On mobile? See an interactive map of of St. Paul-acquired lots here.
For years, St. Paul has been in the home-buying business. But unlike the guy on the billboard who wants ugly houses, the city didn’t plan on turning a profit. And it didn’t: to date, it has put more than four times as much money into homes as it has gotten back.
But hard cash wasn’t the point, city officials say.
The “Inspiring Communities” housing program — the metamorphosis of Mayor Chris Coleman’s “Invest St. Paul” initiative, and later the federal “Neighborhood Stabilization Program” — was intended to cushion the freefall of foreclosures in the city’s poorest neighborhoods.
Using mostly federal money — poured into states following the 2008 housing collapse — the program aimed to buy vacant and abandoned homes and make them beautiful, in hopes of stanching the spread of blight.
To date, the city has spent roughly $45 million on acquiring 391 properties, fixed up and sold 192 of them, and paid for the construction of 82 more, some of which are on the market.
With nearly half the homes sold, the city has gotten about $8.8 million back. Officials say they were expecting it: a “subsidy” — or loss — of up to $150,000 for each home was deemed acceptable. Sometimes, particularly in blighted historic districts where mandated standards far exceeded what potential homebuyers were willing to spend, subsidies exceeded that.
Critics wonder whether the city spent too much, made the homes a little too fancy for the rate of return.
In the end, city officials say it was worth it — sales and property-value data show the neighborhoods have turned the corner — and they hope to get several million dollars more to finish the project up.
“Think back to the environment when we acquired them,” said Jonathan Sage-Martinson, director of the city’s Planning and Economic Development Department. “To move through the relatively short timeframe and have families move in, blocks improve, is something we’re very proud to see.”
HOUSING COLLAPSE, FEDERAL MONEY
The housing collapse hit certain areas of St. Paul particularly hard: Frogtown, Payne-Phalen, Dayton’s Bluff and the North End. Even before the collapse, as part of “Invest St. Paul,” the city identified areas where properties should be strategically acquired, fixed up and resold.
But with the 2008 collapse came a rush of federal funding — millions of dollars that had to used within three years, or lost.
St. Paul used it, acquiring a dirty laundry list of foreclosures and tax-forfeited properties — an unprecedented surge of acquisition. It was the worst properties the city wanted: those dragging the neighborhoods down, the focal points of decay that would become targets for squatters, gangs and graffiti.
“When neighborhoods look run down, people act like neighborhoods look run down, and it’s self-perpetuating,” said city council member Amy Brendmoen, who chairs the city’s Housing and Redevelopment Authority. Brendmoen’s district contains many of the properties in question.
While less than the cost of a new sports stadium, it was still a lot of money: So far, the program has been funded with roughly $34.7 million in federal money, $6 million from the city and $1.2 million from the state. Additionally, a portion of the $8.8 million garnered through home sales was funneled back into the program.
When it comes to expenditures, rehab costs far exceed anything else: $25 million for demolition and construction, compared to $14 million spent on acquiring homes and holding them.
“We set a pretty high standard on our rehabs, and it’s nothing I’m ashamed of. In the vein of having a restabilizing force, we wanted to do these right. … And we didn’t want buyers to have added costs for years,” said Joe Musolf, the housing program’s manager.
‘A REAL NEIGHBORHOOD AGAIN’
The Pioneer Press spoke with multiple buyers of the city-acquired homes and ran into little criticism.
The 600 block of Fourth Street — profiled in a 2013 Pioneer Press report — has more of those houses, nine, than any other block in the city. Years ago, it had dozens of police calls, from nuisances and drug deals to, in 2011, a murder on the corner.
Now, the four properties on the north side of the street have been rehabbed and sold, and a couple on the south side are on the market. The others are under construction.
“We had vacant houses for so long; it felt like we were living in a ghost town. It’s nice to have a real neighborhood again,” said Holly Evans-Wardlaw, who two years ago was one of the two remaining owner-occupiers on the block. “I’ve seen a lot less drive-by drug drop-offs. Still see some.”
