Neighborhood Recovery, One Building at a Time
To reverse the foreclosure crisis still dragging down its most distressed neighborhoods, Chicago needs more investors like Jose Rubio.
Contractor Jose Rubio and two of his niece tenants on balcony of a rehabbed building on South Rockwell Street.
That’s why Mayor Rahm Emanuel has enlisted dozens of community development organizations – from citywide technical assistance corporations to neighborhood-based groups – to pursue a range of methods to get control of vacant buildings and put them in the hands of new owners who will turn them into cared-for homes.
It’s no easy task – this being the primary lesson learned from the first full year of the city’s Micro-Market Recovery Program (MMRP.)
Of course it isn’t. Just finding out who actually owns an abandoned three-flat or walk-up can involve a Kafkaesque paper chase through several divisions of Cook County Circuit Court. And once an owner is identified – be it a distant mortgage bond investor or a suburban speculator hoping to flip for fast cash – property titles are typically muddied by back taxes, mechanic’s liens, unpaid utility bills and, of course, complex foreclosure litigation. Then there’s the highest hurdle of all – finding and enabling responsible buyers willing to take a chance on neighborhoods laid low by the mortgage meltdown.
Investors like Jose Rubio – a small-time contractor who probably couldn’t have purchased his first three-flat on the 6200 block of South Rockwell Street without help from Mike Reardon of Neighborhood Housing Services of Chicago (NHS), a lead partner on the city’s MMRP team.
As neighborhood director of NHS’s Chicago Lawn/Gage Park office, Reardon has learned from messy experience how to track down absentee owners. “More than once” Reardon admits to “dropping in” on “nice places in the suburbs” to plead the case for selling a forlorn Southwest Side property to an NHS-sponsored buyer.
Victor Rivero, an HVAC man, works the gut rehabs on South Rockwell.
“Every property has its story,” explains Reardon, a former Catholic priest skilled in the art of gentle persuasion. “So what you do is find the story and come up with a strategy for a good ending. That’s what we’re doing, house by house.”
With Reardon’s help, Jose Rubio ended up buying his first vacant three-flat for $20,000 from HSBC Bank. It was foreclosing on an absentee investor who bought it for $79,500 in 2000 … before the crash, back when the Marquette Park neighborhood was on an upswing. Rubio says he spent $60,000 on a “gut” rehab.
Yet $60,000 to rehab a three-flat is a bargain compared to what contractors spend to rehab similar buildings under the city’s federally-funded Neighborhood Stabilization Program. The city and its NSP manager, Mercy Portfolio Services, must abide by union pay scales and by-the-book regs governing tenant eligibility, leasing, etc. More than 2,000 homes are to be rehabbed, but in neighborhoods like Chicago Lawn the program has had difficulty finding buyers and tenants at price points that cover the expense.
“These buildings need everything,” Rubio explained. He even hired “a local guy” to stand watch at night so his tools and new piping wouldn’t disappear. “They’ve all been stripped [by metal thieves],” he said of the vacants along South Rockwell. “They take the pipes right out of the walls. So everything here is new – appliances, dishwashers, everything.”
Now all three units are rented at an affordable $600-a-month to Mexican-American “families and friends that I know.”
Best of all, he’s doing it over again with the brick three-flat next door. Vacant since 2007, Rubio’s crew is rebuilding it to include features such as central air conditioning, ceiling fans, and Rubio’s pièce de résistance – kitchens and baths with polished granite counter-tops, oak cabinets and Mexican tile floors and walls.
Next up? With NHS help he’s looking to buy an empty bungalow and adjoining vacant lot on the same block – a block targeted by MMRP to show other potential buyers the ’hood’s potential for turnaround.
This is the theory behind MMRP. There are so many foreclosed and abandoned properties in the city’s working-class neighborhoods – nearly 10,000 new foreclosure actions were filed citywide just during the first half on 2012 – that the problem far exceeds public resources available for solutions.
CIC's Jack Markowski and Cathy Gerlach stand outside a six-flat in West Woodlawn that's twice been victim to bogus condo-conversion scams.
So the city and its non-profit partners are targeting portions of nine hard-hit neighborhoods. These are the “Micro-Markets” – each from 16 to 34 blocks in area, each studded with foreclosures, yet each possessing positive assets such as a regional park, a public library, a successful school, nearby shopping, whatever. These assets, along with some pump-priming from both public and foundation resources, are laying a groundwork for private investment.
“We’ve, ‘smartened up’ to the problem,” Mayor Rahm Emanuel said last winter in explaining his administration’s new approach. “We were spreading the peanut butter way too thin. Then Andy came to me and we decided this had to be dealt with from a neighborhood perspective.”
Andrew “Andy” Mooney, commissioner of the city’s Department of Housing and Economic Development (DHED), is well positioned to know what resources are available and which neighborhoods have local groups capable of identifying blocks and properties ripe for turnaround.
