Conversion busters

Condo conversions are all the rage - and affordable-housing advocates want city action to control them

Condo conversions - mostly in Southwest - are wiping out any gains in affordable housing, tenant advocates say.

Affordable apartments are being converted faster than new affordable units are being built, advocates claim - adding that the phenomenon hurts not only tenants but also condo buyers and surrounding neighbors.

Councilmembers and Mayor R.T. Rybak reacted with a sense of urgency during a study session on the subject earlier this fall. Although there is no conversion moratorium on the horizon, it appears that - after a two-year surge in conversions - city leaders may do more to protect the affordable housing supply, dislocated renters and potentially nave buyers.

Solutions could include renter assistance, stricter disclosure rules for converters and further regulation of the process.

Affordability by the numbers

Housing Preservation Project (HPP) attorney Christine Goepfert led much of the Sept. 16 presentation, based largely on a study conducted by Housing Link, an independent information and research organization that does not take a stand on policy issues. The housing advocacy group HOMEline, other advocacy organizations, real estate records and vacancy listings also provided data for the study.

Developers of condo conversions - if they were in the audience - did not comment at the study session.

According to the study, as of Sept. 14, 3.2 percent of the city's rental housing has been converted to condos since 2000 - 2,334 units in 178 known projects. About 2,000 of those have occurred in the past two years: 1,064 in 2004 and 974 by mid-September 2005.

Of the 2,334 units lost, 1,350 - or 58 percent - had been affordable to tenants making 50 percent of the metro median income (MMI), the study said. Another 318 units - or 14 percent - had been affordable to those making 30 percent or less of MMI.

In 2005, the metropolitan median income for a four-person family was $77,000 - so 50 percent of MMI is $38,500 and 30 percent is $23,100.

Southwest has been the hotbed of Minneapolis conversions. According to Housing Link, since 2000, Southwest wards 6, 10 and 13 have lost 1,041 units affordable to people making half the metro median - 77 percent of the 1,350 lost citywide. (All but one of the 6th Ward conversions was west of I-35W.)

Add to that more than half of the 256 units lost in partial-Southwest wards 7, 8 and 11, and the area accounts for the vast majority of the lost affordability advocates claim.

So how dire is the affordability problem?

A city Affordable Housing Initiative evaluation for 2004 charted affordable units built and demolished in projects receiving city assistance. Using the 50 percent MMI standard, 232 affordable units were built and three destroyed - a net gain of 229 units.

However, if you throw in the 402 units housing advocates say were lost to conversions in 2004, that gain becomes a loss of 188 units.

The loss drops to 68 units if projects built without city help are included, based on 2004 data from the Family Housing Fund.

Even if there are fewer affordable units, does that mean there's too little affordable housing?

The city's 2005 Consolidated Plan tries to measure that. It compares the number of units available to how many families need them.

Using 2000 census data, the city found a surplus of 28,537 units for those making 50 percent of the metro median or less. That makes 1,350 units lost to conversions seems like a trifle - buttressing converters' claims that they are merely removing apartments from a soft rental market.

However, that overall surplus masks a specific shortage.

While the city's report shows a surplus of 42,036 units for those making 30-50 percent of MMI, there are 13,499 too few units for those making 30 percent of MMI or less ($23,100 or less for a family of four).

The city estimates there are 30,379 households at or below 30 percent MMI. With a 13,499-unit shortage, that means the poorest Minneapolitans have about half the housing units they need.

The city's highest-income crowd (80 percent-plus MMI, or at least $61,680 a year per family of four) also faces a shortage: 44,583 units, according to the city report. That's pushing them to buy the surplus units in the 30-50 percent MMI range - but the city's poorest do not have that luxury.

Councilmember Robert Lilligren (8th Ward) turned the study session to what he called &#8220the human capital - citizens impacted by the upheaval of a condo conversion.”

One dislocated tenant from recently renovated Greenhouse project at 3540 Hennepin Ave. S., told city officials that window replacements and water-damage repairs were neglected for months after the October 2004 building sale. Residents received conversion notices two days after Christmas, the tenant said.

One of those residents, 79-year-old Evelyn Belmer, had lived in the building for 21 years. Belmer said she was comfortable in what she called her &#8220last days. I might be 80 [years old],” Belmer said at study session, &#8220but I can still take care of myself. This has totally turned my life around.”

