Neighborhood Stabilization

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      Making it Work—
Practical Information on How
to Implement a Stabilization
    Neighborhood Stabilization:

  Program Design for Maximum

    Alan Mallach             William Goldsmith
Non-Resident Senior Fellow          President
 The Brookings Institution   Mercy Portfolio Services
     What is a stable neighborhood?
►A   stable neighborhood is not one where everyone
  stays in place, and everything stays the same.
► A stable neighborhood is one where residents and
  potential buyers feel confident that their
  investment – psychological as well as financial –
  is secure.
► A stable neighborhood is one “that keeps
  sufficiently abreast of its problems so that it is not
  destroyed by them” (Jane Jacobs)
► Keyfeatures that contribute to
 neighborhood stability include:
    Low property abandonment
    Low foreclosures
    Low crime
    High homeownership rate
    High levels of owner property investment
 What is neighborhood destabilization?

►Foreclosures  undermine local housing
 markets and increase vacant housing
►Market deterioration and vacant housing
 lead to neighborhood destabilization
►Once destabilization begins, it can trigger
 a chain reaction of destabilizing events.
       Destabilizing events include:

► Increase in number of foreclosure filings and
  foreclosure sales
► Increase in vacant and abandoned properties
► Increased crime
► Increased number of properties coming on market
► Not enough home buyers for available supply
► Declining house prices
► Reduced property maintenance
        Stabilizing actions include:

► Reducing   the number of REOs coming onto the
► Reducing the number of foreclosure filings
► Increasing the pool of home buyers
► Reducing the number of vacant and abandoned
► Stabilizing house prices
► Reducing crime
► Improving property maintenance and
  neighborhood appearance.
   How does one stabilize a neighborhood?

► Foreclosures   and abandoned properties can
  trigger destabilization – but dealing with those
  problems alone may not be enough to restore
► Neighborhood stabilization is about
  rebuilding confidence and fostering market
► Market recovery happens when the effects of
  stabilizing actions exceed those of destabilizing
 What should neighborhood stabilization
         strategies include ?
► Reducing  future foreclosures
► Reducing the link between foreclosures,
  disinvestment and vacancy
► Getting vacant properties back to productive
► Addressing other forces destabilizing the
► Rebuilding confidence and fostering market
They should leverage other tools and resources

► Property  acquisition tools
► Code enforcement and nuisance abatement
► Public/private sector housing assistance and
  mortgage financing
► Legal tools to minimize foreclosure impacts and
  prevent future foreclosures
► Outreach, marketing and other activities to build
  confidence and rebuild market demand
     Three critical issues - 1

►Target resources strategically
►Design strategies and
 expectations to align with
 market realities.
►Build partnerships
       Target resources strategically

►Target    areas where market conditions
 make impact possible and/or where
 strategic location or assets make it
►Target areas where organizational
 capacity and will exist to carry out
       Target resources strategically

►Use NSP funds in ways that will impact
 the greatest number of properties
►Leverage other resources in target areas
►Make sure each target area receives
 enough investment to make impact
  NSP1 Target Areas: Philadelphia & Chicago

Target areas cover over 1/3 of each city’s area
     Three critical issues - 2

►Target resources strategically
►Design strategies and
 expectations to align with
 market realities.
►Build partnerships
   Communities have different NSP options

► Help qualified homebuyers buy eligible
► Acquire eligible properties, rehab and sell
► Acquire eligible properties for lease-
  purchase or rental
► Demolish properties + redevelop site
► Demolish and hold in land bank
   Understand neighborhood housing
           market dynamics

► Trends  in properties - particularly REO
  properties - coming onto market
► Price trends and affordability of houses on
► Volume and type of home purchase activity
► Characteristics of potential home buyer pool
Market conditions fall along a continuum

Market             Demand increases as prices fall to
correction         affordable levels, and
                   supply/demand equilibrium is
Market          Demand potentially exists, but
destabilization may need public/nonprofit
                intervention to trigger effective
Market collapse Weak demand and large supply
                creates surplus that cannot be
                absorbed by market
Market-sensitive strategies: acquisition

