Banking on KC – Meghan Freeman of Marlborough Community Land Trust
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Kelly Scanlon:
Welcome to Banking on KC. I'm your host, Kelly Scanlon. Thank you for joining us. With us on this episode is Meghan Freeman, the executive director of the Marlborough Community Land Trust. Welcome, Meghan.
Meghan Freeman:
Thank you.
Kelly Scanlon:
There's so much to cover here. You're involved in this really exciting initiative and I think probably the best way to start is just to have you explain what a community land trust, or as they're sometimes called CLTs, what are they?
Meghan Freeman:
Absolutely. So a community land trust is a type of shared equity and they can take many forms, but it's basically a way to own real estate in perpetuity for a specific common cause. So in the case of Marlborough Community Land Trust, our cause is affordable housing. So it is a shared equity model where the home buyer owns the home and the land trust maintains ownership of the land.
Kelly Scanlon:
So there's a dual ownership that's going on there. Is this a new concept? I feel like we're hearing more about it. Maybe that's because affordable housing is getting a lot more attention right now. Are CLTs themselves a new concept?
Meghan Freeman:
Such a great question. So actually CLTs have been around since the early 1800s and worldwide here in the United States, they really got their start around the civil rights movement. So mid-1950s, it really started in the rural areas with black farmers trying to band together to be able to purchase and afford land. So it was very much a rural space construct. It was probably around the 1980s that, that whole process kind of moved to the urban space. I'm like, well, this makes sense here.
Kelly Scanlon:
And what drove that migration?
Meghan Freeman:
So I think a lot of it had to do with the purchase of land by investors and the driving up of the real estate prices and really trying to create a way that gentrification could be kept at bay from communities.
Kelly Scanlon:
So when you talk about the Marlborough CLTs, what area specifically does it serve?
Meghan Freeman:
So Marlborough is actually a combination of five neighborhoods and they've banded together to form Marlborough Community Coalition, and that is really an amazing organization that has been in existence for several years. They created something called the Catalyst Plan, which was basically their idea of how can we improve this neighborhood. What are the different aspects that we need to address to have a sustainable, positive neighborhood? And they've gotten many, many things going on. One of the things they realized was housing is a big issue. So Marlborough Community Coalition was actually the founders of Marlboro Community Land Trust as a way to help address the lack of affordable housing in the community. So that community is bordered at 71st or Gregory and goes as far south as 89th Street, and it's trussed over to 71 highway.
Kelly Scanlon:
Okay, so fairly large area?
Meghan Freeman:
Absolutely.
Kelly Scanlon:
Yeah. Well, as you said, five neighborhoods, so-
Meghan Freeman:
Absolutely, and it's probably about 10,000 residents.
Kelly Scanlon:
There's also a school project that is going on in that area. Talk to us about it and how does that work?
Meghan Freeman:
Absolutely. So we, with the help of Equity Squared, have purchased the Marlborough Elementary School. The school was originally built in the mid-1920s and was run as a Kansas City, Missouri Public School until 2007 when it was decommissioned. So it has been vacant for over 15 years, and there were many possibilities of how could the school be reused, but several of the attempts did not work out. For example, there was an addition built on the school in the mid-1950s, and so that disallowed it from using historic tax credits.
Kelly Scanlon:
They changed the building too much. Yeah.
Meghan Freeman:
Exactly. So we were quite excited to begin a joint venture with AltCap and to really work on how can we save that school and turn it into a community resource. So, the current plan is that it will be commercial lease space and available to all kinds of uses. Everything from a doctor's office, potentially a small grocery store, a restaurant, a daycare, artist studios. We are going to be able to preserve the gym, so a dance studio or a movement studio. So really things that support the community.
Kelly Scanlon:
That's the school project. Let's go back to CLTs in general. What are the advantages? You've got a CLT that owns the land and then you have homeowners who own their home. What is the advantage of that kind of relationship? And most of the time people consider home ownership or property ownership to be a means to wealth, particularly generational wealth. So talk to us about, again, the advantages and then specifically about wealth building.
Meghan Freeman:
Absolutely. Well, let me just tell you a story about one of our homeowners. So the individual who bought our first home is a 74-year-old retired Vietnam Veteran, and he had been a lifelong renter, he and his wife, and they got custody of their grandchildren. So suddenly they needed more space. They were in a little two-bedroom, one-bath that they were renting, and he really wanted those grandchildren to be able to stay in their same schools. So he learned about the house that we were actually rehabbing across the street from his rental and was very, very interested. He was not able to come up with the cost to purchase a home outright, but because of the Community Land Trust, we are subsidizing the price of the house. We're basically rehabbing it to pristine, high-quality, brand-new housing, and then we're selling it at least 20% below market value.
So that allows the individuals who have not been able to get into the homeownership arena a chance, because that price is kept down low. The beautiful thing about a community land trust model is that the homeowner gets that initial subsidy to be able to afford getting into the house, and then they use that home as their home for as long as they care to live there with very few restrictions. They can paint the house, they can build a shed, and they're using that home as their own. When they are ready to sell that home, they are getting back all of the equity that they've invested. So if they put down a down payment if they've retired principal payments during the time they've been there, just like in a traditional market rate house, all of that money is coming back to them. In addition, they're going to receive a portion of the market increase.
