Wall Street Journal:
After Long Decline, Baltimore Sees New Investors Rush Into Poor Neighborhoods
By JAMES R. HAGERTY and KEMBA J. DUNHAM
Staff Reporters of THE WALL STREET JOURNAL
(reposted via http://coloquio.com/coloquioonline/2005/0506politics_omalley.htm)
BALTIMORE — Last year, Terence Trader and a friend paid $77,000 for a crumbling, six-bedroom home here with garish yellow asbestos siding. After partially renovating the property, which abuts two boarded-up homes, the former social worker agreed to sell it last month — for roughly $300,000. The buyers, a young couple from Washington, D.C., say they plan to settle down here. “It’s kind of a diamond in the rough,” says Jennifer Hoover, a doctoral student in psychology, who is buying the house with her husband.
The transaction marks a small victory for Baltimore as the city recovers from one of the nation’s most relentless urban declines. Over the past 50 years, Baltimore has lost about a third of its population amid an exodus of industrial jobs and the flight of middle-class people to the suburbs. As recently as last year, the city housing department kept five crews busy boarding up abandoned homes to shut out prostitutes and drug dealers.
Now the national real-estate boom is starting to transform some neighborhoods long resistant to government or philanthropic recovery programs. The five-year-old boom in residential housing initially was concentrated heavily on economically vibrant cities like San Diego, Miami and New York. In the past couple of years, it has spread to some less obvious places, including long-distressed sections of Baltimore, Philadelphia and Oakland, Calif. Parts of these cities have turned into hot real-estate markets largely because their house prices still seem like bargains compared with those in more glamorous cities nearby.
The lowest mortgage interest rates in four decades have spurred spending on housing across the country and sent individual investors searching for real-estate opportunities much as they used to scour the financial news for the latest initial public offering. Cities are promoting blighted areas as investment opportunities, offering a lure many prosperous suburbs lack: vacant property suitable for developers.
Philadelphia offers property-tax breaks to people who build new houses or rehabilitate old ones under a program created about five years ago. In Oakland, the city government has long offered low-interest loans to low- and moderate-income people who renovate homes. A few years ago, Oakland also tried to lure residents from San Francisco with ads touting far lower prices and less fog. Now, says Samee Roberts, the city’s marketing manager, “the housing market is so hot we don’t really need to spend dollars on advertising.”
It’s not clear whether real-estate fever will translate into long-term gains for poor urban neighborhoods. Some buyers are absentee landlords who hope for quick profits and may not be much more willing or able than their predecessors to invest heavily in renovation. Moreover, a spike in interest rates could cool investors’ interest in marginal neighborhoods.
But officials in Baltimore say the rush of investment in housing is helping them turn the city around. The population, estimated by the U.S. Census Bureau at 636,000, has nearly stopped shrinking. In 2004, the median home price in Baltimore jumped 20to $90,000, according to Metropolitan Regional Information Systems Inc., Rockville, Md., which tracks sales made by real-estate agents. That compares with an 8rise nationwide.
‘A Moat of Despair’
Baltimore helped lay the groundwork for a recovery in the late 1990s by beginning to tear down high-rise public-housing projects that Mayor Martin O’Malley says ringed downtown “like a moat of despair.” The 42-year-old mayor has pushed forward with the redevelopment of those sites to provide a mix of subsidized and market-rate housing.
His administration also has acquired thousands of vacant houses and begun selling them to people willing to renovate the properties. It has brought in experts from other cities including New York to shake up the city housing department. And the city is concentrating government aid on the most promising neighborhoods, such as those near Johns Hopkins University, rather than spreading it thinly throughout the city.
Mr. O’Malley acknowledges that none of these efforts will suffice if the city can’t make the streets safe. He has embraced the New York approach of using statistics to pinpoint high-crime areas that need more policing. In 2003, the latest year for which comparable statistics are available from the Federal Bureau of Investigation, Baltimore reported 11,183 incidents of violent crime, down 40from 1999, the year before Mr. O’Malley took office. That compares with a nationwide decline of 3.5in the same period. But the homicide rate has stayed relatively high. In 2004, Baltimore had about 44 homicides per 100,000 residents, compared with 7.3 in New York.
Baltimore gets a lift from its proximity to Washington, D.C., one of the nation’s strongest job markets, where home prices are more than three times as high. Some people with jobs in Washington now commute to Baltimore, about 45 minutes away by train.
To promote the idea of Baltimore as a haven for people priced out of the Washington market, Mayor O’Malley works closely with a nonprofit organization called the Live Baltimore Home Center, funded by the city and private foundations. Live Baltimore markets Baltimore as a trendy urban lifestyle choice. The organization has run ads in Washington publications showing flower pots crowding a few square feet of pavement. “If you call this a yard,” the ads say, “you need to get out of D.C.”
Tracy K. Gosson, executive director of Live Baltimore, says gay people are among her targets. For most of them, she says, Baltimore’s weak public schools aren’t a big issue. “They really value historic architecture, which we have a lot of,” says Ms. Gosson, a native of Syracuse, N.Y., who moved to Baltimore in 1993 and renovated a row house.
Even for people who have school-age kids, Ms. Gosson has a ready pitch: “You’re going to pay so much less for the house here that you can afford private schools.”
