How out-of-state companies are buying up homes and changing the St. Louis area market

Courtyard Place is now drawing out-of-state companies chasing their own American Dream.

The cul-de-sac off Shackelford Road near Florissant, with tall trees and wraparound sidewalks, was built as part of the 900-home Pleasant Hollow subdivision. For decades, it welcomed families looking to move from St. Louis into the suburbs.

But during the Great Recession, many of the homes were foreclosed on. The neighborhood, which already had some rentals, attracted more real estate investors. By 2015, large out-of-state companies such as Ohio-based VineBrook Homes, Austin-based Main Street Renewal and private equity-backed FirstKey Homes began buying out the smaller players.

Now, just two homes on Courtyard Place are owned by the residents.

Of the remaining 14, five are owned by smaller investors. The big out-of-state companies own nine.

Today, up to 34,000 single-family homes in St. Louis, St. Louis County and St. Charles County are likely owned by investors, according to a Post-Dispatch analysis of real estate records.

That’s 6.4% of the single-family housing stock in those counties. But that figure has doubled over the past decade. And the concentration is far higher in some parts of the region — south city, North County, and the O’Fallon area of St. Charles County, especially.

They include mom-and-pop landlords who own one or two properties. But the biggest numbers trace to out-of-state companies that own thousands of houses across the region.

The companies typically buy modest, affordable houses, the kind that first-time homebuyers often seek. They buy one house at a time and they buy in bulk — dozens, if not hundreds, of houses in one purchase.

They have helped change the local housing market since the Great Recession, gradually increasing their share each year. The increased competition has forced some homebuyers to pay over asking price, forgo contingencies and repairs, and wait months to close a deal. Renters say they face high annual rent increases and often struggle to get the companies to make timely repairs. Some subdivisions in North County have started to take action, considering ways to limit the number of investor-owned homes.

“You’re just taking away future wealth from people,” said Hazelwood resident Jean Dantzler, who lives next to a rental house owned by an out-of-state company. “They should be able to go and buy a home and not have to bid against all of these companies.”

The companies are backed with millions of dollars and equipped with technology that reduces buying, renovating and renting houses to an algorithm. That’s allowed them to buy more houses and buy them faster than the average homebuyer and even the local real estate investor.

Experts say the companies have reduced the supply of affordable homes in the area. And with higher mortgage rates, many fear that first-time homebuyers are delaying their purchases, and thereby delaying their chance to build wealth.

Already, there are fewer homeowners in St. Louis, St. Louis County and St. Charles County compared to a decade ago. St. Louis County saw the biggest decline — nearly 5 percentage points, to 71.5%, in the first quarter of 2020, the latest data from the U.S. Census Bureau shows.

Investors now own a little more than a fourth of all houses in the Black Jack, Bellefontaine Neighbors and Spanish Lake areas. In parts of Kinloch, Ferguson and Hazelwood, investors are closing in on nearly a quarter of the houses. The city of Florissant found rental houses now outnumber apartments. Out-of-state investors own 45% of its single-family rentals, the city says.

At the same time, average rent for a three-bedroom house in the St. Louis area has risen 37% over the past five years, from $1,098 to $1,504 in August, according to the latest data from real estate firm CoreLogic. Nationwide, rent has grown 39% to an average of $1,933.

Two and a half years ago, one of the out-of-state investment companies asked Spencer Toder, who’s worked in real estate and venture capital, to be its lead broker in the St. Louis region, as someone who knew the landscape and could shape its strategy.

He took a look under the hood and walked away. The business model, he said, is predicated on scale, and profit can only come in two ways: raising rents or adding value to the house.

“These are predators coming in and saying that they’re just going to raise rents every year,” Toder said. “This is a tremendously big shell game that eventually will crash.”

The companies, however, say they’re stabilizing neighborhoods like Courtyard Place by renovating homes that may have seen years of neglect, while providing renters more options of where to live and what schools they can send their children to. They say they offer a better customer experience than mom-and-pop investors.

The companies also say their overall share of the housing market here and across the U.S. is tiny, and that they aren’t to blame for declining homeownership, rising rents and a shortage of homes.

“The family that was going to buy the house has a lot of income, has credit and they probably have a lighter skin tone than the family that moves in after I bought it,” said Sean Dobson, CEO of Amherst Holdings, which owns rental company Main Street Renewal. “There’s a whole bunch of things in this country that have happened over the last 100 years that have created a very sharp divide between who can get a mortgage and can’t. We built a business that serves exactly those people.”