So let's say they've lived there 10 years when they first bought the house, the market appreciation of the house is $100,000, now it's $150,0000. So the difference there, $50,000, they're going to get 25% of that market increase. So about $12,500. With that money, they're able to take and invest in a market-rate home of their choosing when they're ready to sell their Community Land Trust home. So they are building wealth. Now I have some individuals who say, "Well, but what happens to the other 75%?" Right?
Kelly Scanlon:
Right.
Meghan Freeman:
"Oh, does the Land Trust get that?" I will just say we are a nonprofit. We do not get any of the market appreciation. What happens is that that market appreciation helps to keep the price of the house low for the next buyer, so that 75% of the market appreciation stays in the house, keeping that house low.
So let's say we sold that house to the first buyer for $80,000, they're walking away with $12,500. That's the new price of the house, $92,500 rather than $150,000. So that means another family can move into that same place without any additional subsidy and use that home as their own for a reasonable price.
Kelly Scanlon:
So how is a CLT formed?
Meghan Freeman:
So it is a process.
Kelly Scanlon:
I can only imagine.
Meghan Freeman:
It actually took Marlborough Community Land Trust about three years to get formed. There are bylaws and articles of incorporation, and there's a lot of legalities to creating the entity that owns the land in perpetuity. So it was about two years and a lot of pro bono legal work before we were up and running and able to sell our first home. The process really of getting the homes and getting them ready, we have a couple of different options.
One is, there are several properties in the Kansas City, Missouri area that are owned by the Land Bank. So these are homes that have been basically taken out of the ownership of the individual because they haven't paid their taxes or they haven't paid liens against the property. And so the state is taking that property back. We can then take that property, build a home on it, and turn it into a dwelling space for a family. Another option is, that we often are engaging in lawsuits for abandoned houses, houses that have just basically been left derelict and not used for years. So we are working to get that property, to clear the title on that property, and to rehab that property to make it into a beautiful home for a family that's earning under area median income.
Kelly Scanlon:
So a couple different options for acquiring the houses. Going back to the formation, can anybody decide they want to start a community land trust? I know you said that it's quite a legal process, but how does it come about from, I mean, is it typically a community group? Is it individuals? How do they come about?
Meghan Freeman:
That's an excellent question. And there are 260 community land trusts across the nation, so there's probably just about every way you can imagine that they start. We happen to be the first community land trust in the Kansas City, Missouri area, but we're fortunate that there is a large and successful community Land trust in Lawrence, Kansas, and they have been able to rehab and build new homes for families and individuals for over a decade.
Kelly Scanlon:
And so they acted as a bit of a model for you?
Meghan Freeman:
Absolutely. They were a wonderful support to us as we kind of figured out how to make this happen. We have also been a part of a project, a pretty exciting project through the Regional Housing Partnership where we've been looking at how could other communities get into this community land trust model. Because really Kelly, in an ideal world, every community should have some homes that are available below the market price for those who can't afford that. So if there's a community land trust home in that neighborhood that then that person who is working and dedicated to the community has the option of getting into home ownership.
Kelly Scanlon:
I would imagine that you do have to have a lot of partners throughout the community that support this in various ways. So can you tell us about how some of the community relationships work to make this a success?
Meghan Freeman:
Absolutely. We are so grateful to the Regional Housing Partnership and the Mid-America Regional Council and the local initiative support corporation who have been helping to look at the whole community-wide and seeing what areas are interested in this model and how can it be scaled to various areas? But yes, we partner with pretty much anyone and everyone. Many of our buyers have some credit challenges. A buyer does have to be able to qualify for a mortgage because they're purchasing the home. So we often work with CHES, Community Housing Empowerment Services. So they do a lot of work with individuals on credit restoration, and credit management, and budgeting so that individuals can help resolve issues that they've had in the past, and have the opportunity to get into home ownership.
Kelly Scanlon:
So working with community partners, not only if you're not only able to provide access to home ownership, you're also providing some life skills, financial literacy and other things that will serve them in other areas too. That is a really interesting way for the community to come together and address the whole.
Meghan Freeman:
Absolutely. And I would just add that in addition to that, we are building some new homes in Marlborough and we are partnering with the Center School District. They have an organization called Serve the World that is trying to support the families in that school district to become economically stable. So our goal is to sell at least two of those houses to families that are enrolled in that program and they're getting support from the school, and from this organization to help them to be successful.
Kelly Scanlon:
How is a CLT funded to begin with?
Meghan Freeman:
Good question. So we were very fortunate to be provided some operational funding from the H&R Block Foundation. We're very grateful to their support as we have tried to get the CLT off the ground, basically. And now about three years in, we are transitioning from being a startup CLT to being a sustaining CLT. So, sources of revenue for CLTs can be grants, can be private funding, foundations or private individuals. And we do also get funds from federal sources. So we may get some housing and urban development dollars. We might get some state grants that are then funded through the city. In addition, we do get a lease fee each month from the homeowner, so that homeowner is leasing that land. It's a very reasonable fee because we want it again to stay affordable. It's $25 a month. And that's basically covering the fact that the land trust is doing all of the paperwork and all of the administration of making sure that that homeowner is successful.
