May 29, 2014 at 7:38 am

Detroit spends $8.7 million to flip 30 homes that bring in $2 million

Detroit — City officials spent as much as $537,000 per home renovating 30 houses under a federal program to fight blight only to sell most for less than $100,000 apiece, a Detroit News investigation has found.

The Detroit Land Bank transformed eyesores — some that were rotting and burned — into gleaming gems, with glass-tiled bathrooms, stainless steel appliances, underground sprinkler systems and even $35,000 geothermal heating in a few. The goal was to entice middle-class families into East English Village and Boston Edison to strengthen the neighborhoods.

But as the land bank works to sell the last three homes in the program that began in 2011, even some buyers say the costs are outrageous for a bankrupt city. Susan Hanafee was shocked to learn from The Detroit News that $430,000 was spent on the three-story Boston Edison home she bought last year for $80,000.

“It kind of makes me sick,” she said. “It didn’t really need that much rehab. ... It makes me sad to think about the money that was poured into a particular house and ... to know my neighbors are having to scrape enough together to put a new roof on.”

In total, the land bank spent nearly $8.7 million from the U.S. Department of Housing and Urban Development on 30 homes. That’s an average of $290,000 per home, and the 13 most expensive homes cost $300,000 to $537,000 apiece. The return on the investment from sales so far: $2 million.

The money was spent under a former director, Aundra Wallace, who left last summer for an economic development job in Florida. He didn’t return phone calls for comment. His successor, along with Mayor Mike Duggan, have distanced themselves from the program and instead are auctioning homes to buyers who will make repairs themselves.

“We are now moving in a different direction,” said Richard Wiener, the land bank executive director who took over Jan. 27.

Federal grants paid for the program and limited how city officials could spend the money. Even so, many question whether the city was too extravagant.

“It’s absolutely, positively, outrageously wrong,” said Harvey Turner, whose sister bought a tax foreclosed house near his northwest Detroit home for $500 but is struggling to make it liveable. “What they spent on one house could have helped a whole area.”

The program was launched amid a housing meltdown that sparked fears even Detroit’s most stable neighborhoods were collapsing.

Some of the homes were intended for then-Mayor Dave Bing’s Project 14 to attract city police and firefighters living in the suburbs. But so few met federal income qualifications to buy the homes that most were sold to the public.

Contractors said it was easy for costs to escalate. Often, the worst homes on the block were selected. Some needed expensive foundation repairs, lead and asbestos abatement and new plumbing and electrical systems. And many homes, especially in Boston Edison, are just big, adding to costs for roofing and other materials.

“Wherever we go in the city of Detroit, it has to be subsidized,” said Lisa Johanon, executive director of Central Detroit Christian Community Development Corp., a nonprofit that did two renovations. “It is costly, no doubt about it, but I think we have some stabilized neighborhoods.

“It’s just what it takes right now to get Detroit on its feet.”

Bing defended the program, saying home prices are increasing in the targeted neighborhoods.

“If we wouldn’t have invested the money … those communities would have tilted the wrong way,” Bing said.

“(The neighbors) wanted us to save those homes. It was an investment. It was the right decision.”

'We tried to monitor it'

Members of the land bank board, who were appointed by Bing and the Detroit City Council, said they were concerned about costs. Board member Marsha Bruhn said she visited work sites when she saw how prices had climbed.

She said they allowed the spending because many homes needed significant work. Federal and state requirements mandated energy-efficient heating and cooling systems and historic preservation that added to costs, as did larger kitchens necessary to compete for suburban buyers, she said.

“We asked the right questions, and we tried to monitor it,” Bruhn said.

Costs escalate quickly with lead paint remediation requirements, energy-efficient mandates and historic preservation rules, said Tom Goddeeris, executive director of the Grandmont Rosedale Development Corp.

“It is a lot more expensive to renovate houses than people think,” Goddeeris said.

Even so, his group’s federal funded renovations average about $150,000 each.

In six of the homes in the rehab program, the renovation price was about five times the eventual appraisal and sale amount. Those sale prices are inflated because they don’t include money buyers received in forgivable down payment help. An exact figure of the aid wasn’t available. But generally it was between $10,000 and $20,000 per family, land records show.

Among other findings by The News:

■Final renovation costs rose as much as 96 percent over the original budget on some homes. One East English Village house was slated to cost $65,000 but ballooned to more than $127,700, in addition to the $36,256 the land bank paid to buy and maintain the bank foreclosure. The developer, Clark Bailey of Bailey Development Group, said the budgeted numbers were preliminary and he did quality work.

■The owner of a company that oversaw three land bank renovations, Melvin Washington, has failed to complete the terms of at least two other city development agreements.

The city is now in court trying to seize the downtown National Theatre from him because he failed to renovate it.

Washington said the majority of his city developments were successful and that some of his work contributed to the land bank winning a state historic preservation award last year.

■The land bank spent nearly $187,000 to buy and fix a home on Edison Street in the Boston Edison neighborhood before officials ditched the project last year because the foundation crumbled. The house is still owned by the land bank and remains vacant and boarded. Washington was the developer. Two other renovated houses are being leased, but land bank officials couldn’t provide information as to why.

