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This story is part of The Speculators of Detroit, which looks at how bad actors have destabilized neighborhoods, left many residents without safe housing and cost the city hundreds of millions.
RealT, a cryptocurrency real estate company that owns hundreds of rental homes in Detroit, appears to be unraveling.
The company has stopped almost all weekly payouts to investors. It owes millions of dollars in unpaid property taxes, water bills and blight tickets. And it faces the possibility that more than 300 Detroit properties could be pushed into tax foreclosure by the end of March.
RealT’s co-founders, brothers Remy and Jean-Marc Jacobson, built their business selling digital tokens representing “fractional” ownership of rental properties. Overseas investors bought the tokens and received weekly payouts from the rent RealT said it collected from Detroit tenants.
But as its debts and legal problems mount, that model appears to be breaking down — leaving tenants in unlivable homes and investors holding tokens worth a fraction of their original value.
At the same time, a court order has limited how RealT can use rent collected from tenants. In July, Judge Annette Berry ruled that all rent from RealT’s tenants had to go into an escrow account that can only be used for repairs — not its other obligations.
That order came as part of the city’s nuisance abatement lawsuit against the company, filed several months after Outlier Media first broke the story about RealT’s Detroit enterprise.
The company’s in-house property management company, New Detroit PM, has essentially stopped day-to-day maintenance. Calls to its office go unanswered, and a former employee who recently quit said almost nobody works there anymore.
Outlier Media has spoken with several dozen RealT tenants over the past year. Nearly all described poor or unresponsive property management. Now, tenants say they can’t reach anyone at all.
An attorney for RealT, Andrew Creal, wrote in a statement that New Detroit still exists, but with “a skeleton crew” of just five employees who prioritize emergency repairs for tenants. He said the city hasn’t been cooperative in administering the escrow account, exacerbating the deferred maintenance and the company’s cash flow problems.
“Due to the City’s actions, including but not limited to, barring evictions and the direct collection of rent for nearly eight months at the outset of the lawsuit, we had to trim the staff” of New Detroit, he said. “This was by no means our goal when New Detroit was created, but the City’s actions left us no choice.”
A shrinking operation
Managing a portfolio the size of RealT’s — around 700 homes and apartment buildings in Detroit — typically requires a large staff of administrators and maintenance workers. Cortez Murphy, hired as a handyman for New Detroit PM in December, said there were never enough employees.
Within weeks, he said, about five staff members left because they weren’t getting paid. Creal disputed that people weren’t paid and said that “individuals have quit due to fear of non-payment that never materialized.”
Murphy said he stayed because he needed the job. But the work quickly became overwhelming.
He said he drove hundreds of miles a week across the city, responding to maintenance calls. He said the company shorted him hundreds of dollars on vehicle mileage every payday — a claim Jean-Marc Jacobson disputed, saying Murphy was “paid in full.”
The conditions he encountered inside many homes were alarming. Murphy saw homes and apartments with leaks, mold, holes in the ceilings and walls, flooded basements, crumbling stairs, and trash piled up outside.
“Their houses are terrible,” Murphy said. “There shouldn’t be anybody living in these homes.”
He estimated that about 80% of the properties he visited had serious problems affecting tenants’ health and safety.
Murphy quit in February. He said he knows of just two other people who still handle repairs for the company.
‘I shouldn’t have to live like this’
Some RealT tenants say they have lived in unsafe conditions for years.
Shantel Wade said she and her four children have lived without heat for the past two winters. To keep the house warm, she said the family sometimes used the gas stove — until that went out, too.
Wade said she spent her own money to get the stove fixed and replace the water heater after repeated maintenance requests went unanswered.
“Every day I stress about it. It’s bothering my health,” said Wade, who’s lived in her eastside home on Holcomb Street for 12 years and stays because the rent is low. “It’s not even livable. You try to keep it up the best you can, but come on: I’m in here with no heat.”
Calvin Sledge, who was forced to move out of his RealT-owned apartment on Conant Street after it was condemned last month, said he went nearly three years without heat. The building was also infested with mice and roaches.
“I’ve been here 20 years. I’ve never been late or behind on my rent,” Sledge said. “I shouldn’t have to live like this.”
Jacobson said both Wade and Sledge are many months behind on rent.
A failing model
RealT is also struggling to cover routine operating costs.
In a February email to investors, RealT said that it could no longer afford insurance premiums, maintenance costs or legal expenses without an influx of cash.
“The model no longer works,” the email said. RealT also informed investors it would suspend weekly rental distributions.
Third-party sites that track RealT data confirm tokens aren’t generating income. They’re not worth much either, nearly all selling for far less than their original value on the secondary market.
RealT also told investors in the February email that it plans to sell off parts of its Detroit portfolio to raise cash. So far, it’s proposed selling 28 homes.
But that might not be possible.
The city has filed hundreds of “lis pendens” notices in Wayne County tied to its nuisance abatement lawsuit against the company. The filings alert potential buyers that the properties are part of ongoing litigation. Any potential buyer would inherit the legal liability.
Creal, the RealT attorney, is hopeful his client can reach a settlement to partner with the city on rehab and property management. He added that any settlement would put a hold on foreclosures and lift any notices on properties approved for sale.
Earlier this year, the city asked a judge to appoint a receiver to take over RealT’s portfolio. Judge Annette Berry dismissed the motion at a January hearing, saying receivership is reserved for situations where a company has fully abandoned its responsibilities.
But she left open the possibility for the city to refile the motion at a later time.
Detroit officials said they’re preparing for the possibility that the company could collapse before the scheduled trial on May 27.
“The city has a workable plan that would be able to effectuate the repairs needed to these properties,” said John Roach, Detroit’s media relations director, “whether or not RealT continues to exist.”
This article first appeared on Outlier Media and is republished here under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
