The Power of Condemnation?

By on July 29, 2011

By Matt Edens | Photography by Bill Millios

The City Struggles to Deal with Derelict Properties

NOTICE OF VIOLATION. That’s what the paper from the city said across its top. The violation I was supposed to notice, it turned out, was the DirectTV dish hanging under the eaves of my townhouse in downtown Frederick. They’re forbidden in the historic district; outlawed by the city’s Historic Preservation Commission. Verboten.

I had 45 days to take it down.

I didn’t put the dish up, mind you. It was on the house when we bought it. And I’d always meant to take the thing down: I didn’t like how it looked hanging on my 130-year-old dwelling any more than the HPC did.

But it was way up there. I would need to borrow a ladder just to reach it and, lazy homeowner that I am, it stayed. That is, until the notice from the city showed up in my mailbox, threatening me with a $500 fine. So, some- where around Day 43, I opted for the cheaper alternative; I got a neighbor to take the damn thing down and paid him with a 12-pack.

The 12-pack is optional, but that’s more or less how the system is supposed to work. Whether enforcing the design guidelines downtown or the city’s more mundane property maintenance or land management codes, the process starts the same: someone rats a violator out to the codes enforcement people. The city then sends out a notice. And the negligent property owner sheepishly complies. “Most of the time we have around a 90% compliance rate,” says Buddy Singer, a codes enforcement officer with the City of Frederick.

The Other Ten Percent
Then there is the other ten percent. “You have these landlords who don’t want to fix anything,” says Singer. It’s a citywide problem, according to Dan Hoffman, Singer’s boss and the city’s codes enforcement manager. Every neighborhood, he says, has “their thorn that they are trying to get cleaned up. There’s even one or two in the area around Hood College.”

But it’s the empty storefronts downtown that draw the most attention, precisely because they’re the exception, rather than the rule in an otherwise thriving district. “It’s a sign of our success,” says Jonathan Warner, a commercial real estate broker who has been active in downtown Frederick issues for over two decades.

“It’s not a new issue,” he says of the negligence matter. “It’s been going on for twenty years and it’s the same offenders,” he says.

Warner’s not willing to name names on the record, but the offending property owners aren’t exactly a secret. On South Market there’s Maggie Kline, owner of of the long-empty building on the street’s southeast corner with the creek. Then there’s Douglas Jemal, a D.C.-based developer who owns both the old Carmack Jay property on North Market between 3rd and 4th streets, and the run-down Union Knitting Mills building between East Patrick Street and Carroll Creek. Finally, and most notoriously, there’s the feisty, Korean immigrant, Duk Hee Ro—or, as she’s more commonly known around town, “The Dragon Lady.”

The Dragons Lair
Ro owns roughly half a dozen buildings downtown. One, the long-empty Asiana restaurant, sits at the center of an otherwise thriving block, home to fixtures like Firestones, The Tasting Room and Brewer’s Alley. “Obviously that’s an ideal location, a very vibrant block,” says Kara Norman, executive director of Frederick’s Downtown Partnership. “There are folks out there who would jump at the space.” Singer agrees. “I’ve had buyers for that property,” he says. “I had a guy who wanted to lease it and put half a million dollars into it.”

But, despite almost two decades of interest, the property continues to sit empty. “There’s always been a failure of the property owner and the potential tenant to come to terms,” says Norman.
The rest of Ro’s downtown buildings are further up Market, strung along the east side of the thoroughfare between 3rd and 4th Streets. “As soon as you cross third, you notice a lot of dilapidated buildings and transient tenants,” says Mike Muren, real estate agent for North Pointe, a new townhouse development at downtown’s North End. Muren says Ro is largely to blame for the block’s seedy nature. “A lot of that is due to the way she maintains her properties,” he says.

That Condemned Place
It’s a sweltering late spring afternoon when I meet with Ro inside her building at 300 N. Market Street. Formerly home to That Cuban Place café, the corner building was recently condemned by the city, a fact that makes the diminutive Dragon Lady furious. “The inspectors make trouble,” she says; “You can’t do business.”

Singer sees it differently. Earlier, over the phone, the inspector told me that the building has serious structural problems. “The piers in the basement are undermining,” he explains. “The tenant had repeatedly told Ro about how dangerous it was. And when he saw she wasn’t going to do anything about it, he requested a structural engineer to come in.” Ro’s response? “It’s commercial,” she says. “I don’t have to fix it. Tenants have to fix it.” Calling the whole thing “a set up,” Ro casts herself as a victim, claiming her tenants take advantage of her. “They don’t pay the rent. They call the newspaper. They call the inspector, and the inspector writes down whatever they say.”

Language Barrier?
Early on, talking to Ro inside her empty building, it’s tempting to take her side. She’s certainly looking for sympathy when she tells her story. “I’m working hard and trying to help them out,” she says, “but I let them know, that I’m an old woman.” She attributes part of the problems she’s having to what she calls a “language barrier.”

