Saving Affordable Housing Table of Contents.
As a result of widespread disinvestment and abandonment in the 1960s and 1970s, a large stock of buildings fell into New York City ownership for nonpayment of taxes (a status referred to as "in rem"). Due to abandonment, the city lost 38,000 housing units annually between 1965 and 1968, one study estimated. (Lowry 1970) Most of the buildings were in low-income neighborhoods in Harlem, the Bronx, and Brooklyn, and in various stages of deterioration.
In 1976, to protect tenants and discourage further abandonment, the city changed its policy from selling in rem buildings at auction to managing properties until they could be returned to responsible ownership. The city saw in rem management as temporary, assuming landlords would "ante up" when faced with losing their buildings. Instead, many owners simply walked away. Moreover, there were few takers for many tax-foreclosed properties offered at auction.
A HUD-funded study summarized the underlying conditions conducive to such abandonment: "high operating and maintenance costs; non-availability of mortgage funds in 'redlined' areas; tenant incomes too low to support economic rents; vandalism; lack of investor confidence in buildings and neighborhoods occupied by minority groups and welfare recipients; and extreme friction between landlords and tenants." (Bach et al. 1993)
Another dimension of the abandonment problem was that nearly half the city's in rem buildings were occupied. "In effect, the city was increasingly taking over management of tenanted buildings in major disrepair." (Bach et al. 1993) Within two decades, the City "inadvertently created the second largest publicly-owned and -controlled housing system in the country." (Task Force 1993) By 1984, New York City managed 26,000 residential units in 4,000 abandoned buildings, housing at least 100,000 people. (Saegert et al. 1990) ...[T]ax foreclosure had evolved from a pragmatic, reactive policy response to private-sector housing abandonment into a major city role in what some called a 'new housing program for the poor.'" (Bach et al. 1993)
The city, however, had no desire to remain in such a role. Overwhelmed by the scale and costs of the abandonment problem, the city had become increasingly slow to take title to properties, and it aimed to create a long-term solution to the problem by enhancing the role of its Department of Housing Preservation and Development (HPD); creating financing mechanisms for rehabilitation of properties; and transferring management and ownership to the Housing Authority, approved for-profit entities, community groups, and residents.
Transferring properties to tenant ownership was time consuming and difficult, the city found. Each sale had to be approved by a community board, the Planning Commission, and the Board of Estimate, which could take from six to 12 months. (CSS 1984)
Nevertheless, allowing tenants to buy buildings directly from negligent landlords offers a cost-effective alternative to city take-over. Since 1980, HPD has sold over 650 buildings from the in rem inventory through a program to form low-income cooperatives, making this initiative the first sizable program in the U.S. to transfer ownership of privately-held buildings to low-income tenants. (Lawson 1983) For some communities, this shift to alternative ownership has been one of the positive, if unintended, consequences of private-sector abandonment. (Bach et al. 1993)
This was the case for tenants of 507 West 140th Street, who, after several years of quasi-abandonment in the late 1970s, had come to expect little maintenance or repairs from their landlord. In 1980, with the heating system on the verge of collapse and the roof leaking badly, the tenants organized to confront their landlord. The landlord, however, did not respond to demands for better service. In 1981, tenants pooled their money for fuel and minor repairs. In June 1982, the landlord announced he intended to stop collecting rent and providing services. Still the tenants refused to abandon their homes, where most had lived for over 20 years. Lillian Young, who had moved into the building with her family in 1963, later recalled, "We didn't know what we were going to do. Some were depressed, some moved. But through encouragement with each other, we became stronger. ...We knew that either we would move or we would have to get together."
"Harlem housing is attractive because of its substantial prewar stock, its advantageous location, including proximity to midtown Manhattan and Central Park, good subway connections, and access to major regional thoroughfares. It also has one of the highest concentrations of city-owned housing and land, and is the frequent target of public development plans." As a center of African-American political power, Harlem wields considerable clout when it comes to allocation of public resources for various types of projects. Nevertheless, while some of the area's housing stock was originally built to high quality standards, and despite the efforts over the past 20 years, "housing conditions in the neighborhood continue to be among the worst in the city." (Oppenheim et al. 1994)
507 West 140th Street, a 15-unit, five-story brick building in Harlem's Hamilton Heights neighborhood, is typical of the modest but sturdy tenements built in the early 1900's. Unlike many nearby buildings, its facade retains architectural distinctions of a previous era. The site, within a block of Broadway, is also near historic Hamilton Place and the City College campus. While planners consider the neighborhood well situated for revitalization, such indicators as foreclosure sales, parcels in tax arrears, and arson rates among the highest in the city (Oppenheim et al. 1994) suggest continued and severe disinvestment.