In his previous role as head of LISC Chicago, Mooney oversaw the rollout of a network linking 18 neighborhood-based groups. Little wonder that LISC Chicago with its New Communities Network, now under the leadership of Susana Vasquez, is providing both technical and grassroots support in several of the nine target areas.
In Chicago Lawn, for instance, NHS is working hand-in-glove with the Southwest Organizing Project (SWOP) and the Greater Southwest Development Corp. (GSDC), both New Communities stalwarts.
This coordination of city resources, downtown technical expertise, and grassroots knowledge pays dividends on several levels.
“The program gives us access to the city’s best minds on housing,” said Jeff Bartow, executive director of SWOP. “And when absentee owners of these vacant buildings find out we have a direct line to the Building Department, and to the building inspectors, they know we’re not fooling around. We’re someone they have to deal with … either fix the place up or sell to someone who will.”
SWOP and GSDC were early to the foreclosure fight, having pioneered programs – such as the Southwest REACH Center – to counsel families on avoiding foreclosure and prepare other families to buy foreclosed homes. Both activities – prevention and buyer prep – are key ingredients throughout MMRP.
Yet the foreclosure problem has a different look in each of the MMRP target zones. (See listing and maps.) In East Chatham and West Woodlawn, for instance, the main problem isn’t empty bungalows or three-flats … but sprawling courtyard apartment buildings with sophisticated, and sometimes slippery, ownership.
John Groene of West Humboldt NHS listens to block leader Annie Jones. Among his office's achievements has been saving an entire row of modest two-flats from demolition by acting as court receiver.
So the lead nonprofit there, Community Investment Corporation (CIC), is likewise a sophisticated operation. Supported since 1974 by Chicago’s biggest banks, CIC writes mortgages throughout the city and specializes in multi-unit turnarounds.
“What we’re attempting is focused, concentrated interventions to change the dynamics of the market,” said CIC President Jack Markowski. Like Mooney, he knows the ropes, having once served as the city’s commissioner of housing.
“On this building we need to come up with a plan,” Markowski said recently to area director Cathy Gerlach during a windshield tour of West Woodlawn.
The vacant six-flat on the 6400 block of South St. Lawrence Avenue is one of several nearby that could be a poster child for what went wrong during the real estate bubble … and why it’s so difficult to undo the damage. According to Young, the building was victimized by condo fraud not once but twice.
First, a group of Eastern European “investors” who bought the failing red brick for a song, subdivided it into six bogus condominiums, and, incredibly, obtained six purchase mortgages of approximately $280,000 each … only to disappear with the dough and dump another empty hulk on West Woodlawn.
“They faked everything,” said Gerlach, who has documented condo fraud in research reports for both CIC and DePaul University’s Real Estate Center. Citywide more than 40 phony condo conversions have had to be untangled by judicial order so that CIC could convey clean titles to responsible owners.
What makes the six-flat on St. Lawrence so galling, Gerlach said, is that the same building was purchased yet again by straw buyers fronting for a street gang. And again the “buyers” of its six “condos” were issued mortgages by lenders who either didn’t know or didn’t care what they were financing.
Despite such convolutions here and there, Markowski points to signs that both East Chatham and West Woodlawn are slowly on the mend.
Contractor Jose Rubio doing what it takes on South Rockwell. He credits Neighborhood Housing Services as integral to his rehab business.
The Boston-based group POAH (Preservation of Affordable Housing) is rehabbing and selectively replacing the worn-out Grove Parc complex of subsidized low-rises along Cottage Grove Avenue … and restoring six West Woodlawn walk-ups to replace units being demolished.
Last year this project helped Chicago win one of only six “Choice Neighborhoods” grants awarded by the U.S. Dept. of Housing and Urban Development. That $30 million boost, plus investments being made by the University of Chicago, is stabilizing West Woodlawn’s eastern flank, Markowski said, and private investors are beginning to notice.
One major group taking the plunge is Pangea Properties, an investment syndicate that has snapped up several courtyard buildings in West Woodlawn and is rehabbing apartments for both subsidized and market-rate renters.
“We're not interested in flipping properties,” company founder Al Goldstein recently told Crain’s Chicago Business about Pangea’s strategy. Pangea is buying foreclosed walk-ups, rehabbing them, carefully screening tenants and offering sizeable discounts to those who commit to automatic, online rent payments. “We're interested,” said Goldstein, “in owning and operating properties for a long time.”
All of which encourages Markowski, who knows that it will be risk-takers who lead the charge of private equity back into Woodlawn and Chatham.
Another thing Markowski knows is that MMRP isn’t only about real estate recovery. He points out that that any map of the neighborhoods showing the location of abandoned buildings will overlay almost exactly with one showing the location of shootings and homicides.
“Safety is a main reason it’s so hard to rent an apartment or sell a bungalow in some of these neighborhoods,” Markowski said. “It’s a vicious circle.”
