How Capital Can Cure Eviction Ills

Lew Sichelman

There’s plenty of capital to go around for large-scale apartment builders. But small-time investors could use a shot in the arm, too, says one of the bigger players, if only to help the entire business deal with the heat it is taking because of the increase in evictions.

“Capital of all types can mitigate a lot of issues,” said Daryl Carter, founder & CEO of Avanath Capital Management. “Unfortunately, very small landlords have very little access to the kinds of capital larger landlords have.”

Since Avanath’s formation in 2008, the company has acquired $2.5 billion worth of apartment communities, with an emphasis on affordable and workforce housing. And its ability to raise money has allowed it to turn difficult properties into stable ones.

When the firm purchased a property in Long Beach, Calif., for example, the local police were responding to 80 calls a month from the community, where 1,300 kids were part of the residential makeup. “Now,” Carter said, “it’s down to five.”

Why? Because Avanath had the money to not only renovate the units but put in a state-of-the-art basketball court and offer other recreational and social programs. Carter didn’t say what that all cost, but he did indicate that it takes money to properly maintain properties and keep rental rolls stable.

“My company operates on maintaining stability,” he said. “The last thing we want to do is evict. We do that only in extreme situations.”

In 2019, Avanath recorded only 80 evictions over its entire portfolio, and only five were for non-payment of rent. The rest were for “egregious” lease violations, mostly the commission of a felony.

“Our goal is to keep residents in place and minimize turnover,” Carter said. “The lower the turnover, the safer the property.”

During the various eviction moratoriums of the last 16 months or so, landlords were prevented from booting residents, even the unruly ones. “Because we couldn’t get rid of the bad people, many of our communities became less safe,” the Avanath founder said. 

Even some resident groups agree that capital is key. In Chicago, for instance, the Metropolitan Tenants Organization is advocating for a money set-aside so landlords can make repairs as part of its programs to stem evictions. Apartment owners “need capital,” says Executive Director John Bartlett.

Other cities, meanwhile, are taking innovative steps to help landlords defray their costs. In Boston, Avanath purchased a market-rate property and re-purposed it into a low-income rental for residents earning 80 percent or less of the area median income. In return for agreeing with a local resident group to not raises rents more than 2.5 percent over the first five years, the company received a grant worth 10 percent of its acquisition cost.

Even though Avanath strives for stability, Carter says it’s a landlord’s “legal obligation” to evict people when it becomes necessary. But Bartlett says that it’s “not always black and white” when to evict. And often, he adds, eviction is “the wrong choice.”

Residents, who studies show have only about $6,000 in personal wealth, sometimes face “an impossible challenge” when they fall behind on their rent, Bartlett said.

“Many face a difficult choice, whether to pay their rent, medical bills or car repairs. Where’s that extra expense going to come from? Often, it’s from not paying rent. They’re not trying to scam anyone, but if they don’t have a car to get to work, they won’t be able to pay their rent,” he added.

Landlord Obligations  

Bartlett also believes landlords should be obliged by law to inspect their apartments every so many years. That, he said, “would take the onus off (residents)” to report peeling paint, leaking pipes and other maintenance issues. “When a (resident) complains,” he points out, “it often puts an X on your back.”

According to “initial observations” from a study by the ULI Terwilliger Center, the center’s senior visiting research fellow Michael Spotts said “the small number of bad actors” among residents “have a disproportionate impact” on apartment communities. But so do “absentee owners who are not making basic investments in upkeep.”

“Bad (residents) cause trouble,” Spotts said. While some cause damage to the property or commit crimes, others voluntarily withhold their rents. That includes some earning six-figure incomes who decide not to pay during the eviction moratorium. And they can get away with it because most programs have no income requirements.

Spotts said the consensus so far among respondents to the Terwilliger study indicates there is “strong support” for trying to reach the most vulnerable renters as well as for the importance of quality housing. It’s not universal, but participants seem to agree that “someone’s property is also someone’s home,” he added. 

Meanwhile, a study from last year says it is “critical” to understanding small-scale landlords’ role in maintaining affordability and navigating evictions. “Landlords serve as gatekeepers to the country’s limited supply of affordable rental housing,” the report noted, making key decisions about who to rent to, rental prices, eviction procedures and the maintenance and preservation of their properties. 

The study, by Melody L. Boyd, an associate professor of sociology at SUNY Brockport, and John Balzarini, an associate professor in the Department of Sociology & Criminal Justice at Delaware State University, explored the strategies and motivations of small-scale landlords and property managers who work with residents delinquent on their rent or otherwise violating the terms of their leases.

After in-depth interviews with 71 landlords and property managers in Philadelphia, it found that most try to avoid evictions by forgiving back rent, setting up payment plans, accepting services like cleaning and maintenance in lieu of rent and offering assistance and referrals to social services.

When these strategies failed, some landlords incentivized residents to vacate by forgiving back rent without penalty if residents vacated voluntarily or by directly paying residents to leave.

Although the study is not representative of landlords and property managers across Philadelphia, it suggests landlords, especially smaller ones, try to work with residents to avoid evictions. But it found that communication between landlord and residents is key. Landlords were more willing to work with the residents who were up front and communicative about their inability to pay rent, the report said.

Landlords also were more motivated to work with long-term residents, those who consistently paid rent, or those perceived as reliable because landlords benefited from this stability. But they were less likely to negotiate with those with whom they had too many negative experiences.

Because they are more economically vulnerable than their larger counterparts, small landlords were more likely to negotiate with non-paying renters. But when push came to shove, they worked in their own best interests, not by spending the time and money on filing a formal eviction, but to maximize their profits by keeping residents in their homes.