Decline and opportunity in Pittsburgh’s eastern suburbs.

Go anywhere in the Pittsburgh metro area and it’s possible you’ll see 12-inch square signs, white or yellow, emblazoned with “WE BUY HOUSES” in bold, blue sans-serif font. But if you’re in Penn Hills — by far the largest municipality in Allegheny County outside the City of Pittsburgh — it’s virtually impossible that you won’t see one of those signs.

They’re everywhere. And that’s because Penn Hills is in trouble.

While the City of Pittsburgh has weathered the Great Recession better than most Rust Belt cities, it sits amid hundreds of suburban municipalities, many of which have fared far worse.

Exhibit A is Penn Hills. The most recent numbers from Pittsburgh-based real estate information company RealSTATS show that Penn Hills had more foreclosures last year than the City of Pittsburgh, which has seven times Penn Hills’ population. Penn Hills’ median home prices were $7,230 lower last year than they were in 2001. Plus, one in every 3.3 homes sold in Penn Hills in 2010 was a foreclosure.

Which means Penn Hills and its municipal leaders have some tough questions to answer. Katherine Risko, associate director of the Congress of Neighboring Communities (CONNECT) program at the University of Pittsburgh, narrows it down to one.

“How do they continue to provide the services their constituents need and desire while trying to keep the lights on?” she asks. “There’s a difference between thriving and not being bankrupt.”

Opportunity Costs

Joel Holc and Ami Pishoto see Penn Hills’ problems as a business opportunity.

Those “WE BUY HOUSES” signs in Penn Hills? That’s Holc and Pishoto. They own Lakeview Capital, LLC. There may not be any lakes in Penn Hills but the view for Holc and Pishoto is clear: Foreclosures mean money. And if you follow their logic, Penn Hills is where the money is.

Holc and Pishoto moved to Pittsburgh from Israel in the early 1990s. They work in Penn Hills in a temporary-looking office with an empty conference table, an empty bookshelf, and two desks supporting only laptops and closing papers. “Lakeview Capital” is written on the door to their office in those reflective sticker block letters you see on mailboxes. Lakeview just acquired an office last month; Holc and Pishoto had been working out of their homes for eight years.

They’re serial entrepreneurs, constantly on the lookout for opportunity. Holc founded carpet cleaning, air filtration, and other businesses — some of which fell into serious debt — before he got into renovating houses with Pishoto. In 2007, he and Pishoto were working together to flip quarter-million dollar homes in some of Pittsburgh’s more affluent neighborhoods. Then the housing crisis hit. Penn Hills was hit hard. Holc and Pishoto decided that’s where they’d make their play.

“We saw this as something we couldn’t let pass us by,” Holc says. “It’s terrible what’s happened to some people, but despite the foreclosure problems, there is a market for homebuyers, even in Penn Hills.”

While Holc and Pishoto look for foreclosures exclusively in Penn Hills these days, they stick to streets that still have a viable housing stock — neighborhoods with names like Crescent Gardens and Crescent Hills. They look for houses to buy in foreclosure at the $10,000 to $30,000 range. Then they rehab those homes and sell them for well over $100,000. And people buy them. The problem is, in Penn Hills, most of the foreclosures aren’t in neighborhoods with a viable housing stock; they’re in neighborhoods where virtually nothing’s left to rebuild.

One such neighborhood is Lincoln Park.

With its cache of affordable homes, Lincoln Park could potentially provide Holc and Pishoto with a steady stream of properties to rehab and resell. But Lincoln Park’s glut of blighted houses, vacant lots, and abandoned properties are major deterrents to potential buyers, not to mention investors.

The extreme conditions on Santiago Street in Lincoln Park are a key example.

Once a quiet suburban cul-de-sac that boasted upwards of 20 or more homes, the housing stock on Santiago has dwindled to almost nothing in the last two decades. Today only four houses remain on the street. Two are vacant, with broken windows and kicked-in garage doors, weeds sprouting from gutters and trash bags lying heaped in the driveways. Two are not.

For Holc and Pishoto, investing in Lincoln Park would be bad business. And for municipal officials, it’s an ongoing struggle to contain that neighborhood’s deterioration.

A Crisis Upon A Crisis

By any measure, Lincoln Park is one of the most destitute suburban neighborhoods in Western Pennsylvania. And it sits a mere mile away from the Longue Vue Club, one of the most exclusive country clubs in the region. They’re both within Penn Hills’ municipal boundaries.

The last 60 years have seen both major successes and failures for Penn Hills. Its history mirrors much of the region’s.

“In the ’50s and ’60s Penn Hills was booming with new housing,” says Chris Blackwell, principal planner with the Penn Hills Department of Planning and Economic Development. “It was the suburbs and the place to move to. Moving from the city to Penn Hills was a step up.”

Then in the ’70s, he says, new housing slowed.

“In the ’80s Penn Hills began to decline,” he says. “Many [families] moved east, but stayed in Penn Hills. By the early ’90s Lincoln Park looked much as it does today. My point is that the real decline occurred in the ’70s and ’80s, a very short time. If it had continued at that rate, all of Penn Hills would already be in the same state of decline as Lincoln Park.”

