Lessons from Rialto
An Interview with Adam Eliason, President, CivicStone Consulting
CivicStone Consulting is under contract to administer its Acquisition, Rehabilitation, Resale Program as part of the Neighborhood Stabilization Program (NSP) in seven Southern California cities, including Rialto, CA.
Q. What is the most pressing effect of foreclosure and abandonment your community currently faces? Has this problem changed since your organization first developed its neighborhood stabilization strategy?
Adam: People believed NSP would infuse enough money to revitalize neighborhoods, but in severely depressed communities, NSP dollars are a drop in the bucket. In Rialto, we aim to act as a seed for private investment by showing investors in a non-verbal way [through rehabbed homes] what is possible. We reach out to lenders and realtors. It’s difficult to quantify private investment, but from what we see, we think it is working.
We are focusing on properties that need a lot of renovation; we would prefer the private market let us focus on these troubled properties [because they may not put as much work into them].
I don’t worry as much about private investors as long as the community is on top of what is being developed. Rialto, for example, has an inspection process unrelated to NSP that identifies and inspects vacant and foreclosed properties. The inspectors cite it and put a lien on it, and when an investor comes to have the lien cleared, the City can leverage that lien; the City is generating revenue and avoiding blight.
Overcoming Challenges
Q. What are the most difficult obstacles your organization has encountered when addressing foreclosure and abandonment in your community?
Adam: One major impediment [from systematically addressing foreclosure at the block-level] is the ability to…access properties from…sellers working outside NCST who do not want to sell to me or I cannot get the right price from them. Originally, 50 percent of Rialto received a high risk score according to HUD standards. But it’s difficult to focus on some of those target areas, because it’s hard to amass a whole block’s worth of property. The hope is that the one property you do acquire and renovate encourages the same outcome from the other four properties with for-sale signs on the block.
We’re taking a more proactive approach now to finding properties - by looking for the most blighted properties in the MLS [Multiple Listing Service], through NCST’s Reverse Look, and by driving around areas.
Successes
Q. What outcome would your organization consider its greatest success within its neighborhood stabilization strategy to date?
Adam: Success is purchasing and rehabbing the most property for the best amount of subsidy. As of July 2010, we rehabbed 34 houses with NSP-1 dollars. In part, that success can be attributed to keeping developers focused on the community and finding the right price for property through the Stabilization Trust. We’re recycling money through the community, and because we are doing high-quality renovations, we see better renovation in other properties. We’re also educating homebuyers to help them avoid falling into another foreclosure situation. Often, success is measured by “what do we tell the City Council?” and often, it may mean how Rialto compares to other cities.
Developers are especially important to Rialto’s success. An ideal developer is experienced, fully integrated (renovation license, real estate broker’s license, and proven neighborhood sales tactics), works within the community, and isn’t looking to move on to the next project, which offers a degree of accountability for his/her work.
To encourage developers to work with us, we’ve created a “balanced” risk payment system. Rialto offers developers a $16,000 developer’s fee, roughly 10 percent of the sales price [of a home] after being rehabbed. Rather than offering a percentage-based fee, a flat fee encourages developers to go after as many properties as possible and make a profit through volume.
Three developer-partners compete to rehab the properties by submitting how much a subsidy (grant from the city) they will need to complete the project, up to $10,000 (and as of July 2010, $30,000 in special cases). If the developer runs over the subsidy, he can use his developer’s fee for any unforeseen costs. If for some reason the developer uses his entire subsidy and developer’s fee to complete the project and/or cannot sell the house, the city will step in. The city has never needed to step in, though. Often projects come in under-budget. About 80 percent of the time, a project at closing costs less than the amount the city committed to it. The competitive nature of the process and the documentation HUD requires keeps developers honest about their costs.
Q. Last words of wisdom for other organizations undertaking neighborhood stabilization work benefit based on your experience?
Adam: Make sure the program you develop gives an incentive for everyone involved to do the most homes with the least amount of subsidy.
Ensure planning and strategizing discussion about each party’s responsibilities, role, and timeline for completing them (“flow and timing”). Many NSP-1 grantees had difficulty spending their funding, because they could not wrap their arms the process. They need expertise involved early in the process, because writing and implementing [these funds] are huge collaborative efforts.
Make sure the program you develop leverages its dollars to the maximum amount.
