Dark Money is Flooding Norfolk Apartments

by Alexander Fella | Jan 4, 2022

On November 18, 2021, Blackfin/ GMF, a partnership between investment firm Blackfin and a private equity fund, GMF Capital, sold Coastline Apartments in Virginia Beach to an “undisclosed buyer” for $98 million. With 600 units, the Coastline Apartments represents one of the most significant sales of an apartment building ever in Hampton Roads. It’s also a stark example of the growing dark money problem in the Hampton Roads housing market. Across Tidewater, anonymous financial firms are pouring billions of dollars into buying up apartment buildings. These faceless investors, private equity funds, have acquired over twenty thousand apartments, generating billions of dollars in profit for their secret cohort of wealthy investors, often with devasting consequences for renters. And they’re doing it all in secret.

What exactly is dark money? Historically, the term referred to undisclosed campaign contributions. Now, dark money refers to the untraceable flow of capital in and out of cities. It’s a financial investment whose origins are untraceable. Dark money is funds invested in the Norfolk housing market whose origin is deliberately kept secret or obscured through a network of shell companies. Dark money can come from ultra-wealthy individuals, such as American billionaires looking to hide their assets. Occasionally, it comes from overseas, UAE pension funds, or Singaporean investment banks. Money then funnels into US investment firms that park investor cash in residential real estate. Its historically high return on investment generates ballooning profits for the world’s wealthy elite. It also creates an underground financial network where Norfolk’s affordable housing is being bought and sold anonymously.

At times, money can go dark through the deliberate withholding of information when apartments are bought and sold. Such is the case with the Coastline Apartments above, or the 200-unit Alexander at Ghent, whose buyer was similarly “not specified.” These ghost sales don’t imply no one knows who bought the building. Instead, the information is not in the public eye. Obscuring buyer information leads to an asymmetry of knowledge that privileges the wealthy and locks citizens out from understanding what’s going on in their neighborhoods.

Other times, money is made dark by passing investments through a complex network of shell corporations before ending up in Norfolk’s apartments. A shell corporation is a business that exists on paper but doesn’t operate exactly like a traditional business. Owners can pass cash through shell companies while remaining anonymous. Any attempt to track down the landlord will likely net you a shell corporation and a registered agent—a sort of frontman for the organization, like a bouncer, but with a briefcase. Imagine shell corporations as Russian nesting dolls: one company controls another company that owns another company, each one nested inside the other.

Shell Game / Alexander Fella

So how does it all work? Take the Villa Terrace apartments in Norfolk as an example. Local property records for the 82-unit complex list the owner as “TRC Villa Terrace, LLC.,” with a registered agent in Mechanicsville, VA. Now, 2018 documents from the SEC (Securities and Exchange Commission) connect TRC Villa Terrace and several other apartments to a residential address in Meridian, Idaho. More digging through SEC paperwork shows two names listed as beneficiaries to TRC Villa Terrace: Jared and Russ Walker. More digging reveals the Walkers are the brains behind Tablerock Capital, a private equity firm out of San Francisco, California, targeting low-income and senior housing. From San Francisco, Idaho, Mechanicsville, and Norfolk, dark money flows into low-income housing through a shell company owned by a private equity firm.

While Tablerock Capital was traceable, occasionally, the smokescreen of shell corporations proves too opaque. Such is the case with Equity Residential, the 10th largest landlord in the United States whose subsidiary, ERP Operating Limited Partnership, maintains 850 shell companies, some of which own property in Hampton Roads. At any rate, even if we could trace every shell company, we still have almost no way of knowing where the money is coming from before it reaches investment firms or who the firm’s investors are.

Tablerock and ERP are a fraction of the financial firms that have flooded coastal Virginia with dark money. So why target Hampton Roads? Finance has primarily targeted Norfolk due to its tax haven neighborhoods called Opportunity Zones (OZs). Opportunity Zones are federally designated census tracks where investments are exempt from capital gains tax. For example, if a firm buys property in an OZ and holds it for 10+ years, they are exempt from paying capital gains tax on their profits when they sell. Norfolk has 16 OZs, more than any other city in the country. The above includes the St. Paul’s Quadrant, home to three public housing projects undergoing total residential redevelopment. Currently, financial firms have raised $20 billion to invest in OZs nationally. $15.5 billion is for residential real estate.

While we don’t always know dark money’s origins, we live its daily effects. One might wince at the thought curtailing the free market speculation that defines the American housing market. If they’ve got the money, hey, this is America. But dark money turns the housing market into anything but free. When financial firms buy apartments, they don’t always pay their asking price. Often, firms deliberately pay more. Why? Because their investors have trusted them to invest their money in real estate. If a building sells for $50 million, investment firms might pay $80 million because that’s the cash they have mandated to invest. Overpaying for properties has the effect of artificially inflating the rental market; this causes property values to rise, rents to jump, and housing affordability to plummet.

When rents go up, our communities suffer. Runaway rents mean more evictions, a rise in homelessness, and a financial precarity that pushes Norfolk closer to life balanced on a knife’s edge.

Alex Fella

Alex Fella is a writer and researcher, his work focuses on the built environment and the natural world. He is the Director of Research at the Urban Renewal Center and the founder of CityWork, an organization that empowers nonprofits with research and data mapping. He is a 4th year fellow at the Canadian Psychoanalytic Society & has a master's in Philosophy from Yale University. He enjoys fixing old cars and rooting for the Montreal Canadiens