Strategic Real Estate
Shelby Park Residential Properties
Across the country, our communities have always faced a deteriorating residential housing infrastructure. It is a given in society that properties require constant attention. In resource-constrained communities, this constant care and attention is not possible. Quickly homes deteriorate and you see a neighborhood, once vibrant, facing increasing crime rates, vagrancy, and dilapidation. Residential properties can be an anchor that stabilize a community’s position in a more turbulent region or an anchor that drags it under.
This lack of housing security is part of a much larger socioeconomic system that can perpetuate cycles of need. It is no surprise that in these communities, residents pay over 50% of their disposable incomes to housing costs. Therefore, when a crisis arises, they lack the assets to meet those demands and are once again, facing eviction – or worse. Additionally, the solutions presently deployed are insufficient and leave the residents facing a broken system with little recourse. Here are examples of the two-solution approach:
First Approach: Government subsidized programs are necessary vehicles to improve historically ignored neighborhoods but often, the application of these subsidies distorts the housing values. These programs will build a home through a development partner that is paid-in-full for the construction. The home is then sold at market rate (subsidized) to a resident that has typically completed a program on home-ownership. For example, a new construction home is approximate $100/ft to build and a reasonable 2,000 SF house would be a contract of approximately $200,000 to the developer. The home-buyer, though, would pay between $80-100,000 to purchase (with strong covenants to ensure they live there for a period of time). The taxpayer is the one that pays the difference. This is unsustainable for many reasons: the new homeowner can find themselves “stuck” in a house when the job market is still very much transient; the availability of these funds is extremely limited and the high-cost to build makes it prohibitive to really put a dent in the problem; and, the existing, dilapidated housing stock doesn’t often apply to these solutions and is a significantly larger part of the overall problem we find in communities.
Second Approach: Traditional investors require a 15-20% ROI, and due to years of neglect, these properties typically require more work than would allow for them to get this rate of return. The only investors willing to consider these properties then, tend to be slumlords that realize their financial return by literally doing nothing to improve the properties they rent to residents. They will purchase a home, maybe add some paint, and then rent the home at a market value higher than what the property is worth. They do nothing to improve the quality of the home (HVAC, windows, insulation, etc). The tenant then is left with a substantial cost in substandard conditions.
Access to quality, stable, and affordable housing remains a struggle for many low-income and low-wealth individuals and families. These families face daily decisions that inherently carry more risk due to housing instability.
Why Shelby Park?
Shelby Park is a small community, in Louisville, Kentucky, centered around the historic Frederick Law Olmsted park named after Kentucky’s first governor, Isaac Shelby, and gives the community its namesake. The park is home to an original Carnegie Library and it now serves as the Shelby Park Community Center.
The Shelby Park community is nestled between 4 other small communities and bordered on the North by Kentucky Street, on the East by the railroad tracks near Logan Street, on the South by railroad tracks near Meriwether Avenue, and on the West by Interstate 65. Shelby Park only occupies an area of 0.42 square miles. Shelby Park is a neighborhood which struggles with a significant number of vacant, abandoned, or dilapidated properties burdening the housing market – approximately 320 when we began our work.
How We Helped
Given the historic, “two-solution” approach, we saw an opportunity to bring non-traditional, patient debt capital to bear within Shelby Park. We thought that if traditional investors required 15-20% ROI, we could put together a debt vehicle that targeted a 3-4% ROI. This debt (acquired from patient investors at 1% – patient investors that saw the potential for impact and a return of capital) would provide enough to cover the cost of the redevelopment as well as to cover some management costs.
Access Ventures hired a general contractor with experience in workforce development and mobilizing volunteers on redevelopment projects. Over the course of 2-3 years, we redeveloped 14 residential units in Louisville’s Shelby Park neighborhood that were all previously vacant and abandoned. We also were able to create 85 temporary jobs in the renovation work for people coming out of prison, homelessness, and/or substance abuse. We mobilized every month over 3,500 hours of volunteer service within the community that worked on these projects, as well as the community garden, street cleanups, and repair work for other community residents.