Hochul’s, Evans’ advice to private equity: Buy houses somewhere else

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Over the past four years, three out-of-state institutional investment firms by themselves accounted for the purchase of more than 415 single family homes in Monroe County, the vast majority of which were in the city of Rochester.

Those acquisitions by Peninsula Capital Group of Toronto, SFR3 of Walnut Creek, California, and Red Oak Real Estate Fund I LP of Jefferson, Louisiana, were part of a corporate buying frenzy in the market.

Between 2021 and 2024, institutional purchases of single-family homes in Rochester skyrocketed by 220.2 percent, by far the greatest increase among the country’s 100 largest metropolitan areas. No other city saw a triple-digit increase, according to a study by SFR Analytics.

In 2024, Rochester ranked fourth in the nation for highest average rent increase, up 9.7 percent, according to Zillow’s Observed Rent Index. Elected officials say the correlation between private equity ownership and rising rental rates is obvious.

Which is why New York Gov. Kathy Hochul says the state must push back against venture capitalists and protect would-be homebuyers. She is proposing legislation to make it more difficult for corporate buyers to scoop up houses and turn them into rental properties.

“We need to level the playing field and make sure that institutional investors are not taking away opportunities from individuals and families who have spent their life savings to become homeowners,” Hochul said during a visit to Rochester last week, where she trumpeted her fight-back plan.

Hochul’s proposal calls for a 75-day waiting period before institutional investors are allowed to bid on one- or two-family homes. Institutional investors will be defined as firms owning 10 or more single- and two-family homes that also have assets of $50 million.

To further discourage corporate interest, her law would also deny depreciation tax as well as interest deductions on the properties.

“Private equity companies, you can have your chance, but you’re going to have to wait 75 days,” Hochul said during a gathering at Highland Park’s Olmsted Lodge on Feb. 28. “You’re going to give the rest of people, the real people, a chance to make their offers first.

“You may end up getting a home, buying it, but I don’t want any more hard-working individuals or moms or dads or anybody who wants this dream to become reality to have to lose you to you.”

Rochester Mayor Malik Evans is firmly behind the proposal.

“It is crucial to protect the American dream of homeownership before it’s swept into the net of faceless investors,” Evans said. “Private equity companies want to be like Pac-Man, although this is not a game, it is people’s lives. What they are doing is gobbling up properties in a way that puts regular, everyday people at a disadvantage.

“We are all for the free market. But what we are not for are those that are being handicapped and put at a disadvantage and putting them further away from the American dream.”

Will the governor’s plan work? Attorney Donald O. Chesworth isn’t so sure. Chesworth is a partner in the Rochester office of Tully Rinckey PLLC, and his practice areas include governmental compliance and business law.

“The underlying goal is to make sure single family homes are owned by single families,” Chesworth said. “But every time the government tries to interfere with what the normal market would do, it sometimes backfires on them.”

One concern Chesworth has: the freeze-out period isn’t onerous. Yes, houses in Greater Rochester are selling in a week. But if waiting 2 1/2 months means a better offer, then sellers may do just that.

“The 75-day waiting period is not really a long time (for the seller) if you think you can make a lot more money from the institutional investor,” Chesworth said.

The wise thing all sellers should do, Chesworth suggested: obtain an independent appraisal.

“Use it as a benchmark,” he said. “My guess is that most institutional investors won’t pay much over the appraisal value.”

Hochul said she does anticipate a fight from corporate investors. But Edward Hourihan, managing member at Bond, Schoeneck & King PLLC, believes the law as written will withstand a challenge.

“I’m sure as it works its way through the legislature there will be people saying it’s unconstitutional and violates the principles of fair trade,” Hourihan said. “But we’ve seen rent control laws upheld, so I don’t see any challenges to this being upheld.”

Private equity groups that attempt to skirt the law face financial penalties. Simply creating different LLCs for purchases won’t be legal. Violators would be fined up to $250,000 per illegal offer submitted.

The provision is meant to ensure compliance and allow individuals a more realistic chance at homeownership. As Hourihan pointed out, when three entities can buy more than 400 homes in Rochester — often waiving inspections and making all-cash offers — a young couple looking for a house is at a disadvantage.

“It does make sense to give an opportunity for first-time homebuyers to complete in the marketplace,” Hourihan said.

And when that happens, Evans says his city is better off. When individuals and families own the houses, they provide proper care for the property while building financial strength.

“Cities like Rochester are witnessing a takeover of their neighborhoods, with more and more single-family homes and duplexes being purchased by institutional investors that literally tout their ability to acquire ‘large scale portfolios,’ ” Evans said.

“Gov. Hochul’s common-sense proposals put the interests of residents who work hard and save for years to purchase their first home and build generational wealth ahead of deep-pocketed housing speculators who have no interest in the long-term health and stability of our neighborhoods.”

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