City bans bulk land-bank sales after lopsided deal with not-for-profit

November 3, 2012
A Tennessee investor bought this 912-square-foot house at 1837 Albany St. for $71,500 in February. The city sold it to Homeless & ReEntry Helpers Inc. last year for $1,000. (IBJ photo/Perry Reichanadter)
Indiana Landmarks, a statewide organization with almost 40 employees, typically juggles only 10 to 15 properties at a time so it can keep pace with upkeep and insurance as it recruits investors willing to take on historically accurate rehab projects, Lethig said.

“We were trying to move properties most people wouldn’t touch on a good day and get them into people’s hands for a turnaround,” Lethig said. “I thought, ‘Damn, that’s a lot of properties for one organization to take on, especially a relatively new nonprofit.’”

His instincts were on target. Walton said Homeless & ReEntry Helpers bounced one of several checks it brought to closing, blaming an accounting error. Some investors complained to the city that HRH backed out of deals to sell them properties and refused to refund earnest money. A number of properties had occupants already.
Hawkins admits HRH made mistakes. The organization didn’t have the staff or expertise to keep up with inspections and oversight for so many houses. He also said an early partner betrayed his trust, but he refused to elaborate.

He hired residential investors Judith Wray and Donna Prince, who own JDG Indiprop LLC, to oversee HRH’s investors. He’s paying them $500 per week while the program is on hold, though they plan to “participate” in some future deals and will be paid more if the program starts up again.

HRH has taken back at least 10 properties where investors failed to make progress, and 10 more are under “heavy threat.”

“We’ve all been learning as we go,” Hawkins said. “We got too big too fast, and we didn’t keep tight enough of a rein on investors.”

Hawkins said HRH can now handle 75 to 100 properties per month, but they need at least 10 per month to keep the organization going at an “austerity level.”

He’s pleading his case to the Marion County Board of Commissioners, which has tightened its policies for selling surplus properties to not-for-profits after halting the sales in November 2011, two months after the HRH deal closed.

“A lot of nonprofits were asking for a large number of properties at one time,” explained Fuentes, who took over as treasurer after the freeze took effect. “We needed to take a closer look and see whether they were living up to their promises.”

Some of what commissioners found was particularly troubling: They had sold surplus properties to a foundation run by two women who the Marion County Prosecutor now alleges sold several vacant homes it did not control.

The more common concern was capacity—determining how many homes an organization could handle at once. The county has begun selling vacant homes to not-for-profits again, Fuentes said, but the organizations can take only five properties at a time.

Hawkins claims he can handle more. His case hinges on experience. He said HRH and its partners have invested more than $2 million to return 200 properties (from both land bank and county surplus) to the tax rolls.

In a letter to the commissioners, Hawkins warned that a couple of new “so-called nonprofits” are trying to replicate his model. He also said commissioners shouldn’t allow HRH’s current investors to buy directly from the county treasurer.

Hawkins won’t get another look from the land bank until he works through the initial round of 154 properties, Walton said. The city’s tracking shows about 80 of them have been fixed up and are back on the tax rolls.

The land bank still allows not-for-profits to flip properties to investors, but the city now requires organizations to disclose investors’ identities and intentions. The idea is to ensure the homes wind up in the hands of investors with a good track record of cleaning up and maintaining their properties, Walton said.

“At the end of the day, for us, it’s about redevelopment and getting them back on the tax rolls,” he said. “These were delinquent, derelict, in some cases unsafe, structures. All we care about is the end result.”

No easy solutions

About 20 percent of the homes the land bank sold to Homeless & ReEntry Helpers had been destined for demolition, Walton figures.

The city has deemed thousands of vacant properties as unsalvageable neighborhood nuisances—based on recommendations from Health & Hospital Corp. and the Department of Code Enforcement—and has begun tearing them down. The city so far has demolished about 1,700.

The idea of demolishing homes is maddening to investors like Adams, who says he has out-of-state investors eager to buy urban rental properties.

One way to improve the process could be through a not-for-profit land bank free of government bureaucracy. Officials with the city and the local not-for-profit community are working to establish one, following the lead of a new operation in Cleveland.

That sounds like a good idea to Taft, of the Local Initiatives Support Corp., who says the model would

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