This story first appeared on the TomDispatch website.
Security is a slippery idea these days—especially when it comes to homes and neighborhoods.
Perhaps the most controversial development in America's housing "recovery" is the role played by large private equity firms. In recent years, they have bought up more than 200,000 mostly foreclosed houses nationwide and turned them into rental empires. In the finance and real estate worlds, this development has won praise for helping to raise home values and creating a new financial product known as a "rental-backed security." Many economists and housing advocates, however, have blasted this new model as a way for Wall Street to capitalize on an economic crisis by essentially pushing families out of their homes, then turning around and renting those houses back to them.
Caught in the crosshairs are tens of thousands of families now living in these private equity-owned homes. For them, it's not a question of economic debate, but of daily safety and stability. Among them are the Cedillos of Chandler, Arizona, a tight-knit family in which the men work in construction and the oil fields, while the strong-willed women balance their studies with work and children, and toddlers learn to dance as early as they learn to walk. Their story of a private equity firm, a missing pool fence, and the death of a two-year-old child raises troubling questions about how, as a nation, we define security in housing and why, in the midst of what's regularly termed a "recovery," many neighborhoods may actually be growing increasingly vulnerable.
A Buying Frenzy
In early August 2013, the Cedillo family threw a pool party at their house in Chandler. It was the sixth birthday of Brenda Cedillo's son, Jesus, and the family gave him a Batman-themed celebration, complete with a piñata in the driveway and a rented waterslide for the small pool in the backyard. Brenda, her brother Bryan, and her sister Christine had signed a one-year lease on the two-story structure three weeks earlier, which made the party special. It was the first family celebration that could be held in a house.
"We've always lived in apartments, apartments, apartments," said Christine.
The three of them were excited to find a place they could afford that was big enough for their children, Christine's partner Javier, and their parents Olga and Jesus. Christine's oldest daughter, two-year-old Zahara, was so close to Brenda's son that the two called each other brother and sister.
The only worry during the party was the pool, carefully monitored by the adults. Being unfenced, it had been a source of stress since they moved in. Repeated requests to the management company overseeing the property that one be installed had resulted in nothing. The Cedillos had no idea that the house's real owner was a private equity firm called Progress Residential LP. It had been founded in 2012 by Donald Mullen, a former Goldman Sachs partner, and Curt Schade, a former managing director at Bear Stearns, an investment bank that collapsed in 2008. Progress was financed by a $400 million credit line from Deutsche Bank.
The same month that the family rented the house at 1471 West Camino Court, Progress Residential purchased more homes in Maricopa Country than any other institutional buyer. Nationally, Blackstone, a private equity giant, has been the leading purchaser of single-family homes, spending upwards of $8 billion between 2012 and 2014 to purchase 43,000 homes in about a dozen cities. However, in May 2013, according to Michael Orr, director of the Center for Real Estate Theory and Practice at the W. P. Carey School of Business at Arizona State University, Progress Residential bought nearly 200 houses, surpassing Blackstone's buying rate that month in the Phoenix area.
The condition and code compliance of these houses varies and is rarely known at the time of the purchase. Mike Anderson, who works for a bidding service contracted by Progress Residential and other private equity giants to buy houses at auctions, was sometimes asked to go out and look at the homes. But with the staggering buying rate—up to 15 houses a day at the peak—he couldn't keep up. "There'd be too many, you couldn't go out and look at them," he said. "It's just a gamble. You never know what you've got into."
The House on West Camino Court
The two-story house that would soon become the Cedillo family's home was in fine structural condition when the family signed the lease. It hadn't sat vacant for long. Earlier that year, the former owner, Lloyd Carter, sold the house to avoid foreclosure after realizing that he owed $100,000 more on his mortgage than the house was worth. ("I didn't even know who they sold it to," Carter told me. "The title agency just sent the documents with the courier and met me at a Starbucks.")
