For 12 years the building at 151 Chapman Street (above) stood vacant on a prominent corner, a menacing landmark that attracted squatters and generated no taxes for the hard-pressed city of Orange, New Jersey. Many nearby residents saw it as an omen of what was to come, not just for the block but for the entire neighborhood.
When the nonprofit housing developer HANDS Inc. decided to tackle the property in 1998, it scored a victory for the community which had grown weary of the eyesore. Taking on a highly visible, deteriorating building is an important part of what HANDS calls its “high-impact” strategy for reviving neighborhoods, which includes both targeted redevelopment and building neighborhood organizations to restore the community’s “can-do” spirit. But as HANDS wrestled with the twin challenges of acquiring the Chapman Street property and putting together the financing to make it livable again, it discovered a fundamental truth about community development: Troubled properties make for difficult projects.
“High-impact development was on our minds for 10 years, but we did it piecemeal,” says HANDS Director Patrick Morrissy, who is also a board member of the National Housing Institute. “We couldn’t sustain a steady pipeline of properties. We needed acquisition and financing expertise, and state funding cooperation.”
Over time, HANDS developed innovative approaches to acquiring buildings that have been in legal limbo, and it prodded the state of New Jersey to make changes in its restrictive rules regarding financing for community development, changes that may ultimately ease the way for other nonprofit housing developers in the state. How HANDS managed that feat illustrates the capacity that organizations need to develop when they decide to take on abandoned properties.
HANDS (formally, Housing and Neighborhood Development Services Inc.) has built or rehabilitated 62 properties since it was founded 16 years ago to serve the small cities of Orange and East Orange, two close-in suburbs of Newark. Like many community development corporations, HANDS started out building new housing on vacant lots, an approach that offers several advantages over redeveloping existing structures. For one thing, it is much less expensive to acquire a vacant lot or purchase the development rights, a prerequisite for arranging development financing. Carrying costs while you wait for that financing, like insurance and property taxes, are lower. And a vacant lot doesn’t breed the crime or generate the health and safety concerns that an empty building does – problems the neighborhood may well blame on the CDC if it owns the property, Morrissy notes.
But the same concerns that would make a CDC shy away from acquiring an abandoned building also make that building the scourge of the neighborhood. An empty, uncared-for structure such as 151 Chapman Street can undermine a whole block. These types of properties, abandoned and neglected for years, are in gross disrepair, become magnets for criminal activity, and pose fire hazards. Surrounding properties lose value and are less likely to be maintained. “You hear people say, ‘It’s the future of the block, next year there’ll be two, I’m getting out,’” explains Morrissy. Even if they don’t move out, “mentally, they’ve left.” That’s why, for all the difficulties of addressing such properties, many community development professionals know that turning around an abandoned structure will have a much greater impact on a neighborhood than building from scratch on a vacant lot.
The local residents of Orange and East Orange knew it, too. “They told us, ‘That’s what’s really bugging us, the vacant buildings,’“Morrissy recalls. “Abandoned properties have become our specialty and our focus.”
The obstacles to gaining control of a building are primarily legal in nature. You can’t negotiate to buy a property unless you know who the current owner is. But that deceptively simple fact is often mired in the time-consuming procedures that accompany lawsuits, the settling of estates, bankruptcies, or foreclosure – a municipality’s decision to seize property because the owner has failed to pay taxes and other charges.
HANDS significantly enhanced its expertise in this area when it hired Wayne Meyer, an attorney with 20 years of private-sector real estate experience who doggedly pursues innovative ways of acquiring high-profile eyesores in the community. (The Independent Community Foundation provided a $50,000 grant that enabled HANDS to bring a seasoned professional on board.) Since Meyer joined the staff as housing director nearly two years ago, HANDS has successfully completed a number of tricky acquisitions. For example, it worked with an estate to acquire a package of three contiguous rundown properties in Orange. In another case, HANDS convinced an out-of-state bank that held a tax lien on a property that was causing mounting problems for its neighbors to expedite its foreclosure process and seize ownership of the building – in part by faxing police activity logs to show how criminal activity at the building in question was threatening the whole block. HANDS also purchased a tax lien that had been sold years ago to an out-of-state investor, and paid it off to take possession of the property. Thanks to Meyer’s expertise, the organization is confidently taking on properties it would have written off a few years ago as too difficult to work with, Morrissy says.
HANDS also is working with city planner Alan Mallach and the Housing and Community Development Network of New Jersey to try to rewrite the state law governing how municipalities deal with properties whose owners are behind in their taxes, in order to grant towns more power to take control of abandoned buildings. “Municipalities, as well as CDCs, need stronger tools to be able to go after property owners, get control of properties before it is too late, and reuse them productively,” says Mallach, who once served as community development director in Trenton.
To press the problem-property issue, HANDS helped community leaders to form the Orange Community Problem Property Task Force, a coalition of block association, crime-watch, and neighborhood leaders that is working with city officials to develop a plan for gaining control of and rehabilitating more than 170 vacant properties. Murphy Wilson, who chairs the task force, says the current system favors private investors and places the determination of a property’s future in the hands of people who can be thousands of miles away. “When that happens in your neighborhood, you’re being held hostage,” says Wilson. “You’ve lost control. We’re trying to put the control back into the hands of the municipalities.”
