Westside project goes on the block HUD is foreclosing on Stephen's Square revitalization hope

June 07, 1996|By Marilyn McCraven | Marilyn McCraven,SUN STAFF

Stung by more than $2 million in losses, the federal government plans to foreclose on a project that was touted nearly 20 years ago as a way to revitalize West Baltimore Street's decaying commercial corridor and provide affordable housing.

The 93-unit Stephen's Square project is to be sold at auction by late summer, leaving taxpayers with a hefty bill.

"If there was a strong demand for this project -- so we could sell it and get our money back -- we would do it, but that's not going to happen," said James S. Kelly, an economist with the Maryland office of the U.S. Department of Housing and Urban Development.

The project's developer did not generate enough in rent to repay the mortgage on Stephen's Square -- a mix of storefronts and apartments -- in the depressed Franklin Square neighborhood, said Kelly.

The foreclosure apparently closes the book on the city's failed "shopsteading" effort, which involved mom-and-pop businesses opening in renovated storefronts, with many owners living in apartments above their businesses.

Stephen's Square is composed of 45 buildings, some in renovated storefronts in the 1500 block of W. Baltimore St. Most were constructed behind that block on Booth Street.

Construction and renovation were completed in spring 1987

and tenants began moving in the same year, according to HUD records. About two years later, HUD took control of the project after the developer, Stephen Terry of California, fell behind in making payments on the HUD-insured mortgage.

The project was almost fully occupied during the first five or six years, but HUD records show that Terry blamed below-market-rate rents for making him fall behind in his mortgage payments, Kelly said.

"Even when it was full, they couldn't get rents high enough to pay all their costs," Kelly said.

Terry's whereabouts could not be determined.

With the buildings under receivership, HUD tried to make a go of the project, employing new management and security guards, but to no avail, Kelly said. Occupancy dwindled to less than 50 BTC percent by early 1995, he said.

Now, many of the buildings are boarded up, awaiting redevelopment.

Crime added to decline

Community leaders say drug dealing, prostitution and late-night carousing contributed to the decline of the project.

"The 1500 block with a carryout liquor store on each end has become a party block," with revelers often dispersed at 2 a.m. or so by police using bullhorns, said Philip M. Hildebrandt, an activist in the nearby Union Square neighborhood.

"It's impacting anybody's ability to do anything with that block," Hildebrandt said.

The shopsteading program was modeled on the city's successful homesteading program.

Through homesteading, rundown houses were sold for $1 if the buyers agreed to live there and invest the necessary funds to fix them up. Shopsteading did the same for small commercial properties.

Typically, shopsteaders paid a minimal fee of $100 to set up shop in a storefront. A variety of government loans was made available to renovate and furnish the buildings.

Shopsteading, which began in Baltimore, is a riskier investment than homesteading because it depends on commercial success.

The city's shrinking population, problems during renovation, growing crime and the lean early months when a business becomes established helped to doom shopsteading, government officials and neighborhood leaders say.

Failures began early

In the early '80s, West Baltimore Street was home to a variety of shopsteading businesses, including an ice cream parlor, fish market and T-shirt printing business. Residents say most such efforts failed within a few years.

HUD insured the Stephen's Square mortgage because of the success of other area low-income housing projects at that time, Kelly said.

At Stephen's Square, "we thought it would be rented to community people, secretaries, clerks, schoolteachers. I'm sure we got some of those people" but probably not enough, Kelly said.

Another city project HUD is considering for foreclosure is the former Samuel Gompers Vocational School on North Avenue at Broadway in East Baltimore, said Maryann Henderson, chief of multifamily production in Maryland's HUD office.

Developers who converted the school into Ashley Apartments in 1986 defaulted on a $1.65 million state-held mortgage insured by HUD, Henderson said.

Seven years after completion, the project was dilapidated and in financial trouble.

In 1993, more than a quarter of a sampling of HUD-insured mortgages totaling about $43 billion nationwide were at risk of default, Coopers & Lybrand auditors said.

Reasons given for such problems included poor real-estate management; abuse by tenants; understaffing at HUD, which prevented proper oversight; and the soft rental market.

City and federal officials could not say the total amount taxpayers lost on Stephen's Square because records couldn't be found and some amounts haven't been calculated. Furthermore, until HUD sells the property, it is still responsible for paying a Washington-based company to manage it, make repairs and provide security.

Of the at least $2.1 million HUD has lost on Stephen's Square, the mortgage accounts for less than half that amount, Kelly said. The rest came from operating costs and other expenses HUD incurred after assuming the mortgage, he said.

Townhouses likely

At Stephen's Square, the 45 buildings are likely to be converted by a private developer from apartments into townhouses and sold, said Henderson of HUD. Prospective buyers would have to attend a homeowner's training program.

The storefronts are not suitable for apartments and may become businesses again, Henderson said.

"Some of them are really nice houses and have a lot of potential," she said.

Pub Date: 6/07/96

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