There were a number of small rehab issues: a cockroach infestation, oil that had spilled in the driveway, and a sloppy paint job. Christine recorded some of these problems and others on a walk-through inspection, but she wasn't overly troubled. "All I was looking for was a place big enough for us to be together," she said. Until then, she had been living in her parents' apartment in Tempe with Zahara and her younger daughter Elysiah.
The one serious problem was the lack of that pool fence. Before the family moved in, Christine asked the Golba Group, the property management company hired by Progress to lease and maintain many of its houses, to install one. As she recalls, Lacey, the property agent, left for a moment and when she returned "said they weren't going to put it up." Christine offered to cover the cost and was informed that the family could install their own barrier, but only if it didn't affect any of the landscaping and wasn't fixed to any permanent structures, which to Christine sounded impossible.
The next week, the family moved in, increasingly nervous about the fenceless backyard, especially since they were unsure what steps they could legally take as renters. Christine's father began collecting wood to build a barrier on the patio and the family agreed on a safety plan: both front and back doors were to remain locked at all times, and multiple adults had to supervise the children if they were outside. Christine says she called the company another time to ask for a fence, again offering to cover the cost.
Golba claims it has no record of these requests. Lacey (who declined to share her last name) said she doesn't remember the Cedillos, no less whether they requested a fence. "If you knew the amount of properties we had," she told me by phone. "It was over a year ago."
The Private Equity Business Model
Global private equity firms have not been, historically, in the business of dealing with pool fences and the other hassles of maintaining single-family houses. But following the housing market collapse, the idea of buying a ton of these foreclosed properties suddenly made sense, at least to investors. Such private-equity purchases were to make money in three ways: buying cheap and waiting for the houses to gain value as the market bounced back; renting them out and collecting monthly rental payments; and promoting a financial product known as "rental-backed securities," similar to the infamous mortgage-backed securities that triggered the housing meltdown of 2007-2008. Even though the buying of the private equity firms has finally slowed, economists (including those at the Federal Reserve) have expressed concern about the possibility that someday those rental-backed securities could even destabilize—translation: crash—the broader market.
Since Wall Street was overwhelmingly responsible for the original collapse of the housing market, many have characterized these new purchases as a land grab. In many ways, Progress CEO Donald Mullen is the poster-child for this argument. An investment banker who enjoyed a brief flurry of fame after losing a bidding war to Alec Baldwin at an art auction, he was the leader of a team at Goldman Sachs that orchestrated an infamous bet against the housing market. Known as "the big short," it allowed that company to make "some serious money" when the economy melted down, according to Mullen's own emails. (They were released by the Senate Permanent Subcommittee on Investigations in 2010.) As Kevin Roose of New York magazine has written, "A guy whose most famous trade was a successful bet on the full-scale implosion of the housing market is now swooping in to pick up the pieces on the other end."
A Child's Death
Unlike her cousin Jesus, two-year-old Zahara was afraid of the pool. She was much more likely to be found dancing in front of the television, or eating vegetables, which were—to her family's surprise—her favorite food. She loved ketchup, and once disgusted her aunt Brenda by dipping her entire hand into the ketchup bowl at a restaurant and licking the condiment off her fingers. Describing herself as someone who "loves firsts," Christine saved everything about her daughter's life from her positive pregnancy test to the certificate she received for volunteering at Zahara's Early Head Start program.
Tod Stewart, Christine Cedillo's lawyer, remembers being shocked by the number of keepsakes the family had collected over Zahara's short life. "I asked her for some pictures of Zahara," Stewart told me, "and Christine sent me 1,200 photos."
About a week before Zahara's death, Christine reached out to her daughter's Head Start teacher to inquire about swimming lessons. The girl still showed an extreme aversion to the pool, but Christine wanted to be careful. That birthday party weekend was, according to family members, the moment when her fear of the water must have evaporated, because that following Wednesday, while Christine was at work and Zahara was at home recovering from a fever with her grandmother Olga, the toddler crawled out through a doggie door and found her way into the pool.
"I literally went into shock," says Christine after she got a call from Olga at the Subway outlet where she and Brenda worked. "I took off my apron and sped off to the hospital."