Posted October 6, 20203:22 pm
Written by Shawn Donnan in Bloomberg Businessweek on 10/06/2020.
From the outside, 11410 Clarebird Ave. looks like many homes in Cleveland’s Mount Pleasant neighborhood. The fading yellow siding and creaky front porch point to mild neglect. The grass in the front yard needs a trim. But on a street of aging, single-family homes in an area that for decades has been fighting a losing battle against economic decline, the three-bedroom house has a new story to tell: Calais Gathings, a nursing assistant who lost her job in the pandemic and fell behind on rent, has moved out.
A 23-minute drive away, in the leafy western suburb of Lakewood, Ohio, 17527 Daleview Drive tells a different story. Built in 1927, two years after the Clarebird home, the four-bedroom brick house with a gabled roof and neatly landscaped grounds was sold in August to newlyweds Nathan Hodge and Erica Schulstad for $319,500, more than the asking price.
The two Cleveland houses paint a stark picture of how the pandemic—and the recovery from the economic crisis it precipitated—are not only reinforcing but widening America’s inequalities. On the east side of town, in mostly Black neighborhoods with a high percentage of rental properties, tenants struggling with their rent are facing the prospect of eviction. On the west side, in wealthier and whiter neighborhoods filled with homeowners, housing prices are soaring.
The disparities are a legacy of decades of housing discrimination and the Great Migration of 6 million Black Americans from the South to then-thriving northern industrial cities. Cleveland, which went into the pandemic as the poorest of the 100 largest U.S. cities, is still reeling from the last financial crisis. It left a physical imprint in the vacant lots that turned some communities into checkerboards and a less visible one in the speculative churn that brought seven owners to the Clarebird house in a little more than two years.
Now a new crisis is widening the gap, and not just in Cleveland. Cities across the U.S. have been bracing for a wave of evictions as the pandemic disproportionately affects lower-wage workers. Politics are playing a role, too, with President Donald Trump promising to keep low-income housing out of the suburbs as he courts a constituency that polls show he is losing.
In an economic recovery that looks increasingly uneven, home ownership is a dividing line. When the U.S. Census Bureau asked 9.8 million people living in rented homes in September how likely they were to move out in the next two months because of an eviction, almost half, 45%, said they were somewhat or very likely to face that fate. A similar survey of 8.7 million people in owner-occupied homes found that fewer than 20% were worried about having to move as a result of foreclosure.
In Cleveland, as elsewhere, essential workers in the leisure, hospitality, and health-care industries bore the brunt of the pandemic—both the virus itself and its economic consequences. What’s also becoming clear is that the tentative recovery is exacerbating the race-linked inequalities that divide the two sides of the city. “The Cuyahoga River is like our Berlin Wall,” says Eric Morse, chief executive officer of the Centers for Families and Children, a Cleveland nonprofit that provides early education, employment training, and free health care to some of the city’s most vulnerable communities. The current crisis, he says, “is definitely accelerating inequality.”
Even if the $2 trillion federal Cares Act softened the economic blow for many Americans, the expiration of several key features has meant that the full impact of the crisis is only now materializing for the most vulnerable. After a dip over the summer, the Cleveland Food Bank has started to see an increase in the number of cars lining up for weekly food distributions. It’s now feeding more than 2,000 households a week, 30% more than before the pandemic. At Morse’s nonprofit, social distancing guidelines have forced it to reduce the number of slots for children in the Head Start early education program by 40%.
But it is evictions that most worry people such as Morse. Housing plays a role in everything from wealth creation to health and education outcomes. A Case Western Reserve University study of almost 20,000 evictions in Cleveland from 2013 to 2016 found that they resulted not only in higher rates of housing instability but also in children missing more school and being tested less often for lead poisoning, a persistent problem in Cleveland associated with its aging housing stock. If a new wave of evictions washes over the city, it could unwind decades of work.
That hasn’t happened yet, thanks largely to an $18 million countywide rental-assistance program that has received applications from more than 6,000 tenants but is running out of money. The original funds came from the Cares Act; without further federal help for cities such as Cleveland, which have seen local tax revenues collapse during the crisis, the prospects for replenishing the program look dim. “I’m not sure that we are going to get through the end of the year with what we have available,” says Kevin Nowak, executive director of CHN Housing Partners, the nonprofit that runs the program.
A national moratorium on evictions announced Sept. 2 by the Centers for Disease Control and Prevention has had little effect in Cleveland, partly because the initiative is so new but also because there’s no money behind it. By the end of September, only a dozen evictions in the city had been delayed because of the moratorium, according to the Cleveland Housing Court.
