Cleveland didn’t win its battle to stop the auction this week of a set of deteriorating apartment buildings near Shaker Square. But a federal court said the city could take action to make sure that any new owner would be required to bring the properties up to code.

Lender Fannie Mae started foreclosing on the $22.6 million mortgage on the 15 buildings in the Shaker Square apartment corridor in 2024. (Fourteen are in Cleveland and one in Shaker Square.) 

Late last year, Cleveland officials went to court in an effort to stop the government-sponsored agency from auctioning the buildings. Mayor Justin Bibb’s administration and neighborhood organizations such as the Morelands Group said they feared an auction would attract investors more interested in making quick money than fixing up the buildings. The buildings are commonly called the Steiner properties because they were owned by investment companies controlled by Mendel Steiner, the late Brooklyn, N.Y., real estate investor. 

The message the city has been putting out loud and clear is that those types of buyers are not wanted in Cleveland. We have no patience or interest in having another out-of-town investor-wealth extractor come into Cleveland and devalue buildings further by milking what they can get out of them and then let them go into foreclosure.”

Sally Martin O’Toole, Cleveland’s director of Building and Housing

On Tuesday, the U.S. District Court based in Cleveland ordered that the auction could take place. Bidders began competing to acquire the mortgage note.The person or company that wins will be required to complete the foreclosure. Then, the winning bidder can choose to own the buildings or to sell them, said Sally Martin O’Toole, Cleveland’s director of Building and Housing.

Signal Cleveland has contacted Fannie Mae and will update the story when we receive its comment.

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Cleveland tried to stop auction

The auction for the 308 units will run until 12:30 p.m. April 22, according to the auction website. The last bid as of late Tuesday afternoon was in the $2 million range. The person or entity who acquires these properties probably won’t be known until they close on them, most likely in early May, Martin O’Toole said. Most of the apartments are currently vacant.

The city, last week, made a last-ditch attempt to put a wrench in the auction process by scheduling what is called a director’s hearing. The hearing would allow public discussion of the conditions of several of the buildings and whether they were a nuisance that should be repaired or demolished by a certain date.

Lawyers for Fannie Mae, the city and Michael Guggenheim, the court-appointed receiver for the Steiner properties, would have been required to attend. Neighborhood residents would have been permitted to testify about how they believed the dilapidated buildings were destabilizing the neighborhood. 

Fannie Mae asked the judge in the case to halt the hearing. The hearing wasn’t held, but the threat of one sparked negotiations between the parties. It also led to a recommendation by the special master, or neutral third party, that will allow the city to do beefed-up code enforcement on the auctioned properties. Magistrate Judge Jonathan D. Greenberg followed the recommendations of Kevin Hinkel, the  special master assigned to the case.

“The bottom line is the city will do whatever the city has to do to ensure that these buildings are brought up to code,” Martin O’Toole said. “And having a physical needs assessment is a great place to start really dissecting the needs of these buildings.”

A company with an expertise in code violations will perform a property condition assessment, also known as a property needs assessment. This will include documentation of code violations at each of the properties. The court is requiring the new owner to be informed of code violations and come up with a plan to address them. 

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Cleveland wanted to find new owners for apartments

The Bibb administration last year tried to force Fannie Mae to call off the auction in favor of working with the city to have the buildings acquired locally at a price that reflected their true value, which Martin O’Toole said is probably far less than $22.6 million, given their condition. The city would have then implemented a plan designed to ensure that the apartment buildings’ new owners were committed to fixing them up. 

That plan included the city working with the Port of Cleveland and nonprofit development companies, she said. She said there probably would have been several owners, each owning only up to a few buildings, instead of one owner for all 15. The advantage of having several owners includes that if anything went awry with upkeep, the impact on neighborhood stability would potentially be far less.  

In court filings, Fannie Mae contended that the city’s involvement with the Steiner properties should be limited to code enforcement and other municipal laws. Fannie Mae’s lawyers acknowledged that the properties were in poor condition and said that the entity had given $1.7 million to the receiver to help stabilize them. It saw an auction as a way to find “a new owner entrusted with continuing the work of making any additional investments into the property as needed to ensure the continued health and safety of residents.” 

The once well-maintained properties in the historic Shaker Square apartment corridor began falling into disrepair soon after the out-of-state investment companies bought them in 2018, she said. The city continues to fight to make sure this doesn’t happen again, Martin O’Toole said.

“The message the city has been putting out loud and clear is that those types of buyers are not wanted in Cleveland,” she said. “We have no patience or interest in having another out-of-town investor-wealth extractor come into Cleveland and devalue buildings further by milking what they can get out of them and then let them go into foreclosure.”

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Economics Reporter (she/her)
Economics is often thought of as a lofty topic, but it shouldn’t be. My goal is to offer a street-level view of economics. My focus is on how the economy affects the lives of Greater Clevelanders. My areas of coverage include jobs, housing, entrepreneurship, unions, wealth inequality and pocketbook issues such as inflation.