Re: Developer financed cohousing
From: Sharon Villines (
Date: Thu, 28 Feb 2008 11:44:50 -0800 (PST)

On Feb 28, 2008, at 1:17 PM, Joelyn Malone wrote:

In my experience, development is a very "local" thing, with examples from far-off locations not carrying much weight.

Agreed, but there are some cohousing professionals who can manage a project from a few hundred miles away although they are not developers. No matter where a group is, I would call them for a consultation so they can explain their process.

Your members will be asked to make a financial commitment that will assure the developer you really are in this for the long haul and won't disappear on him if he takes the risk on your group.

With our developer we only had to put down 5% at the time we signed contracts to purchase so he could get a construction loan. He had an option on the land and only paid for it after all the units are built and paid for. He paid for the permitting and preliminary inspections, etc., before he got the construction loan. He had his own in-house architect.

In all likelihood, you will have to have contracts and deposits for 70-75% of the units before the developer can get a construction loan. Normally, most developers can't or don't cover all the costs of construction out of their own funds.

And you will pay a significant premium on the prices of your units, to compensate him/her for the very high risk he/she will be taking to build something unproven (e.g., not in demand) that he/she will likely feel doesn't have a guaranteed alternative use, if its use has cohousing fails.

We paid lower than market prices because we locked in our prices at least two years before we actually closed. The developer also knew about bond programs and tax exemptions for first time home buyers that we didn't know about and most of us would have had a hard time negotiating. He arranged before construction for the city to set aside enough funds to cover most of us who were eligible and with a bank to handle the details and an excellent lawyer to do the closings. The bank turned out to be very inefficient but no one could have predicted that. He used minority organizations and contractors when possible and not all of them had sufficient experience. But he saved money in exemptions for using them.

If anything, the developer lost money on us because there were unexpected site problems and problems with the construction company for which he was responsible. We already had contracts to purchase at set prices.

Experienced developers and project managers pay for themselves in efficiency and knowledge. If you try to develop your own project there will be a lot of mistakes as you learn on the job. Plus there are economies that developers know and few cohousing groups do like not buying the property until the costs can be paid for out of the mortgage money.

Our developer also had a lawyer who did our condo docs and draft bylaws as part of the deal. Another cohousing group paid $15,000 and only got a huge packet of standard condo clauses printed out of a computer and were also obligated to do all their closings with that lawyer.

Banks are much more likely to give a construction loan to a developer than to an inexperienced group.

Think carefully about how it can be constructed in such a way that the really high-risk "cohousing design" features don't have to be built until success (100% pre-sales) is guaranteed. And no, I can't think of a single example of where cohousing has been built without member taking a significant chunck of the financial risk. Maybe there are others out there - if so, it would be good to know about them!

As above our group took no risk. We only had to have 70 or 75% (I can't remember now) in presales and he had already done a lot of preliminary work before we had to sign contracts and put down a 5% deposit. We also had members who were able to loan other members their deposits until move-in.

Another advantage of using a developer is that it is MUCH easier to attract buyers when you have a completion date. A developer is much more likely to be able to give you a date.

We had unexpected discoveries of storage tanks and contaminated soil that had to be removed, then rains that put the whole site underwater because it was already sitting on top of a spring. Many of us were in temporary housing before move-in because the due date was extended and we had sold our homes and lost our apartments. But no one dropped out because of this.

One of the fastest growing associations in the country is the United States Green Building Association, so architects and construction companies, as well as developers, are much more familiar with the green features that used to make cohousing units initially so expensive. Now many of these features are standard practice -- almost.

When green becomes a promise in presidential primaries, you know its time has come!

Sharon Villines
Takoma Village Cohousing,Washington DC

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