Cohousing-L Mailing List: Re: Money again

[Nancy Wight (wight]

> 
> While we may lose this site :-<, one lesson learned is we need to get
> some type of bridge loan/letter of credit arranged before we go after
> our next site.

Another idea is to get an "option" on the site, which is what developers
do all the time.  You pay a certain amount of a downpayment, plus a
monthly fee to keep the land tied up until you know for sure that
you can get permits, have all the financing to buy it, etc. (more
on what we did later)

> I don't think most commerical banks would touch us. So I'm thinking of
> some type of foundation that might support a CoHousing venture. I'm
> also thinking of trying the National Coop bank.
> 
> Does anyone have any experience with these groups? Anyone know of a
> foundation I might approach? 

We have some experience with the National Coop bank.  We talked to
them a couple of years ago, before they had really heard much about
cohousing, and they weren't that interested in us.  They said they
might consider financing 70% of our project, but that wasn't good
enough for us.  Recently though, they have been expressing interest
in us (after we already found another bank willing to give us
a construction loan), and I think this has to do with the other
cohousing developments already being built in the U.S.  They
are not as queasy about it as they were a couple of years ago -
this is a good sign!  You should definitely give them a call.

> How did you other CoHousing groups bridge the gap between finding a site 
> and then getting the groups financial ducks all in a row? Did you get
> a stright construction loan then a mortgage? Did you have strong
> finanical backing from a group member/foundation/developer?

> Robert

What we here at New View in Mass. did was to "purchase" the land as
far as a purchase and sale agreement.  We had to pay about 50% of the
cost of the land over the course of 6-9 months, and then $3,000/month
(which does not get put towards the purchase price) until we close
on the land.  For various reasons, we have decided not to close on the
land until we get our permits, which will be at least another 3-4 months.
The whole deal is contingent upon many things (septic tests, getting
permits from the town, getting financing, etc.), so if any of the
contingencies don't pan out, we get our money back.

We financed the purchase of the land entirely with our own
money.  We did this by creating a land fund, into which every household
had to contribute a minimum of $5,000.  People who put in more than
that amount would be paid interest on the amount above $5,000 by the
whole group.  We made the interest rate attractive (I don't remember
exactly, but something like 1-2% over prime) so people would invest.
The land is the collateral for the land fund, so people aren't taking that 
big of a risk with their money.

The rest of the money needed to pay the architects, engineers, lawyers,
and project manager to get us to the point where we have enough info
for the banks to give us a construction loan comes equally from the
member households (for us this has been between $500-$1,500/month
per household).  This money will be taken into account by the bank
as part of the cost of the house, so essentially, we are paying our
20% "downpayment" over the course of a year, instead of paying it all
at once.  Once we get a construction loan, we will be home-free.
Then we will get possibly another bank to give us the end mortgages.

You have hit upon what I consider to be one of the major dilemmas in
building a cohousing project: We need to get financing, but before any
bank will even talk to us, we have to have site/house plans, etc., and 
before we get site/house plans, we need to have a site, and before we have a 
site, we need to have financing.  Other cohousing groups I know of have
also used this method of putting an option on the land to tie it up
for 9-12 months while they do feasilibity studies.  In your case,
it sounds like you had a developer with cash competing with you, who was 
willing to take the risk of not getting permits, etc. and having to
possibly resell the land later, after putting a significant amount of
money into it.  

Good Luck, and I hope you get your site!!

- Nancy Wight
  New View Neighborhood Development
  Acton, MA