About a year and a half ago, Barry Madore bought the biggest, and most notably historic, property on the block and moved his family from their old Payne-Phalen home.
“(The quality of construction) was immediately apparent when we walked in. The level of detail, even the hardware on the original windows — these amazing brass pieces that fit the style — it kind of blew us away,” Madore said. “If this house were somewhere else, and not part of a program like this, the cost of it would be way prohibitive for a family of our income.”
Indeed, the Fourth Street homes are among the most expensive the city tackled: smack in the middle of a historic district that required any construction to match the style and appearance of a century ago.
“That was kind of our first run: ‘What are these historic rehabs going to cost us?’ ” said Patricia Lilledahl, the city’s director of housing.
There was definitely some sticker shock: Madore’s cornerstone historic house, one of the city’s most expensive to date, cost $65,000 to acquire and $335,000 to renovate, and was purchased for $190,000 in 2013. A gap of $210,000.
“That’s where people go ‘whoa,’ ” said Jim Erchul, longtime executive director of Dayton’s Bluff Neighborhood Housing Services, who has developed other “Inspiring Communities” properties for the city. “Those were a little over the top — a little too rich for our blood.”
The costs to rehab the historic homes were what prompted city officials, years ago, to institute the $150,000 “subsidy” cap.
Compare that to what the city considers a “fairly typical” non-historic home: 662 Cottage Avenue, which sold this past spring for $154,900. The city paid $40,000 to acquire it and $217,570 to fix it up — a gap of $102,670, in an improving market.
Brad Griffith, an agent with Edina Reality who works with buyers and sellers on the East Side and once sat on the Dayton’s Bluff council’s vacant building committee, noted the expense of addressing the historic homes.
“It certainly saved properties … and it probably makes sense in Summit Hill, where it’s a bit of a hobby for some of those people, a ’57 Chevy-type thing,” Griffith said. “The challenge is you’re in a lower-income neighborhood and people just don’t have that income to fix them up.”
Now, costs there are lower (in part because the market has recovered): Three new Fourth Street projects cost an average of $25,000 to acquire and $257,000 to rehab, and are listed at $191,000 — a difference of $91,000.
And non-historic homes can spike as well: a home at 653 Cook Ave. cost $32,700 to acquire and $249,200 to rehab just sold for $149,900 — a difference of $132,000.
But historic or not, some question whether the city should cover such costs at all.
“They talk about return on investment, but when you actually go to see what the return is, they don’t actually have specifics. And there’s an opportunity cost — the money could have gone to another project,” said Margaret Martin, research director at the Taxpayers League of Minnesota, a Minneapolis-based taxpayer advocacy group.
Brendmoen conceded the city didn’t immediately gain on its investment.
“I do believe there are dollars there that we can never measure,” she said. “It’s hard to put a dollar figure on what those investments did to stabilize neighborhoods. But I know as the market picked up, having those improved homes next to others really made a difference (for values).”
Martin also wondered who truly benefited, financially, from the program. Not just the city, or developers, “but the people that were originally in the distressed neighborhood are nowhere to be found,” she said. “They’ve moved out because they can’t afford (to buy).”
But Brendmoen noted that according to the city’s numbers, buyers were both local and diverse, with an average family income of $52,000. About a third were African-American, 14 percent were of Asian descent, and 82 percent of them used to be renters.
The federal money came with a catch: making sure the homes remained affordable, in the form of five-year, no-interest loans for homebuyers.
Still, the limits of those loans have also decreased over the years, from $14,500 in 2011, to between $2,500 and $5,000 now, depending on an applicant’s income. In total, only a tiny fraction of the program’s cost — $237,000 — has gone toward homebuyer assistance.
“As time went on, we realized that the product was promoting itself and that there wasn’t a need for so much assistance,” said the city’s Planning and Economic Development spokeswoman, Clarise Tushie-Lessard.
