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How Buffalo spent a half-million dollars rehabbing homes that sell for $100,000

Over on Fillmore Avenue, the City of Buffalo paid almost $400,000 to renovate a run-down, one-family house that is being sold for $80,000.

It’s not a fluke.

There are more.

From the East Side to South Buffalo, and in Black Rock, Buffalo spent just under $4.3 million in federal funds rehabilitating 10 houses that were then put up for sale in the past three years, a Buffalo News analysis found.

The average fix-up cost of the 10 houses – six of which include small rental apartments – was almost $430,000, according to the Buffalo News analysis. The most expensive was a $560,000 rehab in Hamlin Park, a historic preservation neighborhood.

Once fixed up, the rehabbed houses are selling – under a federal program for low-to-moderate income first-time homebuyers – for an average of almost $100,000 in neighborhoods where most homes generally sell for less. Sometimes considerably less.

So the 10 houses will sell in total for about $1 million, or less than one quarter of what Buffalo spent to rehab them,  The News found.

Buffalo spends, on average, at least twice what Rochester and Syracuse report spending per house under the same federal program, The News found. Buffalo also rehabs a fraction of the number of houses the other cities say they fix up: 25 a year in Rochester and 10 to 15 annually in Syracuse, compared with 10 over three years in Buffalo.

The News also found:

  • Buffalo rehabbed houses that are bigger and more dilapidated than those fixed up in the other cities, with most of the Buffalo houses considered demolition-worthy.
  • Given their condition, environmental clean-up costs of these houses are often high. In one case, $108,000 was spent removing asbestos from a Fillmore Avenue house being sold for $80,000. The total rehab was almost $500,000.
  • Houses were rehabbed in historic Buffalo neighborhoods, which also drives up costs. On Dearborn Street in Black Rock, for example, $65,000 was spent on siding, windows, and exterior doors and trim on one house. The total project cost was $523,600 on a street where no other house sold for more than $75,000 in the past year.
  • Buffalo rehabs include some features not offered in the other cities, including accessory rental apartments and a full set of major appliances.
  • While the Syracuse and Rochester housing agencies work with 10 to 15 general contractors, Buffalo generally has two or three bidding for its housing rehab work.

"The amount of money spent on these houses is beyond excessive,” said Buffalo Comptroller Mark J.F. Schroeder, who has been critical of the spending since his office last fall released an audit it conducted of the Buffalo Urban Renewal Agency’s housing program. “I’m sure there are a list of excuses about why it costs so much, but you can’t convince me there is not a better way to utilize these funds.”

“If there was a more thrifty way to spend these funds, you could help more people,” added Schroeder’s top aide, Patrick J. Curry.

(Related: Buffalo spent $523,600 rehabbing house; now it's for sale for $137,7500)

The U.S. Department of Housing and Urban Development, which issues the funds, has also taken notice.

"HUD has deep concerns about whether these costs are reasonable for the return they generate," regional administrator Lynne Patton said.

Because of the high costs, Brown administration officials say they are developing an alternative rehab plan that emulates some of what is being done in Syracuse and Rochester.

The Buffalo Urban Renewal Agency gets some $2.4 million in federal anti-poverty housing money annually, with some going to help create multi-unit apartment buildings, some going to assist existing homeowners, and some used to build new homes or acquire vacant properties, then rehab them for resale to first-time homebuyers.

In years past the city’s focus was largely on new housing. But more recently, the Brown administration has taken a more preservationist bent, converting vacant commercial buildings such as former schools into multifamily apartments, and also targeting some one- and two-family homes to rehab and resell.

Supporters of the BURA rehab-resell program acknowledge it’s expensive, but they say it’s a key part of Buffalo’s neighborhood revitalization plan, aimed at strategically fixing up rather than demolishing vacant, dilapidated houses – while also creating opportunities for low-to-moderate-income residents to become homeowners, and in some instances, landlords as well.

Saving one house: $560,000

The two-toned house at the corner of Brunswick Boulevard and Wohlers Avenue, vacant since at least 2002, was a community concern in the Hamlin Park neighborhood for much of two decades, with some residents so frustrated over squatters bringing drugs, pit bulls, gambling and guns into the house that they began pushing for demolition.

“Neighbors were really worried, so much so that they were willing to give it up,” said Stephanie Barber Geter, president of the Hamlin Park Taxpayers Association.

But others didn’t want to lose the corner house at 160 Brunswick. “It was a big kerfuffle,” Geter said. “We said, ‘We can’t lose it. If we lose it, we’ll lose others on the street.’ ”

"People don't want a neighborhood full of empty lots," she added.