Belmer, like many in the Greenhouse's 70 apartments, couldn't afford to buy her unit. Presenters said the case shows how conversions are pricing renters out of their homes. Prior to conversion, one-bedrooms at 3540 Hennepin rented for $750 a month. Once converted, those one-bedrooms sold for $183,900, with monthly mortgage payments ranging from $1,228-$1,462 per month, according to Financial Freedom Realty, which develops and finances condo conversions, including the 3540 Hennepin project.

However, the conversion is also an example of how not every converted apartment is an affordable one. For if a single person lived in one of 3540's one-bedroom apartments, the $750 monthly rent wasn't considered affordable at either 30 percent or 50 percent MMI.)

In with the old

City officials and affordable housing developers see hope in preserving existing affordable housing. That can be done through renovation by affordable housing developers such as Central Community Housing Trust (CCHT), or by ensuring that housing subsidies don't go away. The Family Housing Fund reports 422 rental units preserved in 2004 - 318 of them at the 30 percent MMI.

Alan Arthur, CCHT's executive director, compared the costs of new construction versus preservation. It costs $200,000 to build a new unit, but only $100,000-$120,000 to renovate existing housing. &#8220It makes sense to extend our existing affordable housing stock,” Arthur told city officials.

Councilmember Paul Zerby (2nd Ward) noted during the session that the city wants to promote home ownership while increasing affordable housing.

According to the Family Housing Fund, a family of four at 50 percent MMI can afford a $115,900 home. A Housing Preservation Project study found that fewer than 25 percent of 2004's converted condo projects had units priced that low - and many were one-bedroom units.

&#8220Condo conversions provide ownership opportunities, but not for the people who need it most,” Arthur said. &#8220There are problems with legalities and finances, and there are not good rules and regulations.”

Rules that do exist require that developers give tenants at least a 120-day notice and that existing leases be honored. Of 112 conversion projects listed by the city in 2004-2005, presenters said only 52 percent gave such notice to tenants. They noted that there is no penalty for failure to comply with requirements.

Buyer beware

New buyers - many of them first-timers - can have problems, as well. City Assessor Patrick Todd said that some conversions &#8220are not much different than a flip.”

A property is &#8220flipped” when it is bought and then sold again quickly for profit - not always a bad thing, said Dan Mack of Mack Mortgage. The problem comes when a run-down property is bought for below-market value and then sold to an unsuspecting buyer with little improvement but for a big profit. In some cases, it can constitute fraud.

Mack said that's been a pattern in some condo conversions, and it's not good for the neighborhood or the market. In an area booming with conversions, inflated market values create an illusion that can force buyers to react without thinking.

Developers may not tell buyers about needed repairs to common areas such as roofs and heating systems, despite Truth in Sale of Housing disclosure requirements that &#8220don't inspect for everything,” according to Assistant City Attorney Erik Nilsson.

Nilsson said that Realtors have admitted privately to him that such &#8220high-ticket items” are often not disclosed, and that buyers are often nave enough to not understand. That navet can cost the buyer down the road through condo-association fees and assessments for big-ticket repairs.

Councilmember Gary Schiff (9th Ward) said that if interest rates rise and housing values slip, new homeowners could be &#8220upside down,” wherein they would owe more on their mortgage than their property is worth.

Lilligren noted that &#8220a mass of conversions in the early [1980s] saw a mass of foreclosures, as well.”

That would leave the neighborhood - or condo building - pocked with foreclosed units, bringing down the value of surrounding units, according to Mack.

&#8220Let's make sure that somebody's the watchdog,” Mack said.

Schiff said he'd like to see relocation assistance for misplaced tenants, and he and the Rybak mentioned expanding the city's Truth in Sale of Housing requirements to protect uninformed buyers. Rybak said he is &#8220reluctant to go to regulation” but would rather address the issue at the city approvals-process level.

While Goepfert said advocates would lobby for a moratorium, on the advice of Schiff - who chairs the City Council's Zoning and Planning Committee - the Councilmember said &#8220the votes are not there” on the Council for a moratorium, and he favors more immediate action. With a bevy of new Councilmembers coming in January, Schiff said potential policy resolutions would be pushed off until March 2006.

