Chicago, Illinois: The City’s Troubled Building Initiative Renovates and Preserves Deteriorating Apartments

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Chicago, Illinois: The City’s Troubled Building Initiative Renovates and Preserves Deteriorating Apartments

The city of Chicago launched the Troubled Building Initiative (TBI) in 2004 to stem the loss of multifamily buildings offering “naturally affordable” apartments. A significant number of these apartments, which offer unsubsidized rents that are still affordable to lower income households, were in poor condition or at risk of being abandoned. Following TBI’s initial success, the city expanded the program in 2006 beyond buildings of 5 or more units to include 1- to 4-unit properties and vacant buildings; in 2008, TBI was further expanded to address condominiums. With 436,700 Chicago households eligible for federal housing assistance and only 104,000 living in subsidized housing, the city’s lower income renters depend heavily on market-rate housing. The program has preserved more than 17,000 apartments since its inception. In recognition of TBI’s contribution toward preserving affordable housing, Chicago won the 2016 Robert C. Larson Workforce Housing Public Policy Award from the Urban Land Institute’s Terwilliger Center for Housing.

Assessing and Addressing Troubled Buildings

Six city departments work together to address “persistently troubled” buildings that come to TBI’s attention because of complaints, inspections, and code violations. Community groups and tenant organizations familiar with these buildings also notify TBI of problematic buildings, as does the Community Investment Corporation (CIC), a nonprofit community development financial institution that administers TBI. CIC assesses each building referred to the program that contains five or more units; buildings with fewer units are assessed by Neighborhood Housing Services of Chicago. In addition to determining whether the building is in foreclosure or has mortgages or other liens attached to it, the assessment identifies and prioritizes physical defects that need to be addressed.

The appropriate remedy for a troubled building varies depending on the results of the assessment, directions from the housing court, and the willingness of the building owner to make the necessary repairs. In the most efficient strategy, the building owner or management company agrees to bring the building into code compliance. If the owner prefers to sell the building, CIC helps find a new owner capable of purchasing and rehabilitating the building. In most cases, CIC works with the city to bring the buildings into compliance through code enforcement. CIC also offers property management training and loan options to help acquire, improve, and preserve existing buildings, says Jonah Hess, senior vice president and director of community initiatives at CIC.

The process of addressing a building with a recalcitrant owner, or one who cannot be found, is more complicated. A building owner who will not correct serious code issues may be brought to housing court to address the code violations, with a separate court involved for ameliorating any illegal activities such as gang violence. When owners cannot be found, the bank with a financial stake in the property functions as the owner in housing court. Once in court, if the owner or bank cannot resolve the building’s issues to the court’s satisfaction, the court appoints a receiver, which is CIC for buildings with five or more units and Neighborhood Services of Chicago for buildings with one to four units.

A receiver acts as a “building advocate,” says Bryan Esenberg, deputy commissioner of multi-family financing and housing preservation in the city's Bureau of Housing, performing whatever repairs the court orders. The property owner or the mortgage holder must then repay the repair costs, or the court issues a receiver’s certificate, which is recorded as a lien on the title. This lien, which includes the receiver’s expenses, takes priority on the title, and the receiver can use it to put the building into foreclosure. This receivership process gives the owner an incentive to complete the court-ordered repairs. Leveraging the lien to claim the building’s title enables the receiver — or, ultimately, the city — to transfer the building's title for very little upfront cost. This cost savings makes returning the building to productive use more enticing and economically feasible for a new owner.

The city’s preferred outcome for TBI activities “is to recover the buildings so that they are functioning properly, cared for by stable ownership, and occupied by legal tenants,” says Hess. Without significant housing subsidies, a substandard building that is simply demolished probably will not be replaced, which further diminishes the city’s stock of affordable housing. In some cases, however, the building is not salvageable and must be demolished, which takes place outside of the purview of the program.

Most of the TBI buildings are in low- to moderate-income neighborhoods, which to some degree dictates naturally affordable rents even after the buildings are improved, says Hess. The city also adds affordability requirements to the building’s title. For multifamily buildings of at least 5 units, these affordability restrictions can last for 15 years or more. The program costs around $5 to $6 million a year and is funded primarily through community development block grants (CDBGs). A few hundred thousand dollars in private funding covers aspects of the program that cannot be financed with CDBGs. In addition, revenue from the receiver liens is reinvested in the program. In all, says Anthony Simpkins, managing deputy commissioner for housing preservation for the city of Chicago, “[i]t’s one of the most efficient programs” for preserving existing affordable properties.

Preserving Affordability and Stabilizing Neighborhoods, Building by Building

With the demand for affordable housing exceeding the city’s supply of 188,000 units, Chicago needs to preserve its existing stock. TBI has preserved 17,000 apartments in the past 15 years even as 21,000 affordable units were lost in Cook County between 2012 and 2015, often through deterioration. To expand the number of buildings that can be preserved through receivership, the city recently inaugurated its Community Receiver program. This pilot program mentors local stakeholders, contractors, and investors to use receivership to acquire, stabilize, and rehabilitate troubled buildings.

Beyond the affordable buildings it preserves, TBI benefits neighboring buildings and helps revitalize the surrounding neighborhood. Moreover, as part of its stabilization process, TBI directs gang- or drug-related activities to the appropriate court to improve neighborhood safety. In fact, TBI is one of several programs integrated into the city’s Expanded Anti-Violence Initiative, which brings together police, other city departments, and residents to reduce violence, drug sales, and gang activity in targeted neighborhoods. In these ways, TBI has salutary effects throughout the city.