Frogtown’s foreclosure story: rentals

As Finance & Commerce’s residential real estate reporter, I closely follow Minnesota’s foreclosure activity.

The latest buzz is that foreclosures remain close to record levels
with the bulk of filings now caused by to single-family homeowners
either taking big pay cuts or losing their jobs.

That’s why I found it so illuminating this week to learn that some of
the Twin Cities neighborhoods hardest hit by foreclosures are ones with
a heavy concentration of rental housing, which includes multifamily
buildings and single-family homes.

Take St. Paul’s Frogtown neighborhood, which stretches for three
miles on the north side of University Avenue from the state Capitol area
west to Lexington Parkway.

As of the 2000 U.S. Census, Frogtown had 5,000 housing units, with 55
percent of them rental and 45 percent owner-occupied. Altogether, 12
percent (or about 550 units) of Frogtown’s stock was public housing
units, according to the Greater Frogtown Community Development Corp.

Another sobering fact: Frogtown has about a 10 percent rental vacancy rate, which represents some 500 units.

Given those statistics, the reality is that many foreclosures in
Frogtown have and will continue to involve rental properties, according
to housing industry officials who spoke about “Revitalizing Housing in
Urban Neighborhoods: The Frogtown Experience” at a housing policy
convention Monday in St. Paul.

The Frogtown panel discussion was one of 17 breakout sessions at the “Homes for All 2010″ daylong assembly.

“Some of the most pressing housing issues have been raised by housing
foreclosures” held by owner-occupiers, said Barbara McCormick, director
of housing and development at Project for Pride in Living. The
Minneapolis-based nonprofit agency assists lower-income people in the
Twin Cities area achieve greater self-sufficiency through housing,
employment training, education and support services.

But McCormick says there also has been a quiet but steady
undercurrent of foreclosures involving rental properties that “may have a
more devastating impact on neighborhoods.”

In Frogtown, more than half of the foreclosures involve rental
properties that are either multifamily or single-family housing,
McCormick said. For tenants in buildings that go into foreclosure, the
news often arrives with very little notice, she said.

Jill Henricksen, executive director of the Greater Frogtown Community
Development Corp., said plenty of rental owners and landlords are
having financial problems. “There are a whole lot of unscrupulous
landlords, and they aren’t doing right by the tenants,” she said.

Meanwhile, the ripple effect of foreclosures is abandoned buildings
that are breeding grounds for vandalism and other crime, McCormick said.
That, in turn, leads to depressed property values and a tougher time
finding the money to fix up the abandoned properties.

“Generally, the housing stock in Frogtown is really devastated,” Henricksen said.

Henricksen told Finance & Commerce, “In Frogtown in 2009 there
were 112 foreclosures, and through September of this year there have
been another 100, according to data we received from Housing Link.”

Against this scenario, PPL has been teaming with the Greater Frogtown
CDC and other organizations to undertake rehabilitation of rental
housing and to initiate new construction, said Matt Soucek, PPL senior
project manager.

But it’s not a cheap proposition, Soucek said, noting it typically
costs $140,000 per unit to buy and rehab small foreclosed urban rentals.
A downside: Those construction costs often exceed the market value of
the property, he said.

Even so, PPL and the Greater Frogtown CDC are working together on
acquiring and rehabbing 16 units in the St. Paul neighborhood at a total
cost of $2.1 million. That includes one fourplex and six duplexes.
Funds for the project include the federal Neighborhood Stabilization
program and the Minnesota Housing Finance Agency.

“We are in the final stages of working to close on funding,” Soucek said.

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