struck in 2008, and the Irish economy began to
crumble. Despite warning signs, the Larkins kept building, unveiling plans for
a €100 million, 11-story indoor ski slope and ice-climbing center. As the
crisis deepened, city planners rejected the project.

developers and homeowners could not pay their loans, leaving banks saddled with
huge portfolios of troubled debt. Banks began frantically looking for ways to
reduce their loads, even trying to get rid of the loans of borrowers like
Twinlite that had not fallen behind. The government helped accelerate the
process, setting up the National Asset Management Agency to package and sell
off bad loans, a role that was expanded after Ireland’s bailout in 2010.

Street firms saw opportunity, with loans selling at up to 70 percent off their
face value. The firms bought nearly €100 billion worth of Irish distressed

loans in Tyrrelstown were among those picked up in the frenzy by Beltany
Property Finance, a Goldman affiliate. Twinlite said it opposed the sale and
sued the issuing bank, unsuccessfully, to have it halted.

that, Tyrrelstown residents faced two options: buy their properties or lose
their homes.

County Council, to which Tyrrelstown residents had appealed for help, told Mrs.
Tobun that a state-backed home loan might be available to purchase her
property. But Mrs. Tobun, who nets €1,000 a month caring for older people,
could not afford the €16,000 down payment. Her husband, who drives a taxi,
could expect to earn €40 on a 12-hour shift, compared with almost €150 before
the crisis.

worst fear, Mrs. Tobun said, was that her family might wind up among the
growing ranks of the homeless.

is now enjoying a robust recovery. But growth has been fueled partly by financial maneuvering, and the real underlying gains are far from even. More
than 5,000 people have been left homeless by the crisis, with the government
subsidizing many in shelters.

Tobun does not have many options. She does not want to move farther out, since
it would mean changing schools for her son who has special needs. A nearby
rental is too expensive. Rents in Ireland have risen around 20 percent since
the crisis as home construction dried up after the bust.

the effort showed that her home and the others in Tyrrelstown were worth much
more as empty sales properties than as long-term rentals. In a statement, the
Larkin family denied that Goldman’s subsidiary exerted pressure to end the
leases or sell. The statement said a Larkin-owned company wanted to exit the
residential rental business, given regulatory changes and improving market

Tyrrelstown residents, the battles have been an all-consuming ordeal. After
receiving a notice in May, Gillian Murphy and her partner, Damien Moore,
refused to move from the home they had rented for six years. One of their three
children has autism, and switching schools would put him at the bottom of the
list for programs elsewhere.

after the family received the notice terminating their lease, two men working
for the Larkin-owned entity arrived at their home and began taking pictures.
“Everyone is petrified of these people because we don’t know who they are or
what the purpose is,” Ms. Murphy said.

Winning Hand

last year, few people in Ireland had heard of Cerberus Capital. Like other Wall
Street players, Cerberus came into the country quietly, creating a local
subsidiary under a different name and setting up a complex and extensive web of
interconnected businesses.

are the 13 subsidiaries in Dublin, all with Promontoria in their names. They
have no employees and no offices. They are all registered to the same address
on Grant’s Row, a letterbox near Parliament. Those subsidiaries, in turn, are
subsidiaries of holding companies in the Netherlands, more than 110 of which
had the Promontoria name.

structure has helped Cerberus profit in Ireland. Through the subsidiaries,
Cerberus bought around €17 billion worth of loans on properties in Ireland and
Britain in two years, for just under €6 billion euros. In Ireland alone,
Cerberus has been earning hundreds of millions of euros in interest and other

setup, promoted by the Irish government along with other tax strategies, allows
for a bit of tax magic that can make those profits seem to disappear.

To buy
the debt, Cerberus’s Dutch Promontoria companies lent Cerberus’s Irish
Promontoria firms money at a high interest rate. The Irish businesses ended up
paying roughly the same amount in interest that was earned on the real estate
investments. Since the interest was deductible, Cerberus cut its tax bill

Irish subsidiary, Promontoria Eagle, which bought distressed loans in Northern
Ireland and Britain, earned interest income in 2014 of 111 million British
pounds on the deal, or around $140 million. After deducting interest charges
and management and audit fees, taxable profit was only £7,788. The resulting
tax charge in Ireland: just £1,947.

filings for five other Irish subsidiaries of Cerberus, provided by DueDil, a
corporate intelligence firm, show the same pattern: taxable profit and tax
charges reduced to nearly identical numbers. Portfolios with up to £1 billion
worth of loans wound up with tax charges of less than £2,000.

Wall Street firms employed a similar method. Beltany, the Goldman subsidiary,
earned interest income of €44 million on debt portfolios in Ireland at the end
of 2014. After lowering taxable profit to €1,000, it netted a tax charge of
€250, filings show.

