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As Wall Street pours money into local housing, problems mount

VineBrook Homes faces new city scrutiny
MariahPrice.jpg
Posted at 6:00 AM, Feb 18, 2022
and last updated 2022-02-18 19:27:49-05

CINCINNATI — When the worst winter storm in decades barreled toward Greater Cincinnati Feb. 1, Mariah Price and her 4-year-old daughter, Kie’yomi, were forced out of their Mt. Airy apartment by busted pipes and a lack of heat.

“A week ago, it was so cold you could see my breath,” Price told the WCPO 9 I-Team. “Me and my daughter couldn’t stay here. We had to go down to my mom’s house to stay there ‘cause it was too cold.”

Price lives on Shadymist Lane, in one of roughly 3,000 properties owned locally by corporate affiliates of VineBrook Homes Trust Inc. The Dallas -based real estate investment trust collected more than $112 million in rent and tenant fees last year from the 15,780 properties in its 16-state portfolio, according to securities filings.

VineBrook is the largest local buyer among several institutional investors negatively impacting Greater Cincinnati’s housing market, said Laura Brunner, CEO of the Port of Greater Cincinnati Development Authority.

“The attention here is investors who are a) out of town, and b) not responsible landlords,” Brunner said. “That’s what is so troublesome.”

Last week, the Port finalized the $14.5 million purchase of 194 Hamilton County houses from Raineth Properties, a Los Angeles-based investor that was accused by the city of Cincinnati of creating a public nuisance with its properties. The Port’s goal is to convert those rental properties to home ownership. LINK

“In Ohio, we have relatively low home values and, due to housing scarcity, we have high rents,” Brunner said. “So, those make it a perfect opportunity to be able to buy your asset at a low price and have a high rental stream from it.”

VineBrook declined to be interviewed for this story, but provided a statement:

“Fourteen years ago, VineBrook Homes launched in Cincinnati with the goal of increasing the availability of safe, affordable housing in our area. We are a proud local employer with more than 60 employees based out of our Cincinnati office, who are dedicated to providing positive living experiences for our residents. In Cincinnati, we spend an average of $25,000 per residence on renovations to the homes we purchase.”

VineBrook’s business model
In its most recent quarterly financial statement filed with the U.S. Securities and Exchange Commission in November, VineBrook said it owned 2,925 homes in Cincinnati, with an occupancy rate of 91.1% and an average effective rent of $1,104 per month. That’s slightly below Cincinnati’s median rent of $1,149 in a May, 2021 report by Realtor.com.

Other details from the Nov. 8 filing: VineBrook spent $19.4 million on property operating expenses in the nine months ending Sept. 30. That’s about 17% of what it collected from tenants in fees and rent. It also spent $20.6 million on interest payments to lenders, $6.6 million on dividends to investors and $11.6 million on fees to the two companies that formed the REIT in 2018: Nexpoint Real Estate Advisors and VineBrook Homes LLC.

Brunner is troubled by the company’s structure, which owns real estate in “special purpose entities” that shield its corporate parents from liability if properties are mismanaged.

“The assets of each entity can only be used to settle obligations of that particular entity, and the creditors of each entity have no recourse to the assets of other entities or the company,” said the Nov. 8 filing.

Brunner said non-recourse debt is “dangerous” in real estate.

“That’s what allows these owners to take that significant cash flow, not care for the property, not pay the debt service and then at some point just walk away,” she said, “leaving the investors and creditors, not to mention the tenants, high and dry.”

VineBrook’s legal problems
VineBrook is facing a proposed class-action lawsuit in Hamilton County Common Pleas Court, filed in November by a former tenant who alleges the company made “false, deceptive, unreasonable and excessive deductions” from a $900 security deposit. Michael and Lindsay DeBlasis allege they “left the premises in better condition than when they received occupancy” at 4410 Simpson Ave in Madisonville. VineBrook sent them a check for $35.16, the lawsuit alleges.