To Judge W. Moná Scott, who this year became the first Black woman to preside over the housing court, the pause on evictions ordered by the CDC just adds to the confusing, mixed messages that characterize the federal government’s pandemic response. The moratorium does nothing to help tenants resolve existing debts to landlords—or to stop those debts from mounting. “It’s not if they come and collect, it’s when they come and collect,” Scott says.
Scott is doing what she can to avoid or at least slow evictions, which are down substantially this year, largely because of the rental-assistance program. Of the 437 cases filed in August, only 164 resulted in eviction orders. The rest ended in some kind of mediation.
That’s what happened when Gathings showed up for a hearing on Sept. 4. It took place via a Zoom call, and she didn’t have a lawyer representing her. Still, just making an appearance was unusual. Even since hearings went online during the pandemic, only about 40% of tenants have argued their cases. Those who do often lack lawyers, despite a “right to counsel” rule Cleveland adopted in July that provides free legal help to tenants from households with minors. Scott asked Legal Aid in September to start having a lawyer available in all Zoom hearings to avoid situations like the one Gathings faced in her session.
Gathings didn’t seem to know she was entitled to a lawyer, or even that there was a moratorium, when questioned by Magistrate Mark Wiseman.
“Where would you go if you were evicted?” Wiseman asked.
“A shelter? I have nowhere to go. That’s why I need a couple of weeks to find somewhere to go,” Gathings answered.
Gathings had fallen behind on the rent after losing her job at a nursing home. Then her mother moved out, leaving her responsible for the full $900 a month. Gathings was back at work at the nursing home but earning less money than before and unable to pay her landlord. “I just can’t keep up with it,” Gathings told the magistrate. “It’s too much on my own.”
The landlord, identified only as BL US1 LLC, had a lawyer on the Zoom call who argued that Gathings wasn’t eligible for the CDC moratorium, which would have kept her in her home at least until January. He said she hadn’t applied for government help or rental assistance. Wiseman agreed. It was all over in 4 minutes and 45 seconds. To avoid a forced eviction, which would have led to bailiffs piling her belongings on the curb, Gathings later agreed to move out by Sept. 25.
What no one said that day was that when BL US1 bought 11410 Clarebird for $65,150 a year ago, the Ohio-registered company became its 13th owner since 1975. The house had sold for $93,000 in 2004 and bounced around among home flippers after the subprime mortgage crisis. In one 28-day stretch last year culminating with the Sept. 17, 2019, sale to BL US1, ownership changed four times, all among limited liability companies, according to property records. BL US1 bought the house from another LLC, Immobilier Cleveland, that purchased it earlier the same day for $49,000 and recorded a 32% gain in a matter of hours.
Both Immobilier Cleveland and BL US1 are linked to Thibaut Gueant, whose Aventura, Fla,-based property firm, Invest US, caters to French investors looking to buy Cleveland real estate. The Clarebird house, Gueant says, was one of about 150 his firm sold over the past 18 months to individuals drawn by Cleveland’s low prices and high rental returns. Immobilier Cleveland was his company, and BL US1 belonged to a French client he declines to identify. The gap between the sales prices last September was meant to cover the cost to his firm of a one-year guarantee on rent and repairs that he offers to investors. The $900 a month Gathings paid to live in the Clarebird house provides a gross annual return in line with the 15% to 17% typical of his other Cleveland properties. “It’s pretty nice,” he says.
Zach Germaniuk, a housing lawyer at a nonprofit in Slavic Village, a neighborhood near Mount Pleasant, says investor-driven churn in deprived communities has perpetuated both the decline of some neighborhoods and Cleveland’s race-based economic inequality. “We’re one of the most heavily segregated cities in the country,” Germaniuk says. “Real estate is really the centerpiece of that tragic history.”
Ten days before Gathings got on the Zoom call that would decide her fate, Hodge and Schulstad closed on their house at 17527 Daleview Drive. The two tech company employees—he’s a software architect, she’s an engineer—met at work and were married in July. They toured the house for the first time three hours after the listing went online and found it had almost everything they were looking for, including a front porch that could house the swinging couch they had been hankering for since Reese Witherspoon posted pictures of hers on Instagram in 2019.
