Tamar Katz


I. Introduction

In September 2020, the Centers for Disease Control and Prevention announced a moratorium on residential evictions to limit the spread of COVID-19.[1] Despite the federal ban, on March 9, 2021, two sheriff’s deputies showed up at Marvia Robinson’s rental home. They bolted the door and changed the locks.[2] Ms. Robinson had fallen behind on her rent after the pandemic reduced her weekly income as a Greyhound bus driver to $65.[3] While she experienced homelessness, the pandemic was a boon for her landlord, Invitation Homes. In 2021 the company announced unprecedented profits and their share price doubled.[4]  And yet, an oddity in the federal tax code exempts Invitation Homes from paying corporate income taxes on the company’s profits earned from tenants like Ms. Robinson.[5]

II. Real Estate Investment Trust Overview

In 1960, President Eisenhower signed the Cigar Excise Tax which authorized the creation of real estate investment trusts at the height of the post-war golden age.[6] According to financial historian Gretta Krippner, policymakers operated under the assumption that they “lived, and would always live, in a credit-short and capital-starved world.”[7]In an attempt to lure new sources of capital into productive investment in the built environment,[8] Congress created the real estate investment trust (REIT), which allowed real estate investors to pool their capital in a tax-exempt vehicle.[9] In exchange for this pass-through status, Congress required that at least 75 percent of a REIT’s total assets be invested in real estate, that at least 75 percent of a REIT’s income be from rents from real property, and that REITs distribute at least 90 percent of their taxable income to shareholders as dividends.[10] By regulating a REIT’s investment outlets, sources of income, and uses of retained earnings, Congress tried to structure the REIT so that only those companies earning income from “passive” sources, rather than the “active conduct of a trade or business” benefited from having a pass-through status.[11] REITs’ capabilities expanded in 1999 when Congress passed the REIT Modernization Act.[12] The legislation allowed REITs to create taxable REIT subsidiaries that could circumvent the limitations imposed by the stringent asset and income tests, but as their name suggests, also be taxed.[13] The result was that REITs emerged in the twenty-first century as vertically integrated property management companies.[14]

III. The Single-Family Home REIT

Before the Financial Crisis of 2007-2008, most REITs invested in traditional commercial real estate like office buildings, multifamily complexes, industrial assets, and retail outlets.[15] This changed with the collapse of the single-family housing market in 2008.[16] Beginning in 2011, institutional investors recognized the drop in housing prices posed an unprecedented investment opportunity and ventured for the first time into single-family housing.[17] Of the entities to emerge, Blackstone was “comfortably the most significant player, consistently outspending and out-accumulating its rivals.”[18] In 2012, Blackstone created a new portfolio company, Invitation Homes, which it used as a vehicle to acquire and manage single-family homes in markets harmed by the foreclosure crisis.[19] Just four years later, Invitation Homes’ portfolio held nearly 50,000 homes, making it the largest single owner of single-family homes in the country.[20] Central to their business success was the vertical integration of their property management operations,[21] as well as the concentration of investments in specific neighborhoods. Indeed, within each target market, Invitation Homes clustered its investments in neighborhoods with community amenities and proximate to employment centers, schools, transportation corridors.[22] By purchasing homes in desirable neighborhoods, Invitation Homes “ensure[d] consistently high demand for their units which helps support the steady rent payments and low vacancies that generate the cash flow that . . . investors value[d].”[23]

The investment was enormously profitable for investors. At the beginning of 2017, Blackstone began exiting its investment by taking Invitation Homes public on the New York Stock Exchange in a $1.55 billion initial public offering.[24] The offering marked the “end result of the biggest homebuying spree in history.”[25] By the time Blackstone fully exited its investment in Invitation Homes at the end of 2019, the private equity fund had more than doubled its initial investment and earned more than $7 billion.[26]

However, these profits were arguably a byproduct of the “oligopolistic power” that Invitation Homes had amassed in the neighborhoods in which it invested; contributing to the increased in housing unaffordability and instability for lower- and middle-class households.[27] Ms. Robinson’s story is illustrative of the point. After evicting Ms. Robinson, Invitation Homes sent her a bill for $12,768.82 which included past rent, late fees, legal costs, and charges to cover the landlords’ cost in preparing for new tenants.[28] While these costs are typically covered by landlords, the company threatened to refer Ms. Robinson to a collection agency if she failed to pay within 30 days.[29] Today, Ms. Robinson remains homeless and plagued with the fear that debt collectors will come for the money she has not been able to pay back.[30] The fear is common among Invitation Homes’ tenants.[31]

