Land Banking Case Studies: Introduction
Cities and counties across the country and in our region are exploring land banks as a promising strategy for addressing vacant properties. This is the first in a five-part series on land banking on MPC’s blog, The Connector, which we hope will inform policymakers and practitioners in northeastern Illinois and other regions—most notably in Cook County—as they explore options for addressing the vacant and abandoned buildings crisis.
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The number of vacant properties in metropolitan Chicago is sizeable and growing. Managing these properties presents a serious regional challenge, and everyone in the community development arena has a stake in the issue:
Individual property owners face eroding values. A study conducted in the Philadelphia area demonstrated the presence of a single vacant or abandoned property on a block decreased surrounding property values by an average of $6,720.
Communities are struggling with a host of issues. They not only want to protect local property values, but also must address potential criminal activity – from loitering and squatting to gang activity and arson – and the aesthetic damage vacant parcels can cause. Vacant parcels are a financial drain on municipalities, stifling economic development, decreasing the tax base, and draining funds. A Harvard study using Chicago data determined that expenses for a single vacant property, including maintenance, police, fire costs, and other incidentals, can cost a municipality more than $30,000. Multiply that tab by the number of vacant properties in a community, and you find that cities are devoting sizeable percentages of their budgets simply to maintain abandoned parcels.
Banks are dealing with maintenance and repairs for vacant and abandoned properties in order to avoid costly code violations. They pay for upkeep expenses, although the building may have little market value.
Business owners are affected through a decrease in foot traffic and patrons due to an increase in vacancies. This can result in having to close businesses, change business locations, or suffer through the downturn with reduced profits and income.
Cities and counties across the country are turning to land banks as one way to start addressing this problem. Over the next two weeks, MPC’s blog, The Connector, will publish a series of land banking case studies from around the country to provide insight into their successes and inform how vacant properties are managed in the greater Chicago region.
A significant and growing regional challenge
According to 2011 data published by the Woodstock Institute, a nonprofit research and policy organization, more than 20,000 homes in the Chicago six-county region (Cook, DuPage, Kane, Lake, McHenry, and Will counties) completed the foreclosure process. Of these, 93 percent are Real Estate Owned (REO), meaning properties that have completed the foreclosure process, but were not sold at auction to a homeowner or investor. Instead, the bank reclaimed property ownership, and thus they tend to be unoccupied and vacant. It’s notable that the number of vacant parcels is even larger, as the 20,000 figure does not include additional vacant parcels owned and maintained by city governments or other private property that may have been abandoned.
Of these 20,000 homes in the six-county region, a significant majority—13,121—were located in Cook County, and 94 percent of those are REOs.To yield a true assessment of the total potential number of vacant properties in Cook County, it is important also to consider the number of properties that remain in limbo. There are two pipelines that contribute to a growing number of vacant properties.
The first is the mortgage foreclosure process, which includes both the aforementioned REOs in addition to properties with foreclosure filings. By the end of 2011, there were approximately 41,000 foreclosure filings in Cook County. A subset of these properties is referred to by the Woodstock Institute as “red flag” properties, which are troubled vacant parcels with foreclosure filings that have no subsequent outcome for many years. These properties have an unresolved status, with both the servicer and occupant choosing to simply abandon the property, relinquishing accountability and contributing to a growing inventory of vacant properties.
The second pipeline is comprised of properties with delinquent property taxes. A growing number of property tax liens are not being redeemed or purchased at the county’s annual tax sale. Consequently, these tax delinquent properties end up every two years at the Cook County Scavenger Sale, where they are subject to a bidding process. These properties also are thought to be vacant and abandoned as they frequently consist of properties that have not had their taxes paid for many years and are unwanted by investors. In 2009, Cook County had approximately 10,000 Scavenger Sale properties. By 2011, that number had grown to approximately 18,000. In both years, 95% of these properties went unsold at the Scavenger Sale.
In Cook County alone, if the number of Scavenger Sale properties is combined with the number of completed foreclosures, we are looking at a total of around 31,000 potentially vacant and abandoned properties. As this number indicates, vacant properties pose a significant challenge and in order to address the problem effectively, the region needs to consider some new tools for managing its vacant parcels. One such tool is a land bank.
Land banking: a proven and evolving redevelopment tool
By the end of 2011, more than 80 local governments and 23 states had authorized land banks to return vacant land to a productive use. Many other cities and regions are pursuing land banks as a new tool: Just last year, New York state passed land bank legislation, and in May 2012 authorized the formation of five new land banks. Pennsylvania is looking to follow suit by passing its own land bank bill, and Kansas City, Miss., recently passed its own legislation supporting land banks.
While the fragile housing market and economic climate have renewed interest in land banking as a way to address vacant properties, this tool has been in use for several decades. Land banks first got their start in the 1970s as a safeguard against blight and a way to promote urban renewal. The St. Louis Land Reutilization Authority (LRA) was created in 1971 by state statute and is credited with being the first city-run land bank in the country. In the Center for Community Progress publication entitled Land Banks and Land Banking, first- and second-generation land banks are classified differently based on their start date, focus, programs, and difference in structure. St Louis—as well as other land banks considered to be “first generation,” such as Cleveland, Louisville, and Atlanta—were designed to address the problem of vacant land by holding property, clearing title, maintaining the parcels, and then selling them for the purpose of redevelopment. Formed at the discretion of the local governments, the primary inventories for these land banks were comprised of properties leftover from the tax foreclosure process.
In paving the way for the second generation of land banks, these early attempts at land banking allowed for the development of new programs and processes that helped land banks gain additional power and authority through legislation that reconfigured the tax foreclosure process. Land banks also were structured as separate entities, increasing their autonomy and ability to better organize their operating procedures to run more efficiently. The first-generation land banks have evolved as well. In particular, the St. Louis Land Bank is making a more concerted effort to sell its inventory for redevelopment. The land bank has been criticized in the past for its inefficiencies and for rejecting multiple purchase offers for parcels. Yet in February 2012, the land bank agreed to a deal to sell more than 1,200 parcels to a developer who already owned 800 parcels in the same area. This sale is in support of a massive Northside Regeneration project and demonstrates the potential power land banks can have in acquiring, assembling, and selling parcels to benefit the redevelopment of distressed areas. It is these types of strategies that second-generation land banks are developing and promoting that could be beneficial to the Chicago region.
With that in mind, MPC’s series on land banking will continue with three posts, each of which will provide a case study of a second-generation land bank to illustrate model strategies and operations. The fifth and final post in the series will present overall best practices and recommend how metropolitan Chicago can learn from these models and use land banking to address its growing number of vacant properties.