They made an offer an hour later and followed up with a letter pleading their case and saying they would add $10,000 to the asking price. They won the bidding over a half-dozen other buyers just days before their wedding and closed on the deal Aug. 25. “We were racing, racing, racing,” Hodge says. “We didn’t want to miss this opportunity.”
The price of the house was more than double the $143,500 the previous owner paid in 2011. That’s a testament to the value of suburban economic stability and of how a recovery fueled by the Federal Reserve and low interest rates is inflating the price of assets such as suburban homes and the stock market.
The median sales price of homes in Lakewood was up 11% in July from the previous year, to $227,000, with houses on the market for an average of 26 days, down from 39 days in July 2019, according to data provided by property site Redfin. In Gathings’s 44105 ZIP code, the median sales price in July was also up 11%—though to only $36,000. In other predominantly Black ZIP codes nearby, prices have tumbled 20% or more over the past year, according to Redfin.
Julie Weist, a Cleveland real estate agent, says the rapid drop in mortgage rates this year, driven by the Fed’s response to the crisis—along with a shortage of properties—has turned the city’s western suburbs into the hottest seller’s market she has seen in three decades in the business. “The pandemic really has not slowed anybody down,” she says.
Weist helped tech entrepreneur Mitch Bihuniak sell a three-bedroom colonial in the suburb of Rocky River in August for $457,500, almost twice what he and his wife paid for it in 2013. She also helped them trade up to a five-bedroom, Tudor-style house closer to Lake Erie, bought for $560,000. One motivation was finding a quieter street for his daughter, who turns 5 in October. Another was that they were able to get a mortgage at 2.85%. “It’s insane,” Bihuniak says.
The disparity in house prices on the two sides of the city reinforces Cleveland’s wealth gap. People such as Bihuniak and the newlyweds are doing fine. Hodge and Schulstad both work from home, and the pandemic has had little impact on their professional lives or incomes. “We’re fortunate to be relatively safe in our work environment,” Hodge says. “It’s weird that the housing market is so crazy, but people want more space, and interest rates are so low.”
But for renters on the east side, the pandemic has been crueler. At least one-third of tenants who inhabit the 900 affordable housing units managed by the Famicos Foundation in the neighborhoods of Hough and Glenville are behind on their rent, says John Anoliefo, the nonprofit’s executive director. Almost two dozen haven’t paid any rent since March, he says.
That has cast a shadow over long-term efforts to address the area’s glut of abandoned properties, aging housing stock, and homeownership rates of only about 30%. It also presents a conundrum for an organization helping people secure long-term housing. “My goal is to work with my tenants to avoid even going to court,” Anoliefo says.
Neither the volume of eviction cases nor the number of people receiving rental assistance reflect the true scale of what’s happening, says Hazel Remesch, who oversees Legal Aid’s housing team in Cleveland. Remesch says lack of knowledge and representation are not uncommon. That makes her worry about what comes next. “We are absolutely looking out at a crisis,” she says.
For Don Fenderson, a retired guidance counselor who started investing in rental properties in the east side neighborhoods of Glenville, Collinwood, and Mount Pleasant in the early 2000s, buying them at sheriff’s auctions, that crisis is already visible. One-third of his 21 tenants are behind on the rent, he says, and “one person hasn’t paid for three months.” The only ones who aren’t behind are those whose rent is paid by the federal government as part the Section 8 subsidized housing program for low-income Americans. Even those tenants, Fenderson says, are struggling to come up with the small amount of rent they contribute, and the houses that he bought two decades ago are worth less than he paid for them.
“I’m okay for now,” Fenderson says. “But long term, it’s definitely curtailed some of the way that I am used to living. It was so easy to buy houses, and I probably jumped in too far.”
Gathings declined to comment when a reporter knocked on the door of her Clarebird home after her court appearance. She moved out before the Sept. 25 deadline, which means the eviction won’t be logged on her record or affect her credit. She later texted to say she found a new place to live.
On the housing court Zoom call, Gathings made clear she was hoping for some help and a new start. “I tried for everything,” she said, “and I wasn’t getting approved for anything. It’s out of control.”
At 11410 Clarebird, the search for a new tenant is already underway. Gueant says the house is one of about 20 managed by his firm that have been involved in eviction proceedings this year, a number that increased as a result of the pandemic. The evictions are taking longer to move through the courts, he says, but it’s a cost of business his investors are willing to bear. Finding a new tenant shouldn’t take more than a couple of weeks. “The market is very dynamic,” he says. “We still have a lot of opportunities there in Cleveland. It’s just a matter of transitioning back to normal.”
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