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Maze of red tape cools pace for those rehabbing burned-out city buildings

New Hampshire Union Leader

September 22. 2018 8:40PM
Builder Timothy Berky stands on the porch roof of a burned-out Victorian house he is fixing up on the corner of Hanover and Hall streets in Manchester. (DAVID LANE/UNION LEADER)

MANCHESTER -- While apartment vacancy rates are low (below 2 percent) and rents are high ($1,200 fair-market rate for a 2-bedroom), several burned out and dilapidated apartment buildings remain vacant and untouched in center city neighborhoods, months after the fire engines drove away and plywood barriers went up.

They may stay that way.

City officials and developers say anyone who wants to rehabilitate a fire-damaged or dilapidated apartment building has to negotiate a maze of insurance adjusters, skeptical bankers, worker-strapped contractors and city regulators.

Once they do, unexpected problems arise.

 (New Hampshire Sunday News)

When Portsmouth-based redeveloper Timothy Berky bought a foreclosed 2-family building through an online auction site last year, he discovered two feet of human excrement in the basement, he said. 

Once he removed barriers to access the building and begin work, the fire department called to complain that squatters were getting in and overdosing, he said.

Berky, who is self-financing the total gutting and remodeling of 461 Hanover St., said many people probably think he is crazy.

"Most (developers), they're looking for the quick fix, but economically, the quick fix does not work," Berky said. 

His strategy: go high-end in a marginal neighborhood. Then wait for the market to rise.

Berky is adding a third floor and scrapping the above-below apartment concept for side-by-side high-end condos. Three bedrooms, 2½ baths, second-floor balconies, city views, hardwood floors, granite counter tops, mansard roof.

He can rent them, and when the market turns, he thinks they will go for $399,000 apiece. The potential price for one is about what he's spending on the total project.

Within a half-mile of that corner stand three eyesores - 324 Hanover St., 374 Merrimack St. and 416 Central St. - which are more neighborhood nightmares than developer dreams.

"A lot of it is they're working with their insurance companies to figure out if it's cost effective to fix it or tear it down. We're kind of on their time frame," said Peter Lennon, the city fire marshal. Lennon works with property owners in the aftermath of a fire. 

Once the city determines a fire-damaged building is uninhabitable, it issues an order for the owner to secure the property and clean it up, said David Albin, the city's chief housing inspector.

The city also issues a demolition order.

One of the most visible eyesores in the city is the Victorian structure at Maple and Hanover streets, which was badly damaged by fire in early December. 

Albin said several would-be buyers have visited his office to discuss redevelopment and building regulations.

They don't return. 

"It's always contingent on financing," he said. 

Horacio Niz pulls vinyl siding off a burned-out Victorian house on the corner of Hanover and Hall streets in Manchester. (DAVID LANE/UNION LEADER)

They have an incentive to act quickly. Albin said owners have a year after a fire to take advantage of code provisions that allow them to redevelop without meeting updated zoning codes that pertain to setback, parking and density.

They can even demolish and rebuild under the grandfathered status if they do so within a year's time.

The city does have the option to tear down dangerous, fire-damaged buildings on its own. But that involves a judge's sign-off and approval of aldermen to pay for the demolition. 

None of the current buildings are at that point, Albin said.

According to data supplied by the New Hampshire Association of Realtors, the Manchester market for multi-family housing is stronger than the state's as a whole.

The median multi-family sales price for the 12-month period ending Aug. 31 was $275,750 in Manchester; it was $249,900 for the state as a whole.

The sales price of a Manchester multi-family home increased 10 percent over the same period, compared to about 8½ percent statewide.

Robert Tourigny, the executive director of the nonprofit housing organization NeighborWorks Southern New Hampshire, said he's baffled when he sees properties in the inner city that go undeveloped. For example, a property at Union and Green streets has been vacant for years after a fire destroyed the building.

The key to redevelopment of inner-city properties is density, he said. Demolition costs and high construction costs can be recouped if the costs are spread out among multiple units, he said.

"I can't understand why someone doesn't take their insurance money and rebuild right away," he said, noting the one-year grandfathering deadline.

Two developers currently rehabilitating multi-unit buildings have Massachusetts ties. Berky has concentrated on the North Shore of Massachusetts during most of his career, he said.

The AA Real Estate Group of Woburn acquired a fire-damaged triple decker on Amory Street and is upgrading it into six two-bedroom apartments that will rent for $1,100-a-month, said Nick Aalerud.

Portsmouth-based developer Timothy Berky says most developers are looking for a quick fix, but “economically, the quick fix does not work.” (DAVID LANE/UNION LEADER)

Aalerud, a St. Anselm College graduate, had a deal to buy 374 Amory St. before fire struck 16 months ago. He said he had to hire an insurance adjuster to work on behalf of the out-of-state owner. 

The adjuster engineered a sizeable claim, and Aalerud was able to buy the property at a reasonable price, but local bankers were cool to his project, he said.

His redevelopment plan wouldn't work with the interest rates and the underwriting demands of local banks, he said.

"They were looking at existing rents in the Manchester market. They didn't have the vision we have," Aalerud said. 

He went with a national bank, Enterprise Bank, for financing. Aalerud said he faced another local skeptic, - the building inspector, who laughed at Aalerud's plans for a backlit sign that will read The Luxury Residences at Amory Street.

The project involved replacing the entire third floor because of the fire damage.

"It costs more to remodel and rehab than build brand new, and it's quicker to build new," said Mark Guerin, the Methuen-based contractor working on the job. For the last five years, he said, he has struggled to find qualified help.

Aalerud said landlords let burned buildings sit for a simple reason.

"There's an overwhelming amount of work to do. They probably say forget about it."

Berky said the buildings sit because the numbers don't work if landlords try to do a quick restoration on the cheap.

Aalerud and Berky said they see the high rents in Massachusetts and think it is inevitable they will come to Manchester. Both said neighborhoods can turn around once a developer buys property and upgrades it.

With the state concentrating on the opioid epidemic, the city should improve overall, Berky said.

"Eventually it will all turn around," Berky said. "I'm just hoping to start the process now."

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