Ownership Economy | July 11, 2024

Real Revitalization (Part 2): Worker co-op turns distressed homes in West Baltimore into affordable housing and shared equity

Roodgally Senatus
ImpactAlpha Editor

Roodgally Senatus

Editor’s note: In this three-part series on neighborhood revitalization strategies, ImpactAlpha’s Roodgally Senatus takes us on a visual tour of three strategies that are restoring vacant houses in West Baltimore to foster home ownership and community wealth in disinvested neighborhoods.

In June, nearly a dozen sweaty workers wearing dusty construction work clothes and industrial respiratory masks labored in stifling heat to take down rotting wooden handrails, collapsing walls and crumbling stairs inside a pair of vacant, adjacent homes in West Baltimore.

The two-story, single-family properties, part of the city’s rainbow-colored stock of century-old brick row houses, were once well-maintained and occupied by members of a thriving working class of African Americans. Now decrepit and unoccupied, the structures lie in the Coppin Heights neighborhood, still a predominantly African-American working-class area that’s part of the city’s “Black Butterfly” of empty, abandoned buildings. 

After the decayed stairs, floors and walls are taken down and replaced, electricians and plumbers will make the dwellings habitable. Once the structural renovations are complete, the homes will be leased to local, marginalized residents at affordable rental rates that give them the option to buy into a portion of the property’s equity. The workers rehabbing the houses will also share in the ownership.

Photo by ImpactAlpha’s Roodgally Senatus.

The construction workers are employed by David Lidz, who is the founder and CEO of Appalachian Field Services, a social enterprise construction company, as well as the real estate asset manager of Rising Housing, an impact real estate portfolio management firm. The two entities, both based in Baltimore, work in tandem to acquire and renovate extremely distressed single-family homes in the western part of the city.

“Literally until about two or three weeks ago, I would say everybody who worked with us could probably tell a story of how they’ve felt marginalized when trying to get into the workforce,” Lidz said. “But now that we’re getting bigger, we’re having to go out and get talent where we can’t ask, ‘Did you just come out of prison?’ as a pre-qualification, because we really need people who can, for example, run our finance department.”

Appalachian Field Services and Rising Housing are subsidiaries of WaterBottle, a worker-owned cooperative holding company with 34 Black and Latine worker-owners. Most of them are Baltimore locals who are formerly incarcerated individuals or recovering from alcohol or drug addiction, and have been unable to find other good jobs due to their backgrounds. Lidz, 59, is himself a longtime recovering alcoholic.

Lidz, a graying White man who on that June day sported a gray baseball cap with a light blue t-shirt and brown khaki pants, has nurtured a love over the past two decades for helping other recovering addicts find community and livable-wage jobs. An even bigger passion: creating access to equitable wealth through housing for people with troubled backgrounds, as well as for others who have been locked out of wealth-building opportunities due to extractive systems and racist mortgage policies. 

“It’s not just redlining,” Lidz told ImpactAlpha during the site visit. “There’s a history that’s just like generation after generation of some new form of oppression, which in Baltimore also includes blockbusting, predatory lending and flipping.”  

With flippers snapping up distressed properties using cash from hard money loans, he says “their ultimate goal is gentrification, taking all the wealth they can out of these neighborhoods and pushing everybody out.”

Photo by ImpactAlpha’s Roodgally Senatus.

In West Baltimore’s blighted neighborhoods, including Park Circle, Midtown-Edmondson, Liberty Square and Sandtown-Winchester, WaterBottle is looking to raise and deploy up to $15 million a year in a large-scale impact real estate portfolio, owned and governed by its co-op workers-owners and tenants (subject to certain condition, including how long they commit to say in these neighborhoods). 

The co-op is modeled after real estate investment trusts, or REITs, which pool capital from investors who earn dividends from income-generating real estate assets that are managed by an entity that does the purchasing, financing and portfolio management. 

WaterBottle’s structure “creates a path towards real estate wealth for folks who maybe never would have a path to homeownership,” says Lidz.

