Public, private sectors team up to build new homes northwest of downtown
It’s not easy to build $80,000-plus homes in an inner-city neighborhood where a typical home might sell for $40,000, or even less.
But that’s exactly what builders are doing in the Lindsay Heights neighborhood -between 12th and 20th streets and Walnut and Locust streets in Milwaukee. The area — of critical importance to the city in part because of its immediate proximity to the downtown — had some of the lowest property values in the city. Now, dilapidated properties are being razed one by one and replaced by new homes made to order and sold at market prices. Funds are being made available to rehabilitate existing homes. Average property values are already increasing.
Lindsay Heights was identified as a priority by the Wisconsin Housing and Economic Development Authority (WHEDA) after a 1994 study by mortgage lender Fannie Mae revealed that poverty in that segment of Milwaukee was growing faster than anywhere else in the nation with the exception of parts of Detroit and Los Angeles.
"We did not think parts of Milwaukee were in worse condition than parts of Chicago, for instance," WHEDA community development officer Connie Pukaite said. "After all, in the four years before the report, we had done $10 to $15 million in lending in the city."
The problem area in Milwaukee consisted of 20 census tracts, and as WHEDA officials analyzed which parts of the city they had been making low-cost home loans in, they noticed a dearth of loans given for homes within those census tracts.
"Since then, we have been promoting home ownership in the target area," Pukaite said.
"Promoting" may be too weak a word. In 1995, WHEDA began offering would-be-homeowners fixed-rate mortgages at 4% interest — an offer that lasted until March of 2001 when the interest rate increased to a still low 5.5%.
Milwaukee Mayor John Norquist stressed that WHEDA restrictions designed to prevent borrowers from turning around and selling their homes for significantly higher prices were altered. According to Norquist, the cap prevented WHEDA borrowers from improving the properties they had purchased.
"One of the keys with Lindsay Heights was to get rid of a price cap which actually kept the home price from going up for a number of years after people bought it," Norquist said. "That was an important change (WHEDA Executive Director) Fritz Ruf made. There was a cap on it which made it almost impossible to get a second mortgage."
Income restrictions for WHEDA loans were also removed in Lindsay Heights and, according to Pukaite, several new Lindsay Heights residents have incomes well in excess of the limits.
The fact that buyers with the income to give them other options would locate in the neighborhood is significant. After all, one concern of those planning the project was the disappearance of tools and materials from construction sites. It was for that reason that modular homes were chosen as the preferred building method.
"Modular homes allow us to seal the home quickly and prevent theft and vandalism," Pukaite said. "Stick-built is too vulnerable to theft and vandalism. These can be put up and sealed quickly."
A plan unfolds
The Fannie Mae report was a wake-up call, according to Pukaite.
"We started working with residents to identify what they wanted," Pukaite said. "Residents of the area said they wanted to see new homes and homeowners in the area. Then in June of 1997, WHEDA’s executive director challenged us as a staff to come up with a proposal for how we could respond to residents’ desire for new homes. We explored methods for constructing new homes. We decided our first experiment should be in modular housing."
The first three homes were built as models, and were put on foundations in November of 1997. Interior build-out was completed by August of 1998.
"We finished them off and started letting people see them to become comfortable with factory-built homes," Pukaite said.
At the same time, Pukaite said WHEDA began building relationships with realtors, builders and the city. A key element was an arrangement with the city that allowed vacant lots to be purchased by homebuyers for $1.
"Some of the groundwork we laid early on," Pukaite said. "We entered into a very formal partnership with the city that was adopted by the common council.
WHEDA was contributing to development. The city was identifying lots and making sure they were ready for sale. We have to pay for some things like certified surveys if we need them, and for things like environmental reviews."
While the first models were built on spec, the goal of the initiative was to allow buyers to have homes built for them, eliminating the risk involved in spec development. The first house pre-purchased in this fashion was put on its foundation in October of 1998. That year, five other homes were sold — including two of the models completed in August. New-home sales have been consistent since then. In 1999, nine new homes were sold in Lindsay Heights. In 2000, that number increased to 14, and to 23 in 2001. This year, according to Pukaite, 19 pre-approved borrowers are in the pipeline, and two sales have already been closed.
Market-driven
Contractors associated with the initiative stress that unlike the highly-subsidized City Homes project at 20th and Walnut streets, homes constructed in Lindsay Heights are built to order for individuals by builders and sold at market prices. Contractors can and do make money working in the central city, and smaller operators may have an advantage over large homebuilders.
