HOUSING COOPERATIVES
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Transcript of HOUSING COOPERATIVES
HOUSING COOPERATIVES
Section Overview
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Quick Overview Coop History Basic Concepts Rochdale Principles Types of Coop
Structures Coop Financing Coops vs. Condos
Creating Successful Limited Equity Coops
Case Studies Coop Conversions Size Matters Nonprofit Coop
Development Issues, Opportunities
and Trends
Overview of Cooperative Housing in the U.S.Thanks to Doug Klein and the National Association of Housing Cooperatives
Historically – 2 Paths Limited equity
Controlled resale price Social investment
Below-market mortgage
Leased land Public grants
Market rate No resale price control Private investment
Typical Ownership Arrangement Members own a share of stock in a cooperative
corporation Corporation owns building and land Single mortgage covers entire property Residents make monthly payments covering:
Mortgage principle/interest Taxes/insurance/maintenance/utilities Professional management Replacement reserves
425,000 Units of Limited Equity Coop Housing in U.S. HUD (insured/assisted)
= 148,000 Lanham Act = 35,000 Former public housing
= 20,000 Farmers Home = 5,000 Mitchell-Lama = 60,000
State housing finance agencies = 45,000
United Housing Foundation (NY) = 40,000
Tenant self-converted = 50,000
CDBG/LIHTC = 7,000 Mutual housing =
15,000
77,000 Units of Market-Rate Coop Housing in U.S. HUD (insured) =
109,000 Conventional (new
construction) = 100,000
Conventional (rental conversion) = 560,000
Membership sponsored = 6,000
History of Cooperative Housing in America
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New York City First housing
cooperatives organized in late 1800s
Some dispute over which was exactly the first one – one was the Rembrandt at 152 W. 57th Street
Growth Tied to Housing Shortages
Housing coops became popular in response to market shortages
First Growth Spurt – Post WWI Market-rate coop
housing in New York City, San Francisco and Chicago
10,000 units of limited equity coop housing sponsored by labor unions built in NYC in the 1920s
Amalgamated Clothing Workers Union
1930s: The Great Depression Wiped out most of
the market-rate housing coops
Most of the union-sponsored housing coops survived
Sponsorship – Limited Equity Coops They were first
sponsored by labor unions and ethnic immigrant societies
Today, they are usually sponsored by nonprofits or tenants groups
Sponsorship – Market-Rate Coops Market-rate coops
are sponsored by for-profit real estate developers.
In NYC, where most of them are, they are conversations of existing rental properties
After WWII – Rise of the High RiseSevere housing shortage – combined with urban sprawl – created need for more efficient use of land through high-rise multifamily buildings
Coop City (NYC) – 1966-1973
Basic Concepts
Shares Coop owns (or leases) property, and
members (tenant-shareholders) jointly own the corporation
Member buys stock or shares (or membership certificates)
The shares and proprietary lease (or occupancy agreement) guarantee the loan.
Financing Coop corporation
holds the mortgage (blanket mortgage)
Except in strictly limited equity coops, members often must obtain a loan to purchase the shares (share loan).
Occupancy Agreement Members are both tenants and owners. Member signs a self-renewing lease, called a
proprietary lease or occupancy agreement. This gives him/her a legal exclusive right to
occupy a unit as long as the member fulfills his/her obligations to the coop.
Monthly Housing Payment Member pays a monthly fee, called a carrying
charge or maintenance charge, to the coop based upon the number of shares or size of the unit.
The member’s total carrying costs include the monthly fee and the individual share loan repayment.
Resale or SublettingMost coops restrict the rights of members to sell or lease their apartments, protecting the right of the coop to approve any new member/resident.
Property Taxation The coop is
responsible, as owner of the property, for all legal and financial obligations.
The coop’s property taxes are assessed against the coop as a whole.
The Rochdale Principles
The Rochdale Principles
First set out in 1844 - the principles on which co-ops around the world operate to this day
Definition of a CooperativeA cooperative is an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly-owned and democratically controlled enterprise.
