Reconstructing Neighborhoods: Case Studies in Foreclosed Housing Acquisition and Redevelopment in Distressed Urban Communities

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Reconstructing neighborhoods: twocase studies in foreclosed housingacquisition and redevelopment bycommunity development corporationsin MassachusettsDavid A. Turcotteab, Michael P. Johnsonc, Emily J. Chavesb, RachelBogardus Drewd & Felicia M. Sullivane

a Department of Economics, University of Massachusetts, Lowell,MA, USAb Center for Community Research and Engagement, University ofMassachusetts, Lowell, MA, USAc Department of Public Policy and Public Affairs, University ofMassachusetts, Boston, MA, USAd Joint Center for Housing Studies, Harvard University, Cambridge,MA, USAe Center for Information and Research on Civic Learning andEngagement, Tufts University, Medford, MA, USAPublished online: 16 Mar 2015.

To cite this article: David A. Turcotte, Michael P. Johnson, Emily J. Chaves, Rachel Bogardus Drew& Felicia M. Sullivan (2015): Reconstructing neighborhoods: two case studies in foreclosed housingacquisition and redevelopment by community development corporations in Massachusetts, Housingand Society, DOI: 10.1080/08882746.2015.1020700

To link to this article: http://dx.doi.org/10.1080/08882746.2015.1020700

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Reconstructing neighborhoods: two case studies in foreclosed housingacquisition and redevelopment by community developmentcorporations in Massachusetts

David A. Turcottea,b*, Michael P. Johnsonc, Emily J. Chavesb, Rachel Bogardus Drewd

and Felicia M. Sullivane

aDepartment of Economics, University of Massachusetts, Lowell, MA, USA; bCenter for CommunityResearch and Engagement, University of Massachusetts, Lowell, MA, USA; cDepartment of PublicPolicy and Public Affairs, University of Massachusetts, Boston, MA, USA; dJoint Center forHousing Studies, Harvard University, Cambridge, MA, USA; eCenter for Information and Researchon Civic Learning and Engagement, Tufts University, Medford, MA, USA

(Received 17 December 2013; accepted 30 May 2014)

Community development corporations (CDCs) played a central role in addressing thehousing crisis of foreclosures in America’s urban neighborhoods. The success ofCDCs, however, is closely tied to market forces, neighborhood characteristics, andpolicies at multiple levels, as well as factors internal to CDCs. What factors support orimpede the success of CDCs that operate in such complex environments? We exam-ined the experiences of two CDCs serving three small, ethnically diverse cities inMassachusetts regarding resources, policy, practices and local markets related toneighborhood revitalization. We derived lessons about the factors internal and externalto these CDCs that affected their ability to acquire and redevelop foreclosed housing inthe target areas they serve.

Keywords: community development corporations; foreclosures; neighborhoods

Introduction

Policy motivation

The foreclosure crisis within the United States has had major impacts throughout the nationaleconomy, as well as at the regional (Laderman & Reid, 2008), local and neighborhood levels(Anacker & Crossney, 2013; Immergluck & Smith, 2006a). Among these impacts were:increases in housing vacancies, increased crime, higher insurance rates on neighboringproperties, unanticipated mobility for renters, decreased property values and lost tax revenues(Atlas & Dreier, 2008; Kingsley, Smith, & Price, 2009; Leonard & Murdoch, 2009; Mallach,2009; Schuetz, Been, & Ellen, 2008). These effects were amplified in areas with especiallyhigh foreclosure rates and clusters of distressed properties (Schuetz et al., 2008). However, inrecent months some communities have shown signs of recovery such as increasing homeprices (Joint Center for Housing Studies of Harvard University [JCHS], 2014) and decreasedhousing vacancies (JCHS, 2013, 2014).

This paper is focused on the role that community development corporations (CDCs)have played in developing solutions to the housing crisis caused by foreclosures in theUnited States. We limited our attention to the policies of two CDCs in Massachusetts that

*Corresponding author. Email: [email protected]

Housing and Society, 2015http://dx.doi.org/10.1080/08882746.2015.1020700

© 2015 Housing Education and Research Association

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acquire and redevelop foreclosed properties because of the visibility and value of resi-dential and economic development and the centrality of such work to the mission of theseCDCs. Many CDCs, which have grown in sophistication and size over the past 20 years(Gass, 2008), can play a significant role in foreclosed housing rehabilitation (Goetz,Cooper, Thiele, & Lam, 1997; Listokin, Wyly, Keating, Rengert, & Listokin, 2000) andneighborhood redevelopment (Mallach, 2008, 2009; Taylor, 2008) to address the negativeeffects of foreclosures. In addition, CDCs are more commonly embracing aspects ofprivate for-profit actors to ensure financial viability of housing development while stillattempting to fulfill their social mission (Bratt, 2012). There has been little research thatexamines individual CDC efforts in foreclosed housing acquisition and development indetail, nor is there an existing theory related to CDC acquisition and redevelopmentresponses to the foreclosure crisis that allows contextualization of such observed impacts.Our paper is intended to provide a rigorous description and analysis of such work throughcase studies of two CDCs in three older, diverse Massachusetts cities. Throughout theperiod of our research from 2009 to 2011, Massachusetts was below the national averageforeclosure rate (Weiner, 2012). Nevertheless, foreclosure rates were higher in lower-income areas of cities in Massachusetts with weak real-estate markets, such as Chelsea,Revere, and Lowell (Borgos, Chakrabarti, & Reade, 2007). Our research provides infor-mation on current and best practices to municipalities and regional organizations andagencies that seek to aggressively intervene in urban areas that have functioning, but weakreal-estate markets.

Research questions

To better understand CDC efforts regarding foreclosed housing acquisition and develop-ment, we posed the following research questions with respect to the two CDCs examinedin this paper:

(1) What acquisition and redevelopment strategies are used by the two CDCs?(2) What external and internal factors have affected the success of our two CDCs in

foreclosed housing acquisition and redevelopment?(3) In what ways are foreclosure acquisition and redevelopment more difficult than

traditional acquisition and redevelopment for the two analyzed CDCs?

The motivation for these case studies was previous research on decision modeling forforeclosed housing acquisition and redevelopment that used data from a particularMassachusetts municipality but did not apply the model to an actual client (Johnson,Turcotte, & Sullivan, 2010), and subsequent research that has produced foreclosed hous-ing decision models that reflect the experiences and preferences of actual CDC clients inMassachusetts (Johnson, Drew, Keisler, & Turcotte, 2012). Because our case study CDCsare located in older, post-industrial “gateway” cities, we believed they were likely toreflect the experience of other organizations serving distressed urban areas.1 This paperwill enable practitioners, policy-makers and researchers to evaluate the effectiveness ofvarious housing acquisition strategies of CDCs and the administrative policies of all levelsof government that affect local foreclosure acquisition efforts.

