Goldman and Blackstone Enter Spanish Real Estate - Pain and Suffering for Poor People Immediately Ensues

By Michael Krieger: Last year Madrid’s city and regional governments sold almost 5,000 rent-controlled flats to private equity investors including Goldman Sachs and Blackstone. At the time, the tenants were told their rental conditions would remain the same.

But as old contracts expire, dozens of people have received demands for higher rent, been told their rents will increase dramatically, been threatened with eviction or moved out to escape the insecurity. Thousands of Spain’s poor now depend for their homes on the generosity of private equity.
- From today’s Reuters article: Why Madrid’s Poor Fear Goldman Sachs and Blackstone
Less than a month ago, I warned the people of Spain that U.S. financial oligarchs had their sights set on the nation. The post was titled, Your Wall Street Slumlord Arrives in Europe – Goldman and Other Financial Firms Launch “Buy to Rent” in Spain, and in it I wrote:

Now that the financial oligarchs have had their way with the U.S. property market, to the point that average citizens can’t even afford to own a home (Zillow recently showed that 1 in 3 homes are unaffordable), it appears they have turned their sights overseas. What better market for bailed-out bankers to feast on than Spain, with its 50%+ youth unemployment rate and a continued depressed real estate market.

It didn’t take long for the results to be felt. Reuters published an article on the topic today. Here are some excerpts:

(Reuters) – Last year Madrid’s city and regional governments sold almost 5,000 rent-controlled flats to private equity investors including Goldman Sachs and Blackstone. At the time, the tenants were told their rental conditions would remain the same.
But as old contracts expire, dozens of people have received demands for higher rent, been told their rents will increase dramatically, been threatened with eviction or moved out to escape the insecurity. Thousands of Spain’s poor now depend for their homes on the generosity of private equity.
Jamila Bouzelmat is one of them.
The mother of six lives in a four-bedroom flat on the outskirts of the Spanish capital that was bought jointly by Goldman and a Spanish firm. The 44-year-old said that until March her family paid 58 euros ($73) a month in rent out of her husband’s 500-euro unemployment benefit. In April, her bank statement shows, her new landlords suddenly took 436 euros from her bank account.
She discovered the payment when she tried to pay an electricity bill.
“We went to take money out and there wasn’t a cent left in the bank,” she said, her 18-month-old daughter playing at her feet. She got charity hand-outs to feed her children, aged between 18 months and 19 years, and now lives in fear of the rent bill. Goldman declined to comment.
In the buildings sold to the funds, Reuters has spoken to more than 40 households who face similar difficulties. They include some of Madrid’s most vulnerable people: an unemployed single mother of five with a severely disabled daughter, for example, and an HIV patient with one lung. Both faced evictions that were temporarily halted at the last minute.
There is no suggestion the buyers have acted illegally. Having bought around 15 percent of Madrid’s publicly held social housing, the new owners are simply exercising their right to charge commercial rents once reduced rents that tenants have paid expire.
When boom turned to bust in 2008, Spain’s budget for housing collapsed. It was 1.4 billion euros in 2008 and is now 800 million. That left local governments scrambling to cut costs, and eyeing privatizations. To lure foreign investors, Madrid overhauled rental laws, making it easier for landlords to evict non-paying tenants. It worked: Investment in Spanish real estate increased 12-fold last year to 5.2 billion euros.
Taking an average size of around 70 square meters for the flats sold, Goldman and Blackstone and their Spanish partners paid around 970 euros per sq m for the properties. Flats in Vallecas sell for around 2,000 euros per sq m, real estate agent websites show – about 200,000 euros for a 100-sq-km home. “The price per unit was very cheap,” said Fernando Encinar of Madrid-based real estate agent Idealista. “In any market, if you buy in volume you get a good price.”

See how this game works? Financial oligarchs always get access to free money from Central Banks, as well as discounts during privatizations, and then turn around and demand the plebs pay the market rate.

Unemployed hairdresser and mother-of-three Yasmin Rubiano lives in a flat now owned by Goldman and Azora. Rubiano said she stopped getting a printed rent bill once her reduced rent of 50 euros per month ended in December, but got no word from the new owners.
In January she started to receive monthly text messages from her bank, which she showed a reporter, advising that it had received a demand for 498.18 euros. She has been paying 100 euros a month to show goodwill, but cannot pay more. In March, Rubiano said, she received a letter from Encasa Cibeles demanding full payment or threatening legal action.
On Aug. 6, the 20 tenants in Arriba’s block signed new contracts with Fidere, some of them seen by Reuters, which stipulate a rise of more than 40 percent in rent over three years. Blackstone referred inquiries to Fidere.
Some local politicians say IVIMA acted illegally by selling the flats cheap. IVIMA Director Ana Gomendio declined to comment.

Wolves will always eat sheep, and until the sheep decide enough is enough, the wolves will continue to feast.

In Liberty,
Michael Krieger

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