By Keith Schneider| The New York Times
Across the country, neighborhood groups are uniting to fund mixed-use developments that meet housing and business demands, giving locals a place to live, work and learn new skills.
As the owner of the coffee retailer Higher Grounds Trading Company, Chris Treter had a problem: Business was booming, but his new hires couldn’t find affordable places to live.
“Traverse City is becoming Myrtle Beach meets Hilton Head — a place catering to a population outside the region,” Mr. Treter said. “Our work force can’t live here anymore.”
Mr. Treter and others in this small Lake Michigan community with a population of nearly 16,000 came up with a solution: a 47,000 square-foot building that offered spaces for residences, businesses and community activities that had been in short supply as gentrification in the city pushed prices up and local residents out.
What sets this project apart from others like it is how it’s paid for. Mr. Treter developed the space with Kate Redman, a lawyer who works with nonprofit organizations, and several other entrepreneurs who were dealing with similar challenges. They created a crowdfunding campaign that recruited nearly 500 residents to invest $1.3 million as a down payment to help finance the project’s construction and earn up to 7 percent annually in dividend payments. Roughly 500 more residents contributed $50 each to join the project as co-op members.
The $20 million development, called Commongrounds, opened late last year. It is at full occupancy and consists of 18 income-based apartments (rent below market rate based on median income), five hotel-like rooms for short-term rentals, a restaurant, three commercial kitchens (for the restaurant and to be used for events and classes), a food market, a coffee training center (for new hires and developing new drinks), a 150-seat performing arts center, a co-working space, offices and a Montessori preschool.
The owners, made up of over 1,000 co-op members, also embrace a cooperative management approach to operations. Shareholders, business tenants and apartment renters elect the project’s nine-member board of directors.
Commongrounds is the latest and largest example of what developers of similar projects across the United States call “community-owned cooperative real estate.” The strategy was developed a decade ago by a nonprofit legal group and a nonprofit neighborhood group in Oakland, Calif., and has been refined by legal and development groups in Atlanta, Boston, Minneapolis, Philadelphia, Portland, Ore., and other cities.
The cooperative strategy enables neighborhood groups to finance unconventional construction or renovation projects that banks and institutional lenders, which prefer strong cash-flow operations, won’t touch.
“It’s part of a robust movement for community control and affordable real estate, rather than enabling high-priced development at the whims of the market,” said Mohit Mookim, a lawyer at the Sustainable Economies Law Center, a nonprofit group in Oakland that helped develop the strategy.
Much of the approach stems from efforts by the federal and local governments to make it easier for small investors to put money into real estate developments. Federal rules once barred small investors — those whose net worth is less than $1 million or who make less than $200,000 a year in income — from participating in development projects; that changed in 2015. At the same time, a few states enacted laws allowing small investors to put their money into local developments.
“Until that change, 90 percent of the residents in a community couldn’t make direct investments in a real estate project,” said Chris Miller, the board chairman of the National Coalition for Community Capital, a nonprofit group. “Michigan allows non-accredited investors to invest up to $10,000 in a project now. That was unheard-of before.”
Cooperative developments can now be found throughout the country.
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Related: Community Investment Fund Handbook & Toolkit – National Coalition for Community Capital