In the remainder of this paper we develop research findings based on the residentialforeclosure redevelopment experiences of The Neighborhood Developers (TND; knownas Chelsea Neighborhood Developers prior to 2012) and Lowell’s Coalition for a BetterAcre (CBA). We selected these two organizations for our study because they were well-

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regarded members of the community development movement in Massachusetts andleaders in foreclosure acquisition and redevelopment activities, but represent contrastingapproaches (which we describe in greater detail later in the paper). In addition, theiractivities focused in older, smaller post-industrialized cities in eastern Massachusetts, butone (TND) worked within 5 miles of the city of Boston and the other (CBA) is in anotherregion, the Merrimack Valley, that is distinct demographically and economically andsomewhat distant (30 miles) from Boston. We found that these CDCs had clearlyarticulated values and expectations for foreclosed housing redevelopment and benefittedfrom a variety of government funding programs, such as the Neighborhood StabilizationProgram, but had varying levels of success in acquiring and redeveloping foreclosedhousing consistent with their stated strategies. We also found that these organizations’redevelopment decisions were affected by a variety of policy and practice factors internaland external to the CDCs, and that the evidence in support of beneficial neighborhoodoutcomes was limited and qualitative in nature.

While measuring the economic and social impacts of housing development uponcommunities is a well-studied field (Krumholz, Keating, Star, & Chupp, 2006; NewYork State Association for Affordable Housing, 2012; NYU Furman Center, 2014), themost robust results are derived from large developments across multiple neighborhoodsover long-time periods. Our paper examines relatively small-scale foreclosed housingredevelopment projects in smaller communities over a relatively short period of time. Thefocus of our paper is on the administrative, financial, organizational and communitydevelopment aspects of foreclosed housing redevelopment. As such, we did not expectto use sophisticated analytic methods and large datasets to discern changes in, sayproperty values, which could be closely associated with acquisition and redevelopmentof specific foreclosed properties.2 Nevertheless, the CDCs we studied do have a commu-nity revitalization and redevelopment mission, and the impacts of their work can certainlybe discerned through subjective, qualitative means by informed observers. These impactsshould not be construed as definitive and rigorous, however.

The next section of this paper reviews the foreclosure crisis and policy responses. Wethen discuss our theoretical framework, followed by our methodology and findings. Thelast sections discuss our findings and lessons learned, and finally our conclusions.

US foreclosure crisis impacts and policy responses

The US foreclosure crisis that emerged in 2007 came on the heels of a period of economicgrowth driven in large part by the performance of the housing market, which was fueledby aggressive lending and toxic mortgage products (Engel & McCoy, 2011; Shiller, 2005,2008). Kingsley et al. (2009) noted that the most significant neighborhood impacts of thiscrisis fell into three categories: declining values of nearby properties, a rise in crime andsocial disorder in the community, and increased stress on the local government.Additionally, the neighborhood impacts tended to be amplified in communities of color,especially African-American and Hispanic communities (Anacker, Carr, & Pradhan, 2012;Center for Responsible Lending, 2010). Note that in 2010, Chelsea, Revere, and Lowell’spopulations were 62.1%, 24.4% and 17.3% Hispanic.

Most analyses of the impacts of foreclosures on proximate property values found theeffects are generally around 1% of the resale value of properties within a short distance(no more than 1000 feet) from the foreclosed property (Campbell, Giglio, & Pathak, 2009;Harding, Rosenblatt, & Yao, 2009; Immergluck & Smith, 2006a; Kobie & Lee, 2011;Leonard & Murdoch, 2009; Rogers & Winter, 2009; Wassmer, 2011). Schuetz et al.

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(2008) and Harding et al. (2009) further assessed the impact of multiple foreclosures in anarea, finding the number of proximate foreclosures in the area generally multiplied theeffects on neighboring prices. Recent research also indicates that the added effect ofvacancies and tax delinquencies increases property value losses on transacting propertiesas compared to foreclosures alone, and that the magnitude of these impacts was higherthan previously estimated (Whitaker & Fitzpatrick, 2011).

Addressing the impact of foreclosures on crime, Immergluck and Smith (2006b) foundthat a one percentage-point increase in the foreclosure rate in a Census tract raised theincidence of violent crimes in that tract by 2.3%, and on the county level a onepercentage-point increase in foreclosures was associated with a 10% increase in burglaryrates (Goodstein & Lee, 2010). Kirk and Hyra (2010) demonstrated that the rate at whichforeclosures increased in an area was also positively correlated with higher rates of non-violent crimes. Foreclosures also affect municipal governments through lost tax revenue,increased crime, the expense of demolition if required (Carreras, 2008; Garber, Kim,Sullivan, & Dowell, 2008; Kingsley et al., 2009), fees and court costs associated with theforeclosure filing, additional police action, and the cost of removing trash and shutting offutility services to a vacant property (Apgar & Duda, 2005).

The negative externalities of foreclosures discussed earlier can be mitigated or preventedthrough property acquisition and rehabilitation or demolition if necessary (Chakrabarti,Lambert, & Petrus, 2010; Mallach, 2008; Swanstrom, Chapple, & Immergluck, 2010;Treuhaft, Rose, & Black, 2011). Foreclosure acquisition and redevelopment keeps propertiesfrom deteriorating and contributing to neighborhood decline by investing directly intoproperty, preventing vacancy, and supporting sustained property maintenance. CDCs play acentral role in stabilizing neighborhoods affected by foreclosures through their expertise inhousing counseling, acquisition, and redevelopment (Taylor, 2008).

US Federal policy responses to the rapid rise in foreclosures have been slow and limited(Immergluck, 2012). An Obama administration signature policy initiative, the HomeAffordable Modification Program (HAMP), helped a limited number of homeowners withpermanent loan modifications. Overall, far fewer homeowners have been affected, and withmuch lower effectiveness than had been originally anticipated (MacDonald, 2012; Office ofthe Comptroller of the Currency, 2010). One response, the Neighborhood StabilizationProgram (NSP), which allocated $3.92 billion to local and state governments for foreclosureacquisition and redevelopment in 2009, was initially under-utilized by grantees and of littlehelp in reducing foreclosure impacts on neighborhoods (Nickerson, 2010); $54.8 million ofthe original NSP was allocated to Massachusetts. A second foreclosure response, NSP2,allocated an additional $1.93 billion to 56 grantees in early 2010 and loosened manyimportant restrictions on the use of NSP funds. In April 2010, the US Department ofHousing and Urban Development (HUD) also expanded the pool of properties eligible forNSP funding and assisted local and state governments to meet the Congressional mandate tocommit all NSP1 funding by September 2010. The third wave of NSP funding allocated anadditional $1 billion to states and selected local governments with similar terms as in NSP1(NSP at halftime, 2010) and the loosened restrictions of NSP2. Nevertheless, restrictive rulesand implementation delays make any assessment of the long-term impacts premature(Newburger, 2010; Nickerson, 2010).

Within Massachusetts, a taskforce was created to bring community groups, munici-palities, funders and advocates together to develop strategies for foreclosure remediationthrough non-profit organizations. During our data collection period a portion of the localNSP funds were administered by the Citizens Housing and Planning Association(CHAPA), a non-profit umbrella organization for affordable housing and community

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development activities in Massachusetts and an important component of the local com-munity development system (Frisch & Servon, 2006). CHAPA also operated the FirstLook program, an initiative created by the National Community Stabilization Trust(NCST) to provide non-profits with advanced notice of and access to foreclosed propertiesfor potential acquisition (CHAPA, 2008). In Massachusetts, NCST provides CHAPAwithinformation about properties in 39 NSP-eligible communities made available by loanservicers/lenders, and CHAPA disseminates listings to eligible developers. However,CHAPA’s involvement in the First Look program is now winding down (R. Heller,personal communication, June 13, 2014).