Eventually, the Hamlin Park Taxpayers Association – serving as project developer – began working with the Buffalo Urban Renewal Agency on a plan funded through BURA that was completed in 2016.

By the time the work got underway, there were holes in the roof. Environmental cleanup came to more than $120,000. More than half of that was related to removing lead and mold found throughout the building, and the rest on asbestos removal, records show.

Adding to the cost was the fact that the Brunswick Boulevard house is in a historic preservation district. Care was taken to preserve the wood cabinets, molding and floors as well as ceramic tiles and decorative glass windows inside the nearly 100-year-old house. Meanwhile, more than $100,000 was spent replacing deteriorated roofing, siding, windows and trim, much with materials that met historic preservation requirements.

Plumbing, electrical, heating and framing added almost $100,000 more to the final price tag, as did flooring, painting, dry wall, carpentry, concrete work and stairs, records show.

Total rehab cost was $560,000 for the two-story house that now includes an owner-occupant unit as well as a small first-floor rental apartment. The house sold for $115,000.

The Hamlin Park Taxpayers Association in 2010 paired up with the City of Buffalo to eventually rehabilitate this property at 160 Brunswick Boulevard. (The Buffalo News)

“I complained the whole time about the price, but neighbors reminded me of the pain and suffering they went through – the dog fights, the shootings. It was traumatic,” Geter said.

“That restoration,” she continued, “was tantamount to keeping the worth of their housing. It brought back the values. And it had a ripple effect. People began to fix up their properties.”

Irelis Gonzalez, 26,  also thinks the rehabilitation was worth the money. The health insurance call center employee bought the house and lives there with her two daughters.

"I cried, knowing it was mine, for my family," Gonzalez said, recalling the day she moved into the house.  "I am very grateful."

2 houses on Fillmore

Standing on the front steps of the two-story vinyl-sided house at 928 Fillmore Ave., near Sycamore Street, Marlies Wesolowski looked across the road at 933 Fillmore, a 1-1/2 story gray house on a corner lot. The organization Wesolowski heads, Lt. Col. Matt Urban Center, worked with the City of Buffalo to rehab both houses. One house was on the city’s demolition list. The other was headed there, she said.

Both houses needed to be gutted – inside and out – before they could be built back up, she said.

Big ticket items at 928 Fillmore, circa 1900, in addition to $108,000 for asbestos removal, included $21,000 for dry wall, $34,000 for interior framing and $22,000 for plumbing. The total rehab of the two-story house – with a larger owner-occupancy unit and small, one-bedroom rental  apartment – was close to $500,000.

Costs at 933 Fillmore, built in 1910, included $32,400 for roofing and siding, $35,000 for interior framing, $21,000 for lead abatement and $14,722 for flooring. The total rehab of that house, a one-family, was almost $378,000.

The houses are on the market for $80,000 each.

With Fillmore Avenue a main thoroughfare, leading to Martin Luther King Park at one end and Larkinville on the other, this stretch of the street is a key to the area’s revival, Wesolowski said. No one wants any more vacant lots on the street, she said.

“We try to target houses that make a difference on the street. To have these two eyesores, right before MLK Park, was not a good thing,” Wesolowski said.

Marlies Wesolowski in front of a home at 928 Fillmore Ave. (Robert Kirkham/Buffalo News)

The larger neighborhood impact is not yet evident on Fillmore Avenue, where houses rarely sell for more than $65,000.

But these rehabs, Wesoloswki said, strengthen a neighborhood and leave it poised to rebound.

Michael Riegel, president of Belmont Housing, agreed. His nonprofit organization, at the request of the Buffalo Urban Renewal Agency, oversaw the rehabilitation of five abandoned houses BURA selected in the Masten Park neighborhood, including one sandwiched between two other run-down houses, one of which is boarded up. The total cost was $2 million.

“There probably has not been a noticeable effect yet, but I’m confident eventually there will be, assuming we continue the effort,” Riegel said.

City blames costs on HUD rules

The Buffalo rehab program is run through BURA’s housing office, which is headed by director Yvonne C. McCray and which works with nonprofit organizations that receive BURA funds to fix up the vacant houses. The BURA housing office provides technical assistance, typically helping to establish the scope of the project – everything from the layout and number of units in a building to what appliances should be provided.

BURA vice-chairman Brendan R. Mehaffy, who is also executive director of the city’s Strategic Planning office, oversees the program. All spending is approved by BURA, which is headed by Buffalo Mayor Byron W. Brown.

