Business

Blackstone unit Invitation Homes sued over rental house's condition

BusinessRentalsForeclosuresInvestmentsRental ServiceBlackstone Group, L.P.
Blackstone has bet billions on the housing recovery, acquiring 44,000 homes nationwide
Corporate players enter the single-family rental business that has been the domain of mom-and-pop landlords
The rental house quickly became a slum, lawsuit says

Last spring, Edit Novshadyan and her husband were happy to land a Sun Valley three-bedroom house, with enough room for their son to play and their family to grow. Another child was on the way.

So they signed a one-year lease with Invitation Homes, an arm of private-equity giant Blackstone Group and the largest player in the emerging single-family home rental industry. It was, Novshadyan said, a "perfect moment."

Then they moved in.

The house quickly became a slum — one with persistent water leaks, cockroaches and mold that sickened the couple, Novshadyan and her husband, Roland Bagdasaryan, allege. Invitation Homes failed to quickly make requested repairs, and the squalor grew so dire that the family left, according to a lawsuit filed in Los Angeles County Superior Court.

"They told us this house was remodeled," Novshadyan, 28, said in an interview. "It was disgusting."

An Invitation Homes spokesman declined to comment on pending litigation or specific tenant experiences. But in a court filing, attorneys for the company said it "promptly responded" to maintenance requests, offered the couple other lodging and "acted as a reasonable landlord under the circumstances."

Blackstone has bet billions on the housing recovery, acquiring 44,000 homes nationwide in a bid to professionalize the single-family rental business. Other investment firms have done the same, scooping up cheap foreclosures to fix up and rent out. In the last two years, institutional investors spent $20 billion to acquire more than 130,000 homes, according to a January report from investment bank Keefe, Bruyette & Woods.

That scale has concerned many people. Traditionally, the labor-intensive, single-family rental business has been the domain of local mom-and-pop landlords. Now corporate titans have entered the playing field.

"Do they have the capacity to properly maintain tens of thousands of units across the country?" asked Kevin Stein, associate director of the California Reinvestment Coalition, a low-income advocacy group.

Invitation Homes spokesman Andrew Gallina said that the company, founded in 2012, employs more than 1,500 property management professionals nationwide and that tenants can reach someone at all hours in case of an emergency. The vast majority of tenants, Gallina said, have very positive experiences and report satisfaction levels that rival the established multi-family rental industry.

"When issues do arise and we are made aware of them, we work to quickly resolve them," he said.

The issues started immediately at Novshadyan's Sun Valley rental, the couple contend. In May 2013, on the day they moved in, they found trash strewn about and urine on the bathroom floors, according to the lawsuit. Then came the leaks and more. Cockroaches infested the house, the air conditioner failed, tap water turned brown and a bathroom flooded, the lawsuit alleges.

In late May, 10 days after the couple reported the first leak, Invitation Homes sent a technician to repair leaks in two bathrooms, according to court documents. It was then, the lawsuit alleges, that a worker cut into a wall to fix a broken pipe without first checking for asbestos. The fibers spread throughout adjacent rooms, the lawsuit alleges.

In early June, Invitation Homes informed Novshadyan that the house needed extensive piping work, according to the lawsuit. A month later, the family moved in with relatives so their house could be fixed. They planned to return in two weeks and left their belongings behind. When they left, the white moldings in the newborn's room had turned brown, Novshadyan said. The moldings ran parallel to a pipe on the home's exterior.

Several days later, Invitation Homes told Novshadyan that workers had found mold in the house, the lawsuit alleges. The couple scrapped their plans to return.

Mold exposure has caused the couple "nose bleeds, headaches, fatigue, memory loss, inability to concentrate, chronic runny nose, respiratory issues and other chronic flu-like symptoms," the lawsuit alleges. They are asking for unspecified damages.

Invitation Homes bought the Sun Valley house out of foreclosure in July 2012, according to public records. The Dallas company has since packaged the house into a rental bond, records show, along with roughly 3,000 others, to raise $479 million.

After the couple decided not to return there, they agreed to rent a Tujunga house that Invitation Homes offered them. But before they could move to Tujunga, the company rented the house to someone else, the lawsuit alleges.

The couple tried for months to retrieve their belongings from the Sun Valley home, whose locks had been changed by Invitation Homes, according to the lawsuit. They finally gained access in December and tested their belongings for mold contamination. Most of the couple's belongings came back positive, and medical tests on the couple also found mold contamination, according to the lawsuit.

Novshadyan now lives in a small Glendale apartment with her husband and two children. The couple said they had to buy new furniture, clothing, baby supplies, bedding and more. Some things, like pictures, they can't replace.

According to the lawsuit, Novshadyan and Bagdasaryan still hear from their former landlord.

"Invitation Homes," an amended complaint filed in March says, "continues to send plaintiffs emails demanding rent to this day."

In a court filing last month, attorneys for Invitation Homes said the lease required the couple "to pay rent while they did not occupy the property."

andrew.khouri@latimes.com

Twitter @khouriandrew

Copyright © 2014, Los Angeles Times
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BusinessRentalsForeclosuresInvestmentsRental ServiceBlackstone Group, L.P.
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