Watchdog group asks NC treasurer to help curb corporate landlord ‘abuse’

A national watchdog group wants North Carolina’s treasurer to use his agency’s influence as an investor to curb “abuses” by the country’s largest corporate landlord.

In a report released last week, the Private Equity Stakeholder Project detailed the North Carolina Retirement System’s more than $3 billion in commitments to a firm called Landmark Partners, the largest stakes of any state pension fund nationwide. Such financial heft, the report says, grants North Carolina pension fund managers the power to sway Landmark and companies it funds.

And among those Landmark-funded companies: Progress Residential, a firm that in recent years has gobbled up tens of thousands of single-family homes across the country.

The report comes months after the publication of Security for Sale, a News & Observer and Charlotte Observer investigation that revealed a massive buy-up in North Carolina of single-family homes by corporate landlords.

About two dozen companies — including Progress — then owned more than 40,000 rental houses across the state, many of them in the Charlotte, Triangle and Triad areas. Their business practices, the reporting found, are finely tuned to squeeze profit from renters, while sometimes providing substandard housing.

The Private Equity Stakeholder Project’s report is calling on State Treasurer Dale Folwell, who runs North Carolina’s pension fund, to halt future investments in Landmark and push the company to improve Progress’ practices. Future investments in the companies risk “worsening outcomes for working people in North Carolina, including North Carolina’s public employees and retirees,” the group claims in its report.

“This is directly impacting North Carolinians in terms of in terms of housing, in terms of renters, in terms of squeezing out would-be homebuyers,” said Jordan Ash, housing campaign and research director with the Private Equity Stakeholder Project. “And there doesn’t seem to be any discussion about it in terms of the impact of this investment.”

Folwell’s office has heard repeatedly from tenants’ rights organizations, which have voiced concerns about Progress and other corporate landlords at state investment committee meetings, the treasurer said during an interview last week.

The pension fund, Folwell said, is not changing its investment strategy with Landmark. But he said his staff takes the concerns raised at investment advisory commission meetings seriously. Without sharing specific concerns, he said the agency has raised them with the companies in recent months.

“I can tell you, as a person who grew up in a world where I was evicted a time or two when I was a child, people who are renting shelter deserve to know that, whoever the landlord is — whether it’s a mom or pop landlord, or some other landlord — they’re getting what they’re paying for in all respects,” Folwell said.

‘The check delivery business’

Much like with pension funds across the country, North Carolina Retirement System investments are designed to ensure that the state’s nearly one million current and retired public employees can count on pay and benefits once they age out of the workforce.

So North Carolina state pension fund managers have a “fiduciary duty” to ensure that they put the system’s estimated $110 billion in assets into financial products that are both safe and profitable.

“At the end of the day, we’re in the check delivery business,” Folwell said.

Some of the investments involve stock in public companies, real estate or other investment vehicles. But billions also go to private equity firms, which manage portfolios with a mix of investments in what are essentially “blind pools.”

That’s the case for many of the state’s $3.7 billion in investments in Landmark Partners, now a subsidiary of Ares Management. The state’s commitments to Landmark started in 2014 under the direction of State Treasurer Janet Cowell, a Democrat.

After Folwell, a Republican and former state lawmaker, was first elected in 2016, his staff recommended putting more money into funds Landmark controlled.

Both Landmark and Ares are heavily invested in Pretium Partners, the private equity firm that owns Progress Residential. Progress now owns, by its own account, more than 7,700 single-family rental properties across North Carolina.

Although they were broadly aware Landmark was involved in real estate, his agency’s staff didn’t know the specifics at the time, Folwell said. And that’s not unusual, he said, for commitments to managed funds that are sometimes doled out over 10 to 15 years.

The decision paid off. Across all its investments, the agency says, Landmark has so far generated a 19% rate of return.

“Landmark in general has been a terrific return vehicle for Treasurer Cowell, Treasurer Folwell, but more importantly, for the participants in the plan,” Folwell said.

But researchers with the Private Equity Stakeholder Project say those financial gains came at a cost.

They note in their November report that Progress has faced “repeated allegations of deceptive business practices, hasty evictions and property neglect,” some of which prompted Minnesota Attorney General Keith Ellison to sue on behalf of renters in his state earlier this year.

The report also cites work by The N&O and The Observer, which detailed the impacts from the company’s practices on tenants across North Carolina.

“It’s cliche, but it is the American dream to own your own home, not just to live in a single-family home,” Ash said. “This really is directly opposed to that.”