It is difficult to keep up with Ro during our conversation, although that’s less a function of her English—she’s lived in America roughly half her life—than it is her excitable personality. The hour we spend together takes on a surreal, Seinfeldian quality as Ro’s rambling, rapid-fire discourse ranges from her thoughts on child-rearing and Koreans’ attitude towards education to the fact that her strict father was a school principal. We also detour into astrology, and, after determining that I am a Scorpio, she informs me that I’m “very sharp”—notwithstanding the fact that I couldn’t recall the exact time of my birth.

Mostly though, Ro seems angry. Not only is she upset that the city condemned her building, she’s livid that the inspectors let That Cuban Place’s owners remove the restaurant’s fixtures. “The inspector is wrong; he can’t tell them to take things out,” she says, walking through the kitchen and indicating where refrigerators and a stove once sat. But, when I ask who bought and installed the appliances, the “Dragon Lady” stops short. “Why you ask?” she says, appraising me with a hard stare. “You attach it to the wall, you can’t take it out,” she explains. “That’s vandalism.”

“Her MO is she’ll lease a property and allow tenants to make the improvements, which by no means is an uncommon practice in real estate” Muren says, adding, however, that the practice doesn’t typically extend to the building’s structure. “[A tenant] leases his space, he ought to be able to count on the rest of the building not falling down around him.”

Deferred maintenance, the polite term for letting investment property fall down, does have its advantages. And according to Hoffman, that’s particularly true for a long-term owner like Ro. “What she has told me is that she owes nothing on [her properties],” he says. “What she’s getting is all profit. She’s certainly not spending anything on the building.”

Ro began buying her buildings in the late seventies, not long after her husband, Dr. Myung Ro, took a contract position with Frederick Memorial Hospital. “The CPA, the income tax [man], when we went there, advise us to buy,” says Ro. “You understand tax shelter?”

 

Economic Realities
Across Market Street, Jemal pursues a different model.

“He just waits,” says Warner. “He’d rather hit a home run than a single.” And when it comes to something less than a dream tenant, “he has no economic incentive to settle,” Warner adds, explaining that Jemal has even less incentive to do anything about his Union Knitting Mills property. “Until the city builds out Carroll Creek, he’s got a legitimate reason,” says Warner.

Kline’s property is another story that’s “frustrating” for Hoffman. “It could be a fine restaurant,” he says.

It’s a sentiment that Frederick Mayor Randy McClement can identify with. Before taking office, he ran the nearby Market Bagel and Deli. “Once the creek was revitalized,” he says, “people would come in and ask about [the Kline property], and they were amazed that there wasn’t anything happening with it.”

Muren also thinks the location would be perfect for a restaurant. He and a partner even approached Kline several years ago with that in mind. Now he’ll only say that the deal is dead, despite the “Coming Soon” sign still hanging on the side of the building.

Although Kline didn’t return phone calls and her real estate agent declined any on-the-record comment, time may nevertheless be running out for her. Several of her South Market Street properties have already been auctioned off by the bank that held the notes. “The economic realities are catching up to her,” says Warner.

The Way Downtown Works
It’s tough to gauge the effect that empty buildings have on the economic activity of a city core. “The impact differs, based on the particular site,” says Norman, who believes the cluster of stagnating properties along the 300 block of North Market Street hampers redevelopment further north. “It’s the missing link,” she says. “There are lots of things happening at the north end, past that block.”

Farther south, Asiana and Kline’s building on the creek aren’t as obviously dragging their neighborhoods down. “In large part, the adjacent buildings are able to be successful,” says Norman. But Norman also thinks that having both buildings occupied would be a boost. “Restaurants are great for adjacent retail,” she says. “The way downtown works is [through] consistency of retail.” McClement agrees. “If Ms. Kline had done something with her building, that would have helped me as a business owner,” he says.

“The Ultimate Remedy?”
So, what can the city do to encourage occupancy and upkeep? The current answer is “not much,” according to Alderman Michael O’Connor. “We’ve done notice of violations and citations, and it hasn’t produced a result,” he says. Norman shares O’Connor’s bleak view. “If a property owner refuses to complete the work, the ultimate remedy is to go to court,” she says. “But that is a frustrating process.”

Condemnation is also an option; and one the city is getting more aggressive about using. Singer says he’s personally condemned three buildings in the last four months. And the loss of tenants and cash flow that condemnation entails can produce results, he says, even with the “Dragon Lady. “ When the city recently threatened to condemn Asiana over a leaky roof, evicting renters in the apartments above, Ro did make repairs—of a sort. “She did the absolute bare minimum to comply with the code,” says McClement.

If the deterioration threatens public safety, the city also has the right to correct the situation. “That allows us to enter the property and use one of our contractors to make the repairs,” says Hoffman. “The cost of the repair would then be placed on the property as a lien, in addition to the fine.”

The same goes for what’s called “demolition by neglect” within downtown’s historic district. It’s a term used to describe a property owner’s intentional blighting of an historic property through neglect. But a different kind of “economic reality” also dictates the rare exercise of this option. “We would have to take tax dollars to make these repairs, and some of those repairs are massive,” Hoffman explains, noting that the resulting liens, especially the large ones, could be tricky to collect. “You have to think about whether we’ll be able to recoup our cost,” says McClement.

