cooperative housing models presentation

7/23/2019 Cooperative Housing Models Presentation

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Linda BrockwayNational Association of Housing Cooperatives

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▸ ,n the -nited tates/ ore than $.# illionfailies of all incoe levels live in hoesowned and operated through CooperativeAssociations.

▸ 0he period of greatest Cooperativedevelopent was after 1orld 1ar ,,/ inresponse to an acute housing shortage.



▸ A housing cooperative is a corporation that owns orleases residential property for the purpose ofpassing ownership and ta2 benefits to its ebershareholders.

▸ 0hey are uni3ue ore than any other cooperativebusiness because they are heavily influenced by thereal estate arket.

▸ 4ifferent arkets dictate different housing needs

and styles.▸ 0he Cooperative is a tool by which persons can

create hoeownership privileges.



▸ 0he -nited tates ,nternal 5evenue erviceconsiders cooperative ebership as anaspect of hoeownership.

▸

'( of #6 states consider cooperativeownership to be hoeownership.



▸ 0he 7ergency 8rice Control Act of $('+/ includedprovisions that iposed rent controls in New 9ork.

▸ :any owners converted to cooperatives to copewith declining returns on rental properties.

▸ ection +$; of the ,5 code was enacted in $('+ as

well.▸ 0he Act allows incoe ta2 deductions for ortgage

interest and property ta2es for coop hoeowners.▸ Cooperatives were put on par with other fors of

ownership.



▸ :ebers can deduct their pro rata share ofthe Cooperative<s ortgage interest andreal estate ta2es on their incoe ta2

returns.▸ ,n ost instances/ Cooperatives and theirebers face the sae ta2 benefits assingle faily hoeowners.



▸ Cooperative ebers each own a cooperativeshare.▸ 0ogether/ the ebers own $66= of the

Cooperative.▸ 0he cooperative owns all of the buildings/ land and

coon area.▸ 0he right to reside in each specific dwelling unit is

allocated to a specific cooperative eber and isgoverned by an occupancy agreeent/ also knownas a proprietary lease.

▸ 0he eber has an ownership interest in theCooperative Corporation e3ual to $= of theCooperative Corporation.

▸ 0his ownership is represented by a ebershipcertificate.



▸ 9our ownership interest in the CooperativeCorporation.

▸ 0his ownership is represented by aebership certificate.

▸ As a Cooperative :eber/ you have a right tooccupy a particular dwelling unit owned bythe Cooperative Corporation.

▸ 0his portion of the ownership is supported

through an occupancy agreeent.



▸ 8atronage funds are not ta2able as theshareholders are both owners "by financialinvestent& and consuers "by occupancyagreeent& at the sae tie.



▸ 8atronage refunds can be distributed in twoways>

▸ $. aking cash payents to each eber in

proportion of his!her contribution or/▸ +. by apply surplus revenue to the followingyear<s incoe budget/ lowering onthly fees.



▸ :eber shareholders ultiately control theCooperative

▸ 0heir authority is e2ercised through a Boardof 4irectors who they have the power to

elect and reove fro office.▸ 0hrough this power/ ebers represent the

highest level of accountability.▸ 0hey delegate the power to govern the

Cooperative to the Board of 4irectors.



▸ 0he Board of 4irectors is an elected bodyresponsible for overseeing the affairs of theCooperative on behalf of the cooperative<s owners"its ebers&.

▸ Accountable to the ebership▸ 0he Board defines objectives/ policies/ and goalswithin the constraint of the Cooperative 8rinciples.▸ 0he Board has the responsibility to ensure that the

created standards and principles are being followedand that the Cooperative<s affairs are being

anaged.



▸ 5ochdale 8ioneers/ a group of weavers/originated the first food cooperative store at*$ 0oad Lane in $?'' in 5ochdale/ 7ngland.

▸ 0his is considered the birthplace of oderncooperatives.

▸ 0heir original rules "principles& still guidecooperative business today.



