Learning from Slavic Village: A Report from Ground Zero of the Foreclosure Crisis

2017-11-15T06:48:57+00:00 May 6th, 2015|

By Daniel J. McGraw

When Anthony Trzaska hears or reads “Slavic Village” in news reports, he knows what is coming next.

“It’s almost like when the media reports anything on Slavic Village, it’s followed with, ‘comma, where the foreclosure crisis in America started,’” he says. “It’s not like the foreclosure mess didn’t happen. But it didn’t just happen here.”

Cleveland’s Slavic Village is widely perceived as the epicenter of the Great Recession. The reasons why illustrate just how easily complex stories can be reduced to simple buzzwords.

In 2007, when the media finally realized that the housing bubble was busting wide open (about two years after 48 states had sued subprime lender Ameriquest for fraudulent subprime loan practices), a few journalists decided to run some zip codes to see where the most foreclosures were happening. The zip code 44105 popped up as having the most foreclosures at that time.

…the great international financial crisis of the 21st century was determined be centered in an old neighborhood in Cleveland, Ohio.

Thus the great international financial crisis of the 21st century was determined be centered in an old neighborhood in Cleveland, Ohio, one that that had been declining since the 1970s. Few reported then that foreclosures were also hitting cities like Miami and Las Vegas and Detroit and Phoenix far worse than Cleveland. What was happening on Fleet Avenue, home to Polish sausage makers, was influencing the International Monetary Fund’s economic policy, some reported.

But what happened in Slavic Village – about five miles south of downtown Cleveland and on the eastern edge of the industrial valley – was symptomatic of greater issues in Cleveland and other Rust Belt cities that came to the fore in the years after the Great Recession was formally identified. For decades, these old neighborhoods had lost their economic reason for being (in Slavic Village’s case, closed factories), had rapidly declining populations, excess housing in very poor condition, high poverty and crime rates, and little outside investment that might reverse their downward trend.

That’s why it’s instructive to check in on Slavic Village (population 22,000, with about a 50/50, black/white racial split) these days. Never hip or trendy, this old ethnic neighborhood – once the biggest retail district in Cleveland outside of downtown – is trying to crawl out of the wreckage after 50 years of decline. How it’s doing now is a good dipstick to assess how other areas are faring as well.

To bring a neighborhood back, two basic elements need to be put in place. First, you have to have decent and affordable housing that people want to live in, and second, you need to give residents places to spend their money once they got done with work – places like grocery stores and bars and hardware shops. That sounds moronically simple on its face, but many city planners and economists seem to bypass these key points, because it is more stylish to think that developing neighborhoods with art galleries and cafes with fair-trade coffee and beet juice is a better way to go.

Slavic Village attorney and community activist Anthony Trzaska [credit: Daniel J. McGraw]

Slavic Village attorney and community activist Anthony Trzaska [credit: Daniel J. McGraw]

Trzaska is working on the second part of this equation. The 31-year-old real estate lawyer comes from the neighborhood (his family operates a funeral home in Slavic Village), and he is buying up property that he can market to small businesses. The focus is on Fleet Avenue, currently being torn up with a $9 million renovation project that will be finishing up this year. “Slavic Village is playing the cards we’ve been dealt,” Trzaska says, “but I can see millennials approaching neighborhoods more in the way our grandparents did. It has a sensibility that is important to us.”

“It’s not just that they want things close together – their work and social life and stores they support – they want to be a part of a neighborhood,” he says. “They didn’t have that growing up in the suburbs. There is a shift going on, and Slavic Village is going to be in the middle of that.”

What Trzaska is doing is not easy. His real estate firm, Sonny Day Development, is buying property in Slavic Village with the intent of getting small entrepreneurial businesses to take root and in the old neighborhood, with the old-style design of having retail on street level and housing above. But he is also active in the Slovenian National Home on East 80th Street, which his family has belonged to for most of its nearly 100 years of existence.

“It’s not just that they want things close together – their work and social life and stores they support – they want to be a part of a neighborhood.”

