Detroit uses landlord subsidy to save renters from gentrification

JC Reindl | Detroit Free Press

The City of Detroit is giving a $1.4-million tax subsidy to an apartment building owner to ensure special rent deals for about 45 low- and moderate-income tenants, who might otherwise be forced to leave the 18-story tower when it goes upscale.

The tenants, many of whom are seniors, currently pay $710 per month or less to rent one-bedroom units at Elmwood Club Plaza Apartments, a 1970s housing development at 750 Chene, formerly called Elmwood Park Plaza, distinct in the skyline for its eastern European-like design.

The building is owned and managed by City Club Apartments, which plans more than $10 million in renovations to the building and its 202 apartments starting in December, adding amenities such as an outdoor swimming pool, a zen garden and a newly redone lobby and fitness center.

City Club then anticipates raising rents for most of the apartments to about $1,240 per month, according to city documents that show all of the apartments as one-bedroom units.

City Club Apartments could have financed the renovation project on its own without tax abatements or public subsidies, and leased all of the redone apartments at new higher rents.

But to keep existing tenants from being priced out, city officials offered City Club a 12-year tax abatement for the building known as an Obsolete Property Rehabilitation Act exemption, valued at $1.46 million.

In exchange, City Club agreed to give 19 of the tenants — all seniors on fixed incomes — unique lifetime rent deals in which they will pay $765 per month for 550-square-foot apartments and see future increases held to 2% a year. The other 26 residents in the group will pay reduced monthly rates of about $930 or $1,070, depending on their income level, with maximum 3% increases for the next 12 years.

Even as tenants move out, at least 20% of the apartments will keep reduced rents for the life of the abatement. The abatement works by freezing property taxes at their current, pre-renovation value.

The arrangement at Elmwood Club is one result of Detroit officials' policy push in recent years to compel private developers to set aside portions of newly built or newly renovated apartment buildings — typically 20% — for tenants who can only afford cheaper rents.

The goal is to prevent longtime Detroiters from being pushed out by market forces from increasingly popular and revitalized neighborhoods and replaced with well-heeled newcomers, a phenomenon commonly called gentrification.

"We’re making sure that Detroiters are not displaced," said Donald Rencher, director of the city's Housing and Revitalization Department.

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“Without the abatement, the developer would have been forced to move forward to make this entire building market rate," he said. “We truly believe that he could do that, and none of the lower-income individuals would have had an opportunity to stay — it would have been $1,250 in rent and above for everyone.”

Former HUD project

The 18-story tower is near Jefferson Avenue and opened in the mid-1970s as a Housing and Urban Development-financed project for seniors.

Today, the tower borders housing that accepts Section 8 vouchers and is next door to a Family Fair supermarket, a Detroit Public Library branch and a once-vibrant shopping plaza now showing numerous vacancies.

Once the renovations are done, the tower could be the first building on its block to ask the sort of rents more typically found in newer downtown developments.

For some tower residents who still can't afford the discounted rents or just prefer to move, City Club agreed to pay $1,500 for moving expenses.

Jonathan Holtzman is the co-founder and CEO of City Club Apartments, and his family originally managed the tower in the 1970s, when the property was subsidized by HUD.

After the HUD agreement ended, the tower converted several years ago from fixed-income seniors to market-rate tenants. Newer tenants have been paying about $815 to $960 in monthly rent, according to the City Club website.

"We worked closely with Mayor (Mike) Duggan and the city to develop this complex agreement," Holtzman said in a statement. "It was important to all of us that we took care of those renters that had been in the building the longest."

While all of the apartments will be renovated, tenants who qualify for and accept the discounted rent deals must live on floors two, three or four of the 18-story tower. The upper floors — and their expansive views — will be for market-rate tenants.

City Council President Pro Tem Mary Sheffield, a proponent of "inclusionary housing" policies in Detroit, said that while she prefers to see landlords place reduced-rent tenants throughout a building and not confine them to specific areas, residents seemed supportive of this arrangement.

Council voted Tuesday to approve the tax abatement and rents deal.

“I know today was an exception," Sheffield said after the vote, "only because of the situation where most of the residents are already on lower-level floors, and some of the seniors and those with disability issues did not want higher floors."

Sheffield was a lead backer of the 2017 Detroit ordinance that requires many new housing developments to reserve at least 20% of their units for people making below-median incomes if they receive public subsidies or discounted land. The law was aimed at promoting more income-inclusive developments and lessening the displacement effects of gentrification.

Not emptying out

City Club also has agreed to pay moving expenses for tenants that relocate from an upper to a lower floor, Rencher said. Tenants can stay in the tower during renovations, although some must temporarily move to different floors.

"Unlike other apartment communities that emptied their buildings during redevelopment, we are moving our residents around during renovation," Holtzman said. "This is much more difficult, but the right thing to do for our tenants."

Tower resident Juanita Taylor Matthews, 52, said that she and her husband, who is older, pay about $675 per month for their 14th-floor apartment. They plan to stay in the building and are fine with moving to a lower floor to get the discounted $765 rates.

Otherwise, their rent to remain on the 14th floor would presumably jump to the future $1,240 market rate.

"The higher you go (in the tower), the more it’s going to cost," she said. “We've got a nice view. I would like to stay in my apartment, but you know, we don’t want to pay that much just for the view."

Matthews said her 84-year-old father, who is legally blind, also lives in the tower and plans to stay. He recently made a temporary move from the third to the 11th floor to allow renovations in his old apartment. Once that work is done, he is to move back down and into a discounted unit.

OK with lower floor

Matthews said the tower was filled with seniors when she moved in about a decade ago. The building converted to market-rate apartments a couple years ago, she said, and many of the tenants have since left because of the looming renovation work.

“Now the parking lot is half empty because a lot of people moved out," she said.

Another tenant, Regina Owens, spoke in favor of City Club's tax abatement and rent discount plan during a hearing last month before City Council's planning and economic development committee. She also plans to remain.

“I am perfectly fine with staying on a lower floor," Owens said. "They could have emptied out the building and put us all out.”

Contact JC Reindl: 313-222-6631 or jcreindl@freepress.com. Follow him on Twitter @jcreindl. Read more on business and sign up for our business newsletter.