They Had Section 8 Housing. Then a Private Equity Firm Arrived | Phoenix New Times

They Had Section 8 Housing in Phoenix. Then a California Private Equity Firm Arrived

The COVID-19 pandemic has provided some leniency, but eventually, at least 25 people in Phoenix will still lose their Section 8 housing.
David Warren
David Warren Elizabeth Whitman
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In February, David Warren learned that he had until May to find somewhere else to live.

He would need to leave his one-bedroom apartment wallpapered with posters of Marvel superheroes following the sale of the apartment complex where he lives to a private-equity firm from California that told low-income residents that their leases would not be renewed.

The complex, which until December was called Bella Solano, hasn't been a particularly luxurious place to live since Warren first signed a lease in 2015.

Nonresidents frequently roamed the ungated property, which is across from the Christown Spectrum Mall in central Phoenix. They occasionally used the gravel landscaping as a toilet, or plugged into outside outlets to charge their phones. The plumbing leaked, and when Warren took his dog, Dallas, for walks outside, he noticed sections of foundation crumbling visibly. Other residents complained online of bedbugs, drug dealers, and apathetic managers. In February, a man died in a double stabbing a few blocks away, at 19th Avenue and Camelback Road.

Nevertheless, it was home.

In his sanctuary, Warren relished small joys. His hat collection. One a.m. walks with Dallas. The Harkins movie theater a walkable quarter-mile away. Equally important, if not more so, Bella Solano accepted Section 8 housing vouchers, which Warren receives because he is disabled and because monthly Social Security income comes to less than $900. Every day, he sits through three breathing treatments for chronic obstructive pulmonary disease; he is also HIV-positive.

In December, California private-equity firm Tides Equities bought Bella Solano, adding the complex to a rapidly expanding portfolio of more than two dozen others that accounted for more than 5,000 apartments across the Valley. There was Tides Lakeside (Tempe), Tides on Broadway (Mesa), Tides Paradise Valley, Tides at Downtown Gilbert — a shopping spree, as one trade publication dubbed the company's relentless acquisitions.

Bella Solano was re-christened Tides on 17th, and Warren learned about the new owners from a letter on his front door headlined, "New Management and Ownership of Your Community."

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The entrance to Tides on 17th.
Elizabeth Whitman
Day laborers arrived. They smoothed over the cracks in the foundation and replaced some — but not all, Warren noticed — of the austere metal railings outside the second-floor apartments with friendlier thick wooden slats. Soon, the small spread of grass outside Warren's apartment, centered around a tree he loved sitting under, had been fenced into a mini dog park.

When Warren, out of pure curiosity, perused online listings for Tides on 17th, he found photos of the property that he thought looked far nicer than the real thing. He also noticed that the rent had increased. Base rent for a studio at Bella Solano was $690 to a month, whereas Tides on 17th charges $715 to $1,033.

The real blow came at the end of February, when another letter informed Warren that his lease, which was set to expire at the end of April, would not be renewed.

"Please be advised that we have elected not to renew your rental agreement or allow it to continue to be in effect beyond the expiration date," it said. "Please vacate on or before this date."

The prospect of moving — the physical exertion of packing and hauling, the scant two months to find another complex that accepts Section 8 vouchers — gave Warren more anxiety than ever before.

He wondered, too, if Tides had elected not to renew his lease because he receives assistance through Section 8, which caps the rent a participating landlord can charge.

"I'm just beyond stressed," he told Phoenix New Times during an interview in early March, just days before the reality of the COVID-19 pandemic in Arizona began to sink in.

'No Recourse'

Warren is hardly the only Section 8 voucher recipient at Tides on 17th whose lease Tides Equities elected not to renew. Turns out, he is actually one of more than two dozen.

Titus Mathew, Phoenix's deputy housing director overseeing Section 8, said in an interview in early March that the city was working with Tides Equities to “minimize the impact to Section 8 clients in terms of ending their leases,” who he said numbered "approximately 25."

Ideally, Tides Equities would offer them month-to-month leases for up to six months, so that they'd have more time to look for a new place, Mathew said. But it is unusual for one place to have a cluster of so many Section 8 clients — usually, it's just a couple of people.

He said that there was nothing more the city could do to protect Section 8 clients through these kinds of transitions in ownership, especially when for-profit companies come in and give complexes a light makeover in order to charge higher rent.

Asked why Tides Equities replaced half of the second-floor railings with wood and left the rest as is, Andrade said, “We tend to do it in the areas that are more targeted by prospective tenants, so we get the most bang for our buck.”