West Baltimore’s Agents of Real Impact

In the first part of this Real Revitalization series, you read about Bree Jones’ nonprofit development company Parity, which is acquiring and fixing up dilapidated rowhomes in the historic majority-Black neighborhood of Harlem Park in West Baltimore, and selling them to legacy residents who share her vision of generating community wealth and creating thriving neighborhoods.

Bree Jones | Photo by ImpactAlpha’s Roodgally Senatus.

(See, “Real Revitalization (Part 1): Parity buys back the block to drive community revival without displacement in West Baltimore.”)

WaterBottle is one of several community-based organizations buying back the blocks of blighted and mostly-abandoned rowhomes in West Baltimore’s majority-Black neighborhoods, part of the city’s rotting stock of 15,000 vacant buildings and 23,000 vacant lots. The social enterprises are seeking to drive equitable homeownership and community revitalization — without displacement.

Creating dignified jobs during recovery

Growing up in Maryland’s Anne Arundel County, David Lidz had his first alcoholic drink at age 14. In 2002, at a family wedding at which he had to be held up drunk to read a Corinthians passage in the Bible, he checked into rehab. During his sobriety recovery, he struggled to find employment. The only jobs he could find: what he calls “maintaining the foreclosure stock.”

“I got stuck with cutting grass, boarding windows, changing door knobs and trashing properties and winterizing them, and all of the other stuff you do on vacant distressed homes,” Lidz recalled. “But I also remained pretty passionate about my recovery.”

During the Great Recession in 2008, Lidz started thinking about creating a social enterprise that would train workers recovering from alcohol addiction for good construction jobs. He launched Appalachian Field Services in 2010, which for nearly a decade focused on training and hiring disenfranchised and marginalized workers to work with Fannie Mae, Freddie Mac, the Federal Housing Administration and other government housing agency and corporate partners, taking care of their foreclosure stock. 

“We opened up some sober houses, providing guys coming back from prison and rehab and off the street a place to lay their head and shower,” Lidz said. “And once they were stabilized and secure in their recovery, trained and gave them jobs in the construction company.”

Lidz said that at some point he realized that the organizations Appalachian Field Services worked with did “not give a shit that we had this really cool social mission and weren’t really interested in supporting it, nor were they paying us very well.” Moreover, he and his construction team of roughly eight workers at the time were being sent into West Baltimore neighborhoods like the ones where he is now acquiring and fixing up highly-distressed housing.

Photo by ImpactAlpha’s Roodgally Senatus.

In 2014, Lidz got his Maryland real estate and contractor’s license to do full renovations and property management of distressed housing in Baltimore. Five years later, he launched Rising Housing to build an impact real estate portfolio.

Community-based financing

WaterBottle acquires single-family rowhomes that average two-stories in floor plans and 1,300 square feet in size. The co-op spends between $150,000 and $165,000 to buy and renovate each property. 

Using a $5 million line of credit from Seed Commons, a cooperatively-governed national community development finance institution, or CDFI, WaterBottle has deployed $3.8 million to acquire 22 properties in West Baltimore. The other $1.2 million will be used to acquire and fix up an additional eight properties by year’s end. 

Common Seed extended the financing through its local entity Baltimore Roundtable for Economic Democracy, or BRED, which provides non-extractive, patient debt financing and technical assistance to cooperatives of all stripes, mostly in Baltimore but also throughout Maryland. Because the co-op does everything in-house, Lidz says that the catalytic nature of Seed Common’s investment means he can renovate the properties at a low price of $100 per square foot. 

Seed Commons, through BRED, has also backed Obran Cooperative, a Baltimore firm that acquires small and mid-sized impactful and profitable businesses, transitioning them to 100% employee ownership through the worker co-op structure. 

(See, “Worker-owned ‘conglomerate’ Obran Cooperative gets a boost from Acumen America investment.”)

Sustainable construction practices

Photo by ImpactAlpha’s Roodgally Senatus.

During demolition and renovation, WaterBottle makes it a priority to reuse as many building materials as possible. “We try to save everything from going to the landfill, which is mainly the 100-year-old southern pines that those houses were built with 100 years ago,” says Lidz. 

