Cohousing-L Mailing List: Mixed Income/Low Income Co-Housing Communities

[Cohomag (Cohomag]

Wellington Avenue Local Development Organization requested information about
cohousing in 
urban areas for low income residents.  It so happens that I have been working
on a series 
of intensive case studies for a forthcoming article series (or book), and I
just finished 
grilling David Mandel (a subscriber to this list) about the development of
the Southside 
Park community in Sacramento, California.  This is a mixed-income ownership pr
oject 
(resident initiated) which entailed subsidy at the back end (silent second
mortgages) for 
qualifying low and moderate income homebuyers.  A really neat project!!
Following is the narrative portion of this particular case study.  I also
have a two page 
summary sheet with design, demographic and financial information, but it is
highly 
formatted and not easily converted to an ASCII text packet.  Anyway, here is
the Southside 
Park study.  I am sure David Mandel will correct anything I didn't get
straight.  (Thanks 
David!)
Don Lindemann
Editor, Cohousing Journal
cohomag [at] aol.com
P.S. Look for a lot of information about legal and financial structures in
the next couple 
issues of the journal.  Contact me for subscription information.

SOUTHSIDE PARK (CA)

This 25-unit development, located in a low-income neighborhood near downtown
Sacramento, 
was the result of a five-year collaborative effort involving a core group of
residents, 
their development manager/architect, a local builder and the Sacramento
Housing and 
Redevelopment Agency.  Southside Park, which includes 19 two-story townhouses
and six 
flats, has won several architectural awards.  The 2500-s.f. common house,
located in the 
center of the site, includes a kitchen, dining room, sitting room, laundry,
children's 
room, two bathrooms, a teen room and storage space.
The core group that created Southside Park grew out of an "umbrella group"
that got 
started in late 1988 after a Sacramento slide show presentation by Kathryn
McCamant and 
Charles Durrett of The CoHousing Company.  This umbrella group focused on
education and 
outreach, sponsoring occasional picnics as well as monthly potluck socials
that often 
included a presentation on some aspect of cohousing.  By the middle of 1989 a
subgroup 
began to meet separately twice a month as a core group to talk about
possibilities for an 
affordable urban project.  This core group, in turn, formed subcommittees of
two or three 
people to investigate sites in various parts of the city.  They also decided
to start 
collecting dues, starting at $100 a month and later $200 a month (with
exceptions made for 
members who could not afford that much).  Virtually all dues collected by the
core group 
were treated as capital contributions and eventually rolled over into down
payments for 
homes.  At this point the group did not have any legal identity of its own,
and dues were 
deposited in a group checking account opened in the name of one of the
members.
After a few months, members realized that they didn't know enough about the
factors to be 
considered in site evaluation, so they decided to get help.  Several members
were 
acquainted with Sacramento architect David Mogavero, and the group decided in
late 1989 to 
hire him with funds they had started to accumulate.  Mogavero researched
several sites for 
them, and by February of 1990 he presented them with information about a 1.3
acre parcel 
that the group eventually purchased from the Sacramento Housing and Redevelopm
ent Agency 
(SHRA).  The site was in a neighborhood close to downtown that had once been
a solid 
middle-class area of Victorian bungalows, but in recent years it had fallen
victim to 
blight and neglect.  The Redevelopment Agency had started buying up some
dilapidated 
properties in the 1980's, and it was eager to catalyze a project that would
aid in the 
process of stabilization and renewal.
Throughout early and mid 1990 Mogavero met occasionally with staff of (SHRA)
to explore 
the possibility of a cohousing project on the agency-owned property.  (The
agency itself 
was still in the process of acquiring part of the site that the group would
need.)  
Meanwhile members of the group started to develop a vision for the site and
met with 
neighborhood residents to gain support.  Finally, in September of 1990, the
city issued a 
Request for Proposals.  This RFP stated the agency's requirement for an
experienced 
developer to build housing on the site with 20% to 40% of the units
affordable to 
households earning less than 80% of the area median income.  The RFP, which
reflected 
Mogavero's input into the agency process, also called for plans in keeping
with the scale 
and character of the neighborhood, and the RFP did not require maximum
possible density at 
the zoned limit of 36 units per acre.
During an intense six-week period the group developed a site plan in
collaboration with 
Mogavero's firm and The CoHousing Company of Berkeley.  In January of 1991
the group's 
proposal for a 25-unit cohousing project was conditionally accepted, and the
site was 
eventually sold to the group on extremely favorable payment terms at the
market price of 
$415,000. 
John Warner, a housing finance specialist with the city of Sacramento,
recalls that the 
city had no particular predisposition toward the cohousing concept, but a
selection 
committee composed of neighborhood residents and city staff chose the group's
proposal 
(over a competing proposal for conventional condominiums) because of its
architectural 
quality and because it promised to provide a substantial portion of
affordable units with 
a relatively low level of city subsidy.  "They had a certain pioneering
spirit and 
progressive bent such that they were perceived as a potential asset for the
neighborhood," 
said Warner.
There were still many details to be worked out over the next year and a half
to gain final 
approval from SHRA and obtain a construction loan.  At the request of SHRA,
the group 
incorporated as a nonprofit (River City Cohousing) and actually achieved
federal tax-
exempt status (as a 501(c)(4) social welfare corporation, not a 501(c)(3)
public benefit 
corporation).  (A 501(c)(4) cannot accept tax-deductible contributions, and
it is not 
clear why SHRA required the group to obtain tax-exempt status.)
The agency as well as potential construction lenders wanted to see the
project managed by 
an experienced developer, so the group investigated various possibilities.
 "We didn't get 
a lot of response from local nonprofit developers -- they saw cohousing as a
yuppie kind 
of thing," said group member Susan Scott.  "We talked about doing a half
ownership, half 
rental project, but it would have been very complicated."  Finally the group
