Turning Around Problem Apartments
Turning around a "problem" apartment community in a troubled neighborhood has to be one of the biggest challenges in multifamily housing. There are so many variables, so many roadblocks and pitfalls, so many points in the repositioning where the project can fail. One success story is Lighthouse Property Management's dramatic transformation of the Taft Street Properties in Wyoming, Mich., from a previously crime-riddled apartment community into safe, thriving, and family-oriented housing that earned the firm a PARAGON Award from the National Apartment Association.
We sat down recently with Lighthouse's Kathy Dennison Adrianse to discuss the project. What follows is our chat:
NATIONAL APARTMENT ASSOCIATION: Could you please introduce yourself to our readers?
KATHY DENNISON ADRIANSE: I am an independent broker and the owner of Lighthouse Property Management. We're in Grand Rapids, Mich. I own a portfolio of real estate, and I also do third-party management. My company has been around for 11 years, and we manage almost 900 rental homes, apartments, and duplexes in Kent County and Ottawa County, Mich.
NAA: Congratulations on your PARAGON Award. You won for your makeover of the Taft Street Properties apartments in Wyoming, Mich. What were the challenges in repositioning this particular asset?
KDA: When we were first contacted about the Taft Street Properties, they were actually in receivership and going into foreclosure. The street had had such a bad reputation for so long. When the bank contacted us, it was originally to do management of it. And they had to call us more than once! We kept telling them that we weren't interested in managing in that neighborhood. There was such a stigma. There were high crime rates, and it was just a bigger project than we thought we could tackle. But the third time they called, we said, "Well, let's just look at it." It was a local bank, and they wanted to do it right. They let us reinvest in the properties. Within three months, we started to see that we were making connections with some of the residents there. I think they had just been treated really poorly for many years leading up to what was going on at the property at the time. We started clicking with them and also with the community and neighborhood businesses. We were treading water, and so I went back to the bank and asked, "Would you consider selling it to us? We're putting a lot into the property. Would you provide us the financing and let us buy and really start sinking some capital into it?"
NAA: How did that go over?
KDA: It worked out really well! They were thrilled. They didn't want to put the property on the market, and they thought we would be invested in the community and be a good fit. They made us a sweet deal and financed the property for us. But what we found when we started really getting into the property is that, for probably the past 24 months, the previous owner had been dodging the city inspections department. The list of violations was 56 items that needed to be repaired. So, we ended up going through and making a dramatic round of repairs. Some owners will buy a property, try and change it over time, and hope that works. What we found is if you do a dramatic punch and figure out who the people are who are scaring and intimidating other residents, move those people out, you can build the trust faster and you can prove to the neighborhood and the community that you're serious about making a change.
NAA: And what was the result?
KDA: We had a massive turnover the first year. The people that stayed ended up being our biggest cheerleaders, because they saw the vision of how it could be. It's now been two years, the property is filled, every couple of months we're doing a little bit of a rent bump, and the tenant base has turned into more of a community.
NAA: For example?
KDA: We just did the National Night Out party at the end of August. We were out there with a local church, and they set up a stage with local talent who did some singing. The Fire Department showed up, the Chief of Police showed up, and my company handed out school supplies. It went awesome! We recognized some kids from when we did it the year before, and some of them helped us hand out popcorn and beverages. Instead of us coming across as "We're the landlords, and we're here to make sure you follow all of the rules," it has become more of a partnership with the people who are living there.
NAA: Do you think you may use this as a model for such future projects?
KDA: Yes! Recently, one of the independent owners here in town settled a Fair Housing discrimination lawsuit that had been going on for several years. Part of the settlement required them to hire a professional management company, and they chose Lighthouse Property Management. As we speak, we are starting a very similar project all over again in a slightly different part of town. But I think what we did before works, and we're going to be replicating that over the next six to nine months on this different property. We're really excited to now try and clean up a different side of town!
NAA: It sounds like you have a winning formula. You mentioned earlier getting local fire and police onboard. How important is it to garner that kind of community and civic support when looking to reposition an apartment community?
KDA: It is critical. Because the property stigmatizes with the tenant base and the surrounding community, it also stigmatizes with the Police Department. When you go in and pick up such a property, your first thought really has to be the police. They need to know who you are. Often, they're a bit fatigued dealing with the property. They're like, "Yeah, we're familiar with the trouble-makers. We've been out to the property this many times, dealing with the same stuff." We ask them to help us. They need to know that if they call us because there is a problem that we're going to act on it. We're not going to just sweep it under the rug or let it go. We're going to actively participate in moving trouble-makers down the road. We just don't want them. So on the National Night Out, the local police showed up on their motorcycles. Where parents usually keep their kids away from the police officers, instead the kids were coming up and pushing the horns on the motorcycle and feeling the [handle bars], and the officers had D.A.R.E. bracelets they were handing out to the kids.
NAA: Do you have an anecdote with this particular project that was a specific key challenge or a obstacle that you had to overcome?
KDA: There was a Hispanic family, and they had moved into the property right about the time we were just starting with the project. They came to us about six months in and said they no longer felt safe and they were concerned for their children to stay at the property. They weren't real open about sharing what was going on. So, we were afraid they were about to move. They had been someone we had tried very hard to get to move into the property, establish some roots, and bring some friends. It actually took one of their neighbors coming in and letting us know that there had been some racial hate notes that had been attached to the door of the unit telling them that they weren't welcome there. It was some stuff that really doesn't fit in in this day and age. The reason why the neighbors came forward was because they wanted to save the good neighbors who just moved in, but they were also there to say, "We know who's doing this, and they're chasing away new families who are moving into the neighborhood." So, we had gone from an atmosphere where everyone was quiet and no one trusted management to an atmosphere where they were still really scared, but they told us who was doing it. We were able to take very quick action on that and get the bullies to move. The family ended up not moving. They're still there, and now their friends and family and church members have moved in.
NAA: Do you any advice to our readers who may be considering doing what you have done?
KDA: If you are dealing with a property that is struggling and if it is a property that is on the fringe, you can spend the money now or you can spend more money later. We went in with the mindset that, "We're going to spend the money and do things that you don't necessarily see." But it's going to be worth it. For instance, we just finished a huge insulation project at Taft Street before winter starts. The payoff is so much more. If your residents stay and if you're not having the turnover, it's so much more beneficial than the alternative.
By Teddy Durgin