One of the nation’s largest corporate landlords, the company rapidly bought and renovated thousands of properties, often without required permits
July 12, 2022 at 6:00 a.m. EDT
Detail above Celeste Jackson’s front door. Some of the issues, like falling tiles and holes in the wall, have recently been addressed by Invitation Homes. (Stella Kalinina)Comment on this story
RIVERSIDE, Calif. — Invitation Homes advertises that it is leading a real estate “revolution.”
Formed by Wall Street investors after the Great Recession and foreclosure crisis, the company accumulated tens of thousands of houses at depressed prices, spent hundreds of millions of dollars on renovations and now leases them out. Never before has a single landlord owned such large swaths of suburban America. As rents have risen in recent years, the value of the publicly traded company has soared to more than $23 billion.
“Top-quality homes,” it promises prospective renters, “maintained by top-level professionals.”
Yet some of the company’s homes have missed basic quality checks: Renovations at the company’s rapidly assembled collection of 80,000 homes often were made without building permits, according to a review of Invitation Homes properties in several states, a California lawsuit and a Washington Post analysis of building data in three cities.
Skipping building permits may have allowed the company to avoid costly delays and save millions in fees, according to estimates based on the number of company homes. But forgoing the permits, which are required by city codes to ensure quality and safety, has led to shoddy repairs and maintenance that puts tenants at risk, renters said.
“We’re paying $4,000 a month to live in hell,” said Celeste Jackson, a Los Angeles entrepreneur who lives with her husband in an Invitation Homes property. Before she moved in, a third bedroom was created in the home without the permits required to do so, according to floor plans of the property and interviews with tenants. Since then, the couple said they have suffered through cracked skylights, rotten wood and flooding so frequent that the company left sandbags at their door for months.
Outside Dallas, another couple said they discovered water pouring through their walls and soaking the carpet after a bathroom renovation for which no permits are on file with the city.
And near Tampa, contractors hired by Invitation Homes reframed rotted floors and walls and rewired a living room without pulling permits, according to county records. The contractors then left the living room gutted for seven months before the company fixed it properly, according to one of the tenants, Kristi McKenzie, and photos she provided.
“They hire people who will just do anything without doing it to code,” McKenzie said.
The company disputes allegations that it purposely hires contractors who disregard permitting rules, adding that most tenants are satisfied, staying nearly three years on average and giving positive online reviews.
Invitation Homes is one of several large corporations that have transformed the rental housing industry over the past decade, touting their ability to efficiently manage vast portfolios of single-family houses. Tenant advocates say corporate landlords are helping to drive up rent prices even as they skimp on maintenance and major repairs.
For this report, The Post analysis looked at three markets where Invitation has hundreds of homes: Charlotte; Orlando; and Riverside, Calif., a suburb east of Los Angeles. In all three, Invitation Homes properties were less likely than others in the area to have had permits pulled for renovations and other projects, according to the analysis of local building department data. In Charlotte and Riverside, Invitation Homes properties were half as likely to have had permits pulled.
Separately, The Post found that at more than a dozen Invitation Homes properties across several states, the company hired contractors for renovations for which there is no record of the required permits. The projects included roof replacements, air conditioning installations, swimming pool demolitions and other work that sometimes led to significant complications.
Given a summary of The Post’s findings, Invitation Homes did not comment on the statistical analysis or specific problems reported by renters. In a statement, the company said that it expects its contractors to abide by permitting rules.
“We always seek to comply with applicable laws and regulations, including permitting laws, and are continually evaluating and improving our compliance procedures,” the company said in an emailed statement from spokesperson Kristi DesJarlais. “We expect our third-party vendors to adhere to these same standards and enter into agreements that obligate them to do so.”
In most parts of the country, local officials require building permits for significant home renovations. Changing the plumbing, rewiring an electrical circuit or replacing a roof often call for payment of a fee and, sometimes, inspections. The responsibility for pulling a permit lies with both the owner and the licensed contractor doing to the work, building officials said. The process can cause delays and add thousands of dollars to renovation costs.
“Permits are there to ensure life safety,” said Ron Takiguchi, former president of California Building Officials, a professional organization. “Homeowners should have the right to enjoy their homes without worrying that the construction is safe.”
Invitation Homes officials have said the company has spent $25,000 on average renovating each home it acquired. Such costly projects often require permits, but company properties were much less likely to have had permits pulled than other houses in the same areas, according to The Post analysis.
This raises concerns that some renovations were not properly permitted, Takiguchi said.
“It would be a red flag just based on the disproportionality itself,” he said.
The Post analyzed how often building permits were issued to Invitation Homes properties compared to other residential properties, from 2012 to the present. For the analysis, The Post chose three cities where Invitation has hundreds of homes and building permit data is readily accessible. In all three, the Invitation Homes properties were less likely to have had permits pulled.