▸ ,n $?;*/ the Cooperative 1holesale ocietywas established/ in which the original5ochdale pioneers played an iportant role.

By $??6/ national ebership reached over ahalf illion people in what was calledconsuer societies.



▸,nternat onal Cooperat ve All ance>

0he ,CA "referred to as the ,CA& was founded inLondon in $?(# and consists of ebers ofnational and international co)operative

organiations in all sections of activity includingagriculture/ banking/ energy/ industry/ insurance/fisheries/ housing/ touris/ and consuer co)operatives.

0he authority for interpretations of the 5ochdale8rinciples to eet the needs of today<s econoics.



▸0he tateent on the Cooperat ve ,dent ty.

▸ ,CA<s ost recent revision of the definition ofa cooperative is>

▸

@An autonoous association of personsunited voluntarily to eet their cooneconoic/ social/ and cultural needs andaspirations through a jointly)owned and

deocratically)controlled enterprise.



▸ 0he ,CA worked together and developed the5ochdale 8rinciples/ which used soe of thesae rules that the original 5ochdale8ioneers developed.

▸ 0he 5ochdale principles still guideCooperatives today.



◦ $. pen and Doluntary :ebership◦ +. 4eocratic Control

◦ *. 7conoic 8articipation

◦ '. ,dentity and ,ndependence

◦ #. 74-CA0,N!74-CA0,N◦ ;. Cooperative aong Cooperatives

◦ %. Concern Aong Counity



▸ As pointed out earlier/ Housing Cooperativesbegan in Britain around $?#6 as a eans ofproviding affordable ownership as analternative to life)long rental of a teneent.

▸ Eirst recorded Cooperative in New 9ork was in$?%; with construction of the 5AN4L8H on1est 7ighteenth treet.



▸ Housing cooperatives enjoyed highoccupancy and low turnover during thepost)war period.

▸ -pper lu2ury cooperatives doinated the

arket until the id $(+6)*6<s.▸ Legislation in several states forallyrecognied the cooperative odel for hoeownership and boosted oderate)incoehouseholds in the twentieth century.



▸ 0he $(+( stock arket crash alost broughtcooperatives to a standstill. Lu2ury coopswere especially hit hard as they had orerisky ortgages. 0hese failures pointed out aflaw in the odel whereas ebers whohave paid stand to lose their interests whenothers cannot pay their fair share.



▸ 0he Lanha Act "$('(& gave priority fordisposition of publicly held housing forconversion to affordable housing. :anycooperatives were fored and sponsored bytheir tenants under this act.

▸ 0he National Housing Act of $(#6 authoriedfor the first tie the EHA to insure blanket

ortgages on coops and rental counities.



▸ 0he National Housing Act of $(#( stiulatedlow and oderate coops during the ;6<s and%6<s. ection ++$ "d&"*& was added in $(;$to the act to provide below arket interestrates for cooperatives.

▸ ,n $(;# the act lowered the interest rate ofB:,5 coops as low as *=!'6 year!$66= loanto value ortgages.

▸ :ost of these coops are approaching the end

of that ortgage and their obligations underH-4 will cease to e2ist.



▸ 0he recession of $(%' dealt a high default rateof a lot of coops that were only # years old.

▸ H-4 worked with any coops to see thethrough this period.

▸ 0his was ade possible by the introduction ofdeep ection ? subsidies.

▸ Although this helped any cooperativesthrough financial difficulties/ it also brought

new governent regulations that conflictedwith the principles of hoeownershipdevaluating the coop concept.



▸ After the Cooperative Boo/ the arket has

not lent itself to financing of new cooperatives.▸ 0he National Affordable Act of $((6 producedthree progras that provide for the liitedcreation of housing cooperatives>

▸ A. 0he H:7 progra▸ B. 0he 8reservation!8repayent progra▸ C. 0he H87 progra.▸ 0hese funds were supplied to the states to

largely upgrade local public housing prograsby e2panding tenants< rights.