Literature review and assumptions

We summarize the research literature on factors related to CDC efforts in housing andcommunity development, local impacts of such work, and the special nature of foreclosedhousing development. This review relies on assumptions that guided our subsequentanalysis regarding two CDCs’ recent experiences in foreclosed housing acquisition andredevelopment.

Rohe and Bratt (2003) investigated the experiences of six CDCs who had engaged indownsizings, mergers or ended operations. Characteristics of environments within whichCDCs work (contextual factors), such as market forces and level of trust, and character-istics of CDCs themselves (organizational factors), such as organizational mission andlack of community support appeared to explain observed CDC outcomes. These findings,consistent with those of Gittell and Wilder (1999), are particularly salient to housingacquisition, development and management, activities common to most CDCs.

Bratt (2009) explored the challenges posed by the private real-estate market for CDCsseeking to develop affordable housing. Limited financial resources and organizationalflexibility to assess market dynamics make it difficult for CDCs to act quickly whenacquisition opportunities become available. Frisch and Servon (2006) focused on theinfluences upon CDCs that perform housing development of funding mechanisms suchas the Federal Low-Income Housing Tax Credit (LIHTC) and Home InvestmentPartnerships Program (HOME) affordable housing block grant programs, which containset-asides for non-profit housing developers.

CDCs emerged from anti-poverty and urban renewal activism and matured into high-capacity non-profit developers that filled the role of low-income housing constructiononce played by the federal government (DeFilippis & Saegert, 2012; Erickson, 2009;Vidal, 1992). In addition, CDCs have benefited by increased “urban entrepreneurialism”from local government that aims to pursue novel ways to facilitate community develop-ment (Harvey, 1989). Success of CDC-led housing development is thus a key rationale forCDCs’ work, but defining and measuring such success can be difficult. Frisch and Servon(2006) noted that success measures are a function of mission scope: a focus on non-profithousing development yields metrics such as number of housing units produced, whilecommunity development requires multiple measures of neighborhood social and eco-nomic health. Rohe and Bratt’s (2003) work indicates that “success” and “failure” areambiguous concepts: a successful CDC may be one that nimbly changes its mission, size,organization or status as an independent entity in anticipation of or in response to adversefinancial or housing market conditions.

An important measure of CDC success in housing development is neighborhoodupgrading effects. Recent research indicates that CDC investments in a variety of USareas are associated with increased local property values (Edmiston, 2012; Galster, Levy,

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Sawyer, Temkin, & Walker, 2005; Smith, 2003; Wachter, 2005). Other research onneighborhood impacts is more ambiguous. Krumholz et al. (2006) used case studies oftwo Cleveland CDCs to demonstrate that neighborhood socio-economic impacts ofaffordable housing development most likely represent stabilizing influences.

The housing foreclosure crisis amplified the challenges that CDCs face in housingdevelopment (Scally, 2012). Property values greatly decreased in many areas with highrates of foreclosed housing (Immergluck & Smith, 2006a; Lin, Rosenblatt, & Yao, 2009),and the inventory of homes in some stage of default as well as those owned by mortgageservicers and government reached nine million units at its peak (Mallach, 2010).(However, the foreclosure inventory has since declined steadily to a less worrisome rateof 2.2% [Corelogic, 2013].) Even as Federal initiatives such as the NSP have providedfunds specifically for foreclosed housing acquisition and development, the not-for-profitsector lacks a strategy for orderly disposition of this large inventory of distressed housing(MacDonald, 2012), and for-profit developers are engaged in large-scale acquisitionefforts without special regard to the social needs of neighborhoods in which they invest(Rich, 2012). In addition, a more recent concern for neighborhood stability arises fromlarge-scale securitization of single family homes by remote investor-owners across somecommunities (Edelman, Gordon, & Sanchez, 2014). Although CDCs continue to work toreduce the impact of foreclosures in the communities they serve, there was little evidenceregarding beneficial neighborhood impacts associated with CDC-led foreclosed housingacquisition and redevelopment at the time of our data collection and analysis.

We believe that current scholarship in CDC-directed housing and community devel-opment supports the following assumptions:

(a) Recognizing the unique role of CDCs in neighborhood development, governmentalpolicies at all levels facilitate efforts by CDCs to acquire and redevelop foreclosedhousing.

(b) CDC mission and business models for foreclosure redevelopments are influencedby contextual factors as well as organizational factors.

(c) Foreclosed housing redevelopment projects, even if successful in financial andadministrative terms, result in ambiguous neighborhood impacts.

By answering the research questions listed in the Introduction, we may assess thevalidity of these assumptions as they apply to our two cases.

Findings and analysis

Data sources and methodology

We initially conducted background conversations with leaders from key communitydevelopment stakeholder organizations, such as Boston Community Capital, CHAPA,Hyans Foundation, Massachusetts Housing Partnership (MHP) and MassachusettsHousing Investment Corporation (MHIC). Our conversations revealed that TND andCBA were well-regarded members of the community development movement inMassachusetts with significant housing rehabilitation experience, and that while theywere committed to acquire foreclosed housing for redevelopment, their approaches toforeclosure acquisition differed. As stated earlier, we also selected these two CDCsbecause their foreclosure acquisition efforts were robust and focused in older, smallercities in eastern Massachusetts, but one’s service area (TND) was proximal to the city of

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Boston and the other (CBA) was further from Boston and demographically and economic-ally distinct. The characteristics of the two CDCs are shown in Table 1.

As a result of the contrasting characteristics of these two organizations, we applied themultiple case study approach (Baxter & Jack, 2008; Yin, 2003) to determine how theyhave pursued foreclosure development. In choosing this approach, we balanced our beliefthat one case would be inadequate to answer our research questions with Creswell’scaution that selecting multiple cases “dilutes the overall analysis” (Creswell, 1998, p. 63).In the end, we feel that the benefits of two cases outweigh any possible dilution of theanalysis of each case. We also used the instrumental case study approach (Stake, 1994) tosupport our discussion of policy and practice recommendations consistent with research-based methods to community-level problem solving.

We collected our data between May 2009 and September 2011. This paper has itsroots in a study of decision models for foreclosure property acquisition and redevelopmentthat used data from Lowell collected between 2008 and 2009 (Johnson, Keisler, Solak, &Turcotte, 2010). In order to provide empirical policy-analytic grounding and context forthat paper, Johnson and Turcotte conducted a pilot study on the same topic, fundedbetween 2009 and 2010, using data and observations from Lowell and Chelsea(Johnson & Turcotte, 2009). Analysis for this paper continued as part of a sequel project,funded from 2010 to 2014, that involved the development of similar sorts of analyticmodels, using data from additional neighborhoods in metropolitan Boston (Johnson,Keisler, et al., 2010). Further, our data collection period was an opportune time forforeclosed housing acquisition and redevelopment activities in Massachusetts as lenders’foreclosure efforts were in high gear and state and federal resources (i.e. NSP funding)were more readily accessible for CDCs.