Star collected interest income of more than $970 million at the end of 2014.
Its taxable profit was just over $11 million, resulting in a tax charge of less
than $1 million.

Street firms have made a lot of profit from other people’s misfortunes, and on
top of that they’ve systematically structured things so they pay almost no
tax,” said James Stewart, a finance professor at Trinity College, Dublin. “So
what’s their contribution to society?”

and Lone Star declined to comment. Goldman said that Beltany followed Irish law
and that the interest it collected was subject to United States tax.


On a
warm summer day, 20 people crowded into a basement in central Dublin. The dimly
lit room had recently been converted into makeshift headquarters for the Hub, a
grass-roots operation that enlisted volunteer accountants and lawyers to help
people who were facing eviction.

Walsh, a former firefighter living in Ballybunion, on the west coast of
Ireland, drove six hours to attend the meeting. Two years ago, Lone Star’s
Irish affiliate had scooped up the mortgage on his family’s award-winning
bed-and-breakfast, the Ballybunion B&B, for a fraction of the original
cost. He was angered that he had not been allowed to buy back his loan at the
cheap price the fund received.

after, he said, the affiliate mounted an effort to increase his mortgage
payments. In the crisis, his bookings had slumped badly, and his original bank
had agreed to lower his monthly payments to €800 from €2,000.

phoned me every day of the week and at night saying we have to increase the
payments,” Mr. Walsh said of the Lone Star affiliate.

the Hub’s lawyers questioned the legality of Lone Star’s ownership of his
mortgage, Mr. Walsh diverted his loan payments into an escrow fund as a form of
protest until the issue could be resolved. “The amount of harm being done to
vulnerable people is immense,” he said.

Walsh was threatened with foreclosure, which he continues to fight.

broader rebellion has barreled ahead in Spain, where Blackstone, Goldman and
other American firms bought residential properties, including subsidized

low-income rentals represent a small piece of their portfolios, the companies
ignited a firestorm when they began evicting squatters, in an effort to improve
property values. The activist group P.A.H. organized protests around Spain and
outside Blackstone’s New York headquarters.

and Goldman said they had evicted just a small number of squatters and aimed to
keep renters in the properties long-term. Goldman said its policy was to help
certain distressed tenants avoid eviction.

perceived invasion has prompted a political reassessment. Some Spanish regional
authorities have passed laws intended to clamp down on Wall Street’s
involvement. Catalonia now requires firms to offer cheap alternative housing to
tenants. The local authorities can also buy back homes or expropriate them if
they are left empty for three years.

popular was the anti-eviction movement that Ada Colau, its main leader, was
elected mayor of Barcelona last year. “The opacity and distance of a fund that
is based much farther away makes it a lot harder to hold it responsible,” she

Ireland, the Tyrrelstown episode has become a rallying cry.

advocates and lawmakers across the political spectrum are urging stricter
oversight. Along with new legislation intended to close tax loopholes and
restrict mass evictions, lawmakers are considering requiring banks and
financial firms to follow a code of conduct and provide alternatives for
troubled homeowners.

But for
Mrs. Tobun and other Tyrrelstown residents, such changes may offer little

she and her neighbors received word that their rents would rise sharply in the
new year, after their current contracts expire. She said she and most of the 40
tenants affected would be unable to pay.

The new
rents will be closer to current market prices, but many residents suspect that
the increase is a tactic being used to flush them out so the properties can be
sold. In response, the Tyrrelstown community is planning another series of

is a fight between David and Goliath,” Mrs. Tobun said. “They want us out by force.
All we can do is protest.”

believe in miracles,” she added, “but I don’t know how we’re going to win.”

18 December 2016:

article last Sunday about European residents’ fighting back against Wall Street
firms that have snapped up distressed housing debt referred imprecisely to
notices that were given to some tenants. While the notices told them their
leases were being terminated and that they would have to leave the property,
they were not given eviction notices. The error was repeated in two
accompanying picture captions. The article also referred incorrectly to a loan
offered to one resident to help her buy her place. The County Council, not the
developer, made the offer.

Minder contributed reporting from Barcelona, and Douglas Dalby from Dublin.

version of this article appears in print on 11 December 2016, on page BU1 of
the New York edition ofThe New York Times with the headline: “Europe’s
Landlord: Wall Street.”

Original article

A local child rode a bike in Tyrrelstown, a suburb northwest of Dublin, where
dozens of tenants were warned they would have to leave their homes by the
developer, whose loans had been purchased by Goldman Sachs. Source: Paulo Nunes
dos Santos/The New York