Market            Market          Market
correction        destabilization collapse
Acquire           Acquire             Acquire
properties only   properties to       properties to
when specific     opportunities for   land bank for
property is an    reuse and           future
impediment to     neighborhood        redevelopment
market recovery   stabilization       opportunities
             Evaluate options

► Number   of properties directly affected by action
► Impact of action (acquisition and reuse) on
  surrounding properties
► Alternative outcomes for property
► Direct subsidy cost per property
► Delivery cost/capacity requirements
► Time to implement action
► Impact on neighborhood confidence and housing
Market-sensitive strategies: reuse
REUSE            Market     Market          Market
OPTIONS          correction destabilization collapse
Market sale      ∗∗
Subsidized       ∗          ∗∗
sale or lease-
Subsidized       ∗          ∗∗              ∗

Land banking                                ∗∗
Other activities should also be market-sensitive

Market            Market                 Market
correction        destabilization        collapse
Foreclosure      Foreclosure
prevention       prevention
Code enforcement Code enforcement

Homebuyer         Homebuyer
assistance        assistance
Market-building   Market-building
activities        incentives
                  Infill development
                  Selective demolition   Demolition
                                         Interim uses
Chicago Target Area

  William Goldsmith, President
    Mercy Portfolio Services
                               Chicago Context

This map and data show where the City and its partners   This map and data show where the City and its partners
should focus their foreclosure prevention and mortgage   should focus their efforts to get vacant foreclosed properties
refinance efforts.                                       back into productive use.
Strategic Target Areas
       •   14 Target Areas (6 to 20 square blocks) within
           areas of greatest need have been identified
           based on proximity to recent public and private
           investments (e.g., housing, public transit,
           schools, police stations, retail) and other
           community anchors and job centers (e.g.,
           universities, hospitals, commercial corridors).

       •   Developer / Market interest (rental / for-sale).

       •   Good physical bones (brick, historic, small MF,
           bungalows) and social bones (NCP, Alderman,
           Homeowners, invested developers).

       •   Critical mass of NSP eligible properties.

       •   Foreclosures are threatening investments that
           have been made over the past two decades.

       •   Interventions must be strategic and targeted to
           protect these investments and have an
           measurable impact.
Strategies that Align with Market Conditions
               Building Partnerships:
         Foreclosure Prevention Initiatives
►   Homeownership Preservation Initiative (HOPI)
     Partnership of NHS, City, Federal Reserve, 22 lenders
     National model for foreclosure prevention initiatives
     Since 2003:
       ► Prevented more than 2,000 foreclosures
       ► Counseled more than 12,000 homeowners
       ► Reclaimed more than 550 vacant buildings

►   311 Campaign: Borrowers can call 24 hours a day to be
    connected to a financial counselor
     7,500 calls in 2008
     1,260 calls in January and February 2009

►   Early Warning: Postcard directing household to call 311
    mailed within a week of filing.
              Building Partnerships:
         Intra-City / Agency Cooperation
► Ellen Sahli: “All Hands on Deck”
► Department of Buildings
     Expedited permitting process
     Discounted fees
►   Department of Environment
     Pass through for Green Layer funding
     Expedited environmental review
► Department of Zoning
► Water Department
► Local Initiatives Support Corporation (LISC)
     Neighborhood Communities Program (NCP)
     Chicago Neighborhood News Bureau (CNNB)
►   Plan for Transformation (The CHA)
     Cooperative Marketing
        Build Partnerships: Efficiently Move
          Properties & Mobilize Capacity
    NSP Funds                                                     RFQ / RFP Process
         (HUD)                                                        61 for-profit / non-
                                                                       profit developers
                                                                       with market savvy
    NSP Funds                       REO Properties
                                     (NCST, FHA, Direct REO)
                                                                       and self-interest
    (City of Chicago)
                                                                      3 CDFI Lenders to
                                                                       make construction
   Mercy Portfolio                  MPS Community I,                   loans using NSP
    Services, Inc                         LLC                          funds
                                    Non-Profit MPS Subsidiary
                                                                      12 realtor firms
                                                                      7 law firms
Target Area                Target NSP Communities
Demolition                   FP0 / NPO Developers
                                                                      5 appraisal firms
                                                                      5 specification
Land Bank for          Rental         Lease to         Home
   Future           (2 – 6 flats)     Purchase        Ownership       2 Board Up Clean Up
Development                                                            including Cara/MLF
               Set Clear Impactful Goals