In Riverside, where the company owns more than 400 homes, building permits were issued for 13 percent of properties it acquired. By contrast, the proportion of other Riverside homes that have obtained permits is 28 percent — meaning Invitation Homes was half as likely as other homeowners to have obtained a building permit over the past decade.
In Charlotte, where the company owns about 1,900 homes, building permits have been issued for 24 percent of the company’s properties, compared with 48 percent of other Charlotte homes. And in Orlando, where the company owns 1,300 homes, building permits have been issued for 56 percent of its properties, compared with 63 percent of other homes.
Across the United States, The Post found multiple examples where unpermitted work left tenants with homes in poor condition.
In the middle of the pandemic, for example, Candy Scott and her family moved into an Invitation property in Denton, Tex., in December 2020. Recent photos of the property showed that the bathroom had been remodeled to replace a whirlpool tub with a shower stall.
“I thought: ‘They just remodeled. What could go wrong?’ ” Scott recalled.
The week she moved in, she found water from the shower filling the bathroom and running into the master bedroom, soaking the carpet. “When you walked on the carpet in the master bedroom, it was soaking wet. For a while, we tried to put towels on the carpet, but then we realized it was coming through the walls.”
A contractor came and tore out the tile, finding that no shower liner had been installed underneath, Scott said. He re-tiled the shower but then the drain clogged, she was told, because of mortar he’d let slip into the drain. Getting a new contractor to fix the shower took months, she said.
On another occasion, she said, the house needed a plumber , but the person who showed up was only prepared to repair drywall and told her he would “go to Home Depot and try to figure it out.”
She said she complained repeatedly to Invitation’s customer service staff about the quality of work.
“I would ask them: ‘Why do you keep sending people out here who are doing a horrible job?’ He’d say, ‘I have another company but they are going to do just as bad.’ ”
There are no permits on file with the city for any of the repairs, which are required by Denton. In April, Scott and her family moved out.
At a home in Clayton, N.C., near Raleigh, Invitation Homes hired a contractor to do $54,000 worth of work, including installing a new air conditioning system, according to documents obtained by The Post. Air conditioning installations and renovations of that value require building permits, but none are on file, a city spokesperson said.
“They never seem to live up to what they promise,” said tenant Erich Budde, who said that in addition to the unpermitted renovations, the painting and work on the floor seem in his view to have been shoddy and rushed. “Things are always discombobulated and disorganized,” he said.
The company declined to comment on specific cases.
“Since our founding 10 years ago, Invitation Homes has consistently invested in providing prompt, professional service to our residents, including the timely turnaround of all maintenance requests,” the company said.
Before the Great Recession, enormous real estate companies like Invitation Homes with huge portfolios of single-family houses were largely unheard of. Companies that rented houses tended to be much smaller and limited to one town or region.
“Back in 2012, home-leasing options were slim,” the Invitation Homes website explains. “There were only mom-and-pop landlords and a few regional leasing companies. No one could deliver the consistent, worry-free way of life that our founders envisioned.”
The foreclosure crisis created buying opportunities for these large ventures, but it was internet technology that enabled them to seize the moment. Using large-scale cloud-based data analysis, Wall Street investors were able to search for and buy hundreds of homes in a week.
The technology also benefited renters, Invitation Homes says, because it makes leasing a house simpler and more efficient. Potential renters can browse houses online or tour them in person with self-guided walk-throughs. Tenants often say that they might not even meet a property manager before moving in.
Like tech disrupters Uber, Robinhood and Amazon, Invitation Homes has touted its venture as a way to overhaul an industry populated by more traditional competitors.
Brad Griewe, one of Invitation’s founders, has described the idea this way: “We fundamentally believed we could use technology to enable a best-in-class team to identify, underwrite, purchase, renovate, and professionally lease/manage U.S. single-family rental homes across the country at scale.”
In fact, the company’s advertising suggests it can transform the American Dream and make renting better than buying a home. “That mortgage thing?” the company advertises. “Yeah, forget that.”
The rise of the investment groups, which in some markets are buying up to one-third of the homes that become available, are putting upward pressure on home prices, housing advocates said.
So far, Invitation Homes — spun off by the investment firm Blackstone in 2017 — has paid off for investors. Blackstone declined to comment. After briefly falling below $18 a share when the pandemic started in early 2020, Invitation Homes shares rose above $45 in January but are now going for about $35, reflecting the market sell-off. The company remains a favorite of Wall Street investors.
The company has benefited in recent years from the rapid rise in rents.
In the first quarter of 2020, Invitation charged an average of $1,851 per month. This year, that rose to $2,074, a 12 percent increase, per securities filings, with the largest increases in Phoenix, Las Vegas and Florida.
In buying and fixing up its portfolio of properties nationwide, Invitation Homes has sought to prepare homes quickly to start collecting rent, according to its executives speaking in quarterly calls with investors. That urgency, housing advocates and lawyers say, sometimes compromised quality.