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“HUD allows that," Mathew said, referring to the federal Department of Housing and Urban Development, which delegates the management of the Section 8 program to local government — here, to the Phoenix Housing Authority. “Unfortunately, our clients have no recourse. They have to look for a new place.”

He said that the department has witnessed this phenomenon over the last year, where complexes are bought up or landlords simply want to charge more rent, forcing existing tenants to find elsewhere to live, even if it's substandard housing or entails doubling up and living with others when they otherwise would not have.

Through the Section 8 voucher program, the federal government effectively subsidizes market-rate housing. Recipients have to contribute about 30 percent of their income to rent, and the government makes up the rest. Research has found that the program helps people stay out of poverty and homelessness, put more money into their food and health care, and improve their overall well-being.

There are, of course, limits. Landlords have to agree to participate in the program, whose rent caps also restrict the number of qualifying apartments. In Phoenix, a studio subsidized through Section 8 can cost no more than $746, a one-bedroom no more than $888, and a two-bedroom, no more than $1,104.

The Phoenix metro area has some of the fastest-soaring rents in the country as the Valley becomes an increasingly unaffordable place to live. Last year, rent here grew 6.4 percent, according to an analysis by REIS. But how much the government will pay to subsidize rent is not keeping pace.

"Market rents are skyrocketing, and HUD payment standards are not keeping up," said Mathew. "There's a huge lack of affordable housing in Phoenix," he added.

Phoenix has 6,856 Section 8 vouchers, with a limited budget to spend on them, said Cindy Stotler, the housing authority director. Rising rents translate to less money per voucher.

"It's a balancing act trying to figure out how to house as many people as possible and find housing," Mathew added.

According to Stotler, the current waitlist for Section 8 vouchers in Phoenix has over 15,000 applications on it. "From our perspective, it's just a really unfortunate market right now for low-income households," she said.

The lack of affordable housing stems in part from a lack of housing overall, Stotler said, laying out a scenario in which higher-income people take up all the housing that's available, squeezing out people in lower income brackets.

"I know people think that no one's going to rent" luxury apartments, Stotler said, but "they're all getting rented up." During and after the 2008 recession, she said, construction essentially stopped, and it hasn't ramped back up until recently.

At the same time, more and more people are flocking to the Valley. For three years in a row, Phoenix and Maricopa County have been the fastest-growing city and county in the country, respectively.

'Lipstick on the Pig'

In the wake of the 2008 recession, developers and landlords turned a fresh focus to multifamily housing — condo complexes and apartment buildings. More people were renting than owning, partially out of necessity but also because of lifestyle changes, and demand for such housing boomed, said Mark Stapp, assistant director of real estate programs at Arizona State University's W. P. Carey School of Business.

Companies quickly found these properties to be "a very desirable investment opportunity," especially with what the real-estate industry calls "value-add," he explained: "You can buy the property and make certain kinds of changes or improvements to it that increase the overall value: repositions, refurbishing, rehabbing it."

Cosmetic improvements, Stapp added, are "typical," and so is what Tides Equities is doing.

Tides Equities describes itself as "a leading Commercial Real Estate Investment Company focused on investments throughout the Western United States." As the jargon on the front page of its website explains, "We specialize in well-located, Class-B and Core Plus multifamily real estate with high value-add upside."

All but one of its properties is in the Phoenix area; the outlier is in southern California.

"We love Phoenix because we really follow the economic data drivers," Tides Equities co-founder Ryan Andrade told New Times in a March interview. The area has "the best combination of economic drivers for us," like job growth, in-migration, and "all the things we like to look for."

He said that when scouting properties to buy, Tides Equities looks for properties that are "relatively well located ... but maybe they've been neglected by previous ownership." Those properties "look more tired, older, what have you," because previous owners left the rent low and didn't bother with upkeep.

“We look for properties where we feel that the current ownership hasn’t done a great job of keeping the property safe, clean," Andrade said. "We say, 'Hey, we’re gonna buy that property and we’re going to improve it.'”

He defined improvement as projects like installing new LED lighting, fixing cracks, plugging leaky roofs, eliminating trip hazards, or re-doing landscaping and "fencing that's out of sorts."

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Tides Equities replaced some of the second-floor rails with wood...
Elizabeth Whitman
Warren and another resident, James Tompkins, who moved to Bella Solano in 2002 or 2003, said that Tides Equities had done intensive cosmetic work in December and January, then abruptly halted, doing little but "minor maintenance," Tompkins said.

