Since the onset of the current economic meltdown, billions of dollars have been funneled into state and federal neighborhood stabilization programs nationwide, in hopes of staving off foreclosure-induced blight.
But two years on, local stabilization efforts are still struggling, hobbled by grant restrictions, title issues and lenders reluctant to cut prices on REO properties.
It’s tough to get a precise count of salvaged properties because of the plethora of private and public groups engaged in stabilization projects. But based on reviews of local community development organization filings and distributions of grant money, Banker & Tradesman estimates that fewer than 1,000 properties have so far been salvaged.
Last year alone, there were 9,269 Bay State foreclosures, according to The Warren Group, publisher of Banker & Tradesman.
Given the variety of programs and funding sources available – and the overlap between them – it’s difficult to tabulate exactly how many properties have been bought and restored statewide. But a look at some of the largest programs revealed acquisitions in the hundreds, not thousands.
By The Numbers
One of the biggest sources of funding for rehabilitation projects has been the Neighborhood Stabilization Plan (NSP), a federally sponsored grant program run by the department of Housing and Urban Development.
Begun under the Bush administration in 2008, the first round of the program allocated $3.9 billion nationwide to states and municipalities. The program was expanded to non-profit groups in 2009 under the Obama administration’s stimulus plan. In the second round of funding, another $2 billion was awarded, with recipients announced in January.
The funds were to be used to either finance or directly purchase foreclosed and abandoned homes, and to pay for their renovation, demolition or rebuilding.
In the first round, Massachusetts received $43.5 million, with an additional $4.2 million for Boston, $2.6 million for Springfield, $2.4 million for Worcester and $2.1 million for Brockton. So far, fewer than 500 properties have been acquired, according to the Massachusetts Department of Housing and Community Development.
The city of Boston, which has been among the most active municipalities in the state in acquiring properties, has received a total of $17.8 million in the first two rounds of NSP funding. Since 2008, the city has directly acquired 49 bank-owned properties, comprising 107 units, and has used its grant money to help finance 108 foreclosed properties, comprising 218 units, which were sold to private buyers (either owner-occupants or development groups which intend to renovate the properties and transform them into affordable housing).
“It’s been very hard to do this,” said Evelyn Friedman, cabinet chief of housing and director of the Department of Neighborhood Development for the City of Boston.
‘No Way’
Friedman said restrictions on how grant money can be spent can make it tough for the city to compete for properties, and title problems with certain properties have also created difficulties.
A third problem is dealing with servicers. When the city first began attempting to acquire foreclosed properties, Friedman said she was anticipating more cooperation.
“I had hoped that we would be able to buy properties in bulk….that we could just make a deal for, [say] 90 cents on the dollar for all the properties [in a targeted neighborhood],” Friedman said. “No way. You’ve got to do each one separately. The lenders, not even with the city will they deal with us and do a bulk purchase. Which would be much easier and more speedy and we could get these properties back into circulation. No way.”
Another avenue for foreclosed property renovation is the state’s “First Look” program, administered by the Citizen’s Housing and Planning Administration (CHAPA). It allows approved developers, mostly nonprofit community groups, to get the first crack at acquiring bank-owned properties. It also draws in part on NSP funds.
Through July 12, 772 properties had been offered to CDCs and other developers through the First Look program since it began last year, according to CHAPA. But of the properties offered, 236 were bid on by development groups. At the time of publication, only 77 of those 236 properties, comprising 142 units, had been purchased or were under agreement.
Reasons why offered properties don’t receive bids are varied. Many groups are dedicated to working in a particular neighborhood or city and aren’t interested in going outside their service area, for instance. The type of property matters, too.
“If they’re doing rental, they don’t want to get a single-family home,” said Geeta Rao, a program manager for CHAPA.
Lack Of Flexibility
But even when a group is interested in buying a property, the bank still sets the price. Groups may counter-offer, but the bank is free to reject the counter. If a bank feels it has a chance of selling to a cash investor at auction, it generally does so.
“Many, many times, a bank gives CHAPA the listing, CHAPA passes it on to the relevant group, [and] the group says, ‘No! Can’t afford it!’” said Joe Kriesberg, president of the Massachusetts Association of Community Development Corporations. ”And I think that was anticipated that [would sometimes occur], but I think there have been times where the non-profits have felt like the bank has not made a reasonable price.”
That leaves many properties headed to the auction block and to cash investors looking to make a quick flip. The city of Boston has recently begun to study what happens to properties in its pool of potential acquisitions that end up being sold at auction. Many are sold again in less than 100 days, and few seem to have had the kinds of extensive repairs which nonprofits undertake, the city said.
“We know they’re not pulling permits,” said Friedman.