For this study, we conducted 11 interviews with key informants: community andgovernment stakeholders and real-estate development and other CDC staff knowledgeableabout foreclosure acquisition and redevelopment activities. The CDC staff membersselected for interviews were all involved with foreclosed housing acquisition efforts.Community and government stakeholders were identified and selected based on theirengagement and familiarity with each CDC’s foreclosure acquisition and redevelopmentactivities and their knowledge of potential neighborhood impacts in each city (none of thecommunity and government stakeholders were familiar with both CDCs). Two additionalstakeholders were contacted for interviews, but were non-responsive. Several CDC staffwere interviewed multiple times because foreclosure activities and government policieswere very fluid and CDCs’ experiences, challenges and opportunities varied between2009 and 2011.

We applied triangulation to our cases using multiple data and evidence-gatheringtechniques to ensure validity of the case study research (Yin, 2003). Interviews withKey Informants were used to ascertain information about CDC foreclosure acquisition andredevelopment experiences, practices and perceived impacts, as well as barriers andchallenges encountered while engaged in these activities. Interviews with CDC staffwere recorded and transcribed. Interviews with community and government stakeholderswere conducted on the telephone or via email and focused on their perceptions of CDCacquisition activities and neighborhood impacts. Telephone interviews were not recorded,but detailed notes were taken. Documentation included internal communications, reports,proposals, formal studies, media articles, and other documents from web searches. Eachperson interviewed was asked for any written documentation that would help provideuseful information as part of the case study. Archival Records included organizational andoccupant records, such as budgets, maps and site plans of projects, data from the

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Table

1.Characteristicsof

case

stud

yorganizatio

nsandcommun

ities

served.

Characteristic

The

Neigh

borhoo

dDevelop

ers(TND)

CoalitionforaBetterAcre(CBA)

Yearestablished

1979

1982

Portfolio

–un

itsow

ned

263

400+

Geographicorientation

Chelsea

isacross

theMystic

andChelsea

Riversfrom

thecity

ofBostonandRevereis5milesfrom

downtow

nBoston

Thirtymilesno

rthw

estof

Boston

Acquisitio

nstrategy

2–3un

itprop

erties,center

offoreclosureclusters,

similarstages

offoreclosure,prox

imalto

otherTND

prop

erties

>3un

itprop

erties,clusters,p

roximalto

otherCBA

prop

erties,am

enities,

nearby

services,visual

neglect

Servicearea

demog

raph

ics

Chelsea,MA

Revere,

MA

Low

ell,MA

2010

popu

latio

n135

,177

51,755

106,51

9%

Hispanic1

62.1

24.4

17.3

%Non

-HispanicBlack

16.7

4.3

6.0

%Asian

13.1

5.6

20.2

%Below

povertylin

e223

.3(±3.5)

16.2

(±2.2)

17.6

(±1.6)

Econo

mic

andho

usingcharacteristics

Medianho

useholdincome

(MHI)2

43,155

(±2,92

8)50

,592

(±1,94

2)51

,471

(±1,53

6)

Medianho

usingvalue(M

HV)2

301,90

0(±20

,218

)32

7,80

0(±8,40

4)24

2,60

0(±4,51

9)MHIto

MHV

ratio

7.0

6.5

4.7

Mediangrossrent

210

89(±39

)1147

(±37

)93

9(±20

)Renteroccupied

(%)1

71.3

52.4

54.8

Vacancy

rate

(%)1

6.3

7.4

7.1

Foreclosedprop

ertiesacqu

ired

310

22

>3Multifam

ily0

1(occup

ied)

22–

3Fam

ily8(1

occupied)

1(occup

ied)

0Singlefamily

20

0Affordableun

itsprod

uced

229

23

1UnitedStatesCensus20

10.

2American

Com

munity

Survey20

07–2011.

3Allpropertiesacqu

ired

werevacant

atpu

rchase,un

less

otherw

iseno

ted.

“Service

AreaDem

ographics”

and“E

conomic

andHousing

Characteristics”

measuresincludemargins

oferror,where

available.

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CHAPA’s First Look database and descriptions of foreclosure funding initiatives by theMHIC. Observations consisted of visits to case locations and neighborhoods in whichforeclosure acquisitions were planned or had occurred. In addition, researchers attendedreal-estate and foreclosure acquisition committee meetings to observe discussions aboutforeclosed properties of interest for acquisition. We recorded in writing meeting andobservational notes and stored them on our project Wiki. In the Lowell case, oneresearcher was a participant observer as a member of the real-estate committee andforeclosure acquisition taskforce.

Our unit of analysis was individual foreclosure acquisition and redevelopment activ-ities and projects among CDC actors within real-estate departments and committees. Weused pattern matching to evaluate how the four sources of data reflected our assumptionsand answered our research questions.

We note that TND is somewhat older than CBA and serves two cities with a differentethnic composition. Chelsea and Revere’s populations are 62.1% and 24.4% Hispanic,respectively, whereas Lowell, the fourth largest city in Massachusetts is 17.3% Hispanic.The cities that TND serves also have higher median housing values and higher mediangross rent than CBA which serves a community farther away from Boston and itsinfluence on housing prices. Chelsea and Revere’s median housing values were$301,900 and $327,800, respectively, in 2011, whereas Lowell’s was $242,600. In addi-tion, Chelsea and Revere’s median household incomes were lower than Lowell’s at$43,155 and $50,592 versus $51,471, respectively. TND also has had a larger presencein affordable and foreclosed housing development than CBA. In the following twosubsections we address our first research question by exploring the foreclosure responsesand housing acquisition strategies of the two organizations in detail.

CDC responses and acquisition strategies: the neighborhood developers

Chelsea is the second most densely populated city in Massachusetts, and the smallest inland area (2.5 square miles). It has traditionally served as a “gateway” city or entry pointfor immigrants; triple-deckers (three-story apartment buildings) are the most prevalenthousing type, though single- and two-family homes are also common. TND, as Chelsea’ssole CDC, posits a “theory of change” that focuses on revitalizing distressed neighbor-hoods by following holistic investment strategies, including real-estate development,community building, and expanding resident economic opportunities and assets (TheNeighborhood Developers, 2010). TND’s real-estate development efforts involve partner-ships with diverse local stakeholders to acquire and redevelop dilapidated housing andexpand the supply of affordable housing.

Due to rising housing foreclosures in Chelsea in 2008 and 2009, TND initiated theNeighborhood Stabilization Initiative (NSI) in the high density Bellingham neighborhoodparticularly hard hit by foreclosures and at risk of destabilization. Under this initiative,TND acquired foreclosed housing strategically located in corridors and nodes within theportion of the area that they felt had the greatest potential to affect local perceptions andreal-estate values, and small enough to yield more discernible social impacts in aconcentrated area (J. Stearns, interview, August 28, 2009).

In January 2010, at the invitation of the Mayor of Revere, TND expanded itsneighborhood development model to this city. This invitation occurred because Reverelacked a CDC and had a large concentration of foreclosures and triple-deckers in theShirley Avenue Neighborhood and represented similar conditions and challenges to thosefaced in the Bellingham area of Chelsea. Within these similar neighborhoods, TND

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acquired and redeveloped real-estate-owned (REO) foreclosed properties, pursued infilldevelopment and improved neighborhood amenities. We describe TNDs’ goals, followedby evidence of achievement of these goals.

