Demolition of Vacant Properties Can Help Stabilize Communities

Many properties that are either 60, 70 or 80 years old have exceeded their shelf life, which is not good for home values. Image: Fotolia

Even though many metropolitan areas throughout the country are experiencing positive improvements within the housing sector right now, there are still many communities suffering from an abundance of vacant and foreclosed properties in their neighborhoods, which is resulting in blight and hurting overall property values.

According to Robert Klein, founder and chairman at Valley View, Ohio-based Safeguard Properties, there is a solution to solve this problem. He is an avid supporter of combining the processes of demolition and rehabilitation to fix these vacant, bank-owned assets that are not being maintained efficiently. This process not only helps homeowners who are living there now, but also provides new housing opportunities for prospective tenants.

There are currently 13 million loans in default and more are likely as many borrowers are underwater on their properties. Klein sees this as a five-year problem and believes that attempting to solve it on a loan-level basis is going to be very complicated.

Therefore, he has joined a project in Cleveland called the Slavic Village Recovery LLC that pinpoints housing units that can be saved and acquired from lenders, mortgage servicers or the Cuyahoga County Land Reutilization Corp.—the region’s land bank.

The Slavic Village, a strategic alliance of for-profit and non-profit groups that includes Forest City Enterprises, RIK Enterprises, Slavic Village Development, and Neighborhood Progress Inc., covers a 530-acre community of five square miles and 22,500 people. The model focuses strictly on low-asset value properties that are just sitting in communities around the country where either the lien holders or the homeowner just walked away from this asset and it’s really causing the blight.

According to data collected by the nonprofit groups Neighborhood Progress and Slavic Village Development, between 23% and 30% of the homes in the project area are vacant. Furthermore, since 2009, the Cuyahoga land bank has demolished 201 houses in Slavic Village and has helped ignite redevelopment of only 20 properties.

“If this is not addressed, then it’s going to get worse and worse,” Klein told this publication in an interview. “The longer these properties stay like this, the rest of the assets in that city are going to go that route and it’s all going to go downhill.”

Across the nation, many properties that are either 60, 70 or 80 years old need to go because they exceeded their shelf life, Klein said. But demolishing these housing units for the sake of demolition does not fix the problem, which is where the rehabilitation aspect comes into play.

Through the Slavic Village model, the goal is to obtain the properties from a lender, servicer or investor for basically no value to help them remove these nonperforming assets from their portfolios. Next, the model will invest between $40,000 to $50,000 to renovate the properties, and then sell them for approximately $60,000 to make a small profit but also provide affordable housing that was not previously available.

All Slavic Village properties are classified into one of three categories: owner-occupied homes, homes in need of repair that are vacant, or assets that have to be demolished.

So far, 2,200 homes in Slavic Village have been deemed under the demolish category, Klein said. “Nobody is going to purchase those vacant properties that can be rehabbed unless you first demolish those that need to be taken down,” he added.

“If nothing else happens in this vicinity, the communities are just going to become dumpsites and somebody is going to have to clean it up,” Klein continued. “The Slavic Village model is a win-win for all. We’ve solved more than one problem at the same time by revitalizing a neighborhood and creating affordable housing.”

Similar efforts to fight neighborhood blight are taking place around the country. For example, Detroit kicked off the largest residential blight removal effort in state history in August by demolishing five vandalized and abandoned homes.

This effort supports a U.S. Treasury-approved program that allows the Michigan State Housing Development Authority to use $100 million of its Hardest Hit Fund to tear down about 4,000 vacant properties in five Michigan cities.

Gov. Rick Snyder announced that Detroit will receive $52.3 million in anti-blight funding, Flint will get $20.1 million, Saginaw $11.2 million, Pontiac $3.7 million and Grand Rapids $2.5 million. Also, another $10.2 million will be reserved to demolish additional abandoned properties that may become eligible for this program.

Additionally, MSHDA estimates at least 7,000 blighted structures will be razed during the program.

“Michigan’s aggressive blight reduction plan will help to stem the decay that often accompanies abandoned buildings,” Snyder said. “This local, state and federal partnership shows that we’re serious about revitalizing our cities. By encouraging resident who live in these neighborhoods to remain in their homes, we will rejuvenate our urban areas block by block.”

Mary Miller, the U.S. Treasury undersecretary for domestic finance, said this event is an important step toward revitalizing Detroit and preserving its status as one of America’s greatest cities.

“Treasury remains committed to supporting Michigan’s homeowners,” Miller added. “Abandoned and blighted homes depress surrounding home values and strain community resources, but this innovative program will reduce foreclosures and revitalize neighborhoods.”