Cohousing-L Mailing List: [no subject]

[Pablo Halpern (pabloh]

Robert Cooper writes:
> 
> Hi,
> The co-housing group I belong to (Westchester CoHousing) may lose out 
> on a wonderful site because we as a group don't have immediate access 
> to funds. We are bidding on a site owned by FDIC, and after a lot
> of hard work, may lose out to a last-minitue entry by a traditional 
> developer. While, in theory, our proposed development would support a
> much higher bid, we would need time to raise the funds. The developer,
> with either personal wealth or established lines of credit, can act
> much faster and offer a stright cash deal.
> 
> [ Stuff deleted ]
> 
> 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

First, let me make a point I haven't seen mentioned yet: If, as you expect,
this developer beats you to the land, it does not mean the possibilities
are over for you.  You can approach the developer with the prospect of
building the community for you.  Ultimately it could work out well for both
of you: You get the land you want.  The developer gets a pre-sold
development.  Remember, much of a developer's risk comes from building "on
spec." and marketing the finished product.  Marketing is expenseive and if
nobody buys, the developer has to lower the price and could loose out.
Your cohousing group could represent pre-sold units, saving marketing
costs.  Since the group participates in the design, the developer can be
sure that he/she is building something that somebody wants to buy,
drastically reducing risk.  Finally, since the units can be sold as soon as
they are built, it reduces the developer's financing costs.  The
developer's savings can offset the cost of the common house, etc..

WARNINGS: 1) Some developers will get truly excited by cohousing, once
educated.  But don't get caught, as we did, with a developer that seems
excited but is unwilling to make any written committments.  At the very
least, you should both sign a "letter of intent" outlining the basics:
clustered housing, pedestrian street, common house, rough prices,
approximate size of development, etc..  One developer wasted 9 months of
our time and never signed a letter of intent.  2) There are many advantages
to working with a developer (not the least of which is reduced financial
risk to the group) but there are many drawbacks, as well.  Try to get the
developer to sign on to some level of group control.  Since he who takes
the risk has the control, it helps if you can convince the developer to
allow you to share the risk (e.g. pay 10% or more of the land cost).  3)
Make sure you have a group of committed people.  The developer will throw
you overboard if you look flaky.


Another thing not previously mentioned in this discussion is the importance
of clarifying your group's financial power.  Our group (New View
Neighborhood Development) requires all potential members to fill out a
financial statement which is used by our bank to pre-qualify them for a
mortgage.  A group of pre-qualified applicants will look very strong to a
developer thinking of working with you.  Banks will use this information to
determine if your group is a good risk for land or construction loans.  It
will also clarify for yourselves what the group can really afford, and when.
Also, try conducting a confidential survey of the group to find out how
much *liquid* funds are available to, e.g., buy an option on land.

Finally, I want to clarify what Nancy Wight said about New View's Land
Fund.  The Land Fund was specifically designed for *unequal* contributions.
Although everybody must contribute at least $5000, some people contributed
much more.  Those who contribute extra money are rewarded with interest at
a more than decent rate.  The Land Fund is a one- or two-time thing
requiring no monthly contributions.  Because the Land Fund is a separate
account secured by the land, the unequal risk is quite acceptible.  We
created the land fund at the moment we needed money.  However, it might
make sense for you to create a land fund in advance but not actually put
money in it until the group has agreed on a site it wants to buy.

Hope this helps,

Pablo Halpern
New View Neighborhood Developement
Acton, MA

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