REITs [Real Estate Investment Trust] create rental refugees

It is 9am, December 6, 2005: Sheriff’s cars parade into the Lincoln Place Apartment complex in Venice, CA. They are accompanied by private guards of property owner AIMCO, and pile into the hallways, pound on the doors. The sheriffs present court orders to vacate their homes to 52 resident households. Some are allowed 20 minutes to leave their apartment homes. Others are given even less time. Empty-handed, these locked-out and outraged mothers, kids and students gather angrily in front of their homes. Door locks are being changed.

California has 52 new homeless families.

AIMCO is a large REIT, and one example for what financial lobbyists and a majority in the government would like to push onto their Fall agenda: Large REITs shares can be traded on the stock market; they do not pay corporate taxes; 90% of their profits are distributed among shareholders (banks, insurance companies, pension funds).

US-REITs own shopping centers, HUD and private properties, hospitals and prisons. They have spread their might in Canada, Australia, and more and more in Asia, for a while. Now it”s Germany’s turn.

Apparently, 3,000 Billion Euro of ‘cement gold’ are slumbering in German developments, government buildings and communes: According to industry experts, real estate properties valued up to 130 Billion can be acquired by REITs by the year 2010. Compared to the centers of the global housing bubble (US, UK, France, Spain…) rents and property prices in German markets are considerably lower, municipalities and other public property owners are bankrupt; industrial corporations are looking for fresh capital for investments in globalization: this situation is perfect for a quick change from existing social infrastructure into a Wild West stock market bonanza. Just like in California.

When REITs take control.

Lincoln Place was built in 1949 with plenty of trees and open spaces between architecturally perfect buildings. Property prices around Los Angeles rose 20% per year over the last five years. Stabilized rents in LA can only by increase by 3% each year. Since the acquisition of Lincoln Place Garden Apartments in 2003, AIMCO intends to demolish the complex and replace it with a mixture of expensive, high-rise condominiums and rentals. That plan, however, became difficult to realize due to protests of 800 renting households. In addition, the apartment complex was designated as a State Historic Resource in 2005. AIMCO filed suit against the State historic commission, got the designation voided. On May 5, 2006, the State Historical Resources Commission reinstated the designation. The remaining 50 households at Lincoln Place are waiting now to see if AIMCO will evict them, too.

Thus AIMCO has made good use of their political influence and put renters on the street. AIMCO uses a California law that allows owners to cancel leases, if they are going out of the rental business. “They are misusing this law. AIMCO lies”, claim the renters, and try to stop even more forced evictions with petitions, lawsuits and political actions.

“Starting in the early 90’s, REITs targeted subsidized/HUD housing”, explains Michael Kane of the American Tenants Alliance, NAHT. “That resulted in a tremendous concentration of ownership of apartment complexes.” With 240,000 rental units, AIMCO is the largest private apartment complex owner and operator in the USA: Their specialty: buy-outs of HUD properties that are being demolished to make room for more lucrative buildings. It happens outside of California, too, as in Dallas, Sacramento or Baltimore. “AIMCO keeps good contacts with right-wing Republicans”, reports Kane. “These corporations expect short-term profits and try to get rid of social contracts/structures as fast as possible.” Increasingly AIMCO also takes affordable but non-subsidized rental units off the market, evicts the tenants, fixes-up the properties to rent or convert to condos at luxury rates.

Europe at the Crossroads

Lobbyists for International Financial Trade have held doors open for each other at EU Governments Departments and Ministries during the last few years. And with remarkable ‘success’. Since REITs became active in France in 2003, they have accumulated 26 Billion Euros worth of capital. REITs’ stock market values rose 90%. Foreign investors took over French real estate properties. Conversions into condos were pushed.

REITs push renters out of attractive locations in Paris and Marseilles. Loss of taxes was estimated to be Up To 2 Billion Euros.

REIT-lobbyists in England were forcing the Blair Government into an admission race with Germany, and caused a crisis. In order to guarantee taxation of REITs profits by foreign investors, hundreds of agreements for double taxation would have to be changed. Instead, REITs rules are to be changed now:

A single investor can only own 10% of a REIT, and mandatory profit sharing are to be increased to 95%.

The consequence: there’ll be less left to reinvest into those properties, and even part of the Finance Lobby now talks about the ‘bleeding of real estate’.

Meanwhile, the German Federal Government is being bombarded with numerous proposals by an ever more organized REIT Lobby. Minister of Finance Steinbruck was listening. But left SPD Members of Parliament, Ortwin Runde and Florian Pronold, remembered a campaign of former SPD-president Muntefering (now vice-chancellor) and compiled an important paper: “Locusts at the door.”

Dissidents inside the SPD [Social Democratic Party]

These Members of Parliament describe in detail how difficult it is to close tax evasion loopholes created by REITs for international investors. They expect huge gains, including for communal business and property taxes. If the Gordian Knot of tax problems were to be solved, the solution would surely not be what the Finance Lobby expects: “Looking at the US example, substantial tax privileges that are intertwined with other, are being considered. REITs only pick out the raisins, combined with a rollback in tax politics.” Dissidents fear that, “the existence of REITs would further the insistence of shareholders’ interests. Local stability in Germany would become untied, and potential for speculation in the real estate sector would rise considerably.” Admission of REITs would widen the gap between ‘good’ and ‘bad’ rental apartment stocks and endanger the ‘social balance’.

“We need time,” politicians appealed, “and a broad debate about the consequences of REITs, not just among experts in financial markets, but also with tenant associations, apartment developers and with communities and all those that are not interested in creating an even more attractive menu for international financial capital.”

Politicians got their debate, but what about time? The government created a special committee to convince left Members of Parliament – in but six weeks.

Deutsche Bank is among them ?

At this point, plenty of apartments are still protected by social contracts and renters’ rights. However, contracts will expire and laws can be changed once gold diggers make the rules.

“Our portfolio includes many affordable apartments,” wrote AIMCO’s CEO in 1999. “Many subsidized programs will expire in a few years, and plenty of properties are prime targets for profitable conversions.”

There is one ‘locust’ of a special kind among those profiteering: According to some information resources in the US Deutsche Bank owns almost 8% of AIMCO stock and is one of the largest shareholders. Deutsche Bank made a socially responsible business commitment with the ‘UN Global Compact’. Perhaps Deutsche Bank could explain to those renters in Venice, CA (Germans are among them, incidentally) how ‘socially responsible’ it is to lock out disabled, elderly and children?

Instead of answering these questions Deutsche Bank meanwhile disclaimed direct ownership saying they only control shares for (secret) clients. A typical example how recent development in financial spheres make it diffcult to hold the corporations accountable. “Control over housing is being taken over by to a totally anonymous capital market”, German Tenants Federation feared at its 2005 general assembly.

Not only for this reason movements from Germany, France, Italy, Greece at 4th European Social Forum in Athens decided to develop international campaigning. Their target for action at next World Habitat Day, Oct. 2nd: Stock exchanges and governments at all centers of business across Europe.

Written by:

Knut Unger,
German Tenants’ website: