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.

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Paul Bradley, PresidentROC USA™, LLC603-856-0709

pbradley@rocusa.orgwww.rocusa.org

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