Schenectady’s rehab venture shows promise
Contractors buying into housing potential
SCHENECTADY An unlikely and ambitious plan for Schenectady’s blight is actually getting results.
A contractor has purchased an overgrown, trash-filled house near Union Street.
A tenant, who once put up with an absentee landlord who didn’t make repairs and didn’t pay the taxes, is now buying his former apartment.
And many other contractors are eagerly awaiting the rehab specs for about 20 houses throughout the city, which they plan to bid on so they can bring the buildings up to code and flip them for a profit.
Mayor Gary McCarthy started the project with a simple idea: Seize houses from those who wouldn’t pay taxes for years on end, sell them to responsible homeowners and use the money to balance the city budget and pay for the demolition of the worst buildings.
But many of the houses had not been maintained for years, and Building Inspector Eric Shilling said they needed thousands of dollars of work simply to bring them up to code. Realtors said the typical home buyer wouldn’t take a risk on such houses.
So Shilling and McCarthy hatched an idea that seemed so outlandish that even the state Comptroller’s Office said the city shouldn’t rely on it. They decided to ask contractors to take all the risk: Do the work on each house but only get paid when the house sold.
Critics said no one would take that deal. But contractors are lining up.
Legere Restoration is examining every house the city seized and giving the city estimates on the cost of repairs, so that the city can judge the work involved in each case.
Other contractors are bidding on the projects, with their bids judged against the initial estimate. But Legere is so eager to get the work that the company has offered to take on every project in which the bids come in higher than Legere’s estimates.
By March, Shilling plans to have contractors at work on 12 houses in the Northside neighborhood. He said he thinks it’s realistic to expect 20 houses to be at some stage of the rehab process by July. Contractors are telling him they could go even faster if he can write more specs.
“They would like to see as much inventory as possible,” Shilling said.
Contractor Gary Pappas, who has already started work at the first house offered through the program, is hoping to do 10 to 12 more houses next year. He thinks the city’s plan is fantastic, even though contractors don’t get paid until the house sells.
Contractors regularly work under those conditions, he said, and usually have to find buyers themselves. To work with a city Realtor and to have city officials helping to promote the houses is huge.
“It’s not guaranteed success, but it’s the best possible scenario. This program is as close as you can get,” he added. “Will I make some mistakes? Probably. But it’s all doing the homework on the front end.”
In other words, he is carefully inspecting each house before making a bid. He wants to be sure he knows what he’s getting into — and that the house is in an area where it will sell. That may prove to be a problem at some point, because the city has foreclosed upon many houses in Hamilton Hill, where houses don’t sell often and don’t sell for much money.
For now, the majority of the houses offered to contractors are in the Northside neighborhood, Shilling said. Others are scattered throughout the city.
Pappas, who grew up in Rotterdam, said contractors warned him to tread carefully in Schenectady. But the newly reorganized building department is working smoothly and swiftly. He said he decided to bid on more than just one house when he saw that city employees were more than willing to work with him.
They’re even willing to let him tear holes in the foreclosed houses before signing any bids.
“What really helped me was Eric’s program allows you to go in, kick the tires,” he said. “You can do any and all research. Say you want to know how much of the building is structurally sound? You don’t have to guess if the foundation is good or bad. You can open the wall and peer in.”
He did that at one building, after carefully asking permission.
“Eric was like, ‘Have at it! Let’s take a look together!’ ” Pappas said.
The program isn’t perfect, but city workers met with the contractors to outline the plan and ask them for input. Since then, he said, they’ve been willing to make changes when problems crop up.
“It really does come down to being flexible,” he said. “You’ve got the right team, seriously, that’s willing to make these tweaks and tunes.”
Critics have also suggested that the foreclosed houses are in such bad condition that they would not be worth repairing. But contractors have indicated otherwise as they begin to bid on the work.
Pappas said many of the buildings that look awful on the outside have “good bones.”
“There’s a ton of potential,” he said.
And more are on the way.
Corporation Counsel John Polster, who seized 160 houses this summer, took 15 more in December. All of those were vacant, he said. He is now planning to take small groups of houses regularly, rather than hundreds at once.
“I was running city employees ragged with the last group I took,” he said. “With every house we have to inspect, board them up if needed.”
While the majority of the tax delinquent structures in Schenectady are apartment buildings, there is a sizeable group of owner-occupied homes that are years behind on taxes.
So far, he said, he hasn’t seized those. The owners were given until mid-December to pay off their taxes, but only a few were able to do so, Polster said. Still, he hasn’t foreclosed.
“I just haven’t gone after them yet,” Polster said, noting that the exemption period offered by the City Council only expired a week ago.
McCarthy is hoping the process will convince owners — particularly landlords — that they must pay their taxes. He’s also hoping that the house sales will bring in new, more responsible owners who are willing and able to pay their taxes.
None of this is easy, as city officials have learned to their frustration. Foreclosing on the blighted, tax-delinquent houses Then Shilling had to inspect every one of them. City officials wrote rental agreements for tenants whose landlords had lost their buildings and took the landlords to court, pro bono, to get the tenants’ security deposits back.
Some tenants were living in unsafe, distressing conditions and had to be evicted. Some vacant buildings were in such bad shape that Shilling decided they couldn’t be profitably repaired. Those buildings are on the demolition list, and three buildings have already been razed.
But Shilling found that most of the houses could be repaired for less than their typical sale price in their neighborhood.
“None of it looks good from the outside,” he said. “But many of them are worthy on the inside.”
Those “worthy” houses need thousands of dollars in repairs to bring them up to code — from new roofs and working furnaces to safe wiring.
The original plan was to allow only reliable contractors, who passed through an approval process in City Hall, to bid on the work. They had to prove themselves through references, bank statements and other evidence.
Now, Shilling is adding tenants to the mix. At the city’s first open house, he said, many tenants and next-door neighbors said they wanted to buy particular foreclosed homes.
“So we’re vetting all those interests,” he said.
City officials are preparing the paperwork to sell the first former-apartment to its tenants, he added.
Shilling is listing all the code violations, as well as an estimate of how much a contractor will charge to fix them. Both sides are also negotiating a “very affordable” price, because the tenants will also have to pay the cost of the repairs.
“Very affordable. I’m talking $10,000,” Shilling said. “Then you have 12 months to go get your own contractor.”
Once the houses sell and the contractors are paid, the rest of the sale price goes to the city, with a small share to the Realtor.
McCarthy is banking on revenue from those sales, as well as tax payments from the new owners, in the 2013 budget. The whole process has taken longer than he expected, but he’s satisfied that it is working.
“It’s a slow, methodical process,” he said. “[I] believe it’s going to have long-term benefits.”