Mehaffy said he recognizes the positive impact these rehab projects can have on a neighborhood, but he, too, is concerned about the price and the limited impact the program can have citywide.

"The costs are driven in large part by federal regulations," Mehaffy said.

Buffalo developing new housing plan in response to pricey rehab program

In response to these high price tags, Mehaffy said, the city has been working with the regional land bank Buffalo helped create to get additional homes rehabbed, and it is now developing its own alternative housing rehab program. Neither effort will use federal funds, he said.

“The city has been working to take the preservation program to scale by securing state funds free of the federal regulatory burdens that drive costs, and acquire properties in a condition that do not require as much investment,” Mehaffy said.

Using federal anti-poverty housing money, Mehaffy and other development officials said, kicks in a host of lead and asbestos removal requirements well beyond what occurs when an individual rehabs their own house.

There are also requirements that mechanical systems – plumbing, electrical, heating – be brought up to current local and state building codes as if it were new construction.

And using federal money, they said, is also tied to hiring requirements, including minority and female workers, and what is essentially an on-the-job training program for low-income residents.

Mehaffy said HUD deadlines make it difficult to cancel or rework a project once it’s begun, if it turns out to be more expensive than initially estimated.

What’s more, he said, some of the Buffalo rehabs could have been impacted by a year-long delay that occurred when the U.S. Department of Housing and Urban Development – in response to a critical audit of BURA – froze city funds in 2012 until Buffalo re-engineered how anti-poverty moneys flowed through City Hall.

The long-vacant house on South Ryan was the most run-down on the street when it was taken over by a bank and donated to the City of Buffalo. (The Buffalo News)

For its part, HUD acknowledges federal regulations, including those aimed at protecting low-income families from health hazards, are among the factors driving Buffalo rehab costs.

A Buffalo News analysis, in fact, found that environmental-related costs represented, on average, almost 20 percent of overall spending on the 10 houses and close to 30 percent in the case of the house at 928 Fillmore Ave., which was filled with asbestos.

But HUD's regional administrator put much of the onus for Buffalo's spending on Buffalo.

"The beauty of our block grant programs is that local communities, not Washington, decide how to best use these funds," regional administrator Patton said. "There are times when a community's larger revitalization goals necessitate an investment that exceeds a property's market value. But costs must be reasonable so we can ensure taxpayers' dollars are being fully maximized in accordance with this administration's priorities."

Rochester, Syracuse do it cheaper

The Buffalo News found federally funded housing rehabs cost significantly less in Rochester, where the average rehab price is $158,000, said Theodora Finn, president of the Greater Rochester Housing Partnership. That’s less than half of what Buffalo is spending on average per house.

It’s similar in Syracuse, where Stephanie Pasquale, commissioner of the city’s Department of Neighborhood and Business Development, pegged the average amount spent there to rehab a house at $175,000 to $200,000.

The price disparity reflects a host of differences in the way Buffalo's program operates compared to the other upstate cities – everything from how it's administered, how houses are selected and where they come from – to decisions on accessory rental units and, to a lesser extent, kitchen appliances.

The size and condition of the houses being rehabbed in Buffalo – the oldest of these upstate cities – appear to be the biggest factors.

https://buffalonews.com/2018/04/08/two-contractors-who-fixed-10-buffalo-houses-say-their-profit-was-low/

Whether it was community groups selecting vacant houses they considered key to a neighborhood or the city picking properties in areas targeted for investment, almost all the houses in Buffalo's rehab program were considered demolition-worthy. The houses were in terrible shape. Some had sat vacant for years and had structural problems, including leaky roofs.

Until recently, Mehaffy said, these houses – ones that no one else was willing to invest in – were generally the only properties the city had access to for its rehab program.

The Buffalo houses are also relatively large – 2,340 square feet, on average.

To fix them, siding was taken down and replaced, rather than covered up. Walls were replaced, not repaired. Stairways were moved. Bedrooms added. Rental units were created or, in one case, taken away.

While the federal government allows for a range of ways to deal with asbestos, these houses are in such bad shape it’s necessary to remove all the asbestos – under supervised HUD-approved conditions – and haul it to a special landfill, city officials said.

“These homes were totally gutted – nothing was retained except the outside frame and the foundation,” said  Belmont Housing's Riegel.

A Buffalo house can usually be demolished for $15,000 to $20,000 using machinery, while being monitored for asbestos by environmental consultants, said general contractor Paul Lamparelli, president of Lamparelli Construction, one of the general contractors hired to do the rehab work.

