Forest City, Safeguard Properties join Cleveland nonprofits to rehab homes in Slavic Village (Plain Dealer)

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Forest City, Safeguard Properties join Cleveland nonprofits to rehab homes in Slavic Village (Plain Dealer)

CLEVELAND, Ohio — Slavic Village, the Cleveland neighborhood often called “ground zero” in the nation’s foreclosure crisis, might become the proving ground for a recovery.

A private-philanthropic partnership aims to acquire, renovate and sell or rent out 50 vacant houses in the southeastern city neighborhood this year — and could tackle hundreds more.

Called Slavic Village Recovery LLC, the new business is backed by Cleveland real estate developer Forest City Enterprises Inc.; Safeguard Properties, a Valley View company that maintains foreclosed properties for banks; and a pair of local nonprofits.

The group will focus on a 530-acre slice of Slavic Village, a community of 5 square miles and 22,500 people. Between 23 percent and 30 percent of the homes in the project area are vacant, according to data compiled by Neighborhood Progress Inc. and Slavic Village Development, the nonprofit groups.

Unlike many efforts to shore up urban housing, the Slavic Village initiative doesn’t rely on public money. Instead, the neighborhood will see private investment layered atop targeted public services, like swifter demolition, in a comprehensive rubble-to-rehab push. The partners believe their model offers the promise of profit while giving hope to communities gasping under the weight of empty houses.

Neighborhood Progress and Slavic Village Development expect to sign an operating agreement this week with Forest City and Robert Klein, Safeguard’s founder and chairman. The nonprofits each will own 10 percent of Slavic Village Recovery LLC, with the rest split between Forest City and Klein’s RIK Enterprises LLC.

Balacing civic mission, private profits

Ownership structure aside, each group will have one vote in running the project — creating what onlookers see as a balance of civic mission and profit motive.

“It’s a complicated endeavor, but it’s very simple in terms of what we’re trying to accomplish,” said Cleveland Councilman Tony Brancatelli, who represents Slavic Village. “We are really looking at market recovery in one of the hardest-hit communities in the United States.”

Slavic Village Development will identify houses that need to be razed and provide a list to the city, which will speed up demolitions knowing that private investors are waiting to move in. “We’re involved mainly in terms of trying to bring some resources from the city, to the extent we can, to the effort of dealing with nuisance properties in the neighborhood,” said Chris Warren, Cleveland’s chief of regional development.

Meanwhile, Slavic Village Recovery LLC will pinpoint houses that can be saved and acquire them from lenders, mortgage servicers or the Cuyahoga County Land Reutilization Corp., the county’s land bank.

A quasi-public entity, the land bank takes in houses after the county forecloses on delinquent property taxes and receives near-worthless properties from the U.S. Department of Housing and Urban Development and mortgage giant Fannie Mae.

Most of those structures can’t be saved. Since 2009, the land bank has demolished 201 houses in Slavic Village and has helped spur redevelopment of only 20.

With a large-scale redevelopment plan in Slavic Village, the land bank can focus more of its energy on the neighborhood, said Bill Whitney, the land bank’s chief operating officer.

Klein was Safeguard’s chief executive until 2010 and frequently talks about the need to fast-track the foreclosure process and eliminate the blight of empty homes in neighborhoods. Safeguard inspects 1.8 million homes each month, as part of the business of securing and maintaining bank-owned properties. Plain Dealer file

Klein, who held the chief executive job at Safeguard until 2010, knows executives at the nation’s largest banks and loan servicers. And he knows what kind of scars vacant homes leave on neighborhoods. Safeguard, a beneficiary of the housing bust, inspects more than 1.8 million properties each month.

Klein believes lenders will give away those troubled houses, starting in Slavic Village, to get the burden off their books.

His goal: Get a house for free or for very little money. Invest $40,000 to $50,000 in renovations, using Safeguard’s national network of contractors to lower the cost. Then sell the house for $60,000, turning a small profit and providing affordable housing in a city neighborhood.

That’s a dramatic departure from government-driven renovations, which come with extra requirements, longer timelines and much higher price tags.

“Not that there’s not a role for the public sector, but when we keep relying on them to bail us out, it gets more and more costly because of their limitations,” said Marie Kittredge, who leads Slavic Village Development.

“Being able to rehab at scale is the only way to get ourselves back on an even playing field,” she added, noting that her organization can fix up only 20 houses a year on its own, in a neighborhood with more than 400 houses that need renovations.

Of its first 50 houses, Slavic Village Recovery LLC hopes to sell 15 and find renters for 35. The first renovations could start within months.

Testing a model for other neighborhoods

Forest City will focus on marketing, promotions and property management. Neighborhood Progress will provide the market data, digging deep into local databases of vacant, foreclosed and troubled real estate. Slavic Village Development will oversee daily operations and work with the community to encourage repairs to occupied homes and neighborhood clean-up.

“I think it’s a very interesting idea, and I’m hopeful that it’s going to work,” said Alan Mallach, a nonresident senior fellow at the Brookings Institution who has studied housing challenges in Cleveland and other cities. “What I really like is the fact that all of these people, as I understand it, are really trying to take a comprehensive approach to the area where they are working. It’s not I’ll fix up this house and I’ll fix up that house.”

Often called “ground zero” in the nation’s foreclosure crisis, the Cleveland neighborhood still boasts a strong community development corporation, recreation facilities and businesses including the corporate headquarters of Third Federal Savings and Loan. The city is investing in a road-improvement and streetscape project along Fleet Avenue. Plain Dealer Historical Collection

There are two key questions, Mallach added. Can the Slavic Village group churn out high-quality renovations without subsidy and sell or rent the homes at a profit? And, if so, will there be enough demand to fill the houses without cannibalizing other Cleveland neighborhoods?

“We’re hopeful it will be successful, and we’re thinking about what it will be like to replicate in other neighborhoods,” said Neighborhood Progress CEO Joel Ratner, who is not related to Forest City’s Ratner family. “It’s really about restoring confidence. It’s about the psychology of it.”

Private investors across the country are buzzing about the potential of single-family rentals. Institutional investors jumped into that market last year, announcing plans to buy foreclosed properties in bulk.

But Jeff Linton, a spokesman for Forest City, said the publicly traded real estate company sees Slavic Village as more of a civic experiment than a big money-making opportunity.

Linton said Forest City, like everyone else in the real estate business, has talked about the potential of the single-family rental market. Any large-scale push into that sector would require substantial profits. But in Slavic Village, “we only expect that it will break even or at least stand on its own feet,” he said.

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