HOUSING COOPERATIVES

1. HOUSING COOPERATIVES

2. Section Overview • Quick Overview • Coop History • Basic Concepts • Rochdale Principles • Types of Coop Structures • Coop Financing • Coops vs. Condos • Creating Successful Limited Equity Coops • Case Studies • Coop Conversions • Size Matters • Nonprofit Coop Development • Issues, Opportunities and Trends

3. Overview of Cooperative Housing in the U.S. Thanks to Doug Klein and the National Association of Housing Cooperatives

4. Historically – 2 Paths • Limited equity • Controlled resale price • Social investment • Below-market mortgage • Leased land • Public grants • Market rate • No resale price control • Private investment

5. Typical Ownership Arrangement • Members own a share of stock in a cooperative corporation • Corporation owns building and land • Single mortgage covers entire property • Residents make monthly payments covering: • Mortgage principle/interest • Taxes/insurance/maintenance/utilities • Professional management • Replacement reserves

6. 425,000 Units of Limited Equity Coop Housing in U.S. • HUD (insured/assisted) = 148,000 • Lanham Act = 35,000 • Former public housing = 20,000 • Farmers Home = 5,000 • Mitchell-Lama = 60,000 • State housing finance agencies = 45,000 • United Housing Foundation (NY) = 40,000 • Tenant self-converted = 50,000 • CDBG/LIHTC = 7,000 • Mutual housing = 15,000

7. 77,000 Units of Market-Rate Coop Housing in U.S. • HUD (insured) = 109,000 • Conventional (new construction) = 100,000 • Conventional (rental conversion) = 560,000 • Membership sponsored = 6,000

8. History of Cooperative Housing in America

9. New York City • First housing cooperatives organized in late 1800s • Some dispute over which was exactly the first one – one was the Rembrandt at 152 W. 57th Street

10. Growth Tied to Housing Shortages Housing coops became popular in response to market shortages

11. First Growth Spurt – Post WWI • Market-rate coop housing in New York City, San Francisco and Chicago • 10,000 units of limited equity coop housing sponsored by labor unions built in NYC in the 1920s Amalgamated Clothing Workers Union

12. 1930s: The Great Depression • Wiped out most of the market-rate housing coops • Most of the union-sponsored housing coops survived

13. Sponsorship – Limited Equity Coops • They were first sponsored by labor unions and ethnic immigrant societies • Today, they are usually sponsored by nonprofits or tenants groups

14. Sponsorship – Market-Rate Coops • Market-rate coops are sponsored by for-profit real estate developers. • In NYC, where most of them are, they are conversations of existing rental properties

15. After WWII – Rise of the High Rise Severe housing shortage – combined with urban sprawl – created need for more efficient use of land through high-rise multifamily buildings Coop City (NYC) – 1966-1973

16. Basic Concepts

17. Shares • Coop owns (or leases) property, and members (tenant-shareholders) jointly own the corporation • Member buys stock or shares (or membership certificates) • The shares and proprietary lease (or occupancy agreement) guarantee the loan.

18. Financing • Coop corporation holds the mortgage (blanket mortgage) • Except in strictly limited equity coops, members often must obtain a loan to purchase the shares (share loan).

19. Occupancy Agreement • Members are both tenants and owners. • Member signs a self-renewing lease, called a proprietary lease or occupancy agreement. • This gives him/her a legal exclusive right to occupy a unit as long as the member fulfills his/her obligations to the coop.

20. Monthly Housing Payment • Member pays a monthly fee, called a carrying charge or maintenance charge, to the coop based upon the number of shares or size of the unit. • The member’s total carrying costs include the monthly fee and the individual share loan repayment.

21. Resale or Subletting Most coops restrict the rights of members to sell or lease their apartments, protecting the right of the coop to approve any new member/resident.

22. Property Taxation • The coop is responsible, as owner of the property, for all legal and financial obligations. • The coop’s property taxes are assessed against the coop as a whole.

23. The Rochdale Principles

24. The Rochdale Principles First set out in 1844 - the principles on which co-ops around the world operate to this day

25. Definition of a Cooperative A cooperative is an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly-owned and democratically controlled enterprise.

26. Values • Coops are based on values of self-help, self-responsibility, democracy, equality, equity, and solidarity • Its members believe in the ethics of honesty, openness, social responsibility, and caring for others.