Values Coops are based on
values of self-help, self-responsibility, democracy, equality, equity, and solidarity
Its members believe in the ethics of honesty, openness, social responsibility, and caring for others.
Principles – Putting Values into Practice1. Voluntary and open membership2. Democratic member control3. Member economic participation4. Autonomy and independence5. Education, training and information6. Cooperation among cooperatives7. Concern for community
Types of Co-op StructuresSHAREHOLDER CORPORATIONSLEASEHOLD COOPERATIVES
Shareholder Coops Cooperative owns all
land and buildings Incorporated just like
any other business Corporation controlled
by shareholders Share formula may vary
1 unit = 1 share square footage
Market-Rate Shareholder Coops Shares sold for whatever market will bear No limit on appreciation Very common in NYC – where most are
conversions of existing rental buildings Usually sponsored by for-profit developers Directed at middle and upper income buyers Share-based voting formula (usually unit square
footage as percentage of overall coop living area)
The Dakota - NYC Completed in 1884 Who got approved
John Lennon Boris Karloff Judy Garland
Who didn’t Billy Joel Carly Simon Gene Simmons
Leasehold Coops Property is leased by
housing coop on a long-term basis from owner, sometimes with option to buy.
Residents manage the building as a cooperative
Leasehold Coops Least likely to feel like ownership to residents Residents still control management of building Share prices can be whatever is required to
create the coop If a Section 42 project, coop can buy the
building back from the investors at the end of the tax credit period
Section 42: Low Income Housing Tax Credit Can be good fit for a leasehold coop Coop may be a partner from the very beginning
– or come into play later in the process Option 1: Coop is a co-general partner in the
syndicate Option 2: Resident may have option to assume
ownership of building when tax credits expire and limited partnership is dissolved
Shareholder Cooperatives vs. Condos
Ownership - Coops Individual owns
share of coop stock and holds long-term lease on unit
Corporation owns building and common elements
Both Stockholder and Lessee
Ownership - Condos Individual owns fee
title interest in unit and an undivided interest in common elements
Ownership of real property
Deeds can hold enormous symbolic value
Right to Exclude Coops require owners to finance collectively –
and offer simple way to exclude undesirable families
Condos permit individual financing – but fewer powers of exclusion
In the early 1960s, many came to feel that coop board’s ability to approve or reject sales was inconvenient and distasteful.
WHAT ABOUT FAIR HOUSING?
Coop Financing
Blanket Mortgages Real estate loans made to coop corporation,
secured with mortgage lien on corporation’s property
Good model for coops serving a low income population
Lenders more willing to make one large blanket loan as compared to a number of small loans to low-income individuals
Share Loans Loans made to individuals to finance the
purchase of coop shares Not collateralized by real estate Conventional lenders generally unwilling to
make these loans to low-income buyers But there are still options
Nonprofit loan funds Coop sponsors IDA programs
National Cooperative Bank (NCB) Competitive mortgage loans to housing
cooperatives nationwide Provided capital for more than 40% of all housing
coops in U.S. Loan proceeds can be used to refinance existing
debt, fund capital improvements, and replenish reserves.
Active in all areas of cooperative housing market – with more than $3 billion in loans originated in past three years.
NCB Financing Options 10-year, 15-year and
20-year fixed rate building mortgages
Secured and unsecured lines of credit
Second mortgages for co-op buildings
Share loans for co-op unit owners
HUD Coop Financing/Subsidy Section 213: FHA mortgage insurance for coops
to facilitate construction, substantial rehabilitation, and purchase
Section 221d3: mortgage insurance for rental and coop housing (ties to Section 42 tax credits)
Section 202: financing for housing for the elderly and people with disabilities
Section 8 assistance
Limited Equity Cooperatives
Limited Equity Coops Purposes
Prevent gentrification Encourage long-term
residency Preserve affordability
Targeted to low and moderate income families
Limited Equity Coops Vary considerably in
terms of Initial share price Allowable increase
in price at resale Shares sold based
on formula price to maintain affordability
Limited Equity Coops Sponsored at first by
labor unions and immigrant societies
Now usually sponsored by nonprofit organizations or tenants
Non-Equity/Zero-Equity Coops Not-for-profit coops Shareholder corporations
where shareholder investment is a modest and refundable membership fee
Examples include student housing coops, and Section 202 senior housing coops.