For Blackwell and his colleagues, Lincoln Park represents constant municipal costs associated with addressing blighted and abandoned properties. These costs have only increased in the last five years.

Today, in addition to the $100,000 Penn Hills spends annually to remove blighted properties and unsafe structures, the city government is saddled with the cost of maintaining foreclosed homes. This year alone, the municipality has spent thousands on mowing lawns and boarding up windows in an attempt to discourage vandals and thieves.

“This whole foreclosure crisis has come at a really bad time,” Blackwell says, seated at his desk in the Penn Hills municipal building, surrounded by paperwork and property maps. “All these communities — Penn Hills, Braddock, Wilkinsburg — were already coming to this perfect storm of financial difficulty. And then this crisis hit.”

An Uphill Battle

So what can be done for suburban municipalities facing increasing poverty and blight?

Blackwell says he has nothing against Holc and Pishoto’s “WE BUY HOUSES” real estate flips, but there’s a clear sense of distrust regarding corporate investment into Penn Hills.

“This region has thousands of acres of brownfields left behind by the Steel Industry that remain vacant and environmentally unfriendly,” he says. “It takes state and federal grants to assess the potential damage and prospective uses. Individual communities do not have the resources to solve these issues on their own.”

Penn Hills isn’t without resources, though.

Helping suburban communities deal with blight and vacant properties is a mission of the University of Pittsburgh’s CONNECT program. Project coordinator Jay Rickabaugh and Associate Director Katherine Risko say the program is designed to help struggling municipalities such as Penn Hills take advantage of tools they don’t necessarily know they have: Code enforcement laws, for example, along with eager students at local universities who can help identify slum landlords and map out properties that need to be torn down urgently.

But there are bigger problems, they say.

As Pittsburgh’s population “sprawled out” into suburbs, Rickabaugh says, “we have disinvested in the urban core.” This is certainly nothing new but it has now spread beyond the core and to first-ring suburbs such as Penn Hills, he says. “We now have roads, bridges, public transportation, infrastructure, and blighted, abandoned properties” that get neglected “while we’re building farther and farther out….”

Risko sees common issues facing not only Penn Hills but nearly all of the suburban municipalities in the Pittsburgh metro region.

So how do communities such as Penn Hills reinvent themselves? Urban neighborhoods such as Lawrenceville and Bloomfield went through thorough rebranding campaigns during the last decade. And Braddock, another suburban municipality long in decline, has made similar changes to its appearance. Is it possible for Penn Hills and similar suburbs to do the same?

It’s gonna be tough.

“In general, foreclosures are a signal that there’s low demand,” says Dr. William H. Lucy, an architecture professor at the University of Virginia who’s also the author of the 2010 book, Foreclosing the Dream: How America’s Housing Crisis is Changing Our Cities and Suburbs. “If the occupants can’t pay their mortgage, what’s the first move to make after that? Well, the best move is to sell the property. But if they have a recent mortgage and the property value is less than the mortgage, they’re going to be underwater.”

Poverty Knocks

Of course, things could be worse. Foreclosure and abandonment don’t always lead to high crime, and Penn Hills is no exception: In 2010, in a community of more than 40,000 people, there were only 161 reported “Part I” crimes such as robbery, aggravated assault and burglary. In 2011, that number increased to 163.

Take a drive along Rodi Road or Frankstown Road in Penn Hills and you might think Pittsburgh’s largest suburb isn’t in trouble at all. Rodi is lined on one side by two-story, tree-lined homes. On the other, one can find just about every national fast food restaurant imaginable. But that doesn’t tell Penn Hills’ whole story.

“What people often forget is how diverse the suburbs are,” says Alexandra Murphy, a researcher at the University of Michigan’s National Poverty Center who’s in the final stages of a Princeton University doctoral dissertation about black poverty in Penn Hills. “Penn Hills is a bedroom suburb and like other bedroom suburbs, poverty … is relatively invisible to the casual observer or resident who commutes through town on main roads.”

Murphy says this is because “housing and where the poor live is distinctly zoned away” — in places such as Lincoln Park — “from commercial areas.” People may feel the effects of poverty when they see the closing of businesses or schools but rarely do they actually see poverty or the people who are poor firsthand.

That said, she also notes that in the suburbs — “especially bedroom suburbs, where poverty is a relatively recent phenomenon” — it’s rare to find an entire neighborhood that’s destitute.

“Instead you find concentrations of poverty on one block or within one town home development embedded within more working class or middle class neighborhoods,” she says. “Or you find individual poor families living in a home surrounded by working and middle class families. This is how poverty looks in Penn Hills.”

And it turns out that in pockets of poverty — sometimes embedded within more affluent neighborhoods, or in foreclosed houses that sit next to houses above water with neatly trimmed lawns — lie potential fortunes.

Which is exactly why Holc and Pishoto started printing “WE BUY HOUSES” signs.

“Like anything else in the economy, something is going down and something is going up,” Holc says, driving back to his office from a house he and Pishoto bought out of foreclosure and refurbished. “Our business today would be completely different if things were not the way that they are. But they are the way that they are. And we saw this as an opportunity.”

Originally published by The Atlantic’s CityLab in August of 2012; co-written with Matt Stroud.

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