“We’re raising grant capital to create an apprenticeship program where we get seasoned artisans to take that wood and build beautiful furniture with it, partnering with an organization in Baltimore called Civic Works to bring youths over a couple times a week for real world construction experience.”

During demolition, WaterBottle also helps clean up neighboring properties and vacant lots, most of which are infested with rats and used as dumping grounds. “The city won’t help, so we just clean them up to stop the illegal dumping,” Lidz added, “and then we start planting gardens and trees.”

Photo by ImpactAlpha’s Roodgally Senatus.

WaterBottle has completed renovations on eight single-family homes, which range between two to four bedrooms and are leased at a rate between $1,100 to $1,850 a month to local residents. The average two-bedroom single-family unit in Baltimore costs $1,610 per month; the average price of a four-bedroom single-family unit is $2,179. “Rental payments are just now catching up to the Seed Commons’ loan payments,” Lidz said. 

The renovated properties are valued at anywhere between $175,000 and $185,000. The $20,000 of equity wealth in each of the homes, plus a share of their future appreciation, will be allocated to members of the co-op. WaterBottle has set up a committee to structure a multi-stakeholder collaborative that will allow tenants to buy in, based on conditions such as how long they commit to stay in the neighborhood.

Photo by ImpactAlpha’s Roodgally Senatus.

“What should happen is that the tenants will each become one member, one vote members of the cooperative,” Lidz says. “And then we also anticipate having a separate class of shares that looks more like common stock that would get distributed to tenants over time, rewarding them for their longevity.”

The strategy, according to Lidz, is to prevent displacement in these neighborhoods. With access to governance in the WaterBottle co-op, tenants will have a voice in the management of the entity’s broader impact real estate portfolio. Existing tenants have already suggested bringing clean energy to the properties through solar panel installations. WaterBottle also launched a stormwater management program. 

The goal “is simple: keeping everybody in and not pushing anybody out,” Lidz says.

Catalytic capital for employee ownership

Obran was launched in 2019 as the Staffing Cooperative by the workers of Core Staffing, a temporary job-placement cooperative of previously incarcerated workers, and by members of the Bmore Black Techies meetup who founded Tribeworks, a digital creative services company. Appalachian Field Services was Obran’s first portfolio company in 2020, but shortly after spun out independently under WaterBottle, as the workers of the construction company wanted to create and operate under their own ownership and governance terms. 

Seed Commons’ Kate Khatib says she found out about Lidz and Appalachian Field Services through Obran. “I thought David’s story was incredibly impactful and inspiring because the pathway to create Appalachian Field Services came out of his own process of recovery,” Khatib said, “and out of a desire and a need to confront the challenges that are thrown in front of people who are really trying to stay in long-term recovery.”

Seed Commons scrutinized Appalachian Field Services as the company was rolling out its first pilot projects, which had been largely financed through high-interest, short-term debt that Khatib calls “incredibly extractive.” The CDFI also financed the company’s transition to a worker-owned cooperative.

“They needed access to financing and they were unable to find it, because of the period of acquiring a distressed row home, putting $100,000 into renovating it; all of that is considered to be very high risk, traditionally, in the world of credit and risk assessment,” she told ImpactAlpha. “They had some possibilities for the long-term mortgages once the homes were renovated, but what they didn’t have was access to capital that was structured in a way for them to cover that risk period.” 

Photo by ImpactAlpha’s Roodgally Senatus.

Seed Commons’ line of credit, structured as a 3%, 30-year term revolving loan, is “incredibly catalytic,” says Lidz. The money has allowed the WaterBottle co-op to reach profitability this year and boost worker-owners’ wages from $11-$16 an hour to $18-$48 an hour. The financing also helped Lidz refinance some of its prior, extractive debt. 

“It’s a pretty convincing example that this co-op model works,” Lidz says. “Productivity is up, project costs are down and wages are up. And in a year or two, workers will really be able to enjoy the kind of equity gains that we want in this thing that they’ve built.”

By the time it deploys the capital from Seed Commons, WaterBottle plans to gain access to larger pools of capital — about three times what it currently has — from larger impact investors. “We’ve developed pretty good tools to show that we are responsible deployers of that kind of investment,” says Lidz.