Stabilizing Slavic Village in Cleveland, Ohio

Stabilizing Slavic Village in Cleveland, Ohio

Slavic Village Recovery purchases and rehabilitates vacant and foreclosed homes to sell to interested households for a small profit. Homebuyers moved into this home, renovated by Slavic Village Recovery, in September 2014. Credit: Slavic Village Development

Rust Belt communities have been experimenting with various strategies to address vacant and foreclosed residential properties and the problems associated with them: reduced property values and increased public health risks, crime, and costs for local governments. In Slavic Village, a Cleveland community where foreclosures and vacancies have increased and homeownership has declined dramatically, two private developers and two nonprofit organizations have partnered to form Slavic Village Recovery. Based on a for-profit, community-stabilization model, Slavic Village Recovery purchases foreclosed and vacant properties, rehabilitates homes and sells them for a small profit to interested households. Proceeds from the sale of the rehabilitated homes are reinvested in the community and used to help renovate other homes.

The Impact of the Foreclosure Crisis

Slavic Village is a collection of neighborhoods located a few miles southeast of downtown Cleveland. Founded by Welsh, Scottish, English, Irish, Polish, and Czech immigrants who settled there to work in nearby factories in the 1800s, Slavic Village began as a working-class community with successful commercial corridors and churches. The community has retained many of these amenities, including its retail corridors, community institutions, and cultural heritage. However, Slavic Village, like much of the city, lost both economic power and population to the suburbs, which triggered a rise in vacancy and blight in the early 2000s. Disinvestment in the neighborhood increased sharply during the housing crisis that began in 2007.

According to the Greater Ohio Policy Center (GOPC), the community “experienced the highest foreclosure rate in the country during the height of the housing crisis.” HUD foreclosure estimates from the late 2000s show that the foreclosure rate for Slavic Village was roughly 15 percent, more than twice the rate for the state as a whole. Vacancy and homeownership data paint a similar picture; GOPC and census estimates show that the residential vacancy rate in Slavic Village increased from 13 percent in 2000 to 33 percent in 2013, and the number of owner-occupied homes declined by 17 percentage points during that same time period.

In most houses, Slavic Village Recovery repaints walls, installs a new water heater and heating and air conditioning systems, and replaces the windows, doors, carpet, cabinetry, and fixtures. Credit: Slavic Village Development

To address the area’s high vacancy and foreclosure rates and increase the number of real estate transactions, four organizations formed Slavic Village Recovery in 2013 and began the Slavic Village Recovery Project to rehabilitate houses in a square-mile section of Slavic Village. The organizations that provided the initial capital for the project were Forest City Enterprises, a private Cleveland-based real estate development company; RIK Enterprises, an investment company focused on community development; and nonprofits Cleveland Neighborhood Progress, a local funding intermediary that invests in community revitalization work, and Slavic Village Development, a community development corporation. The nonprofits each contributed $25,000, and the private-sector partners each contributed $225,000. The Slavic Village Recovery Project, managed by Slavic Village Development, plans to revitalize the community by purchasing, rehabilitating, and selling properties at a profit with minimal public funding. According to Chris Alvarado, executive director of Slavic Village Development, the project is intended to not only stabilize the community but also increase sales prices in the neighborhood, which will help owners sell their houses at fair prices by providing a set of comparable real estate transactions that reflect a revitalized community.

Revitalizing Slavic Village House by House

In June 2013, Slavic Village Recovery began acquiring houses and rehabilitating them, along with others that had already been purchased by Slavic Village Development. To date, the partnership has purchased most of its homes from the county’s land bank, the Cuyahoga County Land Reutilization Corporation, which removes any tax liens on the properties and provides them to partner organizations who will transform them into community assets. Slavic Village Recovery has also purchased properties from lenders and mortgage servicers that are willing to sell at a low price.

Most of the houses, often single-family detached dwellings, were constructed before World War II, and their age suggests the need for significant repairs. Based on Slavic Village Recovery’s business model, the total cost of acquiring and renovating each home (approximately $40,000) should not exceed the appraised value of the renovated property so that it can be successfully marketed to homebuyers. As a general rule, if the roof, siding, and windows all do not need major repairs, the house is acquired and slated for renovation. Common renovations include replacing the windows, doors, cabinetry, and fixtures and installing new heating, ventilation, and air conditioning systems and a water heater. In all of the houses, the walls are repainted and new carpet is installed, and sometimes the floorplan is altered to make the interior more open. To maintain flexibility in choosing which renovations to pursue, the project forgoes any direct public subsidies and the additional regulatory constraints they entail.

Once renovations are completed, the houses are sold to generate an average profit of $10,000, which is reinvested in the purchase and renovations of other homes. Slavic Village Recovery works with three local banks to provide homebuyers with 30-year, fixed-rate loans with low downpayments.

A Revitalization Model for Other Communities

Slavic Village Recovery’s goal is to renovate 200 houses in total. As of August 2015, 47 houses have been acquired and 27 have been sold. Although the organization imposes no income restrictions on purchasers, the houses have been affordable to low-income homebuyers, with sales prices averaging $63,000. Homebuyer income varies, but the average is approximately 50 percent of the area median income. Although the project is not currently generating a profit for the partners, Alvarado notes that the project has patient capital, and as renovations continue, the partners expect to eventually recoup their initial investment and generate a marginal return on investment. Beyond its business goals, the Slavic Village Recovery Project, which coordinates its activities with the city’s infrastructure investments in Slavic Village, ultimately aims to spark organic investment in the community, reduce property turnover, and encourage stable or rising home prices.

A GOPC report identifies the following factors as the main components of Slavic Village Recovery’s model:

• A partnership among three to five organizations that can provide capital; community trust; relationships with property holders; and financial expertise, and experience in property acquisition, development, and renovation.

• A land bank that can acquire properties through tax foreclosure and demolish properties.

• A neighborhood that has community assets such as anchor institutions, employment opportunities, and income diversity.

• The capacity among partners to acquire properties quickly and at little or no cost as well as the ability to sell renovated properties at a profit.

• A database that identifies each property’s status and any barriers to acquiring the property.

• A staff member, contractor, or project partner who can evaluate whether houses should demolished or renovated and can track the status of properties.

• A number of available properties that can be acquired and rehabilitated at a low cost and sold at a higher cost to generate a marginal return on investment.

GOPC notes that this development model has great potential and could be replicated in other Cleveland neighborhoods — and possibly in communities facing similar foreclosure and vacancy conditions throughout the United States — if needed data and properties are available.