“Defendants deny they have a pattern and practice of making fraudulent security deductions from security deposits of former tenants,” VineBrook’s attorneys answer on Jan. 22. “Answering further, Defendants affirmatively state that this action cannot properly be certified as a class action.”

The city of Cincinnati sued VineBrook last July after it racked up $213,000 in civil fines for building code violations and $391,000 in unpaid water bills, according to court records.

“Many of the properties owned by the VineBrook defendants are now in a state of disrepair due to deferred property maintenance and neglectful ownership practices. These properties contribute to blight in the neighborhoods in which they are located,” said the city’s lawsuit, which was settled in August.

The settlement required VineBrook to correct all pending code violations at 49 properties, including the four-unit apartment building where Mariah Price lives. The building had seven violations pending when the case was settled. Two of them were not resolved by Jan. 14, when a city inspector wrote: “Exterior still had visible trash and rubbish. Front stoop at main entrance is still in need of maintenance and repair.”

City officials declined to comment on whether VineBrook has complied with last year’s settlement agreement.

“The city’s law department is currently reviewing these issues,” spokeswoman Holly Stutz wrote in an email. “Because this is a matter involving the enforcement of an agreement related to litigation that may require the re-initiation of a legal action, the City is unable to provide a response at this time.”

One tenant’s story
Price is also engaged in litigation against VineBrook, hoping to recover damages for her cold, wet winter.

“My daughter’s room is flooded,” Price said. “All her things are messed up. That shouldn’t happen.”

VineBrook sued to evict Price last March, claiming she owed more than $1,200 in rent and did not respond to a notice to vacate the property, effectively ending her tenancy on Feb. 15, 2021. Legal Aid attorney Matthew Fitsimmons countered the eviction by alleging Vinebook was retaliating against Price for complaining about the condition of the property.

The parties have since indicated they’re working toward a settlement, with a Feb. 14 pre-trial hearing scheduled by Hamilton County Visiting Judge Robert Taylor. Price said she has been paying her $700 monthly rent in escrow and called the Cincinnati Health Department several times in the last month to report a lack of heat. That’s when a pipe burst in her daughter’s room.

Cincinnati’s Health Department issued six citations Jan. 31 after inspectors observed “water covering the floor in the bedroom” from “busted pipes” that also caused “water damage in the garage.”

Inspectors also documented “an accumulation of mold” inside Price’s apartment, where the temperature was 51 degrees at the time of inspection. VineBrook was ordered to repair the boiler and the pipes and furnish heat within 24 hours.

“We treat issues relating to heat, health, and safety with the utmost importance,” VineBrook said in its Feb. 5 statement to the I-Team. “We’ve communicated with residents frequently that when the garage door is left open during periods of extreme cold, the boiler and water line pipes can freeze. We locked the garage doors to prevent this, but the locks were removed. And the most recent call relating to a lack of heat appears to have been caused by someone at the property turning off the gas valve and leaving the garage doors open. The gas has been restored, repairs have been made to the damage caused by the frozen boiler pipes and frozen water lines, and the heat and water are both back in service at this property.”

Price said VineBrook repaired the busted pipe but left debris behind when the job was finished. When the I-Team visited the property Feb. 8, a water-soaked rug had yet to be removed from Price’s unit but the boiler was working.

“Seventy degrees in here,” said Tim Vanderyt, a VineBrook maintenance man who stopped to check on the building while the I-Team was there. “I think that’s more than adequate.”

Vanderyt didn’t know whether VineBrook planned to remediate the unit for mold and water damage.

“That depends on how severe it is,” he said. “All the tenant has to do is call in a work order and we’ll come, take care of it.”

Price is not convinced. She’s looking for a new apartment, with a $900 voucher provided by Cincinnati’s Health Department.

“I can’t stay here,” she said. “My daughter has real bad asthma. She’s been in an out the hospital. I shouldn’t have to stay at my mom’s house. I should be comfortable in my own home.”