▸ ,t has had little ipact on cooperative housing/and the progras have been used ostly forrentals.



▸ ne of the ain sponsors for CooperativeHousing has been 0he -rban HoesteadAssistance Board "-HAB& in the City of New9ork City which helps resident groups toconvert fro rental to coops.

▸ A district law in 1ashington 4C provides thatrental residents have the first right of refusal

if the owner chooses to convert the propertyto another use such as condoinius.



▸ Cooperatives have fored into organiations tohelp the achieve their own strategic goals.

▸ Darious Associations have fored to supportCooperatives>◦ NCBA ) National Cooperative of Business Associations◦ ECH ) Eoundation of Cooperative Housing◦ NAHC ) National Association of Housing Cooperatives◦ NAC F National Association of tudent Cooperatives

rganiations◦ And they keep growing



▸ Eee iple Cooperatives▸ Leasing Cooperatives▸ :utual Housing Association▸ Liited 73uity Cooperatives

▸ ++$ "d& *▸ ++$ "d& '▸ +*;▸ ++* "f&▸

:arket 5ate Cooperatives▸ Cooperative ponsors▸ Group 73uity Cooperatives



▸ Eee iple> wns the land and buildings in feesiple. ,t has the highest and best for ofownership and therefore can pass to its ebers allthe rights of possession/ e3uity ownership/ use/enjoyent/ e2clusion and disposition that are

described as the bundle of rights.▸ 0he bundle of rights is copared to that of a

hoeowner.▸ 0he use of land is restricted only by the law of

nuisance/ easeents/ covenants/ and police powersas well as the powers of the tate such as buildingcodes/ oning/ ta2ation/ and powers of einentdoain.



Leasing Cooperative> iilar to a fee siplee2cept that the corporation leases the land orthe buildings instead of owning the. 0helease grants the right to use the land and

buildings under a aster lease.0here is no e3uity ownership in a leasing

cooper0he iportant thing is the ters of the lease.

,t is suggested that you use a ninety yearautoatic renewal lease copared to a tenyear non)renewal lease.



▸ :utual Housing Associations> 0he utualhousing corporation is set up siilar as agroup e3uity cooperative.

▸ 0he eber rents the hoe/ but does nothave a right to e3uity ownership.



▸ Liited 73uity Cooperative>▸ 0he deed or By)laws place artificial

restrictions on e3uity growth potential orhousehold eligibility in e2change for publicsubsidies or other benefits.

▸ Liited 73uity Cooperatives have been theindustry<s solution for providing cooperative

ownership in the affordable housing arket.



▸ 0here are two basic ethods for liitede3uity.

▸ $. 4irect ethodplace a liit on thea2iu resale price of ebershipe2pressed as a dollar value or as a change inthe cost of living or other inde2.

▸ +. 5estriction on incoes for potential

purchasersby directing sales to personswhose incoe falls below a specified inde2.



▸ Liited e3uity Cooperatives types>▸ B:,5,nsured ortgage under ection

++$"d&"*& with a below arket interest rate.▸ 0he Eederal governent agreed to pay the

difference between the on)going arketinterest rate and the *= that was charged tothe property. 5esidents whose incoe wasore than $6= higher than the ?6= of area

edian incoe paid a surcharge e3ual to $6=of the basic rage.



▸ A ++$ "d& ' loan was also a below arketinterest rate loan provided by the EHA.

▸ 0he loan was basically used by cooperativesthat were in a ore rural location.



▸ +*; Cooperative:ortgage is insured underthe section +*; :ortgage ubsidy 8rogra ofthe national housing act. ,t provided aninterest rate subsidy on the blanket ortgageto reduce ortgage interest payents. 0his

rate was set at $=.▸ A basic rate that is deeed sufficient to eet

operating e2penses plus ortgage debt serviceat the $= rate of interest is deterined by eachunit. 7ach eber is re3uired to pay at least

the basic charge or up to *6= of incoe/whichever is higher up to the defined arketrate.