OTP properties with which CSS worked were among the city's most distressed privately-owned buildings. Yet tenants had to pay acquisition and rehab costs for these buildings, unlike the situation with in rem stock (essentially free) or HPD's Tenant Interim Lease program (in which tenants buy buildings for $250 per unit). HPD participated by providing below-market rehab loans to OTP buildings. This marked one of the first times the agency allowed tenants to compete for such financing, according to Coleman. In addition, the city helped cover OTP staff time through a contract with CSS for the city to provide technical assistance to community groups.
Overall, OTP has helped 50 buildings, varying in size from six to 80 units, "acquire themselves," said Brent Sharman of CSS. OTP has recently focused on stabilizing projects already in the pipeline. One of the first buildings acquired by residents through the OTP program was 507 West 140th Street. CSS staff quickly referred to this building when asked to recommend a successful tenant co-op for study.
The tenants initiated a 7-A action, but when the landlord decided to sell the building in the spring of 1983, they feared someone even worse might buy it. The tenants enlisted attorney Doug Simmons and paralegal Teresa Diamond of the East Harlem Community Law Office (CLO), a branch of the Legal Aid Society. Simmons and Diamond agreed to help organize and train the tenants to assume responsibility for their building. Attorney Simmons recalled, "There was a real possibility the whole thing could fall apart." Since the group was so effective at managing the building they had been doing so, de facto, for several years Simmons felt some sort of ownership option made sense. After CSS staffers informed CLO of the recently launched OTP demonstration, CLO agreed that 507 West 140th Street seemed like a good candidate for the program. Some residents had doubts. "But no matter the risks," recalled Young, "it couldn't be worse than it was before."
During the project's critical early period, CLO staff provided management training, and coordinated various technical assistance providers' participation. The OTP process involved five technical assistance organizations, including CSS, CLO, Pratt Institute, Community Development Legal Assistance Center, and the Urban Homesteading Assistance Board (UHAB). HPD also participated, and the Wall Street law firm Simpson, Thacher, and Bartlett provided pro bono services. The Pratt Center for Community Environmental and Economic Development helped with architectural and engineering work.
The process began with an assessment of needed repairs. Then the CSS team evaluated whether the building was financially viable as a low-income co-op. The criteria for this included the condition of the building and the sources and amount of existing liens and mortgages. (CSS 1984) CSS project manager Linda Cohen worked with CLO to compile a budget that factored in tenant rents and amortization costs of $5,000 per unit without a mortgage. The budget estimated that, for no substantial purchase price, rents would range from $175 to $250. While this meant a doubling of some rents from the previous rent-controlled levels, the tenants agreed to proceed.
Attorney Michael Levinson of Simpson, Thacher, and Bartlett negotiated with the landlord, who agreed to pay a $1,300 corporate tax lien and sell the building for $100 plus $6,200 for back taxes. With title, fire insurance, and other closing costs, the acquisition price was $11,000. HPD lent $72,000 to replace the boiler and burner, and repair the roof, facade, plumbing, and wiring. A grant from the Urban Coalition's state- and federally-funded weatherization program helped buy 125 energy-efficient windows. The group paid $780 for the largest (6.5-room) units and $540 for the smallest (4.5-room) units.
The final agreement included a 15-year loan at 3 percent interest and raised monthly rents (or "maintenance fees") from $88-$199 to $175-$253. LaBorda Turner, then-Vice President of the Tenant Association who had moved into the building in 1959, commented to a reporter, "They're not steep for what we're getting. These are going to be our apartments, and if we maintain them, we'll live very well for the money." Juanita Young, a board member with an equally long tenancy, added, "In some buildings down the hill, people are paying $400 to $450 for places where the ceilings are falling in."
In March 1994, residents of 507 West 140th Street celebrated their first decade of co-op living. Lillian Young, co-op board President for the entire 10 years, recalled, "It was hit or miss, trial and error, and before you knew it, we were a cooperative."
Most of the storefronts on Broadway at West 140th Street are occupied, although many of the apartments above the stores appear vacant. The stores that line Broadway here are typical inner-city businesses mainly service enterprises such as beauty parlors, barber shops, travel agencies, taxi dispatchers, small groceries, game rooms, bars, and fast food restaurants. Commercial activity appears slow, while groups of seemingly idle men often fill the sidewalks and cluster in front of certain establishments.
One such group of men regularly gathers at the corner of Broadway and West 140th Street, near a bodega on the south side of the intersection and a game room in a converted bar on the north side. Over the past 10 years, these sites in particular and this neighborhood in general have become the turf of Dominican drug dealers. These dealers, as well as many of their customers, arrive daily, as if going to work. As their numbers increase, they tend to gather in front of the doorways and stoops, sometimes near the co-op. Anyone who lives on this block must pass this gauntlet regularly in order to take public transportation, shop, or walk to school.
"They know not to come in front of this building," said Ms. Young, who is in her 70s and now retired. "I'm on the ground floor and I don't want them in front of my window. I let them know, we live here. When I tell them to move, they move. You can call me the policeman of the building."