The 30,000-square-foot structure was built circa 1919 and is falling apart from neglect and a lack of funding. The aging membership has made things difficult for what Trzaska has rebranded as “the Nash.” Things like paying utility bills are often last-minute fundraising challenges, paid mostly by declining member dues. “We don’t have the luxury of time with The Nash, both in terms of the building itself and the age of the membership,” he says.

Trzaska is hoping that events like weekend barbecues and bowling leagues on the ethnic hall’s dozen lanes will raise money for things like roof repairs, and possibly lead to the Nash becoming a local music and food destination spot in Cleveland (he does not own the building, but has an agreement to oversee the events) and then share the money raised with the ethnic hall. Last month, as part of this year’s Cleveland Orchestra’s residency program in Slavic Village, a seven-member chamber ensemble played at The Nash.

But while Trzaska continues to promote his “Sunday Funday” events at the Home, he acknowledges that there have been problems in dealing with the old guard who serve on the board of directors, as well as in promoting the Nash as more than a place where a few hundred people go every few months for a picnic in the summer and bowling in the winter. “The demographics of the neighborhood have to change, but I think we are seeing the beginning of that with the housing program,” he says.

That program is the Slavic Village Recovery LLC, a private for-profit entity that has found they can get decent and affordable housing rehabbed and sold on the private market if they bypass government subsidies to do so. That is not a misprint. This group has found that not using public funding can actually make the housing cheaper.

Pat Racut plays polka music on his accordion while watching a Polish heritage parade in Slavic Village [credit: Daniel J. McGraw]

Pat Racut plays polka music on his accordion while watching a Polish heritage parade in Slavic Village [credit: Daniel J. McGraw]

Robert Klein, who has served for nearly 25 years as CEO for Safeguard Properties, which manages foreclosed properties for banks and other financial institutions, hatched a plan with Forest City Enterprises co-chairman emeritus Albert Ratner a few years ago to get Slavic Village homes out of foreclosure and people moving in. Klein, 62, knew from his experience with managing abandoned properties that the banks just want to get rid of them for next to nothing, but the regulations imposed by the government for non-profits trying to fix up foreclosed homes made them too expensive. In short, taking public money required that the homes had to be fixed up too nicely.

“The banks want to get these low-asset properties off their books, and we have worked with the local land bank to get them in that way,” Klein says. “We find we can do the basic rehabs for about $40-50,000 and then sell a three-bedroom, 1,200-square-foot home for about $65,000. What we are finding in that we can make a small profit of about $7,000 on the house and then put that money into doing more houses. We don’t take a cent in public money.”

The problem with taking public money is the financial limits the standards that some government agencies require make the properties difficult to finance through bank lending.

The problem with taking public money is the financial limits the standards that some government agencies require make the properties difficult to finance through bank lending. For example, in Cleveland – to get tax breaks and other funding grants – the city requires a property to meet certain Leadership in Energy and Environmental Design (LEED) standards; to do so often requires tearing all walls down to the studs, an expensive project, whether the house needs it or not. Also, third-party contractors are brought in to supervise and certify part of the rehab, which can drive up costs (often these contractors can add $10,000 or more to the property).

The “green” initiatives are far and above what is required by the Cleveland city building code. And the difference can be a big one in terms of cost of the rehabbed home: $100,000 under the LEED guidelines and about $60,000 under the re-design that meets city building code. Banks are less willing to lend $100,000 for a house with LEED certification in a neighborhood where comparable homes are selling for $40,000, but will be more willing to loan up to $65,000 for a home in that same neighborhood that is rehabbed and meets city building codes.

“We are not selling homes that are unsafe or have environmental problems,” Klein says. “We do our own assessment in the program to not even attempt to rehab the properties that have those problems. The government programs have no leeway, and make financing very difficult. They are basically putting guidelines that are based on new construction that don’t fit well in rehabbing older home like this.”