▸+*; Cooperative Continued>▸:arket 5ate. 0he arket rate isdefined as the rate that would be

re3uired to service the ortgage debtwhen no subsidies are applied



▸ 0he EHA loan ++* f is the EHA loan that iscurrently being used to develop newercooperatives.



▸ +6+ CooperativeConstructed for use by theelderly and financed directly by H-4 undersection +6+ of the housing act.

▸ ection ? CooperativeA cooperative which

was/ in ost cases piggy)backed onto ane2isting B:,5 or +*; cooperative. A eber isre3uired to pay *6= per onth for housinge2penses with the balance paid by H-4.



▸ :arket 5ate Cooperative.has no artificialrestrictions on e3uity growth or eligibility.0heir bylaws contain no artificial resalerestrictions nor any incoe eligibility

restrictions potential ebers.▸ :arket 5ate> ften created by profit

otivated developers.▸ +$* CooperativeA arket rate cooperative

that is insured under section +$* of thenational housing act. 0hey are notsubsidied by the federal governent.



▸ 0enant ponsored> 0he residents of rentalproperty join together to purchase the propertyfor their own ownership as a cooperative.

▸ Non)profit ponsored> 0he creation of

affordable cooperative housing/ for low tooderate incoe households. ften a slowand painstaking process with cople2financing plan.

▸ 0his progra is responsible for ost of theaffordable housing cooperatives developed atthe turn of the illenniu.



▸ Group 73uity Cooperatives ) 4iscussion



▸ Cooperatives differ fro other fors ofcorporations in that>◦ A. 0hey liit the voting rights by having strict voting

rules written into their bylaws.

◦

B. 0hey liit the aount of shares any one ebercan purchase and usually tied to the dwelling unit.

◦ C. :ost are organied under the non)profit statutesthat allows special ta2 treatent that derives fro theconcept of patronage refunds which are not ta2able at

either the corporate or shareholder level.▸ .



▸ Corporate foration gives>▸ A. Assebly of capital> ,n a cooperative/ this

coes fro the debt covered by a ortgageand e3uity in the for of cash payentsreceived fro its ebers.

▸ B. Continuity of life> Corporations haveperpetual duration. A housing cooperative

ay hold title to the sae land and buildingsfor several generations.



▸ C. 8rotection fro Liability> 0he corporateveil is a legal concept that acts like a shield toprotect individual shareholders fro personalliability for the actions of the cooperative and

protects the fro individual liability to paythe cooperative<s debt.

▸ 4. Eavorable ta2 treatent> 0his treatentis in turn offered to eber shareholders inthe for of lower onthly carrying charges.



▸

0he Cooperative is re3uired to have 17LL47E,N74 L,N7 E A-0H5,09 that describeshow the cooperative is organied.

▸ $. 0he eber)shareholder ultiately controlthe Cooperative.

▸ 0heir authority is e2ercised through a board ofdirectors who they have the power to electand reove fro office.

▸ +. 0he Board of 4irectors priary duty isgovernance and oversight.

▸ 0he Board usually delegates asset anageentresponsibilities to a anageent tea.



▸

*. 0he Board of 4irectors engages professionaladvisors/ such as the attorney/ the accountant/architect/ and ore.

▸ '. 0he Board of 4irectors gives authority to theanageent tea to anage the assets

according to standards and policies adopted bythe Board of 4irectors.

▸ #. 0he anageent tea delegates uch ofthe functions to persons who actually perforthe day)to)day tasks of anageent.

▸ ;. 7ployees/ vendors and Contractors reportdirectly to the anageent tea or the Boardof 4irectors.



▸ Articles of ,ncorporation▸ Bylaws▸ 5egulatory Agreeent▸

:ortgage Agreeent▸ :ebership Certificate▸ :anageent Agreeent▸ ccupancy Agreeent

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