Reaping a Profit, With the City’s Help

The New York Times

Reaping a Profit, With the City’s Help
By JOSH BARBANEL
Published: September 3, 2006

SOON after Lovelynn Gwinn moved into her three-story town house in West Harlem six years ago, she received a call from the F.B.I. telling her that a woman had been thrown or had fallen from a nearby building. That wasn’t the only bad news about her new neighborhood. Rats ran rampant through her backyard and there were prostitutes and crack houses down the street.
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Librado Romera/The New York Times
PIONEERING Lovelynn Gwinn bought her house for less than $250,000 through the city's HomeWorks program.

Michael Falco for The New York Times
THE BUYERS AND SELLERS In 2004, Barbara Jones, shown with Charles Rinehart-Jones, bought a house on West 147th Street from its original Home Works owner for $1.2 million.

Librado Romera/The New York Times
Lovelynn Gwinn, who added a small pond to her backyard, wants to sell her HomeWorks house.

Shiho Fukada for The New York Times
So does Terry C. Lane, whose five-story HomeWorks house on Lenox Avenue is listed at $2.6 million.

But now, as the neighborhood has changed, at least in part because of her own efforts, Ms. Gwinn is getting her reward. She bought her newly renovated house on West 138th Street, just off Riverside Drive, for less than $250,000 through a city housing program. Now she has it on the market for $1.4 million.

All across Harlem and Bedford-Stuyvesant in Brooklyn, homeowners who were lucky enough or smart enough to buy houses through the same program are realizing that as the value of their houses has soared, they have become millionaires — at least on paper — courtesy of City Hall.
Under the program, known as HomeWorks, buyers received subsidies and low-cost homes on free city land, with the stipulation that they will live in the houses for at least six years, paying penalties if they break their agreements.

Some, like Ms. Gwinn, took real financial risks in buying in neighborhoods where drug dealing and burned-out and boarded-up houses were everywhere. Others obtained their houses later on, when thousands of people competed in lotteries for a chance to buy fully renovated houses at prices that even then were recognized to be below market.

Property records show that four houses renovated under the HomeWorks program in Harlem have already been sold, including three town houses that went for at least $1.2 million each in the last two years. Five more town houses were recently listed, with asking prices as high as $2.6 million.

One owner transformed her home into a guesthouse, where rooms go for as much as $125 a night.

The rising wealth of these beneficiaries of public policy shows how a government housing program can be a powerful catalyst for change, strengthening neighborhoods and markets, and even raising fears of gentrification. But the huge increases in equity also raise a question: Once the market took off, should the city have limited private windfalls, perhaps by auctioning off its HomeWorks properties to the highest bidder?

“These people came in and won the lottery,” said Robert Walters, a lawyer who represented some of the buyers of HomeWorks houses. “They were able to purchase below market, and then after they bought, the market heated up tremendously.”

For Ms. Gwinn and others, buying a HomeWorks house was a life-changing event, quite apart from their financial gains. Six years ago, Ms. Gwinn was an in-house travel agent for Warner Music Group, arranging travel for Mick Jagger, Led Zeppelin and countless rap groups. But she earned only $40,000 a year and paid $2,600 a month in rent, shared with a roommate. She struggled to get approval for a mortgage to buy her house.

When she became a homeowner, even when she lost her job during a corporate consolidation, she was able to support herself without a full-time job, relying on the income from two rental apartments in her house and some freelance Web design work. Now she is a real estate broker and investor.

She refinanced her mortgage to come up with the down payment to buy a second brownstone, this time at market rates, on Convent Avenue in a historic district. It, too, is now for sale, at $3.2 million, with a potential profit of more than $1 million.

“I had just a regular job, with a regular little salary,” Ms. Gwinn said. “I went to 11 banks looking for someone to give me a mortgage. Nobody wanted to finance a three-family house with 5 percent down.”

Her house on West 138th Street is narrow, less than 15 feet wide. It has a well-designed interior, an open kitchen and hardwood floors, but almost none of the original details remain. Ms. Gwinn has planted a grape arbor that is beginning to bear fruit and has installed a small pond at the back of her garden. Next door, a construction crew has begun clearing out debris from the last of the bricked-up houses on the street.

On West 130th Street near Lenox Avenue, Brian Phillips, a broker for Sotheby’s International Realty who recently sold the highest-priced town house in Harlem — it went for more than $3.8 million, according to property records — is now offering a 20-foot-wide house bought through HomeWorks.

This house, priced at $2.2 million, has a duplex apartment for the owner and two rental units, along with a fish pond stocked with koi. The interior is furnished with Victorian-style lighting and dark wood cabinets, furniture and staircase, but few original details survive.

Edward Kostyra, a sportswear manufacturer who also dabbles in real estate, bought the house through HomeWorks for about $515,000 in 2002, at a time, he said, when half the brownstones on the block were abandoned. Now, Mr. Kostyra said, he wants to sell the house and use the proceeds to buy another brownstone in the neighborhood, one that was never gutted and rebuilt. “I was something of a pioneer, and I am being rewarded for that,” he said. “Now I want a house with original detail.”

Restored houses with original detail command the highest prices in Harlem, Mr. Phillips said, but houses that have been gutted and rebuilt with high-quality materials can also attract a premium. “If it doesn’t have details,” he said, “buyers have to be able to come into a house and say, ‘Wow! You can’t get this at Home Depot.’ ’’

Owners who resell HomeWorks houses usually have to pay back a part of the city subsidy at the time of the closing, depending on how long they have owned the house. After six years, they owe nothing. But typically the repayment obligation is a fraction of the profit that can be realized in the sale.

