Not long ago, Ken Lurie was a hero of Cleveland community activists. His Rysar Properties built new homes in the moderate- and low-income neighborhoods that were largely ignored by other developers.
But that was in the seemingly long-ago era of easy access to mortgages. In the past 18 months, credit - for developers, like him, and for those who would buy his homes - has dried up, and Rysar's fortunes have fallen along with the industry's. Lurie's once-growing company is barely hanging on, and last week a dispute with a homeowner nearly landed him in jail. Lurie was in county Common Pleas Court for a hearing regarding a year-long case brought by a homeowner over repairs. The judge wanted to know why Lurie's company still hadn't made them, as he'd previously been ordered.
"Just give me one day," Lurie pleaded. "I will … take care of this right now, tonight."
Lurie's attorney, Roger Synenberg, told the judge of Rysar's hardships. The company is operating with a fraction of its previous staff. Losses are at $4 million and counting. The judge stared in disbelief then banged his gavel. Thirty days in jail for contempt of court and $70,000 bail. Sheriff's deputies hauled Lurie off through a side door. Synenberg shuffled over to the plaintiff's side. Surely a deal could be struck that would keep Lurie from spending the night in jail.
Lurie called a friend and secured a personal loan, to be wired to a local bank. The judge set Lurie free for a few hours, just enough time to get a $30,000 cashier's check to the plaintiff. That would satisfy the court, the judge said, and the plaintiff agreed to drop all ensuing civil claims. Lurie was in court the next morning with the check in hand.
"I never thought it would get this far," says Lurie later in an interview, referring to the court case.
Lurie says he tried to fix the plaintiff's home. "She wouldn't let us into the house," he says, "so I told my supervisor to forget about it. My real mistake was that I was stupid; I should have called my lawyer and told him she wasn't letting us into her house."
If a similar lawsuit was filed against Lurie today, homeowners would have little course for redress. Lurie says he no longer has a warrantee department to address or fix claims, and he's down to three employees. And in addition to the company's millions in losses to date, he's also another $30,000 deep in debt now from settling the recent civil lawsuit. He shakes his head at the entire episode.
In years past, Rysar worked closely with the city and community development corporations. Thousands of new homes have gone up across Cleveland as a result, in both low and middle-income communities. No rehabs, no renovations - at the time, those were more unpredictable and costly investments with questionable returns.
This year, the bursting of the housing bubble has been one of the biggest stories in the country. Lurie says he worries about more than his own company.
"Banks have a whole new excuse to redline now," he says, "and they're using it." He refers to the fear that has gripped Wall Street over giving out new loans, leading to the hoarding of cash. That anxiety, says Lurie, is keeping banks out of low-income communities of color all over again. But the need for affordable housing is greater than ever. And so Lurie may reinvent Rysar and get into renovations. "Six months ago, I said I would never renovate," recalls Lurie. "I can't believe that now, because I can't imagine building again for several years. I'm definitely looking at renovations now."
Developers like Lurie have come full circle because they've been left with no other option, says Frank Ford, the vice president of Neighborhood Progress Inc., a local affiliate that injects cash into community development projects. The choice between new construction versus rehabbing older or abandoned homes has been made for them. That's fine with Ford, who thinks the city needs people to gut homes and apply fresh coats of paint more than it needs whole new foundations.
"A lot of companies that were doing new construction are going out of business," said Ford at a recent fair-lending conference in Cleveland. "They can't sell the houses they've built, so there's a transition back to rehabbing."