IV. Tax the REITs

As a publicly traded REIT, the growth imperative for Invitation Homes is urgent and incentivizes the company to raise revenues by increasing rents and charging ancillary fees,[32] shifting cost burdens to tenants,[33] and not sufficiently invest in their homes.[34] Extracting value from tenants directly benefits Invitation Homes’ shareholders. These fees have lifted Invitation Homes’ earnings between 20 and 30 percent.[35] Invitation Homes can operate in this predatory manner because their strategy of focusing investments in specific neighborhoods insulates them from losing tenants to competitors.[36] For parents who want to keep their kids in the same school or remain close to jobs or relatives, they have no choice but to rent from Invitation Homes. [37]  

Thus, subjecting REITs to corporate income taxes is consistent with the policies underlying the corporate tax, which is to prevent companies from retaining their earnings to acquire monopoly power.[38] Since its enactment in 1909, the corporate tax has served as a tool the government can use to control “the excessive accumulation of power in the hands of corporate management.”[39] Central to the corporation’s ability to retain such power was the ability to retain earnings, which allowed corporations to consolidate through mergers and acquisitions. [40] There are those who look at this history and argue that subjecting REITs to corporate taxation is inconsistent with the policy goals underlying the corporate income tax because the REIT statute requires that REITs distribute at least 90 percent of their taxable net income.[41] But, Ms. Robinson’s story, and others like hers, suggest that even without retaining its earnings, Invitation Homes wields the exact type of corporate power that proponents of the corporate tax hoped to address with corporate taxation. Amending Section 856 of the Internal Revenue Code to exclude rental income paid by tenants living in single-family houses.[42] In doing so, Congress would eliminate this indirect transfer of wealth from families to institutional investors.



[1] Eviction Filings by Private Equity Firms and Other Large Landlords Surge Despite CDC Eviction Moratorium, Private Equity Stakeholder Project (Sep. 23, 2020), https://pestakeholder.org/eviction-filings-by-private-equity-firms-and-other-large-landlords-surge-despite-cdc-eviction-moratorium/.

[2] Michelle Conlin, Special Report: Giant U.S. landlords pursue evictions despite CDC ban, Reuters (Apr. 23, 2021), https://www.reuters.com/world/us/special-report-giant-us-landlords-pursue-evictions-despite-cdc-ban-2021-04-23/ [hereinafter Conlin, Special Report]

[3] Id.

[4] Conlin, Special Report, supra note 2.

[5] REITs are exempt from corporate income taxes so long as they pay their shareholders dividends that equal at least 90 percent of what would otherwise be taxable income. See Stephanie Krewson-Kelly & R. Brad Thomas, The Intelligent REIT Investor: How to Build Wealth with Real Estate Investment Trusts 34 (2016).

[6] Alan Rabinowitz, The Real Estate Gamble 112 (1980).

[7] See Greta R. Krippner, Capitalizing on Crisis: The Political Origins of the Rise of Finance 59 (2011).

[8] CCIM Institute (https://www.ccim.com/cire-magazine/articles/323316/2013/11/c-corp-reit/) (“Congress hoped the [REIT] act would promote the financing of skyscrapers, shopping centers, and other real estate assets. Against the backdrop of the Cold War and the construction of the Eisenhower Interstate System, Congress wanted to ensure a modern physical environment for an affluent postwar society.”).

[9] David F. Levy, Nickolas P. Gianou & Kevin M. Jones, Modern REITs and the Corporate Tax: Thoughts on the Scope of the Corporate Tax and Rationalizing Our System of Taxing Collective Investment Vehicles, 94 Taxes 217, 261 (2016).

[10] I.R.C. § 856(c).

[11] H.R. Rep. No 2020, at 6 (1960).

[12] Levy et al., supra note 9, at 224.

[13] Levy et al., supra note 9, at 224.

[14] Peter M. Fass, Michael E. Shaff and Donald B. Zief, Real Estate Investment Trusts Handbook § 1:79, Westlaw (database updated Dec. 2021) [hereinafter Real Estate Investment Trusts Handbook].

[15] Indraneel Karlekar, Non-Traditional Property Types Are No Longer Niche—They Are the Future Of Commercial Real Estate 1 (2020).

[16] Haandel St. Juste & Jieren Huang, Mizuho Securities USA Inc., Inititiating Coverage of Single-Family Rental REITs with Favorable View – Buy SFR 7 (2017). See also Ryan Dezember, ‘This Could Be Huge,” Blackstone CEO of Foreclosure Opportunity, Wall St. J. (Dec. 6 2016), https://www.wsj.com/articles/this-could-be-huge-blackstone-ceo-said-of-foreclosure-opportunity-1481053818 (“Blackstone executives homed in on the tighter lending standards that had emerged as a response to the crisis. “We said, ‘Oh my goodness, this could be huge. Nobody is going to be able to borrow, they’re going to need housing,’” Stephen Schwarzman, Blackstone co-founder and chief executive, said in an interview with The Wall Street Journal”) [hereinafter Dezember, This Could Be Huge]

[17] These investment vehicles were structured similarly to commercial real estate investments. However, the main difference was the investment asset class was single-family homes rather than traditional commercial real estate.

