Over the past six months, Texas Housers has spotlighted the stories of uninhabitable conditions and mass evictions at Cabo San Lucas apartments in Houston and the ensuing barriers tenants faced to remain housed.
Our work led us to investigate who actually owns Cabo San Lucas, yet no one seems to know. This is troubling given that identifying a landlord of a property is vital for advocacy work and understanding the landscape of local tenant issues.
Cabo San Lucas was formerly owned by Applesway Investment Group. Applesway lost five apartment complexes to foreclosure in 2023, including Cabo San Lucas. In August, Cabo San Lucas went through a foreclosure auction where a newly formed Limited Liability Company (LLC) bid a prearranged amount and no other bids were placed. Around the time of the auction, Applesway filed over 100 evictions. The original evictions were dismissed, as Applesway no longer owned the property by the time the evictions reached court, but the buyer persisted with attempts to evict tenants.
The buyer’s name was Cabo United LLC. The “governing person” of the LLC is listed as Sheridan Capital, a Florida company that specializes in bridge loans (short-term loans to hold over the borrower until permanent financing can be secured) and typically does not own property itself.
The LLC ownership structure utilized by Cabo San Lucas’ owners has been abused by large, absentee landlords to extract value from low-income tenants until the process is no longer profitable. So, who is Cabo United LLC and who is responsible for persisting with evictions filed by the previous, problematic owner?
What is an LLC?
An LLC is a company that protects the owner from debt or liabilities in a similar way to corporations, but without the extra tax on corporate income or reporting requirements. Those who directly or indirectly control the company are referred to as the beneficial owners.
The LLC property ownership structure has many benefits for owners. Beneficial owners can avoid public scrutiny, a priority for those already in the public eye. If a property acquires too many fines or loans go unpaid, the LLC goes into default, not the owner. Owners frequently organize their properties so that each is owned through a separate LLC, which further limits the owner’s exposure to risk. For example, a lender cannot foreclose on other properties owned by the same beneficial owner if they are owned through separate LLCs
How do you find the beneficial owner?
The limited reporting requirements for LLCs create an environment where the beneficial owner can often be a mystery to the public. The use of LLCs to conceal property owners’ identities is a common practice in Texas and even across the country. In Texas Housers’ recently released Bexar County Eviction Dashboard, we found that five of the top 30 evicting properties in Bexar County shared the same owner, the Trif family, and that one third of the top 30 properties in total were owned by the Trifs and the second largest owner, GVA, combined. These nine properties, ultimately owned by two beneficial owners, are owned through nine separate LLCs.
Connecting properties together requires additional research, which can be complicated by single-property LLCs and multiple layers of obscurely-named shell companies between the property and the beneficial owners. This makes finding the beneficial owner of an individual property hard and makes it extremely difficult to conduct any kind of large-scale analysis of investor or corporate ownership, requiring advanced programming skills and ample resources.
This work typically relies on comparing office addresses of LLCs in tax assessment data, which is complicated by the availability and format of data. Two attempts to expose city-wide property ownership are Who owns what in nyc? serving New York City and Evictorbook in Oakland, CA. These projects focus on property conditions and evictions and are important tenant organizing tools to help identify problematic owners and patterns of behavior. Significant resources went into developing these tools and, in the case of New York, they benefited from more robust local requirements regarding property ownership data.
In the case of Cabo San Lucas, currently publicly available information, such as documents filed with the Harris County Clerk or the state comptroller, does not reveal anything beyond the involvement of Sheridan Capital. The Harris County Appraisal District still does not reflect the 2023 foreclosure sale. We don’t know who owns Cabo San Lucas because the owner isn’t required to tell us. This means that tenants and advocates cannot bring the owners to the negotiating table or apply pressure where it matters. Research cannot connect Cabo San Lucas’ issues with larger patterns that may be present in investor owner behavior.
Why does this matter?
Communities have shown increasing attention in the prevalence of large and/or out-of-state investor owners that utilize these LLC ownership structures and are associated with a host of issues. Out-of-state owners have been known to siphon public funds out of the community; large-scale owners are more likely to evict tenants at a higher rate (particularly in communities of color); and corporate ownership, including the use of LLCs, is associated with high rent increases and excessive fees. In some cases, the scale of property acquisition and consolidation itself is shocking.
Properties transitioning from individual to LLC ownership see an increase in disinvestment and disrepair. The use of single-property LLCs has negative consequences for low-income tenants, including poor building maintenance and increased housing costs. In cases of extreme neglect, beneficial owners continue to collect rent and exploit tenants until they lose the property. This is what happened with Cabo San Lucas and Applesway. After imposing poor conditions upon tenants and losing Cabo San Lucas to foreclosure, Applesway is free to continue owning other properties through other single-property LLCs, potentially perpetuating the same issues seen at Cabo San Lucas. In situations like these, tenants are stuck with the same issues and face slow, painful displacement. Tenants are evicted, units are deemed uninhabitable, rents and fees are increased, or the property is redeveloped.
These owners often reduce homes to an investment – a “resilient and profitable asset class.” This is referred to as financialization. This issue impacts all types of housing. Investor owners have been buying “recession-proof” student housing, acquiring mobile home parks and driving up rents, purchasing condominiums in need of repair to de-convert them back to apartments, and buying up a considerable amount of single-family housing stock to convert to rental units. The latter has impacted low-income households’ ability to purchase homes.