When asked how he felt about the amount of money the city spent on his home — considered the cornerstone of the block project — Madore said, “For one thing, we probably would not have moved into that house if it had just been slapped together. Part of the answer is, who moves into that house, and what happens to the neighborhood, can affect the neighborhood in tangible ways.”
Madore runs two small businesses: a pizza oven on a trailer that he drives to community events and a radio production company.
“There’s no longer 15 police calls on our corner, and all the drain on taxpayer resources that a blighted area can bring,” he adds.
MARKET IMPROVING, MORE PROPERTIES EXPECTED TO SELL
Still, some look at the $8.8 million garnered so far, and wonder.
“That seems like a big disparity. I always thought they got about 65 percent back,” said Griffith.
City officials maintain that the $8.8 million will grow — that market rates are improving, and half the acquired properties have yet to be sold. In the end, city officials say, they anticipate getting back at least 50 percent of their costs.
But compare that to Ramsey County, which took a much smaller portion of the federal stabilization program pot — $2.7 million — to address 15 properties. On average, the county spent $178,000 on each home and got $117,000 back — a 66 percent return.
“I think it would be fair to say that except for a few outliers, the housing reality and the absolute collapse of the housing market, everybody wanted to rush in and fix it,” said Ramsey County commissioner Janice Rettman. “But it was not free money. It was yes, from the federal government, but the only way they get money is from all of us collectively. … I think there are cities and counties that handled it different ways.
“At what price point do you make sure there was a true return — to make sure it was fiscally responsible?” Rettman added. “In terms of St. Paul, were the criteria exacting enough to ensure the basics — the furnace, the roof — were done, and not necessarily bells and whistles?”
Additionally, there were administrative costs – the portion of the federal grants the city paid itself for managing the program.
When asked for specific numbers, city officials initially said the best they could estimate was “somewhere between
8.5 (percent) and 10 percent” of the $33.4 million in federal grant money, the amount allowed under the grant agreement.
After the Pioneer Press posted this story online, the city supplied an exact number: $3,231,399.84, of which it has spent $2,900,012 to date.
NEIGHBORHOOD STABILIZATION
There is little question the housing price slide in affected areas has stopped. Though how much of that can be credited to the housing program is difficult to say, because the market has improved for the entire city.
Vacant and foreclosed properties have been notably reduced, and city officials point to median sales prices in the affected neighborhoods, which have rebounded since an early 2008 low point. In Frogtown, for example, houses bounced from $44,450 in 2008 to $83,450 in 2013.
Median sales prices in the city as a whole went from $144,900 to $137,500 in the same timeframe — though overall the city took much longer to hit bottom and only began rebounding recently.
Drops in county-assessed housing values in the distressed neighborhoods — once falling at twice the city’s overall rate — largely flat-lined to a rate akin to the rest of the city by 2013. City officials also point to an internally conducted statistical study showing that for every “Inspiring Community” house in a block group, there are 1.4 fewer vacant buildings compared with other block groups.
“It was true to its name, neighborhood stabilization,” said Lilledahl, the city’s director of housing. “(The sales data) matches feedback we’re getting from buyers and prospective buyers.”
Others — rather than worry that too much was spent — wonder whether it was enough.
“I think it would be interesting to figure out what’s the best approach to improve the housing stock,” said Griffith. “One at a time, knock a house down and build a new one and expect the rest of the neighborhood to follow suit, as opposed to urban renewal, which is much more expensive and can displace populations.”
“Revitalizing’s a bigger word. You need to put some zeros on that for that to happen,” said Erchul.
Over the past several years, the city has asked for an additional $12.85 million for the program to rehab some of the remaining houses, rather than tear them down or leave vacant properties. It has received $9.7 million so far – $6 million from the HRA and the rest from sources such as the Minnesota Department of Employment and Economic Development, the Metropolitan Council and the state housing finance agency. It has asked for an additional $1 million this year.
Tad Vezner can be reached at 651-228-5461 or follow him at twitter.com/SPnoir.