“A Very Controversial Tool”
Repairing a rundown property won’t address the root problem, however. “There are always going to be some landlords that refuse to maintain their buildings,” says McClement.

Some cities use their eminent domain power to forcibly acquire blighted buildings from owners who refuse to repair them, and then sell them to someone who will. “Baltimore’s had a lot of experience doing that, but with mixed results,” says Josh Russin, McClement’s new executive assistant. Russin, however, says eminent domain is a controversial tool. “All of a sudden you’re stepping onto property rights,” he explains, noting it’s a step his boss would rather not take. “The mayor is definitely hesitant to use that as a tool,” he says.

Eminent domain becomes even more controversial in the case of long-empty buildings in otherwise good exterior condition. Kline’s property on the creek, for instance, doesn’t appear to be in any danger of falling down. “If the landlord doesn’t want to put money into the building and it’s not literally falling in, it’s a dicey line,” says O’Connor. “Unless they are violating health and safety codes, they have the right to sit on them,” says McClement.

But for how long, especially if they’re holding the city back? “What needs to happen,” says Muren, “is we need to make sure property owners aren’t being incentivized for having empty property in prime locations.”

A Change of Philosophy?
“How do you deal with people who find it profitable to sit on their property until the roof falls in?” asks Joshua Vincent, president of the Philadelphia-based Center for the Study of Economics. Currently, the city has “very little in the way of a stick for getting someone off their duff,” he says. “There is no incentive to do anything until you’re good and ready.”

Could that change? Cities such as Washington D.C. simply tax vacant and blighted property at a substantially higher rate. And last year, neighborhood advocates in Baltimore pushed a similar proposal for that city. But the necessary enabling legislation stalled in the state house.

That’s where Vincent comes in. Last year, while Baltimore flirted with the idea of a vacancy tax, the City of Frederick hired him to study the feasibility of implementing what’s called “land value taxation.”

According to Vincent, traditional property taxes that tax both the land and the buildings on the land at the same rate can actually discourage upkeep and improvements. “The complaint, which is a valid one,” he says, “is that, if I fix this building, what’s going to happen? My taxes will go up.”

But land value taxation taxes the land the building sits on at a higher rate; the buildings are taxed at a lower rate, if at all, theoretically encouraging owners to maximize their improvements. “What you’re doing is trying to remove a lot of the impediments to taking that risk on a building,” says Vincent. “We hope that will change the philosophy by putting the burden on owners,” says McClement.

At press time, Vincent’s study had yet to be presented to the city’s board of aldermen. So, the consultant couldn’t comment. Asked if he supported land value taxation, McClement likewise was noncommittal. “All I can say is that it’s a strategy that we’re looking at,” he says.

It’s My Hobby
But is it the right strategy? If condemnation and court citations aren’t enough to nudge property owners into action, will tinkering with the tax structure be any different?

“It may not be enough to change behavior,” admits Russin.

And, thinking back on my long, long morning with Ro, I can’t help but think he’s right. The behavior of some landlords simply defies explanation.

Asked why she owns so many buildings downtown, even the “Dragon Lady” gropes for a reason. “My husband—everyone—say: ‘Why you want to work so hard? Stay home,’” she says.

And then she shrugs. “But I can’t stay home. It’s my hobby.”

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2 Comments

  1. admin

    August 25, 2011 at 2:10 pm

    This response is from an email we received from Jim Miller.

    Thanks to the Gorilla and Matt Edens for continuing to bring attention to the vital issue of derelict properties in our Downtown community. Let’s just say what needs to be said- the City should be stepping in and taking properties in the historic district that are neglected like this. Before the property rights advocates start screaming, it has been well established that the historic district is a community asset, for the good of all. This is why people flock here from surrounding counties, states, and even countries. They don’t come from Germany to visit Evergreen Plaza or the Golden Mile Marketplace, they come to visit this County’s most vital physical asset, Downtown Frederick. It is in the City’s best interest, therefore, to protect that asset. We need a process in place that is actionable, which is what it is currently missing. I respectfully disagree with those who stated in the article that there is not much that can be done, it just takes support and political will. What has the economic impact of these blighted properties on the City over the years? There is a cost to maintaining the status quo.

    If an owner doesn’t maintain their property, or attempt to lease space, then they need to be penalized so as to make sure this behavior is not implicitly condoned. There are several tools that have been used by cities across the country, such as split-rate taxes which allow for extended vacancies to be taxed at a higher rate, and to adopt an ordinance which addresses demolition by neglect in the historic district. It could simply state that the owner of an historic landmark or a contributing building or structure within an historic district shall comply with codes, laws, and regulations governing the maintenance of property. Then specific defects, such as failing façade elements, deteriorating foundations or other structural supports, ineffective or deteriorating waterproofing of exterior walls, windows, doors, lack of paint protection against weathering, etc. should be identified. Several cities use $100 per day fines levied against the owner so as to convey the seriousness of the offense. It is these types of tools that are required to ensure that owners who actually appreciate and care for their properties are rewarded and our wonderful Downtown can thrive.

  2. silver

    April 18, 2012 at 6:07 pm

    Great article. Dragon Lady should be made into a comedy!

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