The City of Chicago Department of Community Development put on an informational meeting last Friday for residential developers to learn more about the city’s strategy to acquire and rehab vacant and foreclosed properties to get them back into productive use.
Here is a little background: In July, Congress approved a new Housing and Urban Development (HUD) initiative entitled the Neighborhood Stabilization Program or NSP for short. Through NSP, states and cities will receive $3.92 billion to acquire and rehab vacant, foreclosed properties. The city submitted a plan to HUD in late November, 2008 outlining how it intended to use these funds and received preliminary approval on its plan in January, 2009. The City of Chicago’s NSP allocation amount is $55.2 million. This allocation was based on the number and percentage of:
- completed foreclosures
- subprime mortgages
- defaults and delinquencies
Eligible Uses of NSP Funds in Chicago
There are, of course, regulations that will go along with this program. Among them are the eligible uses. NSP funds can be used to:
- Establish financing mechanisms for purchase and redevelopment of foreclosed homes and residential properties.
- Purchase and rehabilitate homes and residential properties that have been abandoned or foreclosed.
- Establish land banks for foreclosed homes.
- Demolish blighted structures.
- Redevelop demolished or vacant properties.
Requirements for NSP Funds in Chicago
HUD is requiring that NSP funds be used in the following ways:
- The funds have to serve households at or below 120% area median income (AMI), with 25% of the funds targeted at households at or below 50% AMI.
- The city must commit (spend) the entire $55.2 million within 18-months of signing the grant agreement.
- There must be restrictions in place to avoid over-improvements.
- Single-family homes cannot be sold at a profit, but at a reasonable developer fee is an eligible cost.
Each NSP grantee receiving an allocation of NSP funds must submit an action plan amendment describing the intended use of the funds and all funds must be used within the statutory deadline of 18 months from receipt of the funds.
NSP-Eligible Chicago Communities
The NSP has identified 25 Chicago communities in the greatest need of the HUD application:
- Auburn Gresham
- Chicago Lawn
- East Garfield Park
- Fuller Park
- Grand Boulevard
- Greater Grant Crossing
- Humbolt Park
- New City
- North Lawndale
- South Chicago
- South Deering
- South Shore
- Washington Park
- West Englewood
- West Garfield Park
- West Pullman
Who Is in Charge of Chicago’s NSP Funds
Katie Ludwig with the Chicago Department of Community Development and Bill Goldsmith and Will Towns with Mercy Portfolio Services are working closely together on this project. Their strategy is to be responsible for negotiating discounted property purchases with the lending institutions that hold those properties. (Properties owned by lending institutions are called for short.) This agency will hold and maintain the property for the short term and coordinate and oversee a broad network of pre-approved development partners on property disposition, which means sale to owner-occupants, lease-purchases, rentals, or demolition.
They have put out a call to action to the developers around the city. There will be an application process to become an NSP approved developer and the extent of participation will be based on criteria such as:
- Previous development experience
- Financial feasibility
- Property management capacity (for rentals)
The city and CNSC will help to identify eligible buyers and facilitate connections to end-financing. They will market support through a citywide campaign with home-ownership counseling. This counseling will include an eight hour required course which will be coordinated with a range of housing counseling agencies.
My Reaction to Chicago’s NSP Program?Not Good
After attending the meeting I walked away thinking…this is not as organized as I would like to see. I am worried that due to the 18-month guideline, that the city will spend money needlessly in order to ensure the ability to obtain more funds from HUD in the future.
Most of the developers that were in attendance, not surprisingly, are interested in making a profit for their time and effort. This is a neighborhood re-investment program. It is not set up for large profitability. There will be cap on the developer fee. When asked if the city will be working closely with the neighborhood aldermen and the Department of Zoning the representatives really did not have an answer casting doubt on how easily improvements will be to make in properties. The idea behind the program is honestly a great idea. But the bureaucratic red tape that goes along with this idea is going to make it a disaster.