If you want to learn about best practices in downtown revitalization, you couldn’t do better than to just walk around Cincinnati. They seem to do most things right there. I hadn’t intended to write again about the Queen City, as my most recent trip was a quick overnight one, but the continued marked apparent improvement in economic conditions there merits notice. Both the downtown commercial center and the adjacent Over-the-Rhine neighborhood continue to expand their blocks of economic vitality. More blocks seem to have new stores, new adaptative reuses of structures with high quality vernacular architecture and new residential construction and conversion.
Cincinnati and Des Moines are actually comparatively sized cities. Cincinnati has a population of about 300,000. But its metro is substantially larger, at 2.5 million, the 30th in the country. Interestingly, while Des Moines is about at its peak population, Cincinnati is considerably smaller than its population of 500,000 in 1960. Cincinnati is 42% Black. While the Black population is only 12% of the metro.
The strength of Cincinnati Center City Development Corporation (3CDC) sets Cincinnati apart. 3CDC strikes me as the most aggressive and effective organization of its kind in country. Up until recently, 3CDC kept a low profile – but on this recent trip their brand was all over its many properties – on parking lots it operates, on empty storefronts it leases and on parcels it is seeking to develop. The thing that differentiates 3CDC from its peers is its balance sheet. Based on 2019 data, it has gross assets of over $400 million, debt of a little less than $400 million and an annual operating budget of about $20 million. That is a scale of operations and a leveraging of resources that is unmatched. 3CDC purchases property using debt financing. It repositions those properties though adaptive reuse and it carefully curates their occupants. Vine Street in Over-the-Rhine is the most dramatic and fastest commercial corridor revitalization case study of which I am aware. Vine Street and Main Street in Over-the-Rhine are now lined with interesting looking shops, bars and restaurants. A key component of their capital stack is an internally operated low-interest revolving loan fund.
Downtown Cincinnati shows similar attributes of growth. We stayed in the 21CMuseum Hotel – part of a Kentucky-based chain (https://www.21cmuseumhotels.com). The facility was the reuse of an office structure into over 300 rooms (beautifully designed by Yale architecture dean, Deborah Berke). The hotel displays an extensive art collection, focused on Black artists. As you walk into the lobby, your experience is flooded by the image of Morpheus by Kahinde Wiley from 2008 at 108 by 180 inches (https://www.21cmuseumhotels.com/cincinnati/blog/2020/morpheus-by-kehinde-wiley/), which is behind the front desk. This is not art by the yard. Our stay was very impressive. Downtown Cincinnati has more street level retail, bars and restaurants than most other mid-western cities (although the retail on many block is far from continuous). There are very few totally blank block fronts. Downtown is connected to Over-the-Rhine by a tram, which is free and runs every ten minutes or so (not quite enough, but close to it). Unlike many other such projects, it appears to be well-used.
(I also note that we had breakfasts in both St. Louis and Cincinnati in First Watch restaurants, a chain that has almost 500 locations, with which I was previously unfamiliar. The quality of food and service in both places was superb. Quite remarkable for such a large chain.)
Too many economic development entities are ineffective because their boards are averse to property ownership, operation and debt financing. Those organizations are resigning themselves to unsuccessfulness – particularly in today’s real estate environment where downtowns need more than “clean and safe.” Downtown revitalization requires risk taking and rolling up your sleeves and getting your hands dirty in real estate brokerage and construction. Downtown economic development organizations need to be in the business of revenue generation (through parking, if nothing else) and leading the real estate market with high quality repositioning of derelict property. Nothing else works as well. The 3CDC financial statement is a lesson in itself in how to do this.
I know nothing of the politics of 3CDC, or how it is viewed in the community. I also don’t know anything about its community engagement practices. While those things are important, the results speak for themselves. Cincinnati’s quality of life is better as a result of 3CDC’s work. I would like to see an income distribution chart for Black families in the city and metro for 2000 and 2020. If 3CDC’s efforts are not bringing substantial benefit to the city’s least well off, then that’s a problem. I noticed a considerable amount of residential new construction in Over-the-Rhine. 3CDC has developed 416 affordable units, with 70% of them designated as affordable. Given where Cincinnati now is, and 3CDC’s financial strength and expertise, if they were to ask me (which they haven’t), I would advise that they focus their efforts on mixed income (with no more than 30% of residents below 50% of AMI), mixed-use projects as a means to improve the circumstances of the worst well off and improve the quality of the local public schools.
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Our trip to Cincinnati was to see the world premiere of “Castor and Patience,” at the Cincinnati Opera, with music by Gregory Spears and libretto by Tracy K. Smith. Spears is the composer of the highly successful “Fellow Travelers,” also premiered in Cincinnati, and Smith is a Princeton professor, former poet laureate of the United States and a Pulitzer Prize winner. It is my practice not to discuss the musical or dramatic aspects of the operas I hear, since that’s not my department (“Once the rockets are up, who cares where they come down? That’s not my department!” says Wernher von Braun”. Heidi’s review will be found here: andymanshel.nyc), the theme of the opera was of particular interest to me.