[18] see Dezember, This Could Be Huge, supra note 16.

[19] Brett Christophers, How and Why U.S. Single-Family Housing Became an Investor Asset Class, J. Urb. Hist. (2020), https://journals-sagepub-com.ezproxy.cul.columbia.edu/doi/pdf/10.1177/00961442211029601.

[20] Christophers, supra note 19.

[21] Invitation Homes Inc., Securities Registration Form (Form S-11) 1 (Jan. 6, 2017), https://d18rn0p25nwr6d.cloudfront.net/CIK-0001687229/7dbf137e-b6c1-415c-85b9-09c126c05fbe.pdf (explaining how Invitation Homes internally managed acquisitions, renovations, leasing, maintenance and management of buildings).

[22] Invitation Homes Inc., Annual Report (Form 10-K) 9 (Feb. 14, 2020), https://s28.q4cdn.com/264003623/files/doc_financials/2019/ar/2019-annual-report.pdf

[23] Gregg Colburn, Rebecca J. Walter & Deirdre Pfeiffer, Capitalizing on Collapse: An Analysis of Institutional Single-Family Rental Investors, 57 Urb. Aff. Rev. 1590, 1605 (2021), https://journals-sagepub-com.ezproxy.cul.columbia.edu/doi/full/10.1177/1078087420922910?utm_source=summon&utm_medium=discovery-provider.

[24] Christophers, supra note 19.

[25] Id.

[26] Id.

[27] Suzanne Lanyi Charles, The financialization of single-family rental housing: An examination of real estate investment trusts’ ownership of single-family houses in the Atlanta Metropolitan area, 42 J. Urb. Aff. 1321, 1322 (2019).

[28] Id.

[29] Id.

[30] Id.

[31] Francesca Mari, A $60 Billion Housing Grab by Wall Street, N.Y. Times (Mar. 4, 2020), https://www.nytimes.com/2020/03/04/magazine/wall-street-landlords.html (“The wrost thing about Invitation Homes . . . is the way they create fear in their tenants.”).

[32] Id. (“For each utility bill received by Invitation Homes — many single-family-rental companies, or S.F.R.s, put utilities in the company’s name and then charge the utility back to the tenant — the company levies a $9.95 “conveyance” fee. The company also piled on landscaping fees, $100 monthly pool fees, a $50 monthly pet fee (“pet rents” were up 300 percent, Invitation Homes announced in 2017, accounting for additional gains of $1.5 million) and automatic enrollment in smart-lock services for $18 to $20 a month. The first month of the smart-lock service was free, so that by the time the charge appeared on the rent bill, it was too late to opt out, per the nearly 40-page lease.”).

[33] Id.

[34] In 2018 Invitation Homes spent an average of 1,142 a year on repairs, maintenance, and turnover costs, which is less than the 3,100 a year Americans tend to spend on maintenance, repairs, and improvement son houses of the same age as Invitation Homes’ portfolio. Id. /

[35] See Michelle Conlin, Spiders, Sewage and a Flurry of Fees – the Other Side of Renting a House from Wall Street, Reuters (July 27, 2018), https://www.reuters.com/investigates/special-report/usa-housing-invitation/ [hereinafter Conlin, Spiders, Sewage and a Flurry of Fees].

[36] Mari, supra note 31 (explaining that Invitation Homes’ increased profits defended on increasing tenants’ “everyday debt and expenses”).

[37] See Conlin, Spiders, Sewage, and a Flurry of Fees, supra note 31.

[38] David F. Levy, Nickolas P. Gianou & Kevin M. Jones, Modern REITs and the Corporate Tax: Thoughts on the Scope of the Corporate Tax and Rationalizing Our System of Taxing Collective Investment Vehicles, 94 Taxes 217, 223 (2016).

[39] Reuven S. Avi-Yonah, Corporations, Society and the State: A Defense of the Corporate Tax, 90 Va. L. Rev. 1193, 1244 (2004).

[40] See id. at 1222.

[41] Levy et al., supra note 9, at 229.

[42] This proposal is similar to legislative text passed by the House of Representatives that would have amended the REIT statute to exclude any amount received from for-profit prison REITs. See Deloitte, Realigning the code: Tax provisions in the Build Back Better Act 22 (2021) https://www2.deloitte.com/content/dam/Deloitte/us/Documents/Tax/us-tax-provisions-in-the-build-back-better-act.pdf.