Geographic targeting and market impacts

TND placed highest priority on concentrated development, mostly of two- and three-unitproperties at the center of foreclosure clusters that are in similar stages of foreclosure andclose to other TND-owned units in Bellingham and in a highly blighted neighborhood inRevere. TND intended to reduce “churn,” a term Janet Stearns of TND used to describerampant neighborhood-wide property flipping. TND also sought scattered-site acquisi-tions in locations with high likelihood of positive neighborhood impacts, as well as otheropportunities to stabilize neighborhoods of focus and strengthen the market.

Social impacts

TND intended to achieve positive social impacts in their target neighborhoods through theacquisition and redevelopment of foreclosed properties. TND’s goals were to attracthigher-income families and take measures to increase resident satisfaction and the physi-cal and social health of residents. TND also planned to choose housing units forredevelopment that would increase residential stability, and ensure more diversity ofincomes and family types by offering varying numbers of bedrooms within those proper-ties (J. Stearns, interview, August 28, 2009). Since TND saw physical and social devel-opment as closely linked, it put substantial emphasis on building civic leadership andengagement in the community through individual organizing. As a result, it used informalcommunity knowledge to identify acquisition opportunities. TND’s overall goal was tointroduce mixed-income housing into a portion of the community with substantial num-bers of vacant units (J. Stearns, interview, August 28, 2009).

Financial feasibility of acquisition efforts

Like all CDCs in Massachusetts, TND was obligated to limit expenditures to meet funderrequirements such as a maximum purchase of 1% less than appraisal, a per-unit subsidycap and a per-unit limit on total development costs. TND also considered the likelihoodthat redeveloped units could be successfully leased (B. Meyer, personal communication,August 28, 2009).

Based on the earlier goals, between 2008 and 2011 TND acquired 10 foreclosedproperties in the Bellingham neighborhood of Chelsea, and two in the Shirley Avenueneighborhood of Revere. As of September 2011 they were in different stages of devel-opment. TND’s Bellingham acquisitions were geographically concentrated and most werefairly close to other TND-owned properties. The two Shirley Avenue properties were alsogeographically close to each other. In total, five rental properties (17 units) were com-pleted and occupied by 2011, and one single family home was completed and sold forhomeownership. One property (three units) that is under construction is intended for re-rental, and two properties (four units) under construction are intended for re-sale to firsttime homebuyers. Two properties (three units) in pre-development are slated for home-ownership, and one property (three units) in pre-development is slated for rental.

The first seven properties acquired by TND in Chelsea were vacant because lenderswere reluctant to become landlords and commonly evicted or offered tenants financial

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incentives to leave. In addition, TND initially preferred to acquire vacant properties due toa lack of resources for tenant relocation during the redevelopment process (J. Stearns,personal communication, August 28, 2009). However, as more resources became avail-able and pressure mounted to prevent resident dislocations from foreclosures, TNDacquired three tenant-occupied properties between March 2010 and August 2011: twoproperties (six and three units) in the Shirley Avenue neighborhood, and one (three units)property in the Bellingham section of Chelsea.

Although TND had planned to follow the same acquisition strategy in Revere that itpursued in Chelsea, the six-unit property purchased in the Shirley Avenue area is largerthan the other buildings acquired by TND, as “triple-decker” buildings with 3–6 units aremore common in the Revere neighborhood. TND saw this acquisition as a way tostrengthen its partnerships in Revere, as the city regarded acquisition of this building asan important initial effort to revitalize the neighborhood.

TND’s foreclosed property acquisitions were selected according to their geographictargeting and market impact, social impacts, and financial feasibility goals, though it didnot meet its goal of purchasing and redeveloping 25–30 properties totaling 90 units withinone year. At the time of data collection and analysis there was not much evidenceavailable about community impacts of the redevelopment activities, but more recentdata indicates that there are some city-wide demographic and housing improvements,such as slightly reduced poverty and higher owner occupancy rates (US Census, 2012).The cause of these improvements cannot be easily separated from other market forces,however, including the general moderation of the impacts of the foreclosure crisis.Nevertheless, interviews with TND staff and governmental leaders, as well as our ownobservations, indicate these neighborhoods appeared to be better off as a result of TNDefforts, because there are less vacant and blighted properties and more housing stabilityamong residents. A Chelsea district city councilor noted that TND’s efforts “helped stopspillover effects from foreclosed/abandoned properties,” but also emphasized that certainpositive impacts cannot be realized in the short-term (P. Barton, personal communication,October 6, 2011).

CDC responses and acquisition strategies: coalition for a better acre

CBA aims to promote a resident-driven revitalization strategy and to expand the supply ofaffordable housing and has a long history of successful real-estate development activities.The common development model pursued by CBA involves the acquisition and redeve-lopment of distressed property into rental housing using low-income housing tax creditsas the primary source of funding. As a result of rising foreclosures in 2008, CBA began totrack housing at risk of and in the process of foreclosure, as well as REO properties, withthe intention of acquiring and redeveloping such properties into rental housing.

CBA traditionally concentrated its development activities in the center-city acreneighborhood of Lowell. However, as the only CDC in Lowell, CBA in the late 2000schanged its mission to explore opportunities for partnerships with organizations in otherLowell neighborhoods with similar demographics and needs. CBA’s policy goals regard-ing foreclosed housing rehabilitation can be classified as geographic targeting and marketimpacts, social impacts, and financial feasibility (M. Nash, personal communication,August 20, 2009).

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Geographic targeting and market impacts

CBA prioritized acquisitions of properties with more than three units; properties inclusters or close proximity to one another; properties with amenities like off-street parkingand large units; proximity to services and transportation; and properties that show exteriorconditions of neglect.

Social impacts

CBA intended to stabilize neighborhoods by acquiring properties that were of concern toneighborhood groups or that would help reduce crime and lead to residents feeling safer, andto create housing for special needs populations and households at risk of homelessness.

Financial and operational feasibility

CBA wanted to expand membership and partnerships with other community-based orga-nizations and to ensure that acquired properties result in affordable housing that isfinancially manageable. However, CBA, as distinct from TND, lacked specific numericalforeclosure acquisition goals.

CBA faced multiple challenges in meeting its organizational goals for foreclosed housingacquisition. First, most potential acquisition opportunities available to CBA were often notclustered, but spread throughout the city. Those few promising properties that were clustered,however, could not be acquired because they were in locations neither eligible for NSP1money from the city nor NSP2 money from the MHIC. Second, when CBA did identify 2–3unit properties in eligible neighborhoods as acquisition candidates, it chose not to pursue theseopportunities because private developers had already purchased them or because such proper-ties were financially infeasible to rehabilitate. Finally, CBA could not afford to select proper-ties widely scattered throughout the city, nor those with high per-unit rehabilitation expenses,nor those requiring substantial expenditures for tenant relocation. Thus, CBA concentrated itsefforts on a small number of large vacant multi-family properties.