hired a 
lawyer and formed a limited partnership with local builder Jeff Kester (Ergos
Development) 
as the general partner.  Terms of the agreement called for Kester to be paid
an overhead 
fee of $21,000 and a contractor fee set at construction cost plus 11%.  As
part of the 
legal work, disclosure documents were prepared for distribution to
prospective members to 
inform them of the risks involved in the project.  (This was done to comply
with state and 
federal securities laws.)
"Jeff did not really understand the appeal of cohousing, but he believed we
were very 
committed to making it happen," said Susan Scott.  "He was convinced that
people would buy 
these units if they were built."  (In California, unlike some other states,
homebuyers in 
a subdivision cannot actually sign Purchase and Sale Agreements until the
Department of 
Real Estate issues a "public report"; usually this report is not issued until
the units 
are nearly complete.)
Each household was eventually asked (but not required) to invest in the
limited 
partnership an amount equal to 10% of its projected unit cost.  (This target
was reduced 
to 5% of projected unit cost for low income households.)  Resident
investments up to the 
10%-of-cost level were slated to earn an 8% return.  Outside investors (or
group members 
exceeding the 10% requirement) were entitled to earn a 13% return; altogether
there were 
about a dozen investors in this category.  According to Susan Scott, the
various levels of 
investment by group members had no bearing on decision-making.  "The
remarkable thing 
about this group is that some people put in an incredible amount of money and
some only 
put in a few hundred dollars, but everyone participated on an equal basis."
Legally, the limited partnership form of organization gave much of the
decision-making 
power in the project to Kester, since limited partners are not allowed to be
actively 
involved in management.  Generally this was not a problem, and the group had
influence 
simply by virtue of the fact that they were the potential homebuyers.
 (However, some 
group members were dismayed later by some decisions that were made in the
construction 
process without their knowledge.)
In late 1991 members of the group started meeting regularly with SHRA staff
and an agency 
attorney.  At first these negotiations were difficult.  On one hand, agency
staff wanted 
to be supportive because they believe the cohousing group would be a positive
addition to 
the neighborhood.  On the other hand, they were somewhat apprehensive about
dealing with a 
grass-roots, participatory group unlike any they had ever worked with before.
"They wanted us to pay for the land up front, but we told them that would be
a total deal 
beater.  That made them a little nervous about us.  We had to get over their
disbelief 
that we could pull this off," recalls Scott.  "Jeff was very important to
that process.  
He had done a lot of projects, had a lot of bankability, and he helped
convince them it 
would work."  She added, "I wonder about some of the cohousing groups
organizing to do 
cohousing projects without anybody who has deep pockets.  Do they think
bankers are going 
to loan them millions of dollars?"
Unit pricing was the subject of much debate within the group.  Some members
strongly felt 
that prices for all units of a given bedroom size should be the same.  Others
felt just as 
strongly that pricing should take into account a wide variety of factors.  In
the end they 
compromised, and unit prices were adjusted for a very small set of factors
including 
availability of a backyard and whether or not the units are "sandwiched"
between other 
units.
Terms of City Subsidy
The group originallly asked SRHA to consider a bargain sale of the land plus
an equity 
contribution to the project.  Instead of doing this, the agency deferred the
land payment 
until closing on the permanent mortgages, and a $415,000 fund (equal in size
to the 
purchase price of the city-owned land) was set aside to assist low and
moderate income 
homebuyers.  The fund provided silent second mortgages covering up to 49% of
the appraised 
price for six low income and five moderate income households.  A down payment
of 5% was 
required for moderate income purchasers and 3% for low income purchasers.  No
monthly 
payments are required until the loan becomes due (in 13 years for a moderate
income 
purchaser or 33 years for a low income purchaser).  It is anticipated that
owners will be 
able to refinance their homes to obtain the cash required to pay back the
city.
Resale prices of units financed with silent second mortgages are limited to
the original 
price plus an appreciation factor tied to the county median income.  The
arrangement calls 
for SRHA to receive a share of appreciation upon resale or refinancing (as
well as 
repayment of the silent seconds).  New buyers will have to qualify under the
same income 
restrictions as current buyers (if they buy within a prescribed period -- 10
years for 
low-income units or 30 years for moderate-income units), and they will be
eligible for the 
silent-second financing under the same terms as the original buyers.
Because the prices of almost all homes exceeded the appraised value, SHRA
also made gap 
financing available to all households to cover most of the difference between
appraised 
value and purchase price.  These loans, accruing interest at 3%, are due upon
sale of a 
unit (and may be forgiveable if unit value has not increased).
Although the group did not receive any development capital from the city, the
favorable 
terms of the land sale minimized their up front capital requirements, and the
silent 
second mortgages enabled them to accommodate six low and five moderate income
households 
(although some low income members who participated along the way were unable
to qualify 
for a home even with mortgage assistance).  The use of mortgage assistance
rather than 
direct project subsidies gave the group flexibility in recruitment; the origin
al idea 
involving an equity contribution by the city would have required low and
moderate income 
buyers to fall into relatively narrow bands of household income.
The final agreement with SHRA was approved by the Sacramento City Council in
September, 
1992.  Meanwhile, Sacramento Savings provided a construction loan of $1.9
million 
(somewhat less than expected) and SHRA provided a bridge loan of $330,000.
 In addition, 
the Northern  California Community Loan Fund provided a bridge loan of
$75,000 to make up 
for the fact that low income members contributed very little equity to the
project.  
According to group member David Mandel, a number of other low income lenders
were 
contacted but displayed little interest "because we weren't all low income."
 
