Home demolitions: Can North Minneapolis avoid becoming a Little Detroit?

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The 2900 block of Dupont Avenue North is full of holes. Two vacant lots on one side of the street face two more vacant lots. These newly empty expanses abut old homes like the spaces left between teeth after multiple extractions. “When I look out my window, I can see all the way down the street now,” says Dupont Avenue resident Jeff Larson. “I haven’t been able to do that in more than 30 years living here.”

Last week, the city of Minneapolis tore down the duplex at 2914 Dupont. It had been condemned since 2006, cracked by flames and blackened by smoke, and sat kitty-corner across from Larson. It was the first home to be razed as part of a Minneapolis-Hennepin County partnership to rid the city of burned-out, blighted properties, the majority of which are on the north side. Two doors down from 2914, another home waits on the demo list. That one is scheduled to turn to dust in the next two weeks.

So far this year, the city has razed 21 homes. With a $1.25 million grant from Hennepin County, it hopes to demolish 100 in all by the end of the year. Since 2005, home demolitions by the city have increased a whopping 95 percent. City officials say the increase is directly attributable to the foreclosure crisis.

Like many streets in north Minneapolis, the entire 2900 block of Dupont has been under attack for years: First by drugs and crime. Then by foreclosures. Then by arsonists. And now by the implacable arm of a Bobcat.

Of the 19 North side properties with pending demolition orders, only one is homesteaded, meaning owner-occupied. The others are all rental units. And only four of those were purchased before 2000, when subprime lending first began to take off. Before the mortgage meltdown, the vast majority of the homes stood in the North for nearly a century; only one of the homes on the demo list was built after 1923.

‘The Skinny’?: Local Realtor blog wears a really thin veil, discovers hidden map
By Molly Priesmeyer

We’ve been talking about the gem that is illustrative mortgage maps from the Federal Reserve Bank of New York for a while now. The New York Times and a number of other news outlets wrote about the site back in early spring, using it as a primary resource to illuminate the growing mortgage crisis. Of course, organizations like the Minneapolis Area Association of Realtors use their own tools and data to try to demonstrate “growing buyer demand” and that the “market is showing signs of life.” So it’s no wonder MAAR just discovered the maps this weekend and pulled out these important pieces from them for its blog The Skinny :

* Only 53.7 percent of all subprime loans in Minnesota are “current,” (i.e. not currently behind on payments).
* 60.9 percent of subprime loans in Minnesota have had a late payment in the last 12 months.
* 75.5 percent of all active subprime loans in Minnesota have adjustable rates.
* 32.3 percent have a rate that will adjust in the next 12 months.

Still, despite that bleak picture, the folks at The Skinny still try to paint one of a “rebound.” Pending sales are up 6.2 percent in July over same period last year, they say, and supply was down 4.9 percent. Those numbers, however, can be directly attributed to the increase in quick-sell bank-owned properties and only underscore the reality of MAAR’s August 14 report, Foreclosures and Short Sales in the Twin Cities. In MAAR’s own words from this report: Over the past year, the inventory of lender-mediated properties has almost doubled, while traditional inventory has declined by 16 percent. 21.7 percent of all properties for sale at the beginning of July were lender-mediated.

In other words, any increase in pending sales can be directly attributed to the number of lender-mediated properties on the market. The halo effect of these sales goes beyond just dollars; it’s a crisis that will impact the entire city for years to come.

When you break the July sales numbers down my Minneapolis neighborhoods hardest hit by the mortgage meltdown, the eye-popping number of lender-mediated sales (most often foreclosures) spell out what will be a continued and prolonged struggle with blight and crime in those areas:

* 60 percent of home sales in the north Minneapolis neighborhood were lender-mediated
* 54 percent of homes sales in Camden were lender-mediated.
* 44 percent of home sales in Powderhorn were lender-mediated.
* 30 percent of homes sales in West St. Paul were lender-mediated.
* 27.6 percent of homes sales in Richfield were lender-mediated.

City officials estimate that a foreclosure next door reduces a home’s value by 7 percent on top of the already city-wide 15-percent drop in property values. A boarded-up home next door decrease the value of a neighboring home an additional 7 percent. With foreclosures infesting these neighborhood at rates above, no no one is immune from the equity hit. That doesn’t exactly spell “rebound,” does it?