Indeed, a drive-around with Markowski turns up more than one MMRP block with an informal sidewalk memorial to a slain teenager. Drug lookouts hang on the corners of problem blocks as do clutches of similarly-attired young men – white T’s with side-cocked Bulls caps – watching sullenly from front stoops and porches.
“That’s why community building has to be part of this,” says Jack Swenson, a consultant and former city planner now tasked with coordinating the non-real estate parts of MMRP. What’s key, he said, is to assure existing residents that they are not alone … and potential buyers that they will have support in building a safe, decent neighborhood.
In Chicago Lawn, Swenson points to the Parents’ Council at Morrill Elementary School, which helped canvass the neighborhood and inventory the occupancy and ownership status of every building in the target area. In West Humboldt Park, he hailed the “block club ambassadors” who reach out to new or reclusive families; and a “see and sweep” program in which residents take to the sidewalks Friday afternoon to say “hello” and clean up the parkways and lawns in front of vacant properties.
“This is about communities coming together,” Swenson said, “and about putting existing assets back to work.”
In West Humboldt, it’s also about pursuing absentee investors “who were the first ones to run and hide when the bottom fell out” of the housing market in 2007-08.
Mike Reardon of Chicago Lawn NHS does gentle persuasion on absentee owners. “Every property has its story,” explains the former Catholic priest. “So what you do is find the story and come up with a strategy for a good ending. That’s what we’re doing, house by house.”
So says John Groene. He runs the NHS office in West Humboldt, where some 20 families have recently been helped to avoid foreclosure via MMRP-related activity. Groene’s staff, for example, recently enabled one 73-year-old lady keep her house by helping her obtain, retroactively, about $20,000 worth of unclaimed property tax exemptions and past insurance overpayments.
Groene’s windshield tours invariably begin at the north end of Garfield Park, where the Conservatory and spacious Franklin Boulevard hint at the proud neighborhood that was … and could be again.
As he trolls northward along Central Park Avenue, however, the vacants and their gritty stories start blending into a sober song of hoped-for recovery. There’s the 500-North block, for instance, where NHS is saving an entire row of modest two-flats from demolition by acting as court receiver.
NHS stands ready to provide discounted purchase and rehab financing for the two-flats, Groene said. The hard part is finding buyer/developers willing to take a chance on a recovering neighborhood.
“Our goal is no more demolition within our target area,” said Groene. MMRP partners there include Bickerdike Redevelopment Corp. (a LISC/New Communities mainstay), the West Humboldt Park Development Council, and the Salvation Army, which is building a bright new community center on what was a grim stretch of West Chicago Avenue.
As with Mike Reardon in Marquette Park and Stacie Young in West Woodlawn, a big part of Groene’s work in West Humboldt is talking to residents, listening to their complaints and identifying possible solutions.
So he pulls over to gab with Annie Jones, a retired homeowner and a block club ambassador who’s keeping things together on the 500 block of North Drake Avenue. She was tending flowers on her front porch – red blooms sprouting from the alabaster swans flanking her doorway alongside the shiny black wrought-iron railings.
“My kids want me to get out of here and move closer to them in the suburbs,” she complained. Which prompted Groene to count off reasons to stay, including his promise to track down the owner of the vacant two-flat across the street … and get going on finding a buyer.
“The place is open in back – kids are getting in – so we’ll get the building inspectors out, again, to write it up,” Groene explained to a visitor. “Maybe we can make him [the owner] an offer he won’t refuse.”
Back to Rubio
So it goes with the City of Chicago’s Micro-Market Recovery Program. Sure, it’s focused on just nine sections of nine neighborhoods in a sprawling city of 77 official neighborhoods.
Mike Reardon of NHS and Jeff Bartow of SWOP make the rounds on 6200 South Rockwell, an MMRP target block.
But it’s important, for it brings to bear a handful of battle-tested city programs – from community policing to tax increment financing – to combat what may be Chicago’s worst catastrophe since the Fire of 1871. It also is marshaling the collective resources of dozens of non-profits, from citywide heavies like CIC, LISC and the MacArthur Foundation to scrappy storefronts like the Chatham Business Association and the Greater Auburn-Gresham Development Corp.
For MMRP to succeed, however, it’s private investors – big and small – who need to step up and, as the nonprofits say, “take it to scale.”
In other words, it’s still about finding more Jose Rubios.
“I have a lot of friends looking for a decent place to live,” said the savior of South Rockwell, his Blackberry ever-interrupting as he deals with vendors and his crew foremen.
“A lot of investors won’t take the risk in a neighborhood like this. Or they just like to collect the rent. Me, I do what I have to do. Whatever it takes.”
Jack Swenson, LISC Chicago, 312.422.9550, firstname.lastname@example.org
Katie Ludwig, DHED, 312.744.0268, email@example.com
Posted in Housing, Chicago Lawn