Construction began in October 1992 and was completed a year later.  The main
problem in 
the construction period was dealing with cutbacks that had to be made,
primarily as the 
result of rapidly escalating lumber prices.  "If I had to do this all over
again, I'd have 
each group involved in design of a particular unit type think ahead of time
about the 
decisions they'd make if they had to cut five or ten thousand dollars out of
the budget," 
said Scott.
The sweat equity component to the project included landscaping, irrigation,
construction 
of decks and installation of wood floors in some units.
Ownership Structure
The project is owned as condominiums (with resale limitations on subsidized
units as 
described above).  There are no provisions for the group to exercise any
control over the 
choice of buyers.  "I don't think this group would want it.  I think it's
understood that 
if you need to sell, you will do everything in your power to sell to someone
who wants to 
participate in a cohousing community," said Mandel.  
Homeowner fees currently range from $90 to $130 (including sewer and water
charges).  Some 
expenses were allocated on the basis of unit size and others were allocated
on a per-
household basis.
Financing of significant new community amenities (after occupancy) is often
difficult for 
cohousing communities, especially for mixed income communities where ability
to pay 
increased homeowner fees varies widely.  For some relatively small items that
needed to be 
purchased after move-in(e.g. a new refrigerator), the group decided to borrow
against its 
reserve funds.  But some people are frustrated by the inability of the group
to finance 
significant new improvements or amenities such as a hot tub.  
According to Mandel, the biggest challenge was working with professionals who
were not 
accustomed to working with a group.    "It's important to be as clear as
possible at the 
outset about who is going to do what and for how much money," he said.  He
suggests that 
other groups think about hiring a project manager -- someone other than the
architect or 
builder -- to closely monitor a project during construction.
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