2020-02-10 Bloomberg Businessweek

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Bloomberg Businessweek February 10, 2020

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FRITZ

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BUSINESSWEEK

Elsewhere,afforda-

bility numbers

look similarly dire.

Throughout Spain,

averagerentsjumped

49%overthepastfive

years, while aver-

agesalariesroseonly

4.3%. InToronto, a

2019 reportfoundthat

housingcostsoverthe

past decade grew

four times faster

thanincome.

A main cause

oftheproblemisa

shortageofhousing

asa growingnum-

ber of people move

tocities. Accordingto

theUnitedNations,68%oftheworld’spopulationwilllivein

urbanareasby2050,upfrom55%today.(InBerlin,morethan

40,000newcomersarriveeveryyear.InNovembermorethan

1,700peoplereportedlyshoweduptoviewa singlemoderately

pricedapartmentina desirableneighborhood;somewaited

inlinefor 12 hours.)TheexpansionofAirbnbInc.andother

short-termrentalplatformshasonlyaggravatedtheshortage.

Berlinersaren’tentirelywrongtofocustheirireonbig

investorsandlandlords.Fordecadesprivateequityfirmsand

hedgefundshaveboughtupswathsofaffordablehousing

aroundtheworld.Thetrendacceleratedafterthe 2008 finan-

cialcrisis,wheninterestratesfelldrastically.Investormoney

rarelygoesintoconstruction.Withfewexceptions,thestrat-

egyis tobuyexistinghousing,renovateit,andraiserents.At

thesametime,manygovernmentsareinvestingfarlessin

affordablehousing,whiledeveloperstendtopreferbuilding

expensiveapartments.

LastMarch,LeilaniFarha,UNSpecialRapporteuron

AdequateHousing,singledoutBlackstoneGroup,thepri-

vateequityfirm,fora practiceshesayshasbecomecom-

monthroughouttheindustry.“Inmanycountriesaroundthe

world,”sheanda co-authorwroteina publiclettertothefirm,

“Blackstoneanditssubsidiarieshavebeentargetingandpur-

chasingmulti-familyresidencesinneighbourhoodsdeemedto

be‘undervalued.’Ineachcasethepatternis similar.A build-

ingorseveralbuildingsaredeterminedtobelocatedinan

undervaluedarea,whichoftenmeanstheyhousepoorand

low-income tenants. Blackstone purchases the building, under-

takes repairs or refurbishment, and then increases the rents—

often exorbitantly—driving existing tenants out, and replacing

them with higher income tenants.”

There’s nothing new about this strategy, but Farha says

Blackstone and other big investors and real estate firms are

executing it on an unprecedented scale. Blackstone responded

to the letter in a public statement, saying the UN complaint

contained several

inaccuracies and that

Blackstone was in fact

“helping to address

the undersupply of

housing by bringing

capital, expertise and

professional manage-

ment to the residential

housing sector.”

In Berlin the govern-

ment is partially respon-

sible for the dominance

ofbig real estate firms.

Before the reunifica-

tion of Germany in

1990, East Berlin was

communist and West

Berlin—a tiny capital-

ist island within the

Sovietbloc—livedoffsubsidiesfromthe West German gov-

ernment. After the wall fell, the subsidies ran dry and Berlin

racked up billions of dollars in debt, which the local govern-

ment attempted to pay down by selling what it could to pri-

vate companies. That included, from 1997 to 2004, the city’s

water utility, half its electricity producers, and more than

one-third of its public housing, or about 200,000 apartments.

(Berlin has since remunicipalized its water and electricity.)

Global companies swooped in almost immediately. In a

sale contested by the public at the time, U.S. private equity

firm Cerberus Capital Management, backed by Goldman

Sachs, bought Berlin’s public housing association, paying

$448 million for 66,700 housing units—about $6,700 per

unit. In 2013 Cerberus’s holdings became part of what is now

Berlin’s biggest and perhaps most reviled publicly traded

landlord, Deutsche Wohnen.

T

oday, Deutsche Wohnen is headquartered in a giant,

meticulously renovated former Nazi office building in

Berlin’s peripheral Wilmersdorf district. “From above,

it’s shaped like an H,” says Philip Grosse, the company’s

boyish 49-year-old chief financial officer, ruefully recounting

the building’s origins. “But don’t let that give you the wrong

impression about us.”

DeutscheWohnennowownsmorethan110,000apart-

mentsinBerlinandcountstheglobalinvestmentmanage-

mentcompanyBlackRockInc.(notBlackstone)asitsbiggest

investor. For years, newspapers have excoriated the com-

pany for increasing rents while repeatedly leaving hun-

dreds of tenants without heat or hot water during Berlin’s

icy winters. In 2017 the CEO, Michael Zahn, hired three

bodyguards after receiving death threats. More recently,

Deutsche Wohnen inspired the creation of the city’s biggest

expropriation advocacy group, which calls itself Expropriate

Deutsche Wohnen & Co.

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