Cohousing-L Mailing List: RE: Affordability - For development

[Rob Sandelin (robsan]

Munn Heydorn  wrote an excellent post on mortgages. I would add that 
the usual problem we face is that the average  cost each unit is 
typically over $150,000. Getting a no points mortgage helps but that 
cost is still way out of reach.   What would be also useful to find out 
is specific ways to reduce that average unit cost, say in half.  Also 
strategies for reducing the amounts of the A & D (Acquisition and 
development)  loan. Cohousing groups are not just purchasers of 
Mortgages, they are often developers of Real Estate. Often the A & D 
money is used to pay off all the site acquisition costs and the costs 
of all the common elements and infrastructure. Banks usually require 
the developer to put up 1/2 of all these costs, so the upfront, out of 
pocket expenses to groups is often HUGE, like ten grand for each 
member. (This becomes down payment on a mortgage, but that's later.)

One barrier to affordablilty right up front is the out of pocket costs 
for feasibility studies, land purchase options, legal incorporation and 
contract costs, architect fees for design, permit fees and approvals.  
Usually all these things have to be done in order to even get in the 
door for an A & D loan.  This means the membership has to find the cash 
for all these things, which is then credited towards the 50% developer 
costs. I heard that several people at Puget Ridge put up ten to fifteen 
thousand dollars in order to secure the loan.  While there are numerous 
programs for helping out mortgages, I haven't found one for helping out 
developers.  It seems to be assumed by the banking industry that 
non-profit citizen organizations don't do this sort of thing, that the 
people who apply for A & D loans are all well established developers.

When a group designs a site which is to be built out all at once, you 
are looking at a several million dollar project. (Puget Ridge was/ is a 
4 million dollar project)  At Nyland several people came up with  
$350,000 as collateral for the bank for the A & D loan.  Fortunately 
for them, they had people who could raise that kind of money.

Any ideas how to pull off major developments without the huge cost 
overheads out there? Or how to fund the upfront, before the bank will 
give you a dime, costs?

Rob Sandelin
Puget Sound Cohousing Network
Building a better society, one neighborhood at a time.