CBA acquired two large vacant properties located across from both the CBA officesand their largest 280 unit rental housing project. CBA demolished the two vacantbuildings and redeveloped them into 23 units of affordable housing. This approach wasunusual, as CBA is very proficient at rehabilitation, but the condition of these vacantbuildings, plus funding levels and restrictions made rehabilitation financially infeasible.Yet, this acquisition and redevelopment project appeared aligned with CBA’s mission,geographic targeting and other policy goals, especially the need to mitigate the destabiliz-ing influence of distressed buildings. To make this project financially feasible, CBA useda portion of the city of Lowell’s NSP1 funding for the project’s “soft” (non-construction)costs (M. Nash, personal communication, March 8, 2011). Accordingly, CBA was alsoable to avoid certain Federal rules (described in a later section of this paper) which wouldhave increased construction (“hard”) costs. Nonetheless, CBA decided to suspend fore-closure acquisition beyond this project for two reasons. First, significant time and resourceinvestments resulted in fewer foreclosure acquisitions than expected. Second, CBAbelieved that acquisition and redevelopment of non-foreclosed properties would producemore rental units and stronger neighborhood outcomes than would foreclosure acquisitionand redevelopment given an equal investment of organizational resources.

CBA’s foreclosure work was part of larger involvement on this block. CBA acquiredthe two nearby vacant and foreclosed properties because of concerns about their negative

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impacts on the surrounding community and its previous investments described earlier.According to interviews with community leaders, these combined efforts had a consider-able stabilizing influence on the neighborhood by replacing blighted, vacant structureswith occupied quality housing.

With this understanding of the experiences of our case organizations in foreclosedhousing acquisition and redevelopment, we now identify internal and external factors thataffected their success in foreclosed housing acquisition and redevelopment and in sodoing answer our second and third research questions.

Factors influencing opportunities and challenges in foreclosed housing development

Multiple neighborhood stabilization programs at the federal and state level assisted CDCsby providing much-needed funding for foreclosure acquisition, thereby helping to stabi-lize local communities. Various policy initiatives and funding allocation formulas inher-ently recognized the pivotal role that CDCs play in neighborhood redevelopment. BothCDCs in our case studies also secured funding and received active encouragement toengage in foreclosure acquisition efforts from municipal government (A. Houston, perso-nal communication, July 31, 2009; B. Meyers & J. Stearns, personal communication,August 28, 2009; M. Nash, personal communication, August 20, 2009).

Federal funding policies for foreclosed housing redevelopment resulted in multipleimpediments to CDC activities, however. By requiring that purchase prices be at least 1%below the formal appraisal, NSP requirements made it more difficult for TND, CBA andother non-profits to compete with aggressive private investors who were able to pay moreand acquire key foreclosed properties necessary for neighborhood stabilization (A.Houston, personal communication, July 31, 2009; B. Meyers & J. Stearns, personalcommunication, August 28, 2009; M. Nash, personal communication, August 20,2009). Initial NSP regulations prevented CDCs from acquiring foreclosed housing priorto the REO stage, which prohibited acquisition from short sales and purchases at auctions,though HUD removed this obstacle by expanding the definition of “foreclosed andabandoned” in 2010 (US Department of Housing and Urban Development, 2010).HUD’s early definition of eligible foreclosed properties and neighborhoods also restrictedthe pool to only REO properties in specific census tracts. NSP1’s allocation formuladelayed funding to communities in need, as HUD did not provide direct allocations to thecities served by our case organizations.

NSP also created additional challenges by requiring developers to follow HUD’sCommunity Development Block Grant (CDBG) guidelines, which are more restrictivethan HOME guidelines. For example, Davis-Bacon requirements for prevailing wage ratesfor construction workers apply when a development has eight or more units; increasedconstruction costs for small developments may make them financially infeasible. Amember of CBA’s real-estate staff noted that Davis-Bacon requirements add an additional10–15% to the total development cost of a project (US Government Accounting Office,2010), and others have also reported greater cost impacts, up to a 37% increase inconstruction costs (Dunn, Quigley, & Rosenthal, 2005). As a result, CDCs generallyencounter funding gaps due to the sizeable investments required for quality and timelyacquisition and rehabilitation projects. In addition, while both CDCs qualified for theNCST’s First Look program, by 2011 only a few properties were acquired in Chelseafrom this initiative, and none were acquired in Lowell and Revere.

The state of Massachusetts Department of Housing and Community Development(DHCD) initially established a $60,000 per unit funding limit for the use of NSP1 money

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that was managed by the MHIC. Both CDCs accessed the state housing agency’s NSPallocation through MHIC. Since many foreclosed properties required CDCs to typicallyspend more than $60,000 per unit to redevelop into high quality housing, this limit createda funding gap that often could not be bridged by other means (M. Nash, personalcommunication, August 20, 2009; A. Houston, personal communication, July 31, 2009).

Another category of challenges to foreclosed housing redevelopment faced by ourcase study CDCs is that of competition from local private investors who were morenimble than the CDCs in making purchasing decisions, due to their in-house capital andfreedom from constraints attached to government funding sources (M. Nash, personalcommunication, August 20, 2009; B. Meyers, personal communication, August 28, 2009).Investors often sub-divided two- and three-family properties into illegal single roomoccupancy (SRO) style units to maximize rental income per square foot (J. Stearns,personal communication, August 28, 2009). These private entities, which may be com-pared to the slum landlords described by Sternlieb (1966) or “milkers” as described byMallach (2013), invested minimally in building rehabilitation because of their lowstandards, which allowed them to pay more at the outset for foreclosed property (B.Meyers, personal communication, August 28, 2009). Their low standards have beenattributed to lack of interest in improvements beyond the cosmetic type that are justenough to avoid vacancies and tax policies that essentially penalize landlords for rehabi-litating to the point of raising the value of the property (Sternlieb, 1966).

Our interviews confirmed that government entities seemed concerned that private, for-profit developers would not share the same level of commitment to neighborhoodstabilization as CDCs. Both CDCs were routinely outbid by for-profit private developers,in part due to NSP rules on the maximum bid, difficulties in quickly assembling funds tomake a bid, and lenders’ preference for sales transactions with private investors. TheCDCs also lacked adequate leverage with lenders and mortgage servicers to negotiatepurchases of foreclosed properties, while investors often received favorable treatment bybrokers in purchasing prime foreclosed properties (J. Stearns, personal communication,August 28, 2009). These local findings reinforced those of MacDonald (2012), whodocumented the challenges of non-profit organizations nationwide that seek to competewith private actors in foreclosed housing acquisition and redevelopment.

State and local governments supported as well as impeded progress by our case studysites. CBA and TND accessed NSP1 funds through state and city governments, as well asNSP2 funds through a non-profit lender/investor specializing in affordable housingdevelopment finance (B. Meyers & J. Stearns, personal communication, August 28,2009; M. Nash, personal communication, August 20, 2009). However, the state contrib-uted to delays in development by initially establishing low per-unit funding limits,creating funding gaps for CDCs, and making many foreclosure acquisitions infeasible(M. Nash, personal communication, August 20, 2009).