After living in a HomeWorks house on West 132nd Street for only two years, the owner resold it last year for $1.34 million, according to city records. Under terms of the original purchase agreement, the penalty for selling before six years would have been $30,000, but the profit would have been more than $900,000.

The HomeWorks program was created in 1995 as a way to encourage home ownership and to restore vacant buildings that had been taken over by the city after their owners abandoned them and failed to pay the taxes. At the time, there were the first stirrings of revival in the market for town houses in Harlem.

The city’s Department of Housing Preservation and Development offered packages of houses to developers who would completely renovate them, usually creating an apartment for the owner and a few rental apartments to help cover the mortgage. Although some houses were offered only to buyers with limited incomes and neighborhood residents were given preference, most were offered to qualified buyers selected through a lottery. Sale prices were established through negotiations between developers selected by the city and the city government, not through a market appraisal.

At first, HomeWorks was a difficult sell. Willie Kathryn Suggs, the sales agent for Ms. Gwinn’s house and for the first group of HomeWorks houses in West Harlem, said buyers were reluctant to take a chance on troubled blocks until Dumpsters began appearing on the streets and renovation work began. Then, there was a stampede to buy.

“We kept telling them that this is going to change, and nobody believed me,” Ms. Suggs said. “I was begging people.”

Today, she believes that the city program transformed the neighborhood. “There would not be a Harlem renaissance without HomeWorks,” she said.

Wendell Walters, an assistant commissioner for housing production at the Department of Housing Preservation and Development, said that when the program was created, it required significant subsidies because the city was trying to build a market. Since then, he said, the program rules were tightened, subsidies reduced and prices were raised, with some recently renovated houses selling for close to $1 million.

He said the earliest buyers deserved to reap the rewards for taking a risk. He added that the program was continued even after market prices doubled and tripled because it was “in the public interest” to return the entire stock of houses owned by the city over to individual homeowners.

“There has been some wealth created,” he said, “and hopefully it has been able to help people who deserved to be helped.’’

Within a few years, as news media accounts celebrated some of the program’s successes, 1,000 to 2,000 people signed up for lotteries for a chance to buy one of a few dozen houses being offered at a time, with Harlem properties typically attracting more prospects than those in Brooklyn, city officials say.

So far about 215 properties have been redeveloped in Manhattan and more than 200 in Brooklyn, including a few that were turned into condominiums. (Buyers for all of the city-owned houses in Harlem have been selected, though a small number of federally owned brownstones may be put on the market in a similar program. Houses are still available in Brooklyn.)

Not every buyer was selected through a lottery. In 2003, Terry C. Lane, a real estate investor and former investment banker, completed the purchase of a five-story 21-foot-wide HomeWorks house on Lenox Avenue for $529,000. He now has it listed for sale with the Corcoran Group for $2.6 million. The house has office space on the ground floor, behind an iron gate and French doors; an owner’s duplex; and two rental units. There is a garden in the back.
When Mr. Lane qualified for the HomeWorks program in 1999 and signed a contract to buy his house the next year, he was a key development official in Harlem. His title was the president and chief executive of the Upper Manhattan Empowerment Zone Development Corporation, which had been set up by the federal government to funnel hundreds of million of dollars in federal, state and private investments into the area.

Neill Coleman, a spokesman for the Department of Housing Preservation and Development, said there was no conflict of interest in the sale of a HomeWorks house to Mr. Lane because the empowerment zone played no role in the HomeWorks program. Mr. Lane resigned from the empowerment zone in 2002, amid accusations that he was using it to promote himself. He is now a real estate developer. He did not respond to a series of messages, seeking comment, that were left for him.

City officials said Mr. Lane may have had an advantage in buying a HomeWorks house because he qualified as a Harlem resident and because the HomeWorks developer from whom he bought the house was required to sell at least 30 percent of the buildings to local residents. According to property records, Mr. Lane bought a town house from a church in 1997 in the Mount Morris Park Historic District for $60,000, renovated it and sold it in 2002 for more than $2 million.

Although they may lack traditional details, many of the HomeWorks houses have a strong appeal for buyers because they were built to high standards inside and out and need little further restoration, or none at all. They also have the potential of rental income to cover some of the carrying charges.

In 2004, Barbara Jones, a magazine editor, and her husband, Steven Rinehart, a writer, paid $1.2 million for a stately 19-foot-wide HomeWorks brownstone on West 147th Street, acquiring it from the original buyer after a long search for a house in the area.

“We wanted a beautiful old home, but every week while we were looking, it seemed as if prices were going up another $100,000,” Ms. Jones said. “If we didn’t jump, we would be priced out.”
Now she is active in an alternative public school set up by parents in the neighborhood, the Hamilton Heights Academy.

Ms. Jones bought her house from Lana Garland, who was moving to Denmark, Ms. Jones said. Ms. Garland, a producer who worked on projects for Black Entertainment Television and HBO, had bought the house in 1999 for $366,000.

The value of having a HomeWorks house became clear when the apartment buildings and surrounding town houses on Ms. Jones’s block lost power during a localized brownout and power failure. It turned out her house was the only one with full power, apparently because it got a new electric line when it was rebuilt. “We were going up and down the street giving people ice,” Ms. Jones said.