Costs to NC residents?

Although home ownership rates overall have remained steady in the state, the report links a disproportionate decline in home ownership among Black North Carolinians to the concentration of corporate landlords in starter home neighborhoods and communities of color.

“There are places where these companies clearly are just profiting off of and causing really big problems,” said Madeline Bankson, housing research coordinator with the Private Equity Stakeholder Project. “It’s apparent that this is not helping working people in our state.”

Progress Residential spokeswoman Nikki Sloup did not directly address concerns raised in the report, but said in a statement that the company “remains focused on increasing housing supply and affordability in the markets we serve.”

“In North Carolina, we have invested nearly $2 billion in home maintenance and repairs, announced plans to build more than 580 new single-family homes for rent, and secured nearly $12 million in rental assistance for local residents since 2020,” Sloup said in the statement. “Going forward, we welcome the opportunity to find additional ways to partner with state and local policymakers on meaningful housing solutions.”

Ares Management, Landmark’s parent company, declined to comment on the report.

The treasurer’s office notes that only part of the $3.7 billion invested in Landmark ties back to Pretium and Progress — about $22.8 million in total, by their estimates.

“This particular investment is mathematically tiny,” Folwell said. “But if somebody’s roof is leaking and they’re not getting the attention they deserve, if somebody’s plumbing’s not working and they’re not getting the attention they deserve — all that matters. These issues have to be addressed, and that’s why we have had many conversations with Landmark as well as this real estate company.”

Pressuring private equity

So-called “pension fund activism” isn’t new, said John Scott, an associate research professor at the Department of Public Policy at UNC-Chapel Hill, whose work focuses on aging, retirement savings and tax policy.

Those tactics typically followed one of two routes.

For decades, advocates pushed divestment in reaction to South Africa’s brutal apartheid regime, the degradation of public health by tobacco firms and the climate change contributions of fossil fuel companies.

Others focused on shareholder power — direct influence on corporate governance that could, say, empower a new CEO to change a public company’s policies or strategy.

But the involvement of private equity means activist leverage is a bit more indirect, Scott said.

“The managers of the private equity fund, they accept your money, but they’re not really beholden beyond promising a return on investment,” Scott said.

From the pension fund manager side, he said, switching up an investment strategy could violate that fiduciary duty so core to their mission.

He pointed to a 2016 study from Boston College that found the value of state pension plans with divestment requirements was on average 0.4% lower than those without such restrictions.

“From a taxpayer perspective, even a modest decline in a rate of return can really stretch the pension funds and really cause the state to have to think: how are we going to provide benefits at the end of the day, 20 years down the road?” Scott said.

Similar activism has seen recent pushback from conservative leaders who have criticized efforts — even by some private equity funds themselves — to opt for so-called “environmental, social and governance” driven investments often aligned with progressive causes.

But such political backlash, Scott said, could have its own costs if it blinds fund managers to reasonable investment decisions.

“At the end of the day, if you’re really about maximizing shareholder value or performing your fiduciary duty, it shouldn’t matter whether you’re pro-oil and gas or anti-oil and gas,” Scott said. “It should be, OK, what are we trying to do with this investment? What are the alternatives?”

In the end, though, Scott said choices about where to invest present a “tough calculus” — especially if a company with good returns is impacting the same people a pension fund has a duty to serve.

Ash, one of the Private Equity Stakeholder Project report’s co-authors, said those harms are clear when it comes to Progress Residential.

“This is not about being ‘woke,’” Ash said. “This is about a direct impact on people in North Carolina.”

With few policy proposals for regulating the corporate landlord industry on the table, Bankson said using the pension fund’s leverage could be a useful tool.

“The extent to which you’re able to regulate someone’s ability to own property, even if that someone is a corporation, is pretty limited,” Bankson, one of the report’s co-authors, said. “And the political will, even where it’s logistically or constitutionally possible, is pretty limited.”

But Ash said they’re explicitly not calling for divestment — or for the treasurer to abandon his duty to grow the pension fund.

“We understand the reality is that the retirement boards are under pressure to generate enough money to pay for current and future retirees,” Ash said. “I do not want to advocate for them to do something that is not in their financial best interest.”

Folwell, whose office reviewed a copy of the report at the request of the N&O, said he’s “always interested in new information, or a better way of looking at old information.”

Read the report

Read the entire report on the state’s investments in Landmark and the company’s impact in North Carolina, authored by the Private Equity Stakeholder Project, Action NC, Renters Rising and The Center for Popular Democracy.