Local governments in Chelsea, Revere and Lowell encouraged CBA and TND toactively pursue foreclosure acquisition and redevelopment (A. Houston, personal com-munication, July 31, 2009; B. Meyers & J. Stearns, personal communication, August 28,2009; M. Nash, personal communication, August 20, 2009). In Chelsea and Revere, citygovernments developed active partnerships with TND and considered TND crucial totheir neighborhood stabilization and redevelopment efforts at least in target neighbor-hoods. City officials from Chelsea and Revere, while limited in federal funding due totheir size, established policies to aid TND’s foreclosure acquisition goals to the best oftheir abilities. In Lowell, city officials participated in CBA’s foreclosure acquisitiontaskforce and solicited feedback on how local NSP funding should be prioritized to

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address the most pressing neighborhood stabilization needs. While the city of Lowellattempted to engage CBA in these efforts early in the process, it did not appear to viewCBA’s role at the same level of importance as did the cities of Chelsea and Revere withrespect to TND, most likely because Lowell lacked a particular neighborhood that wasdisproportionately impacted by foreclosures.

Discussion

In addressing our first question (What acquisition and redevelopment strategies are usedby the two CDCs?), we identified several strategies that the two CDCs in this studypursued, such as systematically tracking properties at various stages from those at risk offoreclosure to REOs and expanding foreclosure acquisition efforts beyond their traditionalneighborhoods. Understanding the value of experiential “local knowledge” (Corburn,2003), both CDCs used informal community knowledge to identify acquisition opportu-nities, though such knowledge acquired by TND resulted from community level organiz-ing and engagement, while that of CBA was provided by community members of theirforeclosure acquisition taskforce.

With respect to our second question (What external and internal factors have affectedthe success of our two CDCs in foreclosed housing acquisition and redevelopment?), wefound that several Federal government programs provided crucial funding to supportforeclosure acquisition and redevelopment efforts by CDCs, and local municipalitiesalso actively supported both CDCs acquisition work. Nevertheless, Federal regulationsand competition from private investors inhibited the CDCs’ ability to acquire andredevelop foreclosed housing. Internal factors affecting success included lack of organiza-tional flexibility to respond to market conditions, minimal discretionary capital, andlimited staff resources.

Our findings with respect to the last research question (In what ways are foreclosureacquisition and redevelopment more difficult than traditional acquisition and redevelop-ment for the two analyzed CDCs?) revealed several specific complicating factors, includ-ing funding gaps, unfavorable spatial and unit configurations of acquisition opportunities,restrictive federal program rules and nimble and opportunistic private developers. CBAwas unable to acquire most available foreclosed properties because they were unafford-able due to prevailing wage rates, located in NSP-ineligible census tracts, or not sold atthe required 1% discount, or “snatched up” by others (M. Nash, personal communication,August 20, 2009). The latter was echoed by TND, describing tension between acquiringfunds and making an offer on an eligible property before someone else does (B. Meyers,personal communication, August 28, 2009). Other problems TND faced with acquiringforeclosed properties were lack of financial resources and inability to acquire units beforethey reach REO status (J. Stearns, personal communication, August 28, 2009).

We found strong support for our first assumption, that these CDCs played a significantrole in local revitalization and low-income housing production. However, we also con-clude that NSP requirements and efforts to restrict per unit funding levels createdsignificant obstacles, rendering several foreclosure acquisitions by one of our case studyCDCs infeasible. Consequently, government policy, while intended to facilitate CDCsacquisition efforts, also unintentionally undermined those efforts.

The CDCs we studied have a broad mission focus, high internal capacity and projectmanagement skills, several funding sources and expanded geographical target areas beyondtheir historical neighborhoods, which is consistent with the characteristics exhibited byother successful CDCs (Gittell & Wilder, 1999; Rohe & Bratt, 2003). Although our cases

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displayed these organizational factors, as well as many contextual factors associated withsuccessful CDCs, our case study organizations still found it difficult to compete with privatedevelopers/investors and lacked the organizational flexibility to deal with market dynamicsadequately, consistent with Bratt’s (2009) analysis for non-foreclosure housing develop-ment. Nevertheless, there is some support for our second assumption (CDC mission andbusiness models for foreclosure redevelopments are influenced by contextual factors andorganizational factors) on the part of TND, but less so for CBA. For example, TNDdeveloped a business model to acquire and redevelop 2–3 unit properties reflective offoreclosed housing types common to their target neighborhoods and expanded their fore-closure work to address needs and opportunities in an adjacent city. Similarly, the CBAinitially attempted to modify their business model to acquire smaller multifamily properties,but reverted to focus on a different aspect of the housing market according to theirtraditional model of acquiring larger multifamily foreclosed properties on a citywide basisusing federal low-income tax credits, due to contextual challenges described earlier.

Our findings regarding neighborhood impacts of CDC foreclosure responses wereconsistent with the literature and our third assumption (foreclosed housing redevelopmentprojects, even if successful in financial and administrative terms, result in ambiguousneighborhood impacts), as the scale and newness of foreclosure acquisition activities, aswell as the readily available quantitative data rendered impact assessment extremelychallenging. This challenge of measuring impact of CDC activity in a community is echoedby a longer term case study with a 20 year observation period that showed that whilepositive impacts were apparent to community members, no quantitative evidence of com-munity impact was discernible due to the offsetting from other positive and negativecontextual factors like poverty rates, housing market trends, and population trends(Krumholz et al., 2006). As a result, we used qualitative measures based on local knowledge(Corburn, 2003), such as interviews and observations to conclude that CDCs acquisitionand redevelopment efforts had positive stabilizing effects on neighborhoods, though wewere unable to measure neighborhood impacts that reflected the organizations’ missions.

Lessons learned and policy recommendations

Our inquiry regarding the experiences of two Massachusetts CDCs pursuing redevelop-ment of foreclosed housing identified a number of lessons learned which, in turn, yieldrecommendations that may inform research and practice in housing and communitydevelopment.

CDCs require a high level of organizational capacity and the ability to investsignificant staff time in acquiring foreclosed properties

Each organization developed systems to identify potential foreclosed housing for acquisi-tion and tracked these properties at various stages of the foreclosure process, usingregistry of deeds and assessor offices’ data, as well as a proprietary database fromCHAPA. The CDCs we studied generally possessed adequate resources to pursue fore-closure acquisition and redevelopment to effect neighborhood change, though CBAdecided that their resources were better spent on traditional housing acquisition opportu-nities, for which they had a high level of organizational capacity and the ability to investintensive staff time to sustain these efforts.

When we attempted to assess the impacts of individual CDC’s actions in portions oftheir service area, however, we were confronted repeatedly with a paucity of data by which

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to do so, apart from informed judgments of CDC staff and external stakeholders who havelocal knowledge based on local politics and relationships. Without assistance from research-ers and government, CDCs do not typically have the resources to identify specific indicatorsdue to resource demands and the dynamic nature of foreclosure acquisition and redevelop-ment. Thus, our findings indicate that strategic planning and formalized rational decision-making models may not aid some CDCs in their foreclosure acquisition efforts in practice,as short-term decision-making windows and a fast-paced competitive environment forceCDCs to act opportunistically, as acquisition opportunities become available.

