Wall Street Landlord Loses Round One In Ohio School Tax Fight

, Daily Business Review

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It was a good day for Mike Yane, a history teacher in Huber Heights, Ohio. A December storm covered the modest Dayton suburb in snow, and Wayne High School opened two hours late. His students who walk to class could use the extra time.

Funding shortages last year forced the district to stop providing most buses for the high school, so about 1,600 teenagers have to find their own way and several are frequently late. A 14-year-old told Yane she has to leave her house in the dark and walk an hour to get to class before the bell rings at 7:50 a.m. When students arrive, they share decade-old textbooks that are falling apart and microscopes considered antiques.

"There's no money for new books," said Yane, 49, who's been at the school for eight years, since leaving his job at the nearby Wright-Patterson Air Force base.

After $14.6 million in state and local cuts since 2009, the Huber Heights City School system is bracing for another hit. This time it's from Yane's landlord, a $9 billion Evanston, Ill.-based hedge fund called Magnetar Capital LLC, which in January quietly bought a third of all rental homes in Huber Heights, including his and those of at least 16 of his students.

In April, Magnetar's management company applied for the largest reduction in residential property taxes in the county's history on more than 1,200 residences. The move threatened to strip as much as $800,000 from the already stretched seven public schools and reduce funds for local colleges, police, fire, libraries and services to the disabled.

Neighborhood Takeover

The 38,000 residents of Huber Heights are in the crosshairs of a Wall Street takeover of neighborhoods across the U.S. After the housing crash sent home prices tumbling 35 percent, multibillion dollar money managers went on a buying spree. In less than two years, firms including Blackstone Group LP and Colony Capital LLC have become some of the largest landlords in the country by acquiring rental homes, purchasing hundreds of thousands of foreclosed houses to lease and constructing new properties to fill with tenants.

They are capitalizing on demand for rentals from families who lost their homes and buyers unable to get mortgages as banks limit credit after the last bust. The U.S. homeownership rate has dropped to 65.3 percent from a record 69.2 percent in 2004 and is almost back where it was two decades ago after the real-estate collapse took more than 7 million properties from their owners in a wave of foreclosures.

"There's a lot of room for this to grow," said Susan Wachter, a professor of real estate and finance at the University of Pennsylvania's Wharton School.

The influence investment firms with Wall Street backing and prowess can have on a community is already apparent in Huber Heights. Named for builder Charles H. Huber, who developed the town in the 1950s, the area expanded after World War II along with Dayton, a crossroads for goods made in America's industrial heartland. When Huber started to build the town, midway between Cincinnati and Columbus, he constructed affordable homes selling for $13,995 with a $995 down payment, according to the Ohio Historical Society.

His family also had a rental business that was the biggest in town until this year when his widow, Teresa J. Huber, sold it to Magnetar.

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