Creating Successful Limited Equity/Zero-Equity Coops
What Does It Take to Create a Successful Coop? Commitment to the
model Training, guidance
and support Shared culture
Commitment to Coop Model Coops bring both benefits and responsibilities
– and require a degree of member involvement – that conventional rental tenancy does not require
If members are committed to that – it will probably work
If they would rather act like conventional tenants, it is unlikely to be successful
Training, Guidance & Support Essential to development of skills in:
Governance Maintenance Financial management
Training is needed whenever new people join the coop – and can also be helpful to existing members
Guidance and support always helpful!
Shared Culture Responsibilities are shared – and members
must be able to work together effectively Much easier if members have shared
interests, beliefs, or experience Commitment to the coop model Housing for artists Housing for farmers Shared experience of working together to create
the housing itself
Case Studies
Champlain Housing TrustBURLINGTON, VERMONT
CHT & Coops: Overview 1,500 rental units and 500 ownership units in
Burlington In the 1980s, the Burlington Community Land
Trust developed limited equity coop housing with Champlain Valley Mutual Housing Federation
When VMHF merged with BCLT – all coop operations were brought in-house
CHT’s Coop Model Limited equity coops, with very modest share
price/membership fee. Varies with each of their coops
Some are tax credit projects, some are not Most are leasehold coops
Master lease with CHT Management, training and support contract with
CHT
Why CHT Has High Demand for Their Coop Units Below market-rate pricing Word of mouth: particularly young parents Lack of comparable housing Control over your own housing Sense of community Good fit for Burlington, VT
Flynn Avenue Coop Ownership coop 28 townhouse style
apartments (1, 2 and 3 bd) on 2.49 acre site in South End
Common room and office space
Rose Street Artist’s Coop Leasing coop 12 apartments (studio,
1/2/3 bd) – all with open designs, high ceilings & storage space
In old bakery building Common space
includes gallery and meeting room
CHT Staff Reflections Coops are messy, labor intensive &
unpredictable They require ongoing sponsor involvement in
both property mgt and support, guidance and training.
Small coops are particularly vulnerable to board turnover & volatile personalities.
Lopez Community Land TrustLOPEZ ISLAND, WASHINGTON STATE
Background on Lopez CLT Located in a rural island off the coast of WA Started off as a “traditional” CLT, focusing on
single-family homeownership Potential buyers not qualifying for mortgages
– lender suggested coop model Since then – all projects have been coops
Sweat Equity Is a Component of All Their Projects Reduces cost to
construct Trains future residents
to maintain their homes and about group decision making
Builds strong sense of community and mutual reliance
Role of Lopez CLT as Developer Lead design process Fundraising Outreach and marketing Income qualification of
potential homeowners Construction
management Training to prospective
homeowners
Financial Structure Initial share cost of
$6,500 $5,000 in sweat equity $1,500 cash
Share value increases 5% per year
Monthly housing payment varies based on the coop, from $120 to $800
Self Management Residents rely on
each other to collect monthly housing payments: blanket mortgage other shared
expenses Lopez CLT doesn’t
have to be the police
Training Lopez CLT invests in
training and support during construction – in exchange for independence after community established
Coop is responsible for doing new membership orientation and training
Benefits Self-screening effect – high commitment
required to become a member Their 4 coops are highly independent,
essentially self-stewarding entities Low cash investment required – members
invest time instead of money Low resident turnover People watch out for each other
Compare and ContrastWhy is the ongoing stewardship burden so much lighter for Lopez CLT than for CHT?