                                 2009 Proposed Production Model
    Month End Goals     Prop Assessm   Offers     Offer     Acquired   Developer   Construction   Resident
                        I.D.   ents    Made      Accepts                Owned         Start       Occupied

July                    250     150        50         15
August                  350     300       200         75         15
September               300     150       175        100         50          25             15
October                                    25         75        135          60             50
November                                              35         75          90             75
December                                                         25          50            100          10
TOTAL                    900    600       450        300        300         225            240          10
Progress To Date          605   230      200          58          0           0              0           0
Percentage Completion     67%    38%       44%        19%         0%          0%             0%          0%
      Auburn Gresham Community

                                                                • NSP qualified community with
                                                                critical mass of REOs

                                                                • Strong City Investments
                                                                      • New Homes for Chicago
                                                                      • Senior Suites

                                                                • Good assets:
                                                                     • Housing stock
                                                                     • Retail
                                                                     • LISC / NCP
                                                                     • Auburn Gresham NHS
                                                                     • St. Sabina’s Church

                                                                • Developer Interest
                                                                     • Quest: 15 years in new
                                                                     homes and rehab
                                                                     • NHS (developer/lender)

Community Central: Uploaded lists with color coding, online photos, appraisals, specifications
             Physically & Legally Map
          Available & Strategic Properties
►    Identifying Properties
       Community Groups (NCP)
       Realtors
       Field Staff
       Developers
►   Identify Owners and Means for Acquiring
     NCST
     REO Holder lists
     Cook County Housing Court
►   Getting the Mix Right
       Properties not economically feasible without subsidy
       Corner / Anchor multi-family
       Properties developers / market wants
       Green Layer
  Distribution of Properties Under Contract
                by REO Holder

  3                     3

             2                                 2                         2                    2           2

                                  1                      1      1                   1

B of A   Bank of New   Chase   Citigroup   Fannie Mae   HSBC   HUD   Lincoln Pk   Litton   U.S. Bank Wells Fargo
            York                                                     Savings Bk
Selecting, Tracking and Measuring Impact:
            7646 South Morgan

                                • Current REO (Fannie

                                •Tier 1 Area (Return to
                                the Center)

                                • Assemble block

                                • Within Subsidy Limit
                                ($60K SF/$100 / MF)

                                • Developer Interest- LOI
                                from Quest

                                • Market Interest in 2 flat
       Market Segmentation & Response
►   Demand Challenges: Fee-Simple
    homeownership demand is difficult in      Fee Simple
    all markets and nearly non-existent in    (Shared Equity with
    the some impacted communities.            Equity Protection, New
                                              Homes for Chicago,
                                              EAH, CHA PB8 H.O.
►   Scale: Impact on communities and, in      Program)
    some cases, long term disinvestment
    requires scale responses to create        Lease to
    market momentum.                          Purchase
                                              Self-Help Ventures
                                              (6 months to five
►    Home Buyer Education and                 years, payment
    Counseling: Working with families at      includes down
    whatever point they are able or           payment savings)
    comfortable starting on the continuum
    of tenure to work toward home
    ownership and wealth building.
►   Home Buyer Facilitator: Full time         subsidized,
    person dedicated to linking developers,   LIHTC, PB8,
    counseling agencies, home buyers and      ACC)
    end-financing lending products.
        Credit / Subsidy Possibilities
►   Combination of private loan pools (CIC, NLS, CCLF, Self-Help) with NSP
    and PRIs to create an effective flow of capital:
       Developer Acquisition / Construction Lines
         ►   Loss Reserves, Guarantees