One of the things that we offer is post-purchase stewardship. So you might be interested to learn that less than one-half of 1% of community Land trust homes end in foreclosure. Even during the high foreclosure times of 2008 and 2009, we were able to keep those rates very low, and that is because of that post-purchase stewardship. So the community land trust there is backing that fire.
So again, quick example, one of our latest homeowners reached out and said, "There's this fence in the back of my house and it's twisted around a tree and I don't really know what to do or who to call." So I was like, "No problem. Let me reach out to a couple of our contractors. Let me give you the names of a few places you can call to help you figure out what's the best way to deal with that."
So many of the homeowners, because they have been renters their whole life, that whole thing is just a little uncomfortable. And that's where the land trust can be there to say, "We've got this. Well, we can help you, we can support you." And the fact that we do have that dual ownership of the land, if there becomes any challenges or issues in those mortgage payments, the land trust is notified as well as the buyer. So we can connect with that homeowner who we're basically staying in contact with and say, "Okay, notice that you got a late payment issue. What's going on? How can we help? Do you need to get a small dollar loan? Can we help with the mortgage payment for a couple of months? How can we make sure that you are able to succeed in this homeownership venture?"
Kelly Scanlon:
So everybody has skin in the game at the same time though, everyone is helping each other. So it does sound like these homeowners are increasing their wealth and their net worth?
Meghan Freeman:
Absolutely. And Kelly, that's really one of the points that is so important about a community Land Trust. $231,000 is the median net worth of homeowners, based on a survey that was done by the Federal Reserve Bank in 2017.
Kelly Scanlon:
This is nationwide, not just locally?
Meghan Freeman:
Nationwide. During that same time, the average net worth of renters, was $5,000?
Kelly Scanlon:
Huge difference.
Meghan Freeman:
Exactly. So that is the whole reason why homeownership is so important. There are a lot of affordable housing options in Kansas City, Missouri, but a huge percentage of them are rental. And honestly, that just continues to concentrate the wealth with the landlord, and does not afford that wealth to that individual renter. So that homeownership opportunity is what makes community land trust special.
Kelly Scanlon:
What are your thoughts on how CLTs can impact community development? Take us out specifically, take us out several years and help us understand the positive impact that a CLT like the Marlborough CLT will have. It's about three years old, you said, but take us out several years and if you can imagine economic, the community development that Marlborough will have had locally?
Meghan Freeman:
Absolutely I'll just start with a story about the second house that we sold. It was just in terrible shape. It had been a home where squatters were found. There were drug deals going on, it had, had a couple of fires set in it, and it sits right on the corner in the middle of Marlborough, and it was a real eyesore. And neighbors obviously were not pleased to have that across the street from them. So they were very excited when we started to rehab the property. The beauty of that, is what that home, when it was done became like a showcase of the neighborhood and really helped to bring lift to the whole community. So that made other people want to start improving their homes. And we were able to create an urban renewal area in Marlborough, which means that if individuals invest a certain amount in their properties, they can get their taxes frozen for a number of years.
So it really sparked a lot of community investment and now you start to look at people are very interested in being a part of the community. The other beautiful thing about a community land trust is, it's very meant to be community driven. So the organization is governed by a tripartite board. So it's a board made up of three parts. The first part is owners, homeowners. One-third is the neighborhood that the community land trust is operating in. And then the last third is professionals or people of area expertise in building development home real estate. So we are very fortunate in Marlborough to have two-thirds of the board is controlled by that neighborhood, and that is really the impact so that they can decide, okay, well there's another vacant property over here, community land trust board, what do we want to do with that property? And it's really focused on giving that control to the community members.
Kelly Scanlon:
Well, and as you said, you're talking about the school when the neighbors become that vested in their community and it attracts more people to the community too. Well, then you have the rise of small businesses, and services, and then the school project where you're going to be providing space for professionals. And it just all comes together. And as you say, everyone lifts everyone up. So thank you so much Meghan for all that you are doing for all the CLT and all your partners are doing to make affordable housing options available in the Kansas City area.
Meghan Freeman:
Thank you.
Joe Close:
This is Joe Close, president of Country Club Bank. Thank you to Meghan Freeman for being our guest on this episode of Banking on KC. Like much of the US, the Kansas City area is seeking solutions to the shortage of affordable housing in our community. Community land trusts are proving to be a valuable tool for assisting residents with access to housing options. In Kansas City the Marlborough Community Land Trust stands as a positive example of how a community's residence and local partners can work together to promote affordable and sustainable homeownership. Country Club Bank is encouraged by the efforts in the region to increase the use of this tool and looks forward to more collaboration and coordination among regional leaders to explore ways to solve the affordable housing crisis. Thanks for tuning in today, we're banking on you Kansas City. Country Club Bank, member FDIC.