Attracted by Location
In some areas, the city is trying to acquire run-down houses and string together large parcels of land that can be offered to private developers. One big developer recently drawn to Baltimore is KSI Services Inc., Vienna, Va. KSI is a partner in two projects that involve plans for a total of about 1,500 new residential units, including townhouses and condominiums. Robert Kettler, chairman of KSI, says he was attracted by Baltimore’s location near the booming Washington area and by Mayor O’Malley’s enthusiasm. “If you need to talk to the mayor, he’ll call you back in three minutes,” Mr. Kettler says.
The city is also drawing hundreds of small property investors and speculators. In one blighted but promising neighborhood, Barclay, between the city’s main rail station and Johns Hopkins, the U.S. Department of Housing and Urban Development recently scheduled an auction of 56 rental properties it had acquired through foreclosures. The Baltimore housing department feared that the homes would attract a new generation of slumlords, people without the resources to transform the neighborhood, says Christopher Shea, a city planning official.
Rather than letting the homes fall into what he calls “weak hands,” Mr. Shea persuaded HUD to cancel the auction and sell the properties to the city. Mr. Shea says those properties and others nearby will be offered to developers willing to renovate several city blocks.
One determined investor is Donna Meeks, a 56-year-old college English professor who grew up in Washington but now lives in Pasadena, Calif. Ms. Meeks, alerted by friends to the investment potential of Baltimore housing, arrived here around 6 a.m. one day in mid-March and headed directly for an auction of rental homes. She was struck by how low the prices were in comparison to California, where the median home price is about $509,000. At the auction, she quickly bought three houses, sight unseen, for a total of $73,000.
By the end of the day, after a quick exterior inspection of her three new properties in blighted neighborhoods, Ms. Meeks was suffering from a mild case of buyers’ remorse. “I just took the red-eye in from L.A., walked in, slammed down some money and put my auction card up,” she said. “Later, it was sort of like, ‘Have you lost your mind?’ ”
The auction house where Ms. Meeks bought her properties, Alex Cooper Auctioneers Inc., sold all of the 112 houses on offer that day for prices ranging from $25,000 to $147,000. Alex Cooper, which also auctions antiques and Oriental rugs, began holding regular large-scale sales of houses last year after some local landlords decided it was a good time to unload their properties on eager newcomers.
Paul Cooper, who runs the auction firm, estimates that more than 80of the buyers at his March auction were from out of town, and he plans more such sales. “These people are insatiable,” Mr. Cooper says.
Like-Minded Investors
Stephan Allen, an engineer from Washington who has attended the Cooper auctions, began investing in Baltimore houses early last year and now owns 13 of them. He expects property prices in Baltimore to soar in the next few years and takes comfort from the presence of like-minded investors. “I can name 10 people who live in D.C. who own properties in Baltimore,” he says.
It’s too early to judge whether these new landlords will maintain homes better than their predecessors, often disparaged as slumlords. Mr. Allen says he aims to improve the neighborhoods where he has invested. He figures he has spent $40,000 so far on improvements to his 13 houses in Baltimore. One elderly tenant cried with joy when Mr. Allen replaced a door, he says.
City officials hope to keep the new crop of landlords in line through “targeted enforcement” of building codes. That means concentrating enforcement actions on neighborhoods that are generally in good shape but threatened by the neglect of some properties. It’s pointless, Mr. O’Malley says, to enforce codes strictly in neighborhoods where most of the houses are already abandoned.
When the city sells homes it has acquired through tax foreclosures or other means, it sometimes requires that buyers rehabilitate the houses within 18 months and that the homes must be sold to owner-occupiers rather than landlords. To further encourage renovation, the housing department set up a one-stop center for building permits and offers free parking to people seeking them. Permits for residential rehab projects totaled 17,521 last year, up 48from 1999.
One neighborhood filled with the clamor of renovators’ nail guns and sledgehammers is Reservoir Hill, whose roomy Victorian homes once belonged to some of the city’s wealthiest residents. In the 1960s, Reservoir Hill declined as affluent people moved to the suburbs and old houses were turned into warrens of small apartments. Pioneering renovators bought some of the homes in the 1970s and 1980s, but those boomlets fizzled, partly because crime scared away too many buyers.
Green Spaces
Mr. Trader, the social worker, first bought a property in the neighborhood in the mid-1990s, when he says the area at times resembled an “open-air drug market.” One day, he came home to find someone had shot his Bouvier dog to death. Yet Mr. Trader felt sure that the neighborhood’s architectural charm and green spaces eventually would bring back affluent people. He bought more boarded-up houses and hired some of the neighborhood’s junkies to help him renovate.
Now Mr. Trader, who has become a full-time property investor and rehabilitator, is selling some of his houses in Reservoir Hill and moving on to projects in other parts of the city.
The big yellow house Mr. Trader is selling remains a work in progress. Vandals long ago ripped out the fireplace mantels, and some of the sinks lack spigots. But the buyers, Ms. Hoover and her husband, Jeffrey Humin, love the parquet floors and were impressed by newspaper stories reporting that the writer Gertrude Stein once lived there. They say they have no idea how much it will cost to renovate the house. But, Mr. Humin says, “it’s our intention over time to bring it back to its former glory.”