Cohousing-L Mailing List: Alternative Models

[William New (wnew]

> On Oct 21, 2015, at 3:13 PM, Jerry McIntire <jerry.mcintire [at] gmail.com> 
> wrote:
> 
> build alternative models

One alternative is to create a partnership (general partner + limited partners) 
which finances/builds/owns outright a property.  A perquisite of owning a share 
of the partnership is the right to occupy a (proportional) part of the property 
for residential use (or conceivably agricultural/commercial use). 

If a limited partner wants to move on, they can sell their share(s) to a 
partner (or two) in the partnership (it helps to have at least one deep pocket 
partner — typically the general partner) or to the partnership as a whole, who 
can in turn sell that share on to an incoming new partner/residential user.

One advantage of this approach is that the actual real estate is never sold, 
and thus there is never an event that precipitates a property tax reassessment 
or a mortgage rate increase.  Partners can come and partners can go, but the 
real estate cost basis remains the same.  This method is often used by parents 
(for example) buying a share to provide housing for their offspring (presumably 
there is a side deal between parent and offspring as to the nature of that 
contribution —> gift, loan — perhaps forgivable with the demise of the parent).

As demand for housing rises, the value of the real estate rises, reflected in a 
rising value for a share in the partnership. Being a private partnership (c.f. 
hedge fund), the “business” operations can be kept secret if desired from the 
public.  Membership in the partnership can be controlled by vote (black balls 
blocking new applicants) so the co-housing culture of the partnership can be 
maintained (for better and for worse).  Many (most?) co-op apartment buildings 
in New York City function in this way.

A partnership can generally secure a bank mortgage on the entire property 
because the loan can be secured by the collective credit worthiness of all the 
partners (or just some with deep pockets).  Banks love having multiple ways of 
collecting on a non-performing loan, and multiple partners create that 
possibility.

There is no guarantee that a selling partner will get their share money back in 
full in a down market, but at least there is a liquidity exit (even at a loss) 
selling within the partnership (again, a couple of deep pocket partners help). 
In a rising real estate market, there will generally be appreciation on the 
share price.

There are a number of variations on this theme, but the cooperative real estate 
market in New York City provide established models, as has been noted elsewhere 
on this mail list.

=== Bill

William New
StillCreek Commons
94062-0951