Re: Affordable Housing, Lack of Scale, Not Building Costs
From: R Philip Dowds (rpdowdscomcast.net)
Date: Tue, 30 Aug 2016 15:24:18 -0700 (PDT)
Well.  There are actually a lot of developer business models out there, and 
they get very complicated.  The developer’s “profit”, both short- and 
long-term, is usually some combination of rent and/or resale and/or 
depreciation (never underestimate the huge role that tax law plays in making 
real estate a profitable activity).  However, yon developer may actually be the 
owner of a corporation which in turn owns the property / project, and receives 
and distributes the profit according to a variety of agreements — and the 
developer is rewarded, not just by  profit-sharing, but also with an annual 
income worthy of a CEO.

But let’s not get our terms scrambled.  The developer is the party that owns 
the land, owns the construction, and owns the risk.  If the project goes south 
for some reason, it’s the developer who loses his/her shirt.  And maybe also 
pants and shoes.  Which is why, of course, developers like to (a) buffer 
themselves with corporations, sometimes layers of them; and (b) work with other 
people’s money.

To get to the bottom line:  Most cohousing formational groups ARE the 
developer.  They own the land; they own the construction; and they own all the 
attendant risks.  When one speaks of such groups “getting a developer”, what 
that most often means is getting a consultant experienced in real estate 
projects.  The group, not the consultant, is the developer.  Still.

But as the cohousing movement matures, other models are taking shape, ones in 
which a “real” developer shares in the risk; does the entire project as turnkey 
(in concert with a core group of future residents); or even on spec (hoping to 
attract an especially communally-minded set of buyers to his/her finished 
condominiums).  I think most of us tend to be suspicious of this latter 
cohousing-as-consumer-commodity approach.  But in the future, who knows?  If 
society gets acclimated to the cohousing lifestyle, future homebuyers will be 
able to shop among a broad diversity of cohousing communities, just as they now 
shop among a wide range of condominium developments.

Thanks,
Philip Dowds
Cornerstone Village Cohousing
Cambridge, MA

> On Aug 30, 2016, at 4:40 PM, Sharon Villines <sharon [at] sharonvillines.com> 
> wrote:
> 
> 
> 
>> On Aug 30, 2016, at 3:14 PM, Crystal Farmer <crystalbyrdfarmer [at] 
>> gmail.com> wrote:
>> 
>> I'm learning that our market is
>> controlled by the developers and they are all seeking to make a profit.
> 
> “Profit” is a much misunderstood word. It means "salary.” Except that a 
> salary is guaranteed as long as you show up for work. Profits are entirely 
> based on your intelligence and ability.
> 
> Profit in construction is usually a percentage of earnings on the property. 
> If a developer makes a mistake in estimating costs, or costs increase, the 
> profit decreases. A developer can calculate their own salary/profits into the 
> budget but can end up with nothing.
> 
> As I understand it, the developer will usually charge 15% of the total cost 
> of the project but often ends up wth closer to 10% or less. This is the 
> developer’s income for probably 2 years. And the developer has no company 
> benefits - no health insurance or paid vacation. They also have professional 
> insurance to pay. And office rent and staff. 15% of a $7M project is $1.5M or 
> $87,500 a month. Benefits in large companies are 30% of salary. That brings 
> it down to $61,250. From that subtract professional insurance, insurance, 
> salary and benefits for 2-3 staff members, and office space. And travel if 
> the developer isn’t local. At least one of the staff members will have to be 
> professionally qualified to help with architectural and construction and 
> legal requirements. Plus the developer has to have reserves (savings) to 
> cover times when they are planning or negotiating new projects and no money 
> is coming in.
> 
> With no profit the developer would be working free. If you had no salary, you 
> would be working free. Not likely to happen. You want a developer who is 
> professional and successful. Not one who charges less because they know or 
> are capable of less. 
> 
> A good developer will also bring the project in on time. Projects that drag 
> on, cost everyone money. Interest rates on construction loans are currently 
> 5.5-8.5 % of the amount loaned. And that is very low because interest rates 
> are historically low. When a construction loan is several million $ that adds 
> up significantly with every delay. Interest on $7M could be $500,000 a year, 
> $40,833 a month. That has to be added to the cost of houses.
> 
> So your best bet is to find a developer who has a track record of bringing in 
> projects early or on deadline. You also need to stay out of the developer’s 
> way. Changes and backtracking and questions delay construction and increase 
> costs. Otherwise costs escalate. 
> 
> If you delay construction with changes, for example, and you have 40 units, 
> interest alone could add $10,000 a month the cost of the unit.
> 
> (I don’t know exactly how interest is calculated so these numbers are just 
> for illustration. I also don’t know the back end costs of developers but I 
> think my figures are low if anything.)
> 
>> Our
>> seniors are certainly concerned about being priced out of cohousing.
> 
> And this is too frequently true when building cohousing. People also try to 
> not just to build a cohousing complex but to also build their dream home or a 
> complex that is an architectural statement. Real estate people out there 
> please correct me if I’m wrong, but from what I know from watching cohousing, 
> the least expensive units to build are those that have been built before— the 
> glitches have been worked out. And all the sub-contractors have experience 
> with that kind of building. Stopping to figure out an unusual design or 
> faucet connection slows down construction. Unusual materials take time to 
> order, send back, and reorder.
> 
> If your primary goal is affordability or low income or fixed income, make 
> that your priority in _every_ decision. And don’t allow new people who have 
> more money and more expensive tastes hijack the process just because you 
> think you need more members. I’ve seen this happen and it was very sad. The 
> whole project went off track and the founder was priced out.
> 
> Write your primary goal down and don’t change it without full group consent. 
> 
> Sharon
> ----
> Sharon Villines
> Takoma Village Cohousing, Washington DC
> http://www.takomavillage.org
> 
> 
> 
> 
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