Who pays? The cost of home demolitions

Age isn’t the main contributing factor in determining whether a property is a candidate for demolition. According to Henry Reimer, director of inspections for the city of Minneapolis, the orders are based primarily on the physical condition of the property and weighing the cost of a demo versus rehabilitation.

“We assess the historical value,” Reimer says. “We assess the condition inside and out. We estimate the cost of rehab and we estimate the value of the home after rehab. We are very critical and discerning,” he says.

The costs involved in razing homes are extensive. For most demolitions, the city pays private contractors a total of $17,500, according to Tom Deegan, manager of the city’s problem properties unit. Minnesota state law requires the city to put out calls for bids, and Deegan says the city has yet to come in with the lowest bid. So instead of going with the city’s own unionized workers, the city pays private contractors for nearly all of the jobs associated with the demo.

There are at least six private companies involved with the demo process at 2914: sewer and water shut-off; Qwest; Centerpoint Energy; Excel; a group that does the asbestos abatement survey; another that does the asbestos abatement; and the company that does the actual demolition.

Before the demolition, a catch-all company in Blaine called Castrejon, Inc. boarded the windows to secure the home from trespassers. Boards placed over the windows of empty homes cost the city $75 apiece, and city officials say they’ve spent nearly $1 million boarding homes over the last two years. Casterjon, which also does utilities, landscaping, and demos for the city, has a one-year contract with Minneapolis for boarding.

Yet the costs to the city go well beyond the actual demolitions: If there is major asbestos contamination, for example, that can add on another $5,000 or so to the $17,500 average. And if the banks or homeowners appeal the demolition orders—which around 20 percent do, according to Reimer—that adds significant costs in attorney’s fees and city workers’ time.

Reimer says that nearly 70 percent of the time the mortgage holders cough up the money for the demolitions, attorney’s fees, and subsequent care of the lot. It’s less money for them to get rid of the property than to rehab it, a service they can’t provide given how widespread the foreclosure crisis is. That means the county will recoup around $850,000 of its $1.25 city loan. That kind of partnership might look good from the onset—ridding the city of blight. But how does the city ensure teardowns don’t create a domino effect?

The homes are carted away. Now what?

Jeff Larson says the serious trouble on his block began about 12 years ago. As he talks, he stands from inside his six-foot-high chain-link fence. His German Shepherd pants at his feet. Larson put up the fence last year to protect himself, he says, after a two-foot wall he erected didn’t keep people from coming into his yard. He points across the street, at the house that’s on the city’s chopping block.

“I remember a double homicide there. And down there,” Larson points down the street, his giant skull ring piercing the sky, “that’s where the guy lived who killed the pizza guy a couple of years ago. And that house there [2914 Dupont], one time they were outside with big guns. But the city doesn’t do anything until it’s too late. Until it’s reached a crisis point.”

Larson says that, for now, he’s glad the home is gone. He never knew if it was renters or squatters staying there, and there was no easy way for him to find out. But he wonders what will happen next and what it will mean for him and his home. Larson says he’d move, but he’s put so much money into his home over the last 30 years—raising it up and putting in a second floor—that he won’t be able to get any of it back with empty lots and foreclosures filling the street.

The city of Minneapolis has what it calls a five-point plan (pdf) for the North side. Included in it are strategies to “promote reinvestment and sustainability” and “attract and retain a healthy mix of stable residents.” As part of those strategies, Minneapolis Community Planning and Economic Development (CPED) has started to review the city’s design standards to include “sustainable attributes.” And an $11 million Strategic Acquisition Fund will allow the Greater Minneapolis Housing Corporation to acquire and rehab boarded homes.

But what about all of those empty lots? The city says it’s courting investors, but has no safeguards in place to avoid selling to speculators and no safety nets in place to ensure the cycle doesn’t begin again. For one thing, it’s almost always cheaper to rehab than build new, in-fill homes. And with home prices still plummeting, it’s not exactly financially sound to invest in brand-new construction on a diseased street.

What’s more, the new homes will not only need to be “sustainable” by the city’s to-be-determined standards, but also be able to sustain the neighboring homes around it. Cities like Detroit and North St. Louis have suffered for decades from demolitions that drove down the values of housing stock all around them and invited in more crime and blight. In most cases, if new homes were built, they served to make a quick buck for investors but were substandard shells for new homeowners.

“I’m glad that it [the home] is gone for now,” Larson says. “But in the long run, I don’t know if it’s such a good thing. I have no idea what will end up over there, if anything at all.”