Multiple aspects of local and national housing policy have had unanticipatedconsequences in reducing the effectiveness of our CDCs’ work

For example, our CDCs had issues with utilization of NSP funding because of a shortageof eligible properties from which to make purchases strategic to their missions, the initialrestriction to foreclosed/REO properties, and other requirements. These issues are con-sistent with evaluations of NSP (MacDonald, 2012). The shortage of eligible propertiesmay be attributed to the unforeseen inclination of lenders to sell their high volumes oflow-value REO properties rapidly and in bulk, known as “dumping” (Immergluck, 2012),as well as their preference to work with private investors. Additionally, one goal of NSPlegislation was to maximize the number of foreclosed properties acquired and redeve-loped, with the underlying assumption that this would heighten neighborhood stabilizationimpacts. Consequently, the Massachusetts state housing agency established a per-unitfunding limit for NSP money to enable redevelopment of the largest possible number offoreclosed properties. However, this created a funding gap that made acquisition andredevelopment of many foreclosed properties infeasible for CDCs. The municipal plan-ning environment also created barriers. The city of Lowell set priority areas for investmentthat were outside CBA’s target areas, limiting CBA’s ability to use city funding andsupport to achieve its mission.

Impacts of the CDCs we studied were routinely limited by housing market factors

For example, the foreclosure market is dominated by national lenders and servicers withcollateralized loan pools who are reluctant to negotiate directly with CDCs (Edelmanet al., 2014). Also, private investors in foreclosure acquisition are at a competitiveadvantage because of high levels of in-house capital, lack of administrative restrictionson government-derived funding, and favorable treatment by brokers with whom they mayhave long-term relationships.

Certain housing policy environment characteristics external to CDCs contributed tothe successes of our case study sites

The NSP has, in addition to $7 billion in funding to combat the worst effects offoreclosures, developed progressively more inclusive policies and procedures related totimely use of funds, exceptions to per-unit limits on available funding and the nature ofproperties eligible for such aid. The NCST has provided CDCs with exclusive, thoughlimited, access to acquire foreclosed properties through the First Look program. TheMHIC has supported foreclosed housing redevelopment by distributing to CDCs fundsfrom the NSP1 program via the state housing agency, as well as funds from the NSP2program received directly from HUD.

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We now provide policy recommendations that address administrative and institutionalbarriers at the local and Federal levels to action by CDCs. First, funding limits forforeclosed housing initiatives should be market-specific and flexible. Non-profit devel-opers working in markets with high development costs and seeking to acquire propertiesin need of extensive rehabilitation require higher funding limits. Rules governing NSPfunding should follow more closely the HOME program rules rather than the CDBGprogram rules. The Davis-Bacon rule regarding prevailing wage rates starts at eight unitsunder CDBG rather than at 11 units under HOME. Funding timelines should allow forredevelopment projects that vary widely in technical difficulty and level of propertydistress. Deeper subsidies can enable CDCs to acquire the most distressed propertiesthat they anticipate can support broad neighborhood revitalization.

Second, the process of securing funding should be more practical for potentialgrantees. Programs could be streamlined to lighten the burden on CDCs requestingfunding from multiple sources, and to decrease the delay between allocation of fundsfrom Federal sources and receipt of these funds by CDCs. Reflecting the fact that mostforeclosures in the Boston area affect single- to three-unit properties, funding for smallunit developments should be differentiated from funding for larger multifamily develop-ments. This would create more flexibility for CDCs such as TND and CBA, which haverecommended this change. Tax credit-based programs such as the LIHTC program shouldbe re-examined for their effectiveness in a slow economy.

Conclusions and next steps

Research, including our case study, has indicated that CDC efforts to acquire andredevelop foreclosed properties are not for the faint of heart. Although government policyat all levels was intended to facilitate CDCs’ efforts, bureaucratic processes and certainrestrictions undercut policy goals. In some cases, government did respond by modifyingrules to address specific CDC challenges. CDCs need a high level of organizationalcapacity to navigate government policies and other uncontrollable market factors inorder to successfully acquire foreclosed properties. CDCs also require organizationalflexibility to effectively compete with private investors who dominate the foreclosureacquisition landscape. Although these findings are consistent with other studies identify-ing similar challenges caused by private investors and markets, we believe these difficul-ties are magnified in the foreclosure acquisition marketplace. In addition, difficulties inmeasuring and defining foreclosure acquisition success and impacts were more pro-nounced than indicated in the CDC housing development literature due to the limitedtimeframe and overall progress and scale of foreclosure acquisition activity.

Our case studies inform the body of knowledge regarding CDC foreclosure acquisitionand redevelopment efforts to stabilize local neighborhoods, as well as the contextual andorganizational factors affecting CDCs’ performance. They also provide important insightsinto links between local action and national policy and between government policy andneighborhood-level real-estate acquisition and redevelopment efforts. Finally, theydemonstrate that flexible, market-specific policies are more likely to make best use oflimited resources. Although advanced analytic methods may assist CDCs in meeting theirorganizational goals in foreclosed housing acquisition and redevelopment (Johnsonet al., 2012), researchers must be very mindful of CDC resources and challenges, andidentify problem opportunities and solution methods appropriately.

Our study is limited to two CDCs from small Massachusetts cities with weak butfunctioning housing markets. Future case studies should draw from more diverse

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urbanized areas and regions. In the absence of data on changes in property values, crimerates, neighborhood blight and resident satisfaction levels, we relied on mostly observa-tions and interviews with CDC staff and community and political leaders. Future evalua-tions of CDC-based foreclosure redevelopment initiatives will require a variety ofquantitative indicators and analytic models to rigorously evaluate longer term impactsof CDC foreclosure and other real-estate acquisition and development activities.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes1. Under the Massachusetts General Laws, Chapter 23A, Section 3A, a gateway municipality is

defined as “a municipality with a population greater than 35,000 and less than 250,000, amedian household income below the commonwealth’s average and a rate of educationalattainment of a bachelor’s degree or above that is below the commonwealth’s average.”

2. Novel methods have been developed to estimate such impacts in communities similar to theones examined in our case study, but mostly to support prospective analyses of housingacquisitions, and after the time during which the analysis for the current study was completed,see Johnson, Solak, Drew, and Keisler (2013).

Notes on contributorsDavid A. Turcotte is Research Professor in the Department of Economics and Senior ProgramDirector at the Center for Community Research and Engagement, at the University of MassachusettsLowell. He received his ScD from the University of Massachusetts Lowell in Work EnvironmentPolicy/Pollution Prevention/Cleaner Production. His research interests include innovativeapproaches to developing more affordable and sustainable housing and assessment of housingintervention effectiveness in improving the health of residents.

Michael P. Johnson is associate professor in the Department of Public Policy and Public Affairs atUniversity of Massachusetts Boston. Dr. Johnson received his PhD in operations research fromNorthwestern University in 1997. His research addresses data analytics and management science forhousing, community development and nonprofit service delivery.

Emily J. Chaves is a part time assistant program manager and graduate student at the University ofMassachusetts Lowell. She has a master’s degree in Economic and Social Development of Regions,and she is currently working toward a second master's degree in Epidemiology in the Department ofWork Environment.

Rachel Bogardus Drew is a post-doctoral fellow at the Joint Center for Housing Studies at HarvardUniversity. Her area of expertise is socio-demographic drivers of homeownership and housingdemand. She received her PhD in Public Policy from the McCormack School of Policy andGlobal Studies at the University of Massachusetts Boston.

Felicia M. Sullivan is Senior Researcher at CIRCLE, The Center for Information and Research onCivic Learning and Engagement, at the Jonathan M. Tisch College of Citizenship and Public Serviceat Tufts University. She holds a doctorate of philosophy in public policy from the John W.McCormack Graduate School at the University of Massachusetts Boston.

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