Quietly but deliberately, the Philadelphia Redevelopment Authority has been acquiring vacant or foreclosed houses, rehabbing them, then selling them to qualified buyers.
The goal is twofold: to prevent otherwise viable neighborhoods from being destabilized, and to put people to work. Teresa Gillen, executive director of the Redevelopment Authority, anticipates that 150 houses citywide will be turned around and 150 construction jobs will be created.
According to research by Susan Wachter of the Wharton School at the University of Pennsylvania, just one blighted property can reduce the value of each property surrounding it by $3,000.
So far, the Redevelopment Authority has used some of the $20 million in federal stimulus money provided under what is known as Neighborhood Stabilization Program 1 to acquire 36 houses, Gillen said.
The neighborhoods selected have had high rates of foreclosure over the last two or three years, she said.
“What we try to do in these areas is to go to a healthy block with two or three vacancies, acquire and rehab these houses, and then sell them,” Gillen said, adding that “it should make a substantial difference” to the future of these neighborhoods.
Of the 36 houses acquired, five have been sold and 31 are being rehabbed for sale. “We’ll do it until we run out of money,” she said; the deadline for committing the funds is Sept. 30.
Though the funding came from Washington in January 2009 – $16 million to Philadelphia directly, plus $4 million from the $59.2 million that was Pennsylvania’s share – the city gets to call the shots on where the money is spent after presenting a plan to the Department of Housing and Urban Development.
“In concept, offering the city this flexibility is the right approach,” said John Kromer, faculty member and senior consultant focusing on neighborhood-recovery projects at the Fels Institute at the University of Pennsylvania.
“The city can decide where the money can be spent on a small and manageable number of houses,” said Kromer, who was executive director of the city Office of Housing and Community Development in the Ed Rendell administration. “In my experience, having a single vacant house is a real threat, because it raises questions about the future of the neighborhood, especially if this situation has never been experienced.”
A house in the 3300 block of Wellington Street in Northeast Philadelphia was acquired from Bank of America, completed in December, and sold for $159,900 in January.
The latest house to be completed, in the 4000 block of Markland Street in Juniata Park, was purchased by Roshall and Bobbie Jo Coles, who declined to be interviewed.
The sale price was $115,000, said Tom Moses, co-owner of AET Enterprises, general contractor for the house, who is working on three more and trying to acquire a fifth.
Only those with incomes not exceeding 120 percent of this area’s median – $65,400 for a single person, $93,360 for a family of four – can qualify as buyers, Gillen said.
“That means a lot of Philadelphians are eligible,” she said.
Buyers must complete eight hours of housing counseling from HUD-approved agencies, Gillen said. Then they can seek conventional or FHA-insured mortgages to purchase the houses.
Under the rules of the federal program, properties must be acquired at a discount of 1 percent, said Dana Hanchin, the Redevelopment Authority’s director of neighborhood stabilization. The authority brokers the deal but does not get involved in the chain of title, Gillen said.
Developers such as Moses who meet the authority’s requirements – 30 have been preapproved – are provided a list of prospective properties compiled through Fannie Mae, Freddie Mac, and the Neighborhood Stabilization Trust, a national clearinghouse that makes acquiring houses from often-reticent lenders easier.
Moses also has contacts with local lenders. “We look for blocks with one bad apple and try to avoid ones with a lot of abandoned houses.”
Prospective houses are offered to the Redevelopment Authority, which checks them out. Since the agency provides the loan to purchase the house, it negotiates what needs to be done to rehabilitate the site, then the developer gets approval to begin negotiating with the lender.
An appraiser is brought in to determine the present and rehabbed values of the house, based on HUD guidelines.
Once the numbers crunch properly, the developer closes on the house and begins rehab work, with the authority monitoring progress each month and approving payment for work done.
“We try to limit the subsidy to $50,000 per house,” Gillen said, but that is not always possible, depending on the property’s condition. “We were hoping to do 180 houses, but the subsidies [for renovation] have come in too high.”
The Markland Street house required a complete rehab.
“Some properties have been neglected and have cracked foundations, for example,” Moses said. “Some homeowners who have been foreclosed on strip all the copper pipes from the houses before they leave.”
He hires workers and minority subcontractors as mandated by federal and Redevelopment Authority rules. After a house he rehabs has been sold, Moses collects the standard fee of $20,000 from the authority, which puts the difference between that and the purchase price into “an ever-shrinking revolving fund,” Gillen said.
“We leave a subsidy in every house,” she said.