"They started gangbusters and then they ran out of steam," said Tompkins, who does not receive Section 8 assistance and was given the option to renew his lease at Tides on 17th.

Tompkins said he hasn't yet decided whether to stay at Tides on 17th, but called the new owners' renovations "lipstick on the pig."

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...but not all.
Elizabeth Whitman
Asked why Tides Equities replaced some of the second-floor railings with wood and left the rest as is, Andrade said, “We tend to do it in the areas that are more targeted by prospective tenants, so we get the most bang for our buck.”

With Bella Solano-turned-Tides-on-17th, Tides Equities wasn't deliberately targeting a property that had considerable tenants on Section 8 vouchers, Andrade said. But the company wasn't interested in accepting those vouchers. It's company policy not to accept Section 8 because "it just doesn't work with the goals that you're trying to accomplish," Andrade said.

He alleged too that the city had been very late paying its portion of the rent after Tides Equities took over — December rent didn't arrive until February, he said — and implied that accepting Section 8 vouchers, with its attendant delays, would undermine the company's goal "to create a community that is much safer and creates a larger sense of pride of ownership for the tenants that live there."

Stotler, Phoenix's housing director, said the city always paid its portion of Section 8 vouchers on time. In the case of Tides on 17th, city spokesperson Alejandro Montiel-Cordova said that the payments had been delayed "due to the change in ownership."

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One of the renovations completed by Tides on 17th.
Elizabeth Whitman
Nevertheless, Andrade maintained that late payments justified the refusal to accept Section 8.

“If we’re adding these improvements, it really matters that we’re getting our rent payments on time,” Andrade said. Tides on 17th, for example, has so far received improvements worth "a couple million dollars, for sure." The complex was a "just much safer place," he said, with better lighting and increased security from "a floating security patrol throughout our portfolio."

When New Times visited the complex in early March, there was no sign of a security patrol or, really, of any security measures at all.

The website for Tides on 17th promises that apartment units that are "undergoing premium renovations" and featuring "wood-style flooring, upgraded lighting and plumbing fixtures, and a washer and dryer."

As for the current tenants, whether or not they receive Section 8 assistance, Andrade said Tides Equities was offering month-to-month options to give them more time to find a new place to live.

"We've also offered to help them use our resources to help them relocate as well," he added, and "we have no obligation to do that. We're just trying to be good people."

Told that at least one resident hadn't heard of that option, Andrade responded, "Have they gone in and talked to us? If they've come in and chatted with us, we'd absolutely discuss ... We're not blasting around the opportunity but if somebody comes in and says, 'Hey, I have a need,' we'd be happy to work with them."

Phoenix's Housing Department confirmed that Tides Equities had been in touch with the city about transitioning Section 8 residents to a month-to-month option.

Asked whether Tides Equities bore any responsibility to the surrounding community from which it derived profits — like Phoenix, which suffers from a severe housing shortage — Andrade laughed.

“Our responsibility is to make the community safer and to improve communities that have otherwise been neglected," he said. "We buy a community, and we make it a much safer community, and we add value to it, and if people need help, we try to help relocate them to someplace that fits Section 8."

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The view from the entrance to Tides on 17th.
Elizabeth Whitman
When New Times reached out to Andrade in April for updates on Tides on 17th given the turmoil from COVID-19, Andrade responded, "Please send me a draft of your article and I can help fill in any gaps." New Times declined, and Andrade did not respond to follow-up questions.

Stapp, of ASU, said that property owners often avoid accepting Section 8 for several reasons. One is stigma. Another is that they want the option to raise rent, which they can't do with HUD's Section 8 thresholds.

He called the anti-Section 8 mentality "ignorant" and "unfortunate." In the long run, Stapp said, it exacerbates affordability problems, where rent is rising at least twice as quickly as income is, where there simply isn't enough housing, and poor people get pushed out.

Borrowed Time

After receiving the letter from Tides Equities in February, Warren searched for apartments by browsing, a website with listings of Section 8-eligible apartments. He got some help from his two case managers to track down money to help with the pending move, but usually, they're too busy to do more. Periodically, he would land an appointment to tour a new apartment, but nothing seemed to be working out.

With his lease set to expire May 1, the COVID-19-induced economic paralysis ironically brought him some relief from the deadline — maybe he would get another few weeks to look for a place, he thought.

Last week, Warren learned that because of the pandemic, he'd been granted an extra 90 days to find a new place to live.

But by then, he'd found a new apartment, and, despite his dreading the prospect of packing up his home and moving, plans to move out Tides on 17th on May 1.
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