The costs shock some residents, including 40-year-old Marcus Wideman, who can’t afford to replace an aging roof or fix a chronic basement leak in his east side home.

“In my neighborhood that half a million could have fixed up a whole block,” Wideman said. “We are the ones struggling with ... keeping these houses up.”

Families get 'really lucky'

The land bank bought and rehabbed at least one house that already had potential buyers who wanted to do the work themselves.

Susan and Mike Hanafee spotted the three-story, beige brick on Chicago in an online listing in 2010. They were living in Oregon, but Mike Hanafee grew up in Metro Detroit and wanted to move to the city with his wife and five children to start a church where they could make a difference.

They fell in love with the bank foreclosure listed at $99,000. They rented a house nearby, toured the home multiple times and even boarded it up. They estimated they’d move in right away and spend about $20,000 on repairs — if the bank took their $42,000 offer.

The bank sold the house to the land bank instead for $31,680.

Soon after, the couple said they contacted land bank officials, who told them they’d get the first chance at buying it. But officials went on to spent $389,000 rehabbing and another $9,000 in maintenance costs. They sold it for $80,000 to the Hanafees, who got nearly $22,000 in forgivable down payment assistance from the state.

“We were going to take the house the way it was,” said Mike Hanafee, a pastor who is turning a vacant post office nearby into the church meeting place. “We are thankful for it, let me tell you.

“(But) when I hear the figure, I am just shocked and appalled.”

Developer Mark Lewis, who headed the renovation of the Hanafees’ home, said land bank officials made it clear they wanted homes returned to their former glory. The Hanafees’ house may have looked decent from the outside, but it needed significant work, he said, including a new heating and cooling system and asbestos and lead abatement.

“(The land bank) wanted the houses to be very nice. They didn’t want to cheap it out,” Lewis said.

Families had to meet income qualifications to buy the homes. A family of four had to make less than $77,000 a year. Developers, who were selected after submitting bids, made 15 percent of total renovation costs per house, including labor and supplies.

Other houses purchased by the land bank were in poor condition, with rotting floor boards and burned interiors.

“It wasn’t livable,” said Andre Sandifer, whose family bought a land bank renovated Boston Edison home last year for $100,000. They received about $25,000 in down payment assistance.

The land bank spent nearly $483,000 on the 3,800-square-foot, five-bedroom home on Chicago.

Among the costs: $17,000 in concrete work; $38,800 in wood windows; $16,000 in interior doors, and $10,500 in ceramic tiles.

“It does sound like quite a bit of money but when you start to break things down you understand,” said Sandifer, who owns a handmade furniture company with his wife and has three children.

Jon Carpus and his wife contemplated rehabbing a home in East English Village themselves when they stumbled upon a renovated land bank home at an open house in 2012.

The land bank spent about $306,000 on the home that they bought for $60,000.

The couple, who got $7,000 in forgivable down payment assistance, are now active in the neighborhood and have helped persuade Carpus’ brother to move down the street.

“It’s just a shame to let these homes go into disrepair and anything less than bringing them up to what they once were is not going to attract a (buyer),” said Carpus, who works at Atwater Brewery in Detroit and moved from Berkley.

“It worked out great for us. Every time people see our house, they are in awe. We just got really lucky.”

Effort to prevent market collapse

Land bank board members said they received assurances from federal and state officials that the spending was OK.

A HUD spokesman contacted by The News declined comment. The Michigan State Housing Development Authority said the spending decisions belong to the land bank.

“We elected not to object because of the historic and cultural significance of the Boston Edison and (East English Village) neighborhoods,” wrote Katie Bach, a spokeswoman for MHSDA in an email.

“Had the DLBA not intervened, it’s almost certain that the Detroit real estate market would have collapsed further without that infusion of NSP dollars.”

Former land bank board member Tahirih Ziegler said the program was necessary because real estate prices were depressed. Even after renovations, some Boston Edison homes appraised for as little as $80,000. Sale prices were based on appraisals, to comply with federal requirements.

One Boston Edison home recently sold for $145,000, which Ziegler said shows progress.

“If we can build on this type of momentum, we won’t have to do this again,” Ziegler said.

But some Boston Edison residents who initially welcomed the program are now disappointed.

Brian Ceccon said he is worried about the 27 homes the land bank still owns but doesn’t have cash to fix up. The land bank plans to sell them as-is via auction.

“They spent so much money on so few houses,” he said. “I know others who have put $50,000 in and they have beautiful homes.

“Basically, the land bank overreached.”

Escalating costs

The Detroit Land Bank spent nearly $483,000 on a 3,800 square-foot, five-bedroom home on Chicago. The house sold for $100,000 to a buyer who got $25,000 in forgivable down payment assistance.
Here are some of the expenses:
$26,642 purchase price and holding costs
$38,800 wood windows
$15,000 repair and finish wood floors
$14,192 paint
$14,000 kitchen cabinets and countertops
$10,500 ceramic tile
$10,000 waterproofing
$10,000 lead abatement
$9,400 insulation
$5,000 appliances
$4,000 exterior doors
Source: Detroit Land Bank

cmacdonald@detroitnews.com
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