Conversion busters

Condo conversions are all the rage - and affordable-housing advocates want city action to control them

Condo conversions - mostly in Southwest - are wiping out any gains in affordable housing, tenant advocates say.

Affordable apartments are being converted faster than new affordable units are being built, advocates claim - adding that the phenomenon hurts not only tenants but also condo buyers and surrounding neighbors.

Councilmembers and Mayor R.T. Rybak reacted with a sense of urgency during a study session on the subject earlier this fall. Although there is no conversion moratorium on the horizon, it appears that - after a two-year surge in conversions - city leaders may do more to protect the affordable housing supply, dislocated renters and potentially nave buyers.

Solutions could include renter assistance, stricter disclosure rules for converters and further regulation of the process.

Affordability by the numbers

Housing Preservation Project (HPP) attorney Christine Goepfert led much of the Sept. 16 presentation, based largely on a study conducted by Housing Link, an independent information and research organization that does not take a stand on policy issues. The housing advocacy group HOMEline, other advocacy organizations, real estate records and vacancy listings also provided data for the study.

Developers of condo conversions - if they were in the audience - did not comment at the study session.

According to the study, as of Sept. 14, 3.2 percent of the city's rental housing has been converted to condos since 2000 - 2,334 units in 178 known projects. About 2,000 of those have occurred in the past two years: 1,064 in 2004 and 974 by mid-September 2005.

Of the 2,334 units lost, 1,350 - or 58 percent - had been affordable to tenants making 50 percent of the metro median income (MMI), the study said. Another 318 units - or 14 percent - had been affordable to those making 30 percent or less of MMI.

In 2005, the metropolitan median income for a four-person family was $77,000 - so 50 percent of MMI is $38,500 and 30 percent is $23,100.

Southwest has been the hotbed of Minneapolis conversions. According to Housing Link, since 2000, Southwest wards 6, 10 and 13 have lost 1,041 units affordable to people making half the metro median - 77 percent of the 1,350 lost citywide. (All but one of the 6th Ward conversions was west of I-35W.)

Add to that more than half of the 256 units lost in partial-Southwest wards 7, 8 and 11, and the area accounts for the vast majority of the lost affordability advocates claim.

So how dire is the affordability problem?

A city Affordable Housing Initiative evaluation for 2004 charted affordable units built and demolished in projects receiving city assistance. Using the 50 percent MMI standard, 232 affordable units were built and three destroyed - a net gain of 229 units.

However, if you throw in the 402 units housing advocates say were lost to conversions in 2004, that gain becomes a loss of 188 units.

The loss drops to 68 units if projects built without city help are included, based on 2004 data from the Family Housing Fund.

Even if there are fewer affordable units, does that mean there's too little affordable housing?

The city's 2005 Consolidated Plan tries to measure that. It compares the number of units available to how many families need them.

Using 2000 census data, the city found a surplus of 28,537 units for those making 50 percent of the metro median or less. That makes 1,350 units lost to conversions seems like a trifle - buttressing converters' claims that they are merely removing apartments from a soft rental market.

However, that overall surplus masks a specific shortage.

While the city's report shows a surplus of 42,036 units for those making 30-50 percent of MMI, there are 13,499 too few units for those making 30 percent of MMI or less ($23,100 or less for a family of four).

The city estimates there are 30,379 households at or below 30 percent MMI. With a 13,499-unit shortage, that means the poorest Minneapolitans have about half the housing units they need.

The city's highest-income crowd (80 percent-plus MMI, or at least $61,680 a year per family of four) also faces a shortage: 44,583 units, according to the city report. That's pushing them to buy the surplus units in the 30-50 percent MMI range - but the city's poorest do not have that luxury.

Councilmember Robert Lilligren (8th Ward) turned the study session to what he called &#8220the human capital - citizens impacted by the upheaval of a condo conversion.”

One dislocated tenant from recently renovated Greenhouse project at 3540 Hennepin Ave. S., told city officials that window replacements and water-damage repairs were neglected for months after the October 2004 building sale. Residents received conversion notices two days after Christmas, the tenant said.

One of those residents, 79-year-old Evelyn Belmer, had lived in the building for 21 years. Belmer said she was comfortable in what she called her &#8220last days. I might be 80 [years old],” Belmer said at study session, &#8220but I can still take care of myself. This has totally turned my life around.”