Infill development does not offer the same conveniences and economies of scale as does subdivision development. It was this lack of efficiency that lead Crosswinds Communities, a Detroit-based developer and builder of entry-level homes, to divest itself after early involvement in the Lindsay Heights initiative.
But the idea behind Lindsay Heights appealed strongly enough to Crosswinds Community’s construction manager that he left the company and started his own business to work in Lindsay Heights.
Rick Macek based his firm, Construction Management Services, in Bay View after leaving his position in April of 1998.
"We had just done a 50-unit modular project in the central city of Detroit," Macek said. "The modular manufacturer they were using was also contacted by the people from Lindsay Heights. By the time we got involved, the initial builder had left, and the modular manufacturer had all these houses that were approved but needed to be built. I was working for Crosswinds Communities doing nonresidential construction in Milwaukee. When this opportunity came up, my boss told me to meet with WHEDA and find out if this is a viable project."
Macek said Crosswinds stayed involved for two years and then opted out because the market did not develop fast enough.
"Crosswinds decided to consolidate and pull out of the Wisconsin Market," Macek said. "I liked the project, and I liked the people I was working with from the city and from WHEDA. I started up my own consulting company to provide modular construction management for any developers or builders that wanted to come into the program."
The scattered nature of new home building in Lindsay heights is both a blessing and a challenge, according to Macek. In the central city, he explained, larger redevelopment projects generally require extensive governmental involvement and subsidy.
"It is not a specific project like City Homes," Macek said. "Lindsay Heights is a market-driven vehicle, meaning that you aren’t involved in a highly closed-in project with a high subsidy. It is pretty much open to any builder that wants to come into the market and offer some products."
Macek said there are monthly sales meetings at WHEDA’s Milwaukee headquarters at 101 W. Pleasant St. Realtors, builders and other professionals come and go depending on their interest in and involvement with building in Lindsay Heights.
The meetings are helpful, according to Macek, to help circumvent certain challenges.
"There are challenges to building there," Macek said. "To say the least, it is challenging. From my standpoint, it seems to be that there are not as many contractors or subcontractors that want to or are comfortable coming in and working in the central city as in the suburbs."
Part of that is the scattered nature of the projects. Another hindrance, according to Macek, is a lingering perception that the City of Milwaukee is hard to deal with in the areas of permitting and inspections.
"There is still a stigma out there — even though I haven’t experienced it — that the City of Milwaukee is kind of a hassle with permitting and inspecting," Macek said. "It is a stigma and a perception — even though it is not reality anymore."
Property value, livability increasing
The presence of new homes and homeowners are having an effect in Lindsay Heights. But WHEDA and other community entities also concentrated early in the process on the state of existing housing.
Prior to getting involved with new home sales, WHEDA had already been working with the YMCA on rehab projects in the neighborhood.
"In conjunction with WHEDA, we began our paint and fix-up program," Jesse Greenlee, project director for the YMCA’s Central City Housing Initiative, said. "WHEDA has supported that since its inception with a modest $500 grant to assist in exterior improvements."
The program also benefited from private contributions from companies including Northwest Mutual Life Insurance, the Firstar Foundation and American Family Insurance.
Eventually, the YMCA found itself working with families to actually purchase abandoned homes and rehab them to the families’ likings.
"YMCA got involved in 1993," Greenlee said. "That was primarily due to the YMCA wanting to get involved in the neighborhoods outside of our building. North Central YMCA applied for Community Development Block Grant funds, and we were awarded funds in 1993. We used that money to acquire, rehab and sell houses under our Vacant Rehab Program. That is the program where we acquire vacant properties, rehab them and sell them to first-time homebuyers. From that initiative, we became involved in the neighborhood improvement program — correcting code violations. Targeted to mostly senior citizens, the program offered up to $25,000 in construction costs — including materials."
As WHEDA started its new construction initiative, Greenlee said Crosswinds Communities’ reaction to the slowness of the redevelopment process sent a message to his organization — there was a role here for the YMCA.
"A builder called Crosswinds was doing work in the neighborhood, and they found it difficult for them to make any money or make any impact," Greenlee said. "That gave the YMCA the impetus to get involved in the new home construction. We were already dealing with other avenues for home ownership for first time homebuyers."
Greenlee is modest about the impact the redevelopment effort has had on the neighborhood.
"We have seen a slight increase in assessed values — the average value of parcels we have seen increase 16% for duplexes and 22% for single family between 1990 to 2000. Values in 1990 averaged $13,000, so it was pretty low to start with. They are still nowhere near in comparison with the overall value in the city of Milwaukee. But we see good signs. We see continued involvement and interest from people who would be a part of Lindsay Heights. There is daily interest from new builders who want to come in and build their model homes."