While residents reported feeling secure within the building, most expressed concern about security in the neighborhood and doubted that conditions would soon improve. Asked about their relationship with the police, particularly in fighting drug activity, Lillian Young replied, "We're the only clean ones [in the area]. And you have to be careful about what kind of help you ask for. This precinct has been named in the corruption scandal."
The co-op has faced problems with nonpayment of rent, which has helped to maintain financial stability. One of the most effective tools in ensuring timely rent payment has been the monthly financial report to residents. The report contains the co-op's bank statement and an explanation of the purpose of each check. Attached to this statement, along with general announcements, is the most current rent receipt, which shows who is or isn't paying rent on time. To further ensure against delinquent rent, the co-op seeks residents who do not collect welfare. If a resident becomes unemployed, the board works out a payment plan. "The premise of the co-op was based on low-income working families," Mrs. Young said. "We would be in big trouble if people couldn't pay rent."
Only twice in 10 years had the board asked residents to raise their rent, by 10 percent each time, just enough to cover costs. The co-op has been able to keep "rents" (i.e. monthly fees) low, in part, because of the low debt service. But OTP staff recommend annual rent increases. UHAB Director Andy Reicher explained, "A small annual increase of 2 to 3 percent every year generates an enormous amount of reserve funds, and it is easier for people to accept." Given the steep escalation of water and sewer charges and looming maintenance expenses, the co-op will have to ask for another hefty rent increase soon.
With this in mind, board vice-president Grace Gooding expressed concern about the co-op's mini-population explosion. In 1967, only one "child" (college age) lived in the building. In 1985, four children lived there. When this research was gathered, there were 11, with several more due. "If people have too many children, they won't be able to afford an increase in rent," she said.
These factors, combined with the imminent (1999) end of the tax abatement period and the completion of mortgage payments, have caused co-op members to think about financial planning and asset management. Some younger residents would like to invest in building improvement and look into buying other neighborhood buildings or starting a trust fund for the children. The board needs to assess the building's condition, learn what financing a capital improvements program would involve, and educate shareholders on the options.
Not everyone is completely satisfied with the board's management. "We have to deal with resident complaints all of the time," said Juanita Young. "Some people, no matter what you do, or how well you're doing it, are not satisfied." She said the board relies on interpersonal skills to handle conflict.
Tenants received early management training from CLO during the critical pre-acquisition phase. HPD later provided a six-week boiler maintenance class, resulting in three residents who can work on the boiler. CSS brought in UHAB trainers to provide a six-part program, which the original residents attended. Current residents train new tenants by reviewing the lease. Mrs. Young explained that board member training is not needed, "since we don't change members much. We use the rules and regulations as a guide. If we can't resolve a problem, we will bring in someone from HPD or CSS."
One resident is pastor of a local church, to which several families belong. Of only three households to recently join the co-op, two moved there, one from New Jersey and the other from Brooklyn, to live near this church. The church stresses community revitalization as part of its mission. Co-op residents, both those who belong to the church and those who don't, demonstrate a commitment to cooperation and participation in collective/civic action. For example, church members frustrated with the poor quality and dangerous conditions of the local public school are planning to build their own.
Several residents described the co-op as "an extended family." Neighbors rely on each other for child care and express a shared sense of responsibility for each other's children. Several parents stressed the importance of strong family values. Many are saving to send their children to college. And, despite the area's problems, nearly everyone spoke of feeling strong ties to the neighborhood and a sense of pride about living in Harlem.
The lease contains a strict resale policy. "The number of shares equals the sales price. When a resident wishes to move, the shares are first sold back to the corporation, according to a formula. The seller will receive the amount they paid for their shares, plus interest, times the number of years they have been a shareholder, plus the value of any improvements made that would have increased the market value of the unit, assuming that these were reported and documented at the time," said Mrs. Young.
The urgency presented by the crisis of nearly losing their homes helped forge close bonds among the original group of residents and enabled strong leaders to emerge. These leaders are mainly women praised admiringly by one observer as "heroic defenders of the hearth" who run the building on a shoestring, as they run their own households. Co-op leaders promote the principles of self-help and working together. Communications are important, and residents share financial and other news frequently. The key, according to Lillian Young, is to "believe in each other; believe in success."
But after a decade as a co-op, a new group of leaders seems ready to emerge. The "younger generation" has new ideas and lots of energy; they see different challenges and want to explore the co-op's meaning further. The older residents are more conservative and want to protect what they've made. The difficulty of such a leadership transition may be the most important challenge facing the co-op residents. Technical assistance providers may provide external guidance, but sustainability will likely depend on residents' ability to create an environment that encourages innovation as well as cooperation and collaboration.
Most members of this West Harlem co-op are making sacrifices in consumption so their children may have a better future, grounded in a solid moral and formal education. But their aspirations have led many of the younger residents into not out of this community. They are cultivating a culture of learning and cooperative living that draws on family and social networks deeply rooted in the neighborhood.