Financing poses its own set of problems. Most nonprofit developers receive state subsidies to help cover the difference between the cost of redeveloping a building and the very modest price they must charge a homebuyer in order to keep the property affordable. However, these state subsidies are not available until the developer has legal control of the property, and may not be delivered until up to 18 months after the purchase has been made. “You have 18 months to keep the property together, and holding on to deteriorated properties in an urban area is not easy,” Morrissy says. “You have insurance and property taxes to pay, in addition to the threat of vandalism and fires.” Few nonprofit developers have the kind of upfront cash it takes to purchase a piece of abandoned property, and few sellers are willing to sign over the rights to their property on the promise that they will receive the money a year and a half later.
Two years ago, HANDS proposed a demonstration project to New Jersey officials: If the state would grant the organization $2 million upfront, HANDS would redevelop up to 50 of the 67 abandoned buildings in Orange. New Jersey officials instead provided a $500,000 grant in June 2001 and promised more if the organization did a good job. So far, HANDS has purchased 11 abandoned buildings in the East Ward of Orange. “HANDS took the neighborhood approach and targeted a specific area of a couple of blocks,” says Keith Jones, director of the New Jersey Division of Housing and Community Resources. “We were able to put the funds out there ahead of time to allow HANDS to do outreach and gain site control of the properties.”
William Rainwater, administrator of the state’s Balanced Housing Program, which approved the HANDS project, says Saint Joseph’s Carpenter Society in Camden approached Balanced Housing with the same idea independent of HANDS, and was also approved as a pilot project. “We don’t advance all the money at once, but some of it for acquisition of three, four, or five houses at a time,” says Rainwater.
The Balanced Housing Program administers a dozen different pools of funding, most of which goes to developers involved in big projects, such as the construction of new homes, apartments, and townhouses. But Rainwater says the state was sufficiently impressed with the HANDS and Saint Joseph’s projects that it has proposed a new program that will allow other nonprofit developers to access funding for acquisition of abandoned properties in a timely fashion. “Based on the two pilots, we developed the Stabilization/Revitalization Program,” says Rainwater. Regulations to implement the new initiative (which did not require a change in state law), are under review now. If adopted, the Stabilization/Revitalization Program will allow municipalities to apply for up to $750,000 over five years to subsidize a neighborhood revitalization project.
Mallach describes the new funding rules as critical for New Jersey. “Any state that has cities with distressed urban neighborhoods should be offering some tools to help the cities and CDCs deal flexibly with problems in the neighborhoods,” he says. But Mallach argues that the state should go much further. A $750,000 subsidy is inadequate for a meaningful neighborhood revitalization strategy, he argues, faulting the state for not creating opportunities for mixed-income homeownership and failing to link the program with other neighborhood improvements, such as parks and schools.
Even this kind of limited flexibility in state funding is rare, although the city of Chicago developed a similar initiative, called the Preservation Program, which provided $100,000 each to four experienced nonprofit developers to identify and acquire problem properties in key neighborhoods. Properties are strategically chosen for their proximity to areas undergoing redevelopment and are clustered several to a block in order to help stabilize the neighborhood. Once the developer has gained control of a building, the Department of Housing provides a grant to subsidize rehabilitation. The Preservation Program has also fostered cooperation between the city and nonprofit developers trying to gain ownership of abandoned buildings. Now, when a nonprofit developer targets an abandoned property, the city moves in quickly to cite the owners for existing code violations common to such sites: drug and gang watch violations, failure to register the site as a vacant building, and lack of liability insurance, to name a few. The nonprofit developer then negotiates with the owner to sell the building at a reasonable rate.
Not surprisingly, when HANDS decided to take on 151 Chapman Street, it discovered that ownership of the property was clouded. The city had made some errors when it initiated foreclosure proceedings, and consequently an old mortgage holder still had a claim on the title. What’s more, clearing up the matter was not a high priority for Orange officials. HANDS generated support among residents, who pressed for action at city council meetings. By February 2001, HANDS was able to purchase the building, and reconstruction began seven months later with a community candlelight celebration. When work is completed sometime in 2002, the 5,000-square-foot building will be transformed into two two-family homes, each containing owner-occupied and rental units. Just as importantly, residents who mobilized around the Chapman Street property now have their own organization, the East Ward Concerned Citizens, which has since identified two other troubled properties that HANDS is working to acquire and redevelop.
Even though it is more difficult to accomplish, fixing up troubled properties can re-energize a community in ways that new housing does not, Morrissy says. HANDS uses the transformation of these properties to launch a broader neighborhood revitalization campaign that involves promoting homeownership, strengthening neighborhood organizations, developing leadership, increasing effective citizen engagement, forging strategic partnerships, and shaping public policy and private sector initiatives. Choosing this kind of strategy means doing fewer buildings a year, Morrissy concedes, but the ultimate payoff is worth it. “It’s better than doing five houses,” he says. “It’s an approach having to do with neighborhood transformation. We use our expertise to get the biggest bang for the buck.”
The HANDS experience provides a primer for how CDCs can build their own capacity to deal with a seemingly intractable problem, and at the same time nudge state and city officials to relax funding restrictions and provide quicker and less expensive access to vacant buildings. The high impact development strategies that groups such as HANDS have initiated makes these innovations more urgent: It all begins with one troubled building that neighbors on one block are watching warily, but it is a harbinger for the city as well. Abandoned properties, says Murphy Wilson of the Orange Community Problem Property Task Force, are “a foundation problem that must be addressed in order to move up the pyramid of revitalization in a city.”