Quentin Felton remembers Courtyard Place as a block where he knew all his neighbors when he owned a home there in the early 2000s.

But in 2007, as the country began tipping toward a recession, Felton lost most of the income he was making as a barber and stylist. He tried working with his lender, New Century Financial Corp., on an adjustable rate mortgage that had an initial interest rate of 9.5%.

“They fought with me and refused, no matter what I did,” Felton said.

New Century Financial foreclosed on him in early 2007, around the time the company — one of the country’s biggest subprime mortgage lenders — filed for bankruptcy. When Felton lost his home, a Wentzville-based real estate investor bought it and sold it 13 years later to VineBrook Homes.

“Now, everybody’s wanting to buy homes and rent them out,” Felton said. “They overinflate the prices on them. And it’s ridiculous.”

After the housing crash, banks foreclosed and real estate investors of all means flocked to the St. Louis region. North County especially was a golden egg for investors because it suffered more foreclosures and had many inexpensive houses up for grabs.

“These companies essentially realize that, in majority minority areas, housing prices are depressed enough that they can be purchased for cash and flipped as a rental and be profitable, pretty much day one,” said Glenn Burleigh, community engagement specialist for the Metropolitan St. Louis Equal Housing and Opportunity Council.

“That’s a real concern for us, that a lot of these suburbs that for generations built equity and wealth for white families are now becoming less likely to build equity and wealth for the residents that have moved there who are Black.”

Many companies targeted metro areas poised to recover quicker, like Atlanta and Los Angeles. Others later began eyeing the Rust Belt, where cities still struggling with the foreclosure crisis had thousands of cheap homes available, said John Johnson, a researcher at Marquette University’s Lubar Center in Milwaukee.

“It’s very profitable to be a landlord in the poorest parts of America,” Johnson said.

On Courtyard Place, Georgia-based FirstKey Homes bought a house first in 2015. VineBrook Homes and Main Street Renewal bought into the neighborhood in 2020 and 2021, data shows.

Run by New York hedge fund Cerberus Capital Management, FirstKey Homes owns more than 1,000 houses in the region. FirstKey declined an interview but told the Post-Dispatch in an email that the “overwhelming vast majority” of its homes are purchased on the open market.

“Our small tenth-of-one-percent of the total St. Louis metro area homes are providing access to much-needed single-family rental homes,” FirstKey said in a statement.

VineBrook Homes is now the region’s biggest homeowner, with nearly 1,700 local houses on its books. VineBrook typically buys houses through foreclosure auctions and acquisitions of smaller investors, it said in filings with the Securities and Exchange Commission. Last year, for example, it spent $354.2 million to buy a portfolio of 2,800 homes from a competitor, including 308 homes in the St. Louis region.

Another competitor, Austin-based Amherst Holdings, a real estate investment trust that operates Main Street Renewal, owns about 435 houses in the region.

“Like a lot of places, there’s not a big supply of modernized, updated, renovated single-family homes (here). So there’s a decent demand for our product,” Dobson, Amherst CEO, said. “We’re very long-term investors. So when we buy an asset, we intend to hold it for decades.”

Michael Keating Jr. has fielded daily calls and texts from investors wanting to buy his parents’ rental house on Courtyard Place, which he called home for at least a decade as a child.

At one time, his parents owned as many as three Courtyard Place houses and over the years sold them to investors who offered a fair price. But today’s investors, Keating said, waste his time with lowball offers.

“I’m assuming their tactic works because they’re a big company,” he said. “It’s like fishing. You throw enough lines out, eventually you’re gonna catch one.”

Homebuyers across the region say investor tactics have curbed their options.

Jessica Goddard and her husband, John Bowers, looked for months before they bought their first house this summer. They lost count of the number of times they were outbid for a house, but they remember one where an investor offered all cash on a $130,000 house on Cherokee Street in south St. Louis.

“There’s no inspection, no criteria,” Bowers said. “There’s just like a suitcase full of money.”

VineBrook Homes, FirstKey and Main Street Renewal have headquarters far from St. Louis, but they have boots on the ground: real estate agents charged with finding properties and employees to manage them.

The companies provide the agents with financing statements that say how much to spend and a shopping list of what to look for — such as two-bedroom houses, with no fewer than 850 square feet, in specific areas. They make no emotional purchases.

