CLEVELAND — The city of Cleveland is trying to stop an auction of 14 troubled apartment buildings near Shaker Square, in a historic district that’s a gateway to the eastern suburbs.
Mayor Justin Bibb is urging Fannie Mae – a government-sponsored mortgage giant – not to sell a foreclosure judgment to the highest bidder next month. Instead, the city wants the properties transferred to local nonprofits or to a local developer that neighbors trust.
City officials and community advocates say the neighborhood’s future hangs in the balance. In the right hands, the largely vacant buildings could be an opportunity – a chance to restore modestly priced housing and bring more people back to the Square. But the portfolio also could be a drag on the district, if history repeats itself.
"We’re worried about an out-of-state investor overpaying for the properties, realizing what has occurred, and then either trying to offload them or not being able to invest in them – not understanding the full ramifications of the property conditions,” Sally Martin O’Toole, the city’s building and housing director, said during a recent interview.
"We feel that the auction paperwork and website paints a rosier picture than exists in reality,” she said, adding that there are more than 300 code violations at the properties.
The buildings, totaling 308 apartments north and south of the Square, are only 10% occupied. Many of them are boarded up. A New York investor bought the properties in 2018 and took out a $22 million mortgage on them in 2020, according to public records.
Fannie Mae bought the debt, stepping into the original lender’s shoes. And last year, after the property owner defaulted, Fannie Mae filed a foreclosure lawsuit in federal court.
In January, the landlord – 33-year-old Mendel Steiner – died by suicide in a high-end New York hotel, according to the New York City medical examiner’s office. Steiner left behind a trail of distressed properties across the country.
On his watch, the Shaker Square apartments declined and gradually emptied out.
Last year, a consultant hired by Fannie Mae found deteriorating and unsafe wooden staircases on the outsides of the buildings, along with roof leaks, antiquated boilers, mold and broken elevators.
"It’s one thing after another. You don’t even know what issue to even work on,” said Sean Nickens, who lives in one of the buildings with his wife and two adult children.
"If you go to the top floor, you see big, gaping holes in the ceiling,” he said. “You turn on too many things in the apartment, then everything goes out. You’ve gotta go back down to the basement and turn everything back on.”
A court-appointed receiver took control of the properties in late February and has worked to move the few remaining tenants into two buildings while making basic repairs focused on safety and security. In early December, a judge signed off on the foreclosure.
Now Fannie Mae is trying to recoup what it can – on debt that’s ballooned to more than $26.6 million between unpaid principal, interest and fees.
An online auction is set for Jan. 19-21. Buyers technically will be bidding on the foreclosure judgment, giving them the right to take Fannie Mae’s place and acquire the buildings.
"It’s going to take a lot of resources to bring these properties back, and we feel that can best be done with someone who has eyes wide open,” O’Toole said.
Bibb wants Fannie Mae to consider a different approach.
In September, he wrote a letter asking Fannie Mae to transfer the properties to the Cuyahoga Land Bank, which would work with Cleveland Neighborhood Progress, another nonprofit, to track down local developers willing to renovate the buildings.
On Dec. 2, Bibb sent another letter – co-signed by the leaders of the land bank and Cleveland Neighborhood Progress. If Fannie Mae doesn’t want to work with the nonprofits, the officials wrote, then the company should sell the properties to a local developer vetted by the city and community groups.
On Dec. 4, the city filed a civil nuisance lawsuit on the properties, asking a judge to block anyone from taking over the buildings without a court-approved plan for fixing code violations. City attorneys also filed a notice about the lawsuit in real estate records.
"The city is prepared to intervene between auction and deed transfer,” Bibb and the nonprofit leaders wrote to Fannie Mae. “Any buyer lacking experience, capital or alignment with the city’s redevelopment objectives will encounter enforcement actions, prolonged delays, significant legal exposure and a high likelihood of sale recission or non-completion. This is the predictable, unavoidable outcome if the portfolio proceeds to auction.”
News 5 reached out to Fannie Mae directly and through a real estate broker involved with the auction. The company did not respond.
O’Toole said Fannie Mae recently agreed to a Dec. 18 meeting with city officials. She hopes that the discussion will lead to collaboration – and, eventually, a solution.
“The vitality of this neighborhood is critical to the City of Cleveland,” she said.
One of the apartment buildings is in Shaker Heights, about half a mile from Shaker Square. The rest are in Cleveland, along North Moreland Boulevard, South Moreland Boulevard and neighboring streets. They sit just steps from the Square, a historic shopping center that's the subject of a turnaround effort fueled by public and philanthropic money.
A Cleveland Neighborhood Progress affiliate and neighborhood nonprofit, Burten, Bell, Carr Development Inc., bought the Square in 2022, using city loans. At the time, that property was in foreclosure and receivership – and at risk of being auctioned off.
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"These apartment buildings on North and South Moreland are literally the customer based for the Square, and what makes this a mixed-income neighborhood,” Tania Menesse, the president and CEO of Cleveland Neighborhood Progress, said during a recent interview.
She said the nonprofit and the Cuyahoga Land Bank aren't looking to be long-term owners of apartment buildings. And Cleveland Neighborhood Progress doesn’t have the cash to bid on the properties at the auction. But, she said, “we are working with a team that hopefully would have the capacity to."
Still, Menesse hopes there’s a way to work out a deal with Fannie Mae in advance. She pointed out that the company was originally created by Congress to help support the housing market – and has been operating under federal oversight since 2008.
“Fannie Mae … should be looking at the public good,” she said.
At the Stratford, a century-old apartment building, Sean and Tabitha Nickens have watched things fall apart over the last two years. They’re the last tenants left at the empty property, where they don’t have heat or hot water.
The family of four and their cat, Prince, were supposed to move out months ago. But they’ve struggled to find a decent apartment they can qualify for – and afford.
Tabitha works in retail and as a home health aide. The couple's children, in their 20s, have jobs at a gym and a restaurant. And Sean sells products online, working from the apartment while bundling up in layers of clothing and using space heaters to keep warm.
“Trying to move in the wintertime, with not enough funds, is just not ideal,” he said.
The Nickens family is working with the Morelands Group, a grassroots advocacy organization focused on preserving apartments around the Square, to relocate nearby. They're set to get the keys to a new apartment this week.
“This is a nice area with a lot of potential,” Tabitha said. “There’s a lot of good things here. So I would like to see it thrive.”
But a real estate revival will depend on what happens at the Stratford, and the other buildings up and down the block.
“The right investor should come in and rehab the places … to fix them up,” Sean said. “To actually care about people. That’s what it really boils down to.”
Michelle Jarboe is the business growth and development reporter at News 5 Cleveland. Follow her on X @MJarboe or email her at Michelle.Jarboe@wews.com.