       Developer Mini-Perms (5 – 10 Years) to bridge weak markets / recession
         ►   Loss Reserves, Guarantees

       Developer Lease to Purchase Mortgages (30-Year Fixed)
         ►   Loss Reserves, Guarantees

       Developer Acquisition / Construction Subsidies
         ►   Developer Non-Serviceable Second Mortgages to bring TDC in line with end-financing valuation

       Homebuyer Soft Second Mortgages / Subsidies

       Home Buyer Hard Second Mortgages (Equity Participation Mortgages)

* Sensitivity Analysis on impact of each of the above on production.
Community Central & NSP2 T/A
►   Designed in partnership:
      Mercy Portfolio Services
      Integratec: A national data integration specialty firm that designs
        integrated database solutions for affordable housing asset management
        and reporting.
      Foundation Support: Living Cities and the MacArthur Foundation
        provided $500,000 to support the design of Community Central to
        initially support the Chicago NSP initiative and eventually to support NSP
        initiatives on a national scale.
►   Creates an integrated system for NSP recipients to manage, monitor and
    report on NSP activity.
►   Workflow model: Collects data and documents in the course of workflow,
    which reduces staffing overhead and improves audit trail.
►   Ensures compliance with NSP program (DRGR) and other reporting.
►   Fully supports NSP processes:
      Full program life cycle including feasibility, acquisition, rehab, end-
      Integrates with accounting and other back-office systems

►   Community Central is available through support from NSP2 T/A grant37
    in conjunction with NDC, HPN and NCB Capital Impact.
         NEO CANDO: Cleveland
► Northeast Ohio Community and Neighborhood Data
  for Organizing (NEO CANDO): free and publicly
  accessible social and economic data system of Case
  Western Reserve University
► Compiles numerous data sources: census, crime, vital
  statistics, property characteristics, public assistance,
  juvenile delinquency, child maltreatment, mortgage
  lending (HMDA), school attendance, postal service,
  and utilities
► Used by Cleveland Housing Network and
  Neighborhood Progress, Inc. to identify REO and
  homes at risk of foreclosure; create customized,
  interactive maps
        NEO CANDO: Cleveland
► Foreclosure    prevention/early warning –
  Mortgages from Recorder flagged with High Cost
  and HUD subprime list lenders and First American
  Title adjustable rate data scrubbed against sheriff
  sales/water shutoffs
► Foreclosure intervention – Foreclosure filings
  that have not yet gone to Sheriff sale
► Foreclosure reclamation – Sheriff sales that go
  to Banks/REO departments
NEO CANDO: Cleveland
GIS & Google Earth: Jacksonville
►   15 pre-selected developers search for foreclosed
     Property list compiled from MLS, lenders, and Clerk of Courts foreclosures data
     All properties are geo-coded by LISC and sent to developers to view in Google Earth

►   Developer walks through property, negotiates purchase
    contract with seller and submits property to city for due
    diligence and approval
►   City manages work write-up, survey, title, insurance,
    appraisal, environmental clearance and contractor bid
►   Once approved by City, developer closes with private
►   Properties in process are tracked by the City using Excel
    spreadsheet shared with developers
           GIS & Google Earth: Jacksonville

Property Address, Real Estate
number, Court case number,
Date of Auction, Assessed
Value, Reason for Auction
Cancellation, Property Area,
Property Type, Interested NSP
     Three critical issues - 3

►Target resources strategically
►Design strategies and
 expectations to align with
 market realities.
►Build partnerships
         Build partnerships
►Government   agencies
►CDCs and non-profit service providers
►Real estate industry players
►Local and regional institutions
►Residents and civic organizations
 Use partnerships to implement strategy

► Coordinate  multiple government agency roles
  (codes, community development, planning,
► Leverage institutional resources (colleges and
  universities, medical centers, foundations)
► Work with residents and civic organizations to
  build community confidence
► Leverage capacity of real estate industry players
  (developers, realtors, appraisers, financial sector)
► Reach out to investors
              Roxbury, MA:
Nuestra Comunidad Development Corporation

