Cohousing-L Mailing List: Developer Hired vs Developer-Driven

[Sharon Villines (sharon]

on 8/14/2002 2:23 PM, emily wilson at mlemily [at] hotmail.com wrote:

> What does it mean for a cohousing developement to be "developer driven"?

A bit longer answer based on experience with a not-built project and a built
project and reading this list for a few years. Pros, please correct errors
in this description:

Early cohousing groups did not use developers because there were no
developers willing to work with them. They bypassed the developer and went
to architects and contractors and building managers. Thus they were
"self-developing". For some groups this worked well because they had members
who were very knowledgeable -- architects, building engineers, etc. -- or
members who had the time to become informed and do a lot of work.

But for many groups this resulted in very expensive development and years of
fruitless effort. They made expensive and costly errors --partly from
trusting untrustworthy contractors and subcontractors and being run around
the barn by zoning officials and inspectors. It also led to the failure of
many groups to even get to a contractor or a zoning official since banks do
not trust anyone but seasoned professionals.

People who are selling land are also much less likely to accept an "option
to buy" from an inexperienced group than from a developer with a track
record of success. Securing land is a crucial step toward firming up
individual commitments and a good predictor of success in completing the
project. When a land owner grants an option to buy, they want to be sure the
land will be bought since they may be missing other opportunities by taking
it off the market.

Seeing the need and having personal as well as professional interests in
cohousing, several cohousing developers have arisen. Some are architects who
developed the early cohousing groups and have now become developers for
other groups. Some are individuals and some are larger firms offering a ost
of services. The firms advertise on the Cohousing Network pages, supporting
the Network, so they are easy to find. Others you find by word of mouth.
They will work with a group a good distance from their home base so they do
not have to be in your state to help you.

A developer handles all the nitty gritty details of hiring and coordinating
architects, contractors, lawyers, etc., applying for the construction loan,
setting up long, long spreadsheets, etc. They understand zoning laws and
financing. They have a track record so construction loans are easier to get.
In addition to providing expertise, they provide their reputation for
completing projects.

Developers also understand a key point: What costs what and when the cost is
greater than the benefit to the customer. They are not fool-proof. Real
estate development is hard and filled with pitfalls. But it is less hard
with a professional on board than without.

A developer is hired just as you would hire an architect and is paid from
the construction loan, not by a monthly salary or lump sum. This fee is in
the range of 10%.  Thus, the group bears the costs of not completing the
project and having to repay the loan -- not the developer. The group is also
responsible for paying cost overruns. This is why banks are reluctant to
make construction loans to cohousing groups.

Lack of developer support doesn't mean your project is undoable, but
developer support _is_ a vote of confidence. Thus gaining the support of an
experienced developer who is willing to work with you and one a bank trusts,
is a good thing. It ensures you that the professionals consider your project
financially and structurally doable. In fact, a bank is a good place to go
to get recommendations of developers who bring projects in on time, on
budget.

The term "developer driven" is a bit more controversial. "Developer driven"
means the developer has financial control over the project and may have
initiated the project. This is a key distinction because it means the
developer is then responsible for the final costs of the project, not the
group. The concern is how this affects the "co" in cohousing.

In a developer-driven project, the potential unit owners have financially
only invested a 5-10% down-payment. The developer controls the budget and is
"paid" from the sale of units, not the construction loan. The developer
receives whatever is left over from the sale of the units after all costs
are paid (the "profits"). This could be nothing or even a deficit. The group
is not responsible for this deficit nor do they share in the profits if
there are any. In fact they would not necessarily know if there were any
profits or a deficit. This is the developer's business.

Repeat: The developer is dependent on the sale of the units for
reimbursement for costs and time. The group members are only responsible for
paying for their units which have to be delivered as contracted or the
owners can walk away or sue the developer.

Thus they are taking a risk in your project as well. If they commit to
building a project that will take more time and money or is riskier in terms
of construction problems, they take a loss -- meaning they make no money
that year. Not something most of us are able to do. For a developer, this
means they go out of business.

There have been great arguments on the list that this is not good because
the group is then less strong and it "isn't really cohousing." The group
members may or may not have a solid investment in the project or have
established the bonds that develop when making hard design vs cost
decisions.

My own response is that cohousing is much more complex than how the bills
are paid and at what point. The key is how the developer and the group
members interact in the process, and how the group interacts in the process
of acquiring new members before move-in. That interaction and the forming of
the group that will become a community is the key ALONG WITH the design of a
neighborhood that is conducive to sharing and not isolating.

Because cohousing is so much better understood by so many more people, I
think any of the experienced cohousing developers could build a project that
would work as a cohousing community, with the members coming together during
the completion of the project and stronger bonds forming after move-in.

It could be argued that this would avoid purposeless ideological arguments
and focus the group on their particular set of realities  from the start.

Sharon
-- 
Sharon Villines
Takoma Village Cohousing, Washington DC
http://www.takomavillage.org




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