The opera is about an inter-racial family from Buffalo, New York, who, during the home mortgage debacle of 2008, are in danger of losing their house. They travel to an island off the coast of the Southeast where the family’s father (Castor) grew up, and where he and his cousin (Patience) (both Black) own thirty acres, which are valued in the story at over $20 million.) Patience sees her role as protecting the family’s legacy in the property – highlighting the importance and rarity of property ownership to Black folks. She is opposed to selling even one acre of the twenty – which would eliminate the father’s debt problems.
This story interested me because as a real estate lawyer I have always advised clients that the first rule of success in real estate is to never develop an emotional attachment to a parcel. Also, in the 00’s I joined the Queens County Bar Association’s Volunteer Lawyer’s Project representing families in foreclosure. The membership of the Queens County Bar pledged to represent, on a pro bono basis, any Queens family during conferences with the Court’s Special Master dealing with foreclosures in Queens. This project was so successful that ultimately families were represented by highly skilled, full-time staff from the project with extensive experience with foreclosure, rather than by the pro bono volunteers.
I represented more than a half dozen families over the course of five or six years – all of them were eager/desperate to remain in their homes despite the fact that the houses were worth less than their mortgages. My clients’ best economic move would certainly have been to walk away from their homes. While staying was not necessarily a canny business decision, ultimately all were able to remain in their homes with monthly payments well within their means. The actual facts of these cases were very different from the prevailing narrative regarding the “mortgage crisis” that began in 2008, and that narrative underlies the story line of “Castor and Patience.” Southeast Queens, New York, generally regarded as the Jamaica neighborhoods, is one of the largest communities of Black homeowners in the United States. I was told that in the 2010 census, Queens was the only county in the country where African American household income exceeded that of white households.
My clients ran the gamut from a family on public assistance to a barber to a laid off nursing assistant. All had refinanced their homes in order to generate cash – all of which they had spent or lost. In some cases, the refinancing produced upfront lower monthly payments which later either ballooned or reset to a high variable interest rate. All of their homes market values were substantially less than (generally 2/3) than the principal of the mortgage on them. In almost every case, a local mortgage broker – someone they knew from the community – had sold them on the refinancing. None of those mortgage brokers were anywhere to be found by the time the families came to me. In one case, I believe the mortgage broker stole most of the cash generated by the refinance – taking advantage of the borrower’s lack of financial sophistication.
The most obvious thing to me as an attorney representing these families was that the banks and mortgage servicers were in chaos. Their attorneys would show up in court with a list of properties on the docket for that day. Most were unprepared. None had the supporting documentation required to sustain their claims – much of which had been lost in the shuffling between the mortgage originators, the creators of the collateral debt obligations (CDO), the buyers of the CDO’s and the servicers which were on the front lines doing the administrative work for the holders of the CDO’s. Also, the Courts were loath to kick people out of their homes – and made every appropriate effort to protect homeowners’ rights. It was easy for me to throw sand in the gears of the process to keep people in their homes. It was much more difficult to actually work out payment arrangements which would be manageable by my clients.
It is important to know that while these properties were in foreclosures, their owners continued to live in them and weren’t paying any occupancy costs – not mortgage, not insurance and not taxes. The CDO holders were on the hook for all of these and were adding them to the borrowers’ principal. My clients dealt with this situation in different ways. My lowest income clients took two trips to Disney with their grandchildren during my representation of them. Another of my clients took the opportunity of six years of essentially free housing to get a BA in nursing – and ultimately secured a near six figure entry level hospital job.
The Obama administration had set up a program called the Home Affordable Mortgage Program (HAMP), which, at the time, none of the mortgage servers knew much about accessing. This lack of knowledge (or interest) served to prolong the foreclosure process. It was in the mortgage servicers’ interest to keep the process going – as fees were generated by each Court appearance and each action taken by the servicer – charged to the holders of the CDOs. It was not in the financial interest of the servicer or the CDO holders to bring the matters to closure. An actual foreclosure or settlement would almost always result in the banks having to immediately book a loss, which was definitely not in their interest.
At one point, I got the quasi-governmental agency that has a guarantor’s interest in most home mortgages involved in order to bring my cases to settlement (they have the ultimate authority to approve mortgage restructurings). All of my clients stayed in their homes and got monthly payments they could live with. The downside for all of them was that the restructured payments, the defaulted amounts, deferred interest and penalties were all added to the value of the principal – which, in practical terms, meant the principal would never be paid down. When the owners passed away, the CDO holder would be left with an underwater property, which it would sell and then book the loss – hopefully many years in the future. This was the ultimate in kicking a can down the road. So, at the end of the day the holders of the CDOs were left holding the bag.
This wasn’t the story of “Castor and Patience,” and it would make a pretty terrible, long, complicated, boring theater piece. But it is what happened in my experience, and probably what happened with the majority of people caught up with homes with deflated values and defaulted, inflated mortgages. In the real world, if Castor has adequate legal counsel in Buffalo, he probably could have held on to his home. Better yet, Castor and Patience could have obtained a small debt consolidation loan (at very low interest rates during the turmoil in the markets), using the island property as security, to eliminate Castor’s financial problems. While that alternate story isn’t particularly important to the opera audience, it is important to how we understand home ownership and race in America.