Belmer, like many in the Greenhouse's 70 apartments, couldn't afford to buy her unit. Presenters said the case shows how conversions are pricing renters out of their homes. Prior to conversion, one-bedrooms at 3540 Hennepin rented for $750 a month. Once converted, those one-bedrooms sold for $183,900, with monthly mortgage payments ranging from $1,228-$1,462 per month, according to Financial Freedom Realty, which develops and finances condo conversions, including the 3540 Hennepin project.

However, the conversion is also an example of how not every converted apartment is an affordable one. For if a single person lived in one of 3540's one-bedroom apartments, the $750 monthly rent wasn't considered affordable at either 30 percent or 50 percent MMI.)

In with the old

City officials and affordable housing developers see hope in preserving existing affordable housing. That can be done through renovation by affordable housing developers such as Central Community Housing Trust (CCHT), or by ensuring that housing subsidies don't go away. The Family Housing Fund reports 422 rental units preserved in 2004 - 318 of them at the 30 percent MMI.

Alan Arthur, CCHT's executive director, compared the costs of new construction versus preservation. It costs $200,000 to build a new unit, but only $100,000-$120,000 to renovate existing housing. &#8220It makes sense to extend our existing affordable housing stock,” Arthur told city officials.

Councilmember Paul Zerby (2nd Ward) noted during the session that the city wants to promote home ownership while increasing affordable housing.

According to the Family Housing Fund, a family of four at 50 percent MMI can afford a $115,900 home. A Housing Preservation Project study found that fewer than 25 percent of 2004's converted condo projects had units priced that low - and many were one-bedroom units.

&#8220Condo conversions provide ownership opportunities, but not for the people who need it most,” Arthur said. &#8220There are problems with legalities and finances, and there are not good rules and regulations.”

Rules that do exist require that developers give tenants at least a 120-day notice and that existing leases be honored. Of 112 conversion projects listed by the city in 2004-2005, presenters said only 52 percent gave such notice to tenants. They noted that there is no penalty for failure to comply with requirements.

Buyer beware

New buyers - many of them first-timers - can have problems, as well. City Assessor Patrick Todd said that some conversions &#8220are not much different than a flip.”

A property is &#8220flipped” when it is bought and then sold again quickly for profit - not always a bad thing, said Dan Mack of Mack Mortgage. The problem comes when a run-down property is bought for below-market value and then sold to an unsuspecting buyer with little improvement but for a big profit. In some cases, it can constitute fraud.

Mack said that's been a pattern in some condo conversions, and it's not good for the neighborhood or the market. In an area booming with conversions, inflated market values create an illusion that can force buyers to react without thinking.

Developers may not tell buyers about needed repairs to common areas such as roofs and heating systems, despite Truth in Sale of Housing disclosure requirements that &#8220don't inspect for everything,” according to Assistant City Attorney Erik Nilsson.

Nilsson said that Realtors have admitted privately to him that such &#8220high-ticket items” are often not disclosed, and that buyers are often nave enough to not understand. That navet can cost the buyer down the road through condo-association fees and assessments for big-ticket repairs.

Councilmember Gary Schiff (9th Ward) said that if interest rates rise and housing values slip, new homeowners could be &#8220upside down,” wherein they would owe more on their mortgage than their property is worth.

Lilligren noted that &#8220a mass of conversions in the early [1980s] saw a mass of foreclosures, as well.”

That would leave the neighborhood - or condo building - pocked with foreclosed units, bringing down the value of surrounding units, according to Mack.

&#8220Let's make sure that somebody's the watchdog,” Mack said.

Schiff said he'd like to see relocation assistance for misplaced tenants, and he and the Rybak mentioned expanding the city's Truth in Sale of Housing requirements to protect uninformed buyers. Rybak said he is &#8220reluctant to go to regulation” but would rather address the issue at the city approvals-process level.

While Goepfert said advocates would lobby for a moratorium, on the advice of Schiff - who chairs the City Council's Zoning and Planning Committee - the Councilmember said &#8220the votes are not there” on the Council for a moratorium, and he favors more immediate action. With a bevy of new Councilmembers coming in January, Schiff said potential policy resolutions would be pushed off until March 2006.