“It’s down and out in a day,” he said.

Bill Buzak, construction services manager for Black Rock-Riverside Neighborhood Housing Services, gives a tour of 245 Dearborn St. (Derek Gee/Buffalo News)

But with these rehabs, when foundations and the basic structure of the house – the perimeter, roof trusses, exterior framing and exterior walls – are being retained, the materials are taken down by hand, with an environmental monitor on site the entire time, he said.

“It’s hard work salvaging the structure of a house. No machines,” Lamparelli said. “The house at 933 Fillmore took over a month.”

The process is even more painstaking in a historic district, such as Hamlin Park, when preservation guidelines have to be followed, he said.

In Rochester and Syracuse, houses being rehabbed are considerably smaller and in better condition. That's because those two cities, working with their long-standing nonprofit housing partners, are obtaining houses in ways Buffalo has not traditionally done.

They are also able to rehab more houses because their nonprofit partners – the Greater Rochester Partnership and Syracuse HOME Headquarters Inc. – are able to leverage the HUD money their cities receive with other grants and private bank funding.

"It allows us to do more if we can leverage funds," Finn said.

In Rochester,  Finn said, many of the houses being rehabbed are HUD foreclosure properties. Unlike Buffalo, Rochester participates in a HUD program that sells  FHA foreclosure properties to the city at up to half the price HUD would otherwise sell them for, according to a HUD spokesman.

Syracuse obtains properties from the city's foreclosure list. That city has traditionally been able to acquire vacant houses from its foreclosure list without having to compete in a foreclosure auction. Rochester received legal authority to do that in 2014. Buffalo didn't get approval until late 2016.

The housing partners Rochester and Syracuse work with also sometimes go on the open market to purchase houses they feel are important to a neighborhood's health.

Generally, Rochester and Syracuse officials said, they avoid demolition-worthy houses.

"If it’s a demolition candidate, we try to stay away, ” Finn said.

“We just don’t have the resources,” Syracuse’s Pasquale said.

Syracuse tends to select single-family homes that are 1,600 to 1,800 square feet, according to Pasquale. The average Rochester rehab is smaller, according to Finn, about 1,500 square feet – roughly two-thirds the size of the average house Buffalo is rehabbing.

"We try to get properties that wouldn't be wanted by folks on the private market, but aren't too far gone that it doesn't make sense," said  Finn.

Rochester and Syracuse officials also said they generally avoid historic preservation houses.

“We have done some. It’s not common,” Pasquale said.

This house on Northampton has one of the larger price tags of the houses rehabilitated through the city program over the past three years, but it is the largest of the houses, and the per square foot rehab cost is the lowest. (The Buffalo News)

Also reflected in the Buffalo price tags, the Buffalo News found,  are the small rental units – usually 600 square feet – added to six of the 10 rehabbed houses.  The feature increases some costs as well as the amount of federal money HUD will allow to be spent on a house. These apartments create additional affordable housing in Buffalo as well as rental income for the low-to-moderate income first-time homebuyers, city officials said.

Buffalo houses are also equipped with refrigerators, stoves and ovens as well as dishwashers, microwaves and washers and dryers. In houses with rental units, a second full set of appliances is provided.

The appliances are aimed at making the houses more marketable and more affordable to homebuyers, according to Buffalo officials.

Rochester and Syracuse aren't adding rental units to their rehabbed houses, nor equipping them with a full slate of appliances.

"Stove and refrigerator. No washer, dryer or dishwasher," said Kerry Quaglia, chief executive officer with Syracuse's HOME HeadQuarters Inc.

"We don't do appliances," said Rochester's Finn.

Buffalo looks to future

Mehaffy says there are no more rehabs of the type Buffalo has done in recent years currently in the Buffalo pipeline. The most recent single-family houses BURA approved for federal funding are new builds, three of which are being constructed on East Ferry Street.

Each house is roughly 1,500 square feet and costs about $280,000 each.

Buffalo isn't ruling out doing more "deep subsidy" rehabs in the future, especially if a property is viewed as key to neighborhood stabilization or revival, but Buffalo's current focus is on developing a new, less costly rehab program, Mehaffy said.

Already, he said, the city has acquired dozens of houses that could be considered for the new program. The houses were obtained after state lawmakers in late 2016 authorized Buffalo, through its land bank, to obtain houses from its foreclosure list without having to compete for the properties at foreclosure auctions.

"With the new process and funding source, the city will preserve more houses at less cost," he said.

Buffalo developing new housing plan in response to pricey rehab program

 

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