Hammers and nails aren’t the only tools used to revitalize neighborhoods in Bay City.
Wayne Hofmann — co-founder, former President, and board member of Infuse Great Lakes Bay
— is restoring his family’s dream home with the help of Neighborhood Enterprise Zones
(NEZs). The NEZ freezes the taxable value of a property. Right now, the city doesn’t have any NEZs, but is considering several.
The first is in the North Grant Street neighborhood, which includes an 1872 Italianate home
that the Hofmann family is restoring to serve as their permanent residence. The Hoffman home is across from The Holcomb House.
Without the NEZ, the Hofmanns might not have been able to take on the restoration project. Hofmann emphasizes the need for the region to use these types of incentives to help others restore homes, especially in neighborhoods with multiple vacant lots by redeveloping parcels of land.
“This is what enabled me to make this investment,” Hofmann says. “It's not a silver bullet and really should only be used in neighborhoods that have significant property neglect or vacancies.”
Local governments can request a NEZ in an area that includes at least 10 parcels of land and where communities want to encourage owner-occupied housing and new investments.
Regionally, many neighborhoods that fit this description, he adds.
Bay City has applied for a Neighborhood Enterprise Zone designation in the North Grant Street area in order to encourage homeowners to take on projects such as this home, which Joe and Andrea Frost are renovating.Hofmann approached the city to establish an NEZ encompassing the North Grant Street neighborhood last year. The city applied for the NEZ certificate and is waiting for approval from the State Treasury Department. While Bay City has had an NEZ policy for well over a decade, it originally only included new construction and not home rehabilitation — something Hofmann worked closely with the city to adopt.
City commissioners Jesse Dockett and Kristen Rivet are highly supportive of Hofmann’s idea to implement an NEZ for North Grant Street.
“The NEZ is a fantastic tool that I think can do a lot of good for our community in the long run,” Dockett says. “I hope that as we try to identify and attract potential investors that residents understand that this is a long-term investment in our future and that it will not pay off for several years, but it will pay off.”
As a lifelong resident of the city, Dockett wants to set the community up for success.
“I think it is important to maximize the effect of this tool.”
Focusing on neighborhoods near main throughways and adjacent areas with few distressed properties while keeping investors interested is how Dockett envisions this happening.
“Determining specific neighborhoods that meet that criteria is something that I would ask my fellow commissioners to defer to city staff on,” he adds.
One area where an NEZ could be utilized is in the City’s South End, on a piece of land between Trumbull and Lincoln.
“I would love to see it be developed with an NEZ to make it cost effective for someone to make the investment to build a whole neighborhood there,” Dockett says.
Bay City Economic Development Marketing Manager Shelli Thurston says the city is open to establishing more NEZs.
“There’s an opportunity especially as we have houses that are being demolished that we use some buildable lots that could potentially be new construction and could take advantage of the NEZ,” she says.
Rivet says NEZs are a readily-available tool that can help developers invest in the community.
“That’s going to take a concentrated and focused effort for the city and other civil leaders in saying Bay City is an investable place,” she says. “(Going through Wayne’s house), you can feel what makes Bay City special. That is honoring what comes before us and caring about what’s going on with your neighbor.”
Rivet adds her goal as a city commissioner is to ensure that the development and tax structures do not hinder people from investing in their neighborhoods. If that doesn’t happen, investors may move on to the next community. “That’s going to be death for us,” she adds.
While NEZ’s are a great tool, the appraisal gap is another that can block individuals from pursuing home rehabilitations. In low-cost housing markets, restoration costs may outweigh the home’s appraisal value, making financing impossible. This can result in a cycle of lower housing stock and community disinvestment.
Here’s how an appraisal gap hinders development. When a property’s value is appraised, one factor is the value of nearby properties. If a developer purchases property for $50,000 in a up and coming neighborhood, the value of nearby properties is probably low. Even if the investor spends $50,000 in renovations to the property, the appraised value may come in at only $80,000. This creates a $20,000 appraisal gap, making it challenging for most people, especially homeowners, to obtain financing.
In the absence of financing, the only potential buyers are equity heavy investors who seek to create rental housing. This exacerbates the issue of single-family homes becoming rentals in the City.
“I walk away from projects all the time because of it,” says Jenifer Acosta of Jenifer Acosta Development,
discussing the appraisal gap. “So do investors, and out-of-town investors coming in, local investors … it happens all of the time. We lose out on so much because of the appraisal gap.”
Buyers of both residential and commercial buildings see properties in need of updates and renovations. But without a lot of comparable properties with higher established values, Acosta says, there is difficulty in justifying risk and investment costs where it may not be worth it.
Grants, forgivable loans, or financing could cover that gap. Some nonprofits, banks, and municipalities provide grants to help cover the gap between market and appraised values.
Other communities such as Detroit and Muskegon also have created solutions to the issue.
According to Local Housing Solutions
, appraisal gap financing has helped to increase housing values in their designated neighborhoods in Detroit through Detroit Home Mortgage
The Detroit program offers a 3.5% down payment on a fixed-rate loan for single-family home buyers within the City of Detroit facing an appraisal gap. This is used in the hopes that the housing market will grow stronger resulting in increased number of appraisals in a community. Over time, these subsidies will not be needed.
Hofmann thinks Muskegon’s plan of using Brownfield Tax Increment Financing (TIF) is a possible solution to funding the appraisal gap in our region, and could be beneficial for rented, affordable, and Missing Middle Housing.
Muskegon’s plan involves investing $49.5 million dollars to build 240 homes. Brownfield redevelopment funds can be used in aging industrial towns to help with cleaning contaminated areas and be repurposed. This is important for building local and regional wealth, being very impactful in both Bay and Saginaw counties.
“Using the Brownfield TIF for single-family is a bit theoretical at this point,” notes Hofmann. “But it is a stronger tool to fix the appraisal gap, even in comparison to the NEZ.”
Compared to other regions, ours is quite affordable — but that does not necessarily mean quality options exist.
“One of the major findings of the Bay City Housing Study
was the need to raise property values through targeted strategies and investments,” Hofmann says. “Increased property values not only build value and wealth for homeowners, but also help build the tax base and municipal revenues over time,” he says.
“We've lost far too much of that over the past 30-40 years and we cannot afford to lose any more.”
While we have a good supply of houses, many of them are substandard ,says Debbie Kiesel, Bay City Community Development Director.
“With 51% of Bay City’s population being low income it’s tough for homeowners to maintain and fix up their homes.”
Kiesel adds she would like to see more developers come into town to help reaffirm a sense of neighborhood, and emphasizes the need for Missing Middle Housing. While developers can build, city residents also need to help bring back a sense of neighborhood through guided assistance. Bay City currently works with five citizen district councils comprising of residents, city liaisons, and community policing officers.
“We have a few pockets in the city that have seem to have a strong neighborhood network for the most part,” she says. “Most of Bay City neighborhoods would benefit from a stronger sense of neighborhood.”
“What is really important for the city is that we think about becoming a place that attracts people,” Rivet says. “That we think about place and what it’s like for people to live here, and what kind of amenities we have.”
She explains that people are looking for an overall sense of community.
“The Grant Street area is so cool, and there’s so much community happening there,” Rivet says.
“There are active residents who really care what it’s like to live there, and they’re contributing back to the city.”