Wake Up Cleveland!
I read recently about two new “market rate” apartment buildings proposed for the Hough neighborhood near us. Hough is a Cleveland neighborhood that is classically described as “underserved,’’ as they say here in the polite civic parlance.
Hough’s been neglected because many poor people live there, and poor people have been neglected here in Cleveland for as long as I’ve lived here, going on fifty years.
Neglecting poor people is what we do here in Cleveland, and we do it damn well.
We’re Number One: the poorest big city in the United States.
So yes, on its face it seems good that investment is being made in Hough. But there is a disturbing trend going on here around University Circle, the home of Cleveland’s gargantuan medical, educational and cultural institutions, and in the city generally.
First, you need to understand what “market rate” means. Market rate means whatever the market will bear, and that usually means the rent is going to be as high as possible. Around the corner from us, a one bedroom, 800 sq. ft. apartment in a newly constructed building with a footprint the size of a football field is going for $1800. Whattaya think of them apples?
Market rate may not be “luxury” level, but it might be. But it’s not going to be “affordable,” “workforce” or “low income,” all terms of real estate industry craftiness that have no real definition but sort of describe the economic strata of the housing in question.
So, we have high priced rentals going into a neighborhood with unusually high levels of poverty, the idea being that Hough sits on the edge of University Circle and the “brains” behind our civic agenda here would love to see more students and workers live in nice, expensive apartments close to the mecca of Cleveland growth, which is surrounded not just by Hough but a slew of “underserved” neighborhoods.
Expensive apartments have been flooding the areas around University Circle for the last several years, including Little Italy where my wife and I live. But here’s a key question: what’s it say about our real estate market in Cleveland when private equity investors flock to our market from Akron, Detroit, New York, Texas and other places to fund the explosion of new rental housing?
That’s who’s putting up a lot of the cash for these fancy apartments in both the neglected and tony neighborhoods of Cleveland. Private equity investors from outside the community, and who knows, maybe outside the country. It’s not always clear exactly who is fronting the cash, because it is frequently well disguised.
Just so you know, private equity investors are rich people that want to make more money in real estate than they can by investing in the stock market and typically expect at least a 20% or more return in as little time as possible. They will then cash out and flip the investment when they get to their profit target, maybe selling off a package of rental properties to overseas investors. I’ve been told by people that know these things that the global real estate market is hot, hot, HOT.
And here’s another interesting question. What does it say when regional developers and builders are jumping into the property management business for market rate apartments? Regional developers are using that private equity cash to become landlords in a big, big way.
It says to me that there is a boatload of money to be made in cheap property or Land Bank acquisition and subsidized / tax abated, inexpensively built, high-end rental. It also says that the economic vitality of neighborhoods is being sucked out to landlords and investors from outside the community, and in all likelihood and eventually from outside the country.
Let’s be clear too. Cleveland has been the absolute heart of subsidized, tax abated development for the last 60 years: for corporate headquarters, hotels, billionaire owned sports franchises, a convention center, the Rock and Roll Hall of Fame and yes, for developers that want to get into the high-end rental property management business. They don’t pay property tax for typically 15 or more years, and those property taxes go to fund our schools, libraries, Metroparks and city budget. No wonder our schools underperform and we have grand canyon sized potholes in our streets.
Is this trend meeting “insatiable” market demand for high end rental as developers claim or is this supply side market manipulation to make an obscene amount of money? What ever happened to affordable housing? Is home ownership still the American Dream?
Not in Cleveland. The real question is this: has anyone in the Mayor’s office or City Council been paying attention? Or were they just part of the cabal, along with complicit boosters in the local press? We have a new Mayor and City Council President. Maybe they can stop this utter madness.
Money talks. The cash is flowing in big buckets from equity investors to regional developers, who make political and philanthropic donations to grease the grooves. The market gets flooded with high end rental. Rents are going crazy. The inventory of “for sale” housing is shrinking. Affordable housing of all types is scant.
And people rent because they can’t afford to buy, BECAUSE THEY RENT.
The fat cats in the suburbs and from outside the community, the state and the country just get fatter and fatter.
Yep, the system is rigged. You lose. They win. “It is what it is.” Get used to it.