To speed up purchases, large institutional investors like Invitation Homes can buy homes with only superficial inspections, which aren’t as thorough as the typical inspection an individual buyer usually needs to secure a bank loan. As a result, these big companies may be more likely to buy damaged properties, especially when buying homes in bulk or from bank auctions.
“We often do not have the opportunity to conduct interior inspections or conduct more than cursory exterior inspections on a portion of the properties, if at all,” according to Invitation financial filings. “Such inspection processes may fail to reveal major defects associated with such properties.”
The company typically hires third-party contractors to handle repairs and maintenance, spending about $2.5 billion to fix up the houses its buys, according to financial filings — an average of $25,000 to $35,000 per home.
To reduce the time a house sits empty, company executives say they track a metric they call “days to re-resident,” the time it takes to prepare a home and find a new tenant. During the pandemic, the company was able to shorten the period between tenants from 29 days to 23 days, according to executives on a call with analysts.
The speed may raise profits, but some attorneys say it also has harmed tenants.
In late 2020, a newly formed tech company sued Invitation Homes alleging that the company’s contractors regularly conducted repairs and renovations without permits. The lawsuit, which was based on an analysis of Invitation’s portfolio of 12,000 homes in California, claimed that the company had deprived multiple cities and counties of millions of dollars in permit fees. The allegations are based on a broad statistical analysis of building permits issued for Invitation Homes properties and on 15 specific examples where, the plaintiffs say, company properties were renovated without permits.
Invitation Homes “has spent thousands of dollars on renovations to its single-family homes in California but intentionally and systematically failed to obtain building permits,” according to the lawsuit from tech firm Blackbird Special Project, which is using the proprietary technology of a related company, Deckard Technologies, a firm that uses machine learning to review real estate data. The plaintiffs have been represented by Leonard B. Simon, a San Diego attorney, and the firm of Sanford Heisler Sharp.
The “company chose to ignore permitting requirements to avoid permit fees and to get the properties into the rental market as quickly as possible,” according to the lawsuit.
The lawsuit is intended to recover money from Invitation Homes for local governments under a whistleblower law that would give the tech firms a portion of any award.
Attorneys for Invitation Homes have called the allegations “unfounded” in court documents and said the case is “a manufactured story, unsupported by particularized allegations.” During a call with investors this year, Invitation chief executive Dallas Tanner said “we think we have some pretty compelling arguments” in response to the lawsuit and that the company looked forward to defending itself in court. Invitation’s attorneys filed a motion to dismiss the lawsuit in April.
“We believe this case has no merit and is riddled with factual errors and legal deficiencies,” the company said in its statement to The Post.
Regarding the lawsuit, Invitation said in its statement that the plaintiff’s statistical analysis of building permits “lacks any empirical reliability.” The real estate company also has called into question the 15 specific examples of unpermitted work cited by the lawsuit, and noted that they constitute only a small portion of its 12,000 homes in the state.
Using interviews, Google Earth and other public records, however, The Post found evidence that substantial work had been done without permits at eight of the 15 homes cited in the lawsuit. The timing of the unpermitted renovations was not always clear, but six of the eight were done about the time Invitation Homes bought them or shortly thereafter.
At one Riverside home, for example, a pool was filled in and a back portion of the house was demolished after Invitation Homes purchased the property in 2012, according to Google Earth imagery. These changes would have required a building permit, according to municipal codes, but none were obtained, according to city records.
One door down, a patio structure was dismantled without a city permit. The tenant said the roof was replaced, but no building permit was found in city records.
Other homes had an adjoining pantry or shed demolished and another got a new air conditioning system, as alleged in the lawsuit. None of the work had been done with permits, according to city records.
Most of the homes cited in the lawsuit are in Riverside, and in a statement, city officials said those eight homes are “under investigation based on the facts presented and the specific allegations of unpermitted construction contained in the lawsuit.”
Wall Street analysts are paying close attention.
Corporate landlords like Invitation Homes are a sector already “reviled by the populace,” said Ross Bowler, chief executive of 2nd Market Capital Advisory, which analyzes publicly traded real estate companies. Though Invitation Homes is fighting the allegations, he said, the suit probably will generate additional negative publicity.
“They say there is no merit” to the lawsuit, Bowler said. “But because it is potentially ugly and unknown, it puts a mark on the whole single-family rental sector.”
The Post identified properties owned by Invitation Homes by matching its subsidiaries with a national property ownership database maintained by Regrid. Riverside, Orlando and Charlotte were identified as places where Invitation Homes had hundreds of homes and with readily accessible online building permit data.
For each locality, The Post used city and county public online building permit portals and building permit databases to identify permits for homes owned by Invitation Homes and its subsidiaries. Permit data was collected starting in 2012, when Invitation Homes was founded, to the present for any property owned by the company.
Using the same sources, The Post calculated the percentage of all single-family properties not currently owned by Invitation Homes in each locality that had building permits since 2012 on file. Property lists came from publicly accessible county property assessor records. In Riverside, data on single-family properties was last updated in 2017, so homes built after that are excluded from the analysis.