27. Principles – Putting Values into Practice • Voluntary and open membership • Democratic member control • Member economic participation • Autonomy and independence • Education, training and information • Cooperation among cooperatives • Concern for community

28. Types of Co-op Structures SHAREHOLDER CORPORATIONS LEASEHOLD COOPERATIVES

29. Shareholder Coops • Cooperative owns all land and buildings • Incorporated just like any other business • Corporation controlled by shareholders • Share formula may vary • 1 unit = 1 share • square footage

30. Market-Rate Shareholder Coops • Shares sold for whatever market will bear • No limit on appreciation • Very common in NYC – where most are conversions of existing rental buildings • Usually sponsored by for-profit developers • Directed at middle and upper income buyers • Share-based voting formula (usually unit square footage as percentage of overall coop living area)

31. The Dakota - NYC • Completed in 1884 • Who got approved • John Lennon • Boris Karloff • Judy Garland • Who didn’t • Billy Joel • Carly Simon • Gene Simmons

32. Leasehold Coops • Property is leased by housing coop on a long-term basis from owner, sometimes with option to buy. • Residents manage the building as a cooperative

33. Leasehold Coops • Least likely to feel like ownership to residents • Residents still control management of building • Share prices can be whatever is required to create the coop • If a Section 42 project, coop can buy the building back from the investors at the end of the tax credit period

34. Section 42: Low Income Housing Tax Credit • Can be good fit for a leasehold coop • Coop may be a partner from the very beginning – or come into play later in the process • Option 1: Coop is a co-general partner in the syndicate • Option 2: Resident may have option to assume ownership of building when tax credits expire and limited partnership is dissolved

35. Shareholder Cooperatives vs. Condos

36. Ownership - Coops • Individual owns share of coop stock and holds long-term lease on unit • Corporation owns building and common elements • Both Stockholder and Lessee

37. Ownership - Condos • Individual owns fee title interest in unit and an undivided interest in common elements • Ownership of real property • Deeds can hold enormous symbolic value

38. Right to Exclude • Coops require owners to finance collectively – and offer simple way to exclude undesirable families • Condos permit individual financing – but fewer powers of exclusion • In the early 1960s, many came to feel that coop board’s ability to approve or reject sales was inconvenient and distasteful. • WHAT ABOUT FAIR HOUSING?

40. Coop Financing

41. Blanket Mortgages • Real estate loans made to coop corporation, secured with mortgage lien on corporation’s property • Good model for coops serving a low income population • Lenders more willing to make one large blanket loan as compared to a number of small loans to low-income individuals

42. Share Loans • Loans made to individuals to finance the purchase of coop shares • Not collateralized by real estate • Conventional lenders generally unwilling to make these loans to low-income buyers • But there are still options • Nonprofit loan funds • Coop sponsors • IDA programs

43. National Cooperative Bank (NCB) • Competitive mortgage loans to housing cooperatives nationwide • Provided capital for more than 40% of all housing coops in U.S. • Loan proceeds can be used to refinance existing debt, fund capital improvements, and replenish reserves. • Active in all areas of cooperative housing market – with more than $3 billion in loans originated in past three years.

44. NCB Financing Options • 10-year, 15-year and 20-year fixed rate building mortgages • Secured and unsecured lines of credit • Second mortgages for co-op buildings • Share loans for co-op unit owners

45. HUD Coop Financing/Subsidy • Section 213: FHA mortgage insurance for coops • to facilitate construction, substantial rehabilitation, and purchase • Section 221d3: mortgage insurance for rental and coop housing (ties to Section 42 tax credits) • Section 202: financing for housing for the elderly and people with disabilities • Section 8 assistance

46. Limited Equity Cooperatives

47. Limited Equity Coops • Purposes • Prevent gentrification • Encourage long-term residency • Preserve affordability • Targeted to low and moderate income families

48. Limited Equity Coops • Vary considerably in terms of • Initial share price • Allowable increase in price at resale • Shares sold based on formula price to maintain affordability

49. Limited Equity Coops • Sponsored at first by labor unions and immigrant societies • Now usually sponsored by nonprofit organizations or tenants

50. Non-Equity/Zero-Equity Coops • Not-for-profit coops • Shareholder corporations where shareholder investment is a modest and refundable membership fee • Examples include student housing coops, and Section 202 senior housing coops.