Manufactured Housing ParksA GREAT OPTION FOR APPLYING THE COOP MODEL
What Are Manufactured Housing Parks? Real estate developments that provide lot
sites, with access to roads, water, sewer and power lines
Lots are rented out to people who own their own manufactured housing
Relatively affordable form of homeownership – but without long term security – lot leases typically one year or shorter
Applying the Coop Model Resident ownership of the land via coop
model provides long-term security of tenure Coop acquires fee simple title to land Coop enters into long-term lot leases with their
members Alternatively, other entities (such as a CLT)
can own the land and enter into a master lease with the residents association/coop
ROC-USACONCORD, NEW HAMPSHIRE
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Resident Ownership
Effectively & Efficiently
ROC USA’s Mission To make quality resident ownership viable
nationwide. Through timely and expert technical
assistance and financing for resident corporations.
A Resident Owned Community
Homeownersown residentcorporation,
which buys/owns the MHC.
Quality Technical Assistance
ROC USATM Network
Low down-payment/high LTV commercial loan(s)
ROC USA™ Capital & Others
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ROC USA Network
A network of non-profit community development organizations who have collectively completed over 100 MHC transactions.
CASA of Oregon Community Resource Group Crossroads Urban Center Northcountry Foundation NeighborWorks Montana NH Community Loan Fund Northwest Co-op Dev’t Ctr PathStone, Inc. Rural Communities Assistance
Corp. READS-USA
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ROC USA Network Certified TA Providers
Market Areas (3/09): 30 States
ROC USA NetworkThree Stage Process with Sellers:1. Find “for sale” communities with interested
sellers and assess economics and demographics. IF VIABLE, proceed. If not, inform seller.
2. Present homeowners with the opportunity. If there is interest, proceed with transaction. If not, inform seller.
3. Close the deal.
ROC USA: Capital Current capitalization: $25 million; Purpose: Provide timely and appropriate
commercial mortgage financing: + High LTV (up to 105%) community purchase
loans for resident corporation purchases; + Pre-development loans for resident
corporations, too.
Resident Ownership Is Most Viable When: Quality:
The better the quality, the faster and easier the transaction; 75% plus owner-occupied; 51% permanent residences; It is a “continued use” sale;
Size: Single MHC is listed below $12mm and portfolios below
$30mm (currently); Demographics:
Homeowners are mostly medium- and long-term residents; Both family and 55+ communities have been successful.
Discussion QuestionIn the face of declining subsidy dollars, what are the options for creating affordable housing that does not rely as heavily on public sources of funding?
Coop Conversions
Current Residents Understanding & Interest Do current residents have a clear idea of what
coop ownership would mean? Do they have a genuine interest in owning the
property as a coop? Are they more interested in quality and cost of
housing than ownership and control?
Current Resident Capacity To what extent do existing residents know and
interact with each other? Do they have a shared interest in what
happens to their housing? If a self-managed coop is envisioned – do
they have the capacity – with appropriate training – to manage successfully?
Future Marketability How much can
current residents afford to pay for shares?
Is share loan financing available?
Could a non-equity coop create better affordability?
What About Current Residents Who Are Not Interested in Coop? Do they want to remain
in the building? What arrangements
could be made for them to remain as nonmembers?
What arrangements could be made to help them relocate?
