Goldman Sachs and Blackstone are private equity investors buying up rental property in Madrid. About 13,000 household were told their rents would not increase. Now in a down market, when their renewals come due, they are told their rents will rise sharply which they will need to pay or move out. Now a judge will decide who, if anyone, is to blame.

Any tenants evicted may reapply for social housing but this whole thing is turning into a very bad image for New York. There are somethings you just do not do and throwing people out on the street is on the top of the list. If you want to have the masses hanging bankers as they did on the real Black Friday in 1869, this is one way to do it. Some 13,000 households are already on the waiting list for flats owned by Madrid city council according to Reuters excerpted below.

Special Report: Why Madrid's poor fear Goldman Sachs and Blackstone

BY SONYA DOWSETT

Madrid Fri Oct 24, 2014 3:32am EDT

Last year Madrid’s city and regional governments sold almost 5,000 rent-controlled flats to private equity investors including Goldman Sachs and Blackstone. At the time, the tenants were told their rental conditions would remain the same.

But as old contracts expire, dozens of people have received demands for higher rent, been told their rents will increase dramatically, been threatened with eviction or moved out to escape the insecurity. Thousands of Spain’s poor now depend for their homes on the generosity of private equity.

Jamila Bouzelmat is one of them.

The mother of six lives in a four-bedroom flat on the outskirts of the Spanish capital that was bought jointly by Goldman and a Spanish firm. The 44-year-old said that until March her family paid 58 euros ($73) a month in rent out of her husband’s 500-euro unemployment benefit. In April, her bank statement shows, her new landlords suddenly took 436 euros from her bank account.

She discovered the payment when she tried to pay an electricity bill.

“We went to take money out and there wasn’t a cent left in the bank,” she said, her 18-month-old daughter playing at her feet. She got charity hand-outs to feed her children, aged between 18 months and 19 years, and now lives in fear of the rent bill. Goldman declined to comment.

In the buildings sold to the funds, Reuters has spoken to more than 40 households who face similar difficulties. They include some of Madrid’s most vulnerable people: an unemployed single mother of five with a severely disabled daughter, for example, and an HIV patient with one lung. Both faced evictions that were temporarily halted at the last minute.

There is no suggestion the buyers have acted illegally. Having bought around 15 percent of Madrid’s publicly held social housing, the new owners are simply exercising their right to charge commercial rents once reduced rents that tenants have paid expire.

However, Socialist councillors in Madrid have launched lawsuits directed at the state bodies that sold the rent-controlled homes, and tenants meet weekly to organize street protests. Evictions ordered and postponed by the new owners are an increasingly common sight in Spain’s media.

The ructions in Madrid come as Spain tries to recover from its historic property-market collapse and deep economic crisis. Between 2007 and 2013, Spanish property prices fell by nearly 40 percent. More than 3 million houses and apartments sit empty, according to official figures. Spain has one of the smallest stocks of social housing in Europe, but as Madrid’s authorities cut their budgets, they have sold what they can at fire-sale prices.

For the private equity firms that bought the flats, the deal was good business. For tenants, less so. The poorest had long benefited from rent reductions - some of them officially documented contracts, others informal arrangements with well-meaning public officials.

Of the homes Goldman bought, around 400 benefited from official rent reductions, according to one government source. Such cuts were agreed individually for up to two years, and some tenants used to pay less than 20 percent of the going rate. The informal deals are hard to count.

The apartments were sold by two government agencies. One of them, the Madrid city housing body, told Reuters the sales were crucial to paying its debt, but did not answer questions on the number of tenants affected or their situation.

The other, the regional housing body known as IVIMA, sold its flats to Goldman Sachs International and Azora, a Spanish private equity firm which invests in rental accommodation. Azora set up a management firm, Encasa Cibeles, to manage the flats, and both Goldman and Azora referred inquiries to Encasa Cibeles.

In the case of Bouzelmat, whose rental agreement ended in March, an Encasa Cibeles spokesman declined to comment on “processes and methods of payment.” But he said Bouzelmat had been paying by direct debit. The company said it respects all ongoing contracts, including rent reductions, and once these expire, reviews each tenant case-by-case. “Evictions occur in an extremely small number of cases,” the spokesman said: “Our priority is to help those in need and we are doing this with a team of social workers looking to help the most vulnerable.”

Pablo Sola, a spokesman for IVIMA, said the deal had been exemplary and IVIMA meets Encasa Cibeles every week to ensure “no family that wants to pay” is evicted. “The Madrid government has not washed its hands of the management of these flats. We are following up the process to avoid the eviction of any family in financial difficulty.”

The public-sector real estate workout is creating winners and losers. Spain needs new investment to put a floor under its property market - a necessary condition for a broader recovery - and at the same time its social safety net needs funds. Economist Miguel Hernandez said foreign investors play an important role by providing cash to public institutions.

“These funds may appear to be acting like vultures, but they are also helping the system, because the administrations had very few options to get the cash they needed,” said Hernandez, professor at IE Business School.

Continue reading at Reuters.