“We found the government programs were very slow and didn’t really help the neighborhood much…”

“We found the government programs were very slow and didn’t really help the neighborhood much because it was one property here and another there,” Klein says. “We work with the community development corporation to pick out houses we want to do, and try to concentrate on one neighborhood first before move on to other streets.”

As part of the plan, the Slavic Village Corporation performs a triage of sorts, and those that don’t make the grade are slated for demolition. About 150 homes – two-thirds of those assessed – have been demolished in the past two years as a part of the effort. These are usually one with structural issues, especially ones that have been gutted by theft of plumbing pipes and kitchen and bathroom fixtures.

When you crunch the numbers, the program makes even more sense. Because the Slavic Village Recovery does not go to the full government green standards, the houses are not eligible for the City of Cleveland’s ten-year-tax abatement of rehabbed houses. But even without the tax break, the average monthly mortgage payment for a $65,000 rehab in Slavic Village comes in at about $450. The monthly mortgage payment on the $100,000 home comes in at $625, after the $100 tax break.

“It is pretty simple,” Klein says. “We can get people into a three-bedroom house in a neighborhood coming back for about $450 a month, less than most rentals in the area. And the buyers are not getting tax breaks, so the city isn’t getting shorted either.”

Cleveland City Councilman Tony Brancatelli outside a once foreclosed property recently renovated by the Slavic Village Recovery program [credit: Daniel J. McGraw]

Cleveland City Councilman Tony Brancatelli outside a once foreclosed property recently renovated by the Slavic Village Recovery program [credit: Daniel J. McGraw]

This month, after two years of operation, the Slavic Village Recovery project will celebrate its 25th homebuyer; another eight are under contract. Thirty houses total are in the inventory, and about ten are in the rehab process. Klein says he has heard from other communities – in Columbus, Chicago, and Atlanta, among others – that want to do what Slavic Village is doing and are inquiring about the specifics. “Getting rid of blight in neighborhoods isn’t as complicated as it is made out to be,” Klein says.

…owning a three-bedroom $425-a-month home ten minutes from downtown has practical market value.

In some ways, Slavic Village is on the upward cycle. Mortgage flippers (those lenders who buy mortgages and then resell them on the financial markets with little regard for the homeowners or local neighborhood issues) exacerbated a problem already there, but owning a three-bedroom $425-a-month home ten minutes from downtown has practical market value. And retail – whether that be big chain grocery stores or a tattoo parlor – always follows rooftops that have people underneath them. Retail development and housing grow incrementally, each one half of an equation dependent of the other.

“I’m pretty optimistic the worst is over for Slavic Village,” Trzaska says. “What we are finding is that this neighborhood has value, and that’s what is what based on historically. I’m seeing people realize that part of it once again.”

Daniel J. McGraw is Senior Writer at Belt.

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2 Comments

  1. chuck May 9, 2015 at 10:32 pm - Reply

    It’s hard to say if SV is coming back because the temptation is to measure success in Tremont Oh City Detroit Shoreway hipster terms, when there’s only so many hipsters/DINKS to go around and they tend to cluster tightly together.

    SV’s turnaround will likely unfold much differently, edging it back to the future as a family-centered community that nurtures adults with children just as it always has: with lots of school choices, faith-based services, vibrant civic life, affordable everything, and proximity in the dead center of NEOhio.

    If that’s all SV ever becomes it will be serving a valuable service to NE Ohio’s growing number of lower middle class households trying to get through life with a modicum of solvency and self respect. And that might be of least equal value to a neighborhood with 4-star restaurants and craft brewers on every major intersection.

  2. ds10415 March 31, 2016 at 5:12 am - Reply

    I live in West 64t street and on my of the street their are three out of fives homes abandon and being stripped of property scrap value “aluminim” copper. I had squatters living two doors down then the next day they are stripping the home of all valuables upon realizing this I called the police. We must stop these drug addicts from this and talking to Africa American neighbors their attitude is I don’t live their and it’s not my problem. I tell these people it’s our street and neighborhood making your home look that more invaluable snd unfade for your kids. You love your kids right then let us protect our children and neighborhood

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