Urban Homestead Assistance BoardNEW YORK, NEW YORK
History of UHAB Founded in NYC in
midst of 1970s economic crisis
Landlords abandoning buildings
City stuck with 11,000 buildings and no idea what to do with them
A Voice for Tenants UHAB a voice for
residents in those buildings – who had no intention of leaving
Their first experiment with resident ownership was successful – and the city was sold on the idea
UHAB’s Programs Organizing and
policy Coop development Coop preservation Technical assistance
and training Member Services
It Works! Since 1973, UHAB
has assisted in the preservation of over 1,700 buildings
Creating homeownership opportunities for over 30,000 households
Size Matters
Dunbar’s NumberA suggested cognitive limit to the number of people with whom one can maintain stable social relationships – where an individual knows who each person is, and how each person relates to the other
Dunbar’s Number Large numbers
require more restrictive rules, law and enforced norms to maintain a stable, cohesive group
Anywhere from 100 to 230, with a commonly used value of 150
Size Helps with Turnover Large coops, in general,
will be more durable, as they can more easily absorb turnover
Turnover brings: Need for training Loss of institutional
knowledge Potential decrease in
“coop fervor”
Self-Management Can be easier for smaller coops -- less things
to manage May be necessary for smaller coops who
cannot afford professional management Some view it as one of the more desirable
features of coop living But -- small coops can more vulnerable to
mismanagement
Larger Coops Less impacted by turnover Economies of scale – allowing contracting for
professional management More similar to conventional rental housing –
but with resident control Training different than for smaller coops –
focus on directing, overseeing and evaluating the work of professional managers.
Questions for Nonprofits Considering Coop Projects
Constituency What income range do you
want to serve? Are there specific groups
you want to serve? How would the coop
model benefit them in ways that other models would not?
What type of coop would best serve your constituency
Role of Nonprofit Sponsor Will it be the entity that creates the coop
corporation? Will it acquire and develop the property for the
coop? Will it market shares/membership and select
the initial residents?
Sponsor as Steward Will it be the long-
term owner of land (and buildings) – and if so, what will be the lease terms?
Will the nonprofit sponsor provide ongoing guidance, support and training?
Marketability Will the coop model
have enough appeal in the local community to be marketable?
Is the coop model already a familiar one in the marketplace – or would this be the first project of its kind in your community?
Size How large will the
coop be? Will the coop be
large enough so that it can maintain stable operations as members depart and others take their place?
Training Can adequate training
be made available – initial – and ongoing?
Can the nonprofit sponsor provide it? If not, is there another possible source for training?
How will training be paid for?
Member Participation Can prospective
members be involved in planning the coop corporation?
Can they be involved in planning and/or carrying out construction?
Financing Can adequate
subsidy money and the necessary blanket mortgage found?
What are the options for obtaining share loans?
LEC Share Resale Issues To what extent can
value of shares be allowed to appreciate – and still be kept affordable to future members in targeted income range?
Is there a way to make share loans available?
Management To what extent will self-management be
feasible (or desirable) for the coop? To what extent will it be possible for the coop
to contract for management services? How will training on management issues be
provided? What will be the sponsor’s ongoing role
regarding management?
Issues, Opportunities & Trends
Coop Challenges
Competing with CondosCoops will need to publicize the benefits as compared to condos, such as lower financing and property costs, as well as reduced transfer fees – not to mention less price volatility
Need for Better Public SupportCoop housing is often overlooked and left out of federal and state legislation for single-family homeowners – and often lumped in with rental property programs.
Burden of CommunityBurden of participation in governance and management can be great than for condos or fee simple ownership
Oscar Wilde“The problem with socialism is that it takes too many evenings.”
Financing Challenges Blanket mortgages
and share loans can be hard to obtain from local lenders.
Local lenders need to be educated.
Coop Benefits
MobilityMobility is much greater with limited equity coops than condos or fee simple ownership
LTE More Cost Effective than Rental Housing Less turnover Lower rates of crime Less wear and tear Reduced
management costs More pride of
community
Long-Term AffordabilityLimited equity coops do a great job of preserving affordability for future generations
Coop Opportunities
Opportunities in the Marketplace Manufactured
housing Intergenerational
housing Tenant organized
conversions (UHAB) Section 42 Tax Credit
Conversions
Senior Housing Coops Incorporate
appropriate design and service features
Often 55 and over Deep equity coop Rural and urban
settings Zero equity coops
Artist Housing Coops Leasehold or limited
equity Specifically
designated for artists Combine housing and
workspace needs Permanent
affordability
Housing for Students Could be dormitory,
housing or apartment building
Minimal membership fee ($50)
NASCO: umbrella for U.S. and Canada