Institutional investors buying homes can play a significant role in driving racial gaps in homeownership and wealth creation, as they target homes that typically house Black families. Proximity to investor-owned homes was found to decrease home value (especially in Black neighborhoods), increase crime, decrease local construction and repair, increase nuisance code violations (e.g., trash and grass), and decrease the number of registered voters.
Texas had the largest share of homes purchased by institutional buyers in 2021 among all states: 28% of all Texas homes purchased in 2021 were bought by institutional buyers compared to 15% nationwide. Certain counties in Texas were even higher: 52% of purchases in Tarrant County were institutional buyers, 45% in Rockwall County, 44% in Midland County, 43% in Dallas County, 41% in Travis County, 39% in Denton County, 38% in Harris and Kaufman Counties, 37% in Williamson County, and 34% in Collin County. Nine of the 20 counties in the nation with the highest shares of institutional buyers were in Texas. The same study also found that institutional buyers paid 1.7x what all buyers paid for homes in Texas. Areas that institutional buyers target have high population growth, a larger share of Black or Latin American households, and housing costs that are increasing. These buyers have significant market power and can afford to outbid families with big cash offers, taking away opportunities from first-time homebuyers and enabling displacement and gentrification.
What can be done?
As mentioned previously, there are projects in various cities and counties trying to investigate institutional or corporate ownership and make ownership data more accessible. These efforts tend to be limited to the local level, because of the technical difficulty and expense in acquiring property ownership and corporate ownership data. Potential fixes to make this process easier include rental registries with more complete ownership data, such as New York City’s Housing Preservation and Development’s Multiple Dwelling Registrations database.
Rental registries make it easier to understand the landscape of local investor ownership without having to dig through and clean up appraisal district data. They can be cross-referenced with other local data to generate useful information like clusters of code violations or high eviction rates to proactively identify and prioritize problem properties for appropriate action. However, some rental registries do not adequately provide useful data to the public. Whereas New York City’s entire database can be downloaded in usable format, Houston publishes outdated data in PDF format listed separately from other city data. Even though the registration process collects ownership and management information, that information is not included in the publicly-available PDF.
Some recent efforts to make beneficial ownership data more readily available do not make data available to the general public. New York’s recent LLC Transparency Act creates a database of beneficial owners, but the data is only accessible to government agencies and law enforcement. Similarly, the 2021 Corporate Transparency Act requires certain business entities to file information on beneficial owners with the US Department of the Treasury, but the information will not be made publicly available and is intended for law enforcement purposes.
There are legal approaches to pursue problematic actors evading consequences by hiding behind fragmented LLCs. One approach called “piercing the corporate veil” involves the courts disregarding the LLC structure and holding shareholders liable, though it is only used in rare cases of fraud where the LLC is a sham (e.g., doesn’t have enough money, mixes assets with other single-property LLCs).
Governments have shown interest in controlling investors’ ability to purchase and own housing, but the “data desert” when it comes to institutional ownership makes regulation difficult. This is a relatively recent issue, and many states like Ohio are just beginning to enact legislation to research and understand the issue with out-of-town buyers targeting local properties. SB 1979 during the 2023 Texas Legislature similarly sought to initiate an annual study and report on single-family home purchases by institutional buyers. This bill was vetoed by Governor Greg Abbott. The End Hedge Fund Control of American Homes Act of 2023 introduced in both houses of the US Congress would prevent large companies from buying homes, require companies to eventually sell those homes, and enact a tax penalty on owners with too many homes, with the proceeds funding down-payment assistance. Most recent legislative efforts focus entirely on investor ownership of single-family homes. They do not address the impacts investor owners have on multifamily housing, which is more likely to serve lower income households.
Communities themselves sometimes have a limited ability to control investor ownership, particularly in owner-occupied housing. For example, some HOAs have enacted rules requiring owners to live in the unit prior to renting, limit the number of homes that can be rented, or require HOA board approval of rental applications. On the other hand, tenants in rental complexes have little to no say if their property is purchased by an investor owner, even in cases where public subsidy is involved. Empowering residents to have a say in purchases, rehabilitation efforts, relocation, and general management can help mitigate the concerns around investor or corporate ownership.
Shining a light on property ownership improves tenant outcomes
If the public is not able to determine who owns a property, there is less risk involved for owners. Single-property LLC ownership creates multiple layers that insulate the people who financially benefit from tenants who may be dealing with improper evictions or chronic disrepair. They are legally and personally detached from the immediate need for safe and decent housing that their tenants experience and are content to neglect properties for far too long as long as they receive rent. Without usable data on property and LLC ownership, the public cannot connect a network of properties back to a single problematic actor who may be systematically harming tenants. Policymakers and advocates cannot identify patterns that they need to understand in order to develop effective policies. This is particularly concerning in Texas, where investor owners have accounted for a considerable share of home purchases in recent years.
Local governments can enable advocacy efforts and inform the issue by enacting meaningful rental registries with publicly available and usable data that include ownership and management information. The Texas Legislature can prevent investor owners from taking advantage of low-income communities by enacting legislation similar to the End Hedge Fund Control of American Homes Act and limiting an individual’s ability to own an excessive number of properties. Transparency is a key tool toward the improvement of the lives of tenants in Texas and across our nation.