►   Community stabilization partnership in a targeted area of
    Boston: organizing around public safety issues connected to
    foreclosed properties
►   The Dacia FIT (“Foreclosure Intervention Target”) area in
    Boston’s Roxbury neighborhood
►   77 foreclosures occurred over two years, forcing an
    estimated 175 families out of their homes.
►   Currently, 95 properties are in the foreclosure process,
    putting an estimated 227 additional families at risk
►   Drug sales and prostitution have increased, gravitating from
    the commercial Blue Hill Avenue to nearby vacant
    foreclosed properties
City of Boston Foreclosed Properties Map
            for Dacia FIT Area
                 Primary Partners
►   Lead organization: Nuestra Comunidad Development
►   Area B2, Boston Police Department (Captain, Sergeant,
    Community Service Officer)
►   City of Boston Office of Neighborhood Services, Dept. of
    Public Works, Inspectional Services Dept.
►   Teen Empowerment (youth organizing nonprofit)
►   Boston Local Initiative Support Corporation and the
    affiliated national Community Safety Initiative
GOAL 1: Nuestra will acquire, renovate and re-populate six
key foreclosed properties, in order to reduce the incidence
of drug dealing and prostitution and stabilize the community

►   Revitalize the Howard-Dacia neighborhood watch
►   Working with residents and police, identify six most
    problematic vacant properties
►   Code enforcement strategy with City agencies to make
    owners secure, clean-up and redevelop vacant
    buildings, including:
     trash removal and graffiti-removal by Department of Public
     homeowner outreach and education by Dept of Neighborhood
     fines by the Inspectional Services Department
►   Track progress using Problem Properties Punch List
    tool at quarterly strategy meetings
GOAL 2: Reduce the incidence of crime at commercial
business addresses along Blue Hill Avenue, in order to
increase the sense of safety of residents walking, shopping
and in their homes.

►   Identify 3 businesses with high rates of reported crime,
    including under-age drinking, assaults, drug use, drug
    dealing, gang gatherings.
►   Report violations to Liquor Licensing Commission,
    Inspectional Services Dept. & Boston Police
►   Nuestra will acquire, renovate and re-populate nearby
    foreclosed properties to place more “eyes on the street”
GOAL 3: Provide more positive out-of-school-time activities
for local teens in order to reduce exposure to at-risk
activities and develop leadership and work skills to improve
their life outcomes

►   Boston Police and Nuestra staff will organize community
    events bringing teens and adults together
►   Partner with Teen Empowerment to operate year-round a
    proven youth organizing program at the Howard-Dacia
    Community Learning Center
►   Teen Empowerment will hire 12 to 18 teens who will
    design a short-term community organizing project and
    engage their peers in the neighborhood. A new set of
    teens will be hired each fall and each summer.
Investors and neighborhood stabilization

► Many  high-foreclosure areas are seeing an
  increase in investor purchases
► Investor purchases are a market reality –
  can be positive or negative
► There are many different kinds of real
  estate investors
► Communities need to adopt productive
  strategies to deal with investors.
         Work with investors
► Make  sure properties are in habitable
  condition after foreclosure sale
► Establish landlord registration systems
► Create effective code enforcement systems
► Motivate landlords through incentives
► Engage good landlords in community
        A final word….

►Neighborhood  stabilization is
 not about properties. It’s
 about people and the places
 they live.
                                    Joni Foster
                                    Executive Director
                                    LISC Jacksonville

Alan Mallach
                                    David Price
Non-Resident Senior Fellow
The Brookings Institution           Executive Director
PO Box 623                          Nuestra Comunidad Development
Roosevelt NJ 08555                     Corporation      

William Goldsmith                    Michael Schramm
                                     Associate Director for Community
Mercy Portfolio Services
120 South LaSalle Street, Suite 1850
Chicago, IL 60603                    Case Western Reserve University

Emily Bolton
    Upcoming Webinars:

September 22: Acquisition Strategies

September 29: Disposition Strategies

October 6: Performance Measurement

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