Advances in data analytics, cloud computing and mobile technologies have made it easier and cheaper to buy houses, manage thousands of them remotely and build scale at unprecedented speed.

The companies use their databases to further reduce costs and optimize operations, said Desiree Fields, a professor at the University of California in Berkeley who studies the digitization of real estate.

“They’re able to run experiments, for lack of a better word. Somebody can say, ‘Why is it taking us so long to turn properties in this area?’ Or, ‘Why are we getting so many maintenance requests from properties here?’” Fields said. “They can drill down into the data, try to understand what’s going on, make a change and then use their analytics to see if that change produces their intended result.”

Even homebuyers able to make competitive offers say they’ve had trouble.

Julia Niessen helped buy a starter house for her daughter and daughter’s fiancé in south St. Louis County. Niessen, who was pre-approved for a loan, thought she had an edge: a 21-day close, an inspection but no repairs, and a willingness to bid tens of thousands of dollars over asking price.

But they still lost out to investors who offered all-cash, no inspections and even faster closes.

“We couldn’t compete with that,” she said.

Some sellers, however, say investors keep things simple.

James Carroll listed his 1950s-era Bellefontaine Neighbors home in July for $72,000. The next day an investor from TDM Rentals, whose ownership traces back to Southern California, looked around Carroll’s home. The investor went to his car for 20 minutes. Then, the offer came: no inspections, a one-month close and an all-cash offer of $72,000.

“On the day of the closing,” Carroll said, “I went to the title company, signed the paperwork and within an hour the money was in my account.”

Sean Dobson, the CEO of Amherst, which operates locally as Main Street Renewal, said there are several misconceptions about his industry. His firm does have access to more money with better terms, he said, but he doesn’t have the local knowledge that homebuyers do.

Plus, he said, his company is still helping families when it hires local contractors for renovations.

“They’ve got families and they’ve got kids. They’re not so unhappy that Sean bought a home here,” Dobson said. “Then I put a family in there that chose that home because it was the best option for them.”

But others, like St. Louis University associate professor Bob Lewis, fear the investment companies will not only box buyers out of the market but also derail their paths to homeownership and building wealth.

“If you delay (buying a home), it has a compounding effect,” Lewis said. “That’s gonna be a problem for the United States economy.”

Some subdivisions and cities in the area are now weighing measures to act. Lewis, for example, helped the city of Florissant draft a new comprehensive plan, approved earlier this year, that calls for the North County municipality to adopt an ordinance limiting the number of rental properties.

Investors found opportunity in Florissant, which has an aging housing stock and the county’s biggest population.

But from September to October, 875 properties had open code violations — and 58% of those homes are owned by out-of-state companies, said Todd Hughes, Florissant’s director of public works. The city wants the companies to be more proactive with issues, especially yardwork.

“A lot of times we’ll hear from the property owners, like, ‘Well, that’s the renter’s responsibility.’ We have to remind them that ‘you own the property — it’s your responsibility,’” Hughes said.

Hughes said his department usually has to call the owners multiple times before they act. That’s if they can find a person to talk to. Owners are required to obtain a rental license in Florissant, with a requirement to name a contact person. But sometimes the owners change managers without notifying the city.

A complicating factor is that the large investors typically buy houses with limited liability companies, such as “VB ONE LLC,” “CSMA BLT LLC” and “ALTO ASSET COMPANY 1.” Many LLCs also use post office boxes.

State Rep. Raychel Proudie, D-Ferguson, has heard from constituents who worry about their property values declining because the houses next door are not taken care of and their owners can’t be reached.

“The everyday citizen, Joe Missouri, is going to be held responsible for their property in a way that a corporation … that lets the property sit and rot is not,” Proudie said.

For several years, she’s tried to pass a bill that would require LLCs in St. Louis County to provide a name and address of a person responsible for a property. But the Missouri Realtors, an industry advocacy group, has lobbied against it. Chief Lobbyist Sam Licklider said St. Louis-area Realtors were opposed to the bill because the region often passes “draconian” laws against landlords. Proudie’s bill could work, he said, “if it’s done correctly.”

In North County, resident Mike Moehlenkamp and his neighbors worked to add indentures that limit rental properties in their 1,200-home Wedgewood subdivision, situated between Coldwater Creek and Lindbergh Boulevard. Rental properties weren’t being properly maintained, he said, and it was…