TRAVERSE CITY, Mich. — As owner of coffee retailer Higher Grounds Trading Company, Chris Treter had a problem: Business was booming, but his new employees couldn’t find affordable places to live.
“Traverse City is becoming Myrtle Beach and Hilton Head, a place that serves a population outside the region,” Treter said. “Our workforce can’t live here anymore.”
Treter and other residents of 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 space for residences, businesses and community activities that had been in short supply due to gentrification in the city. drove up prices and drove out local residents.
What sets this project apart from other similar ones is how it is paid for. Treter developed the space with Kate Redman, an attorney who works with nonprofits, and several other entrepreneurs facing similar challenges. They created a crowdfunding campaign that recruited nearly 500 residents to invest $1.3 million as a down payment to help finance construction of the project and earn up to 7 percent annually in dividend payments. Approximately 500 more residents contributed $50 each to join the project as members of the cooperative.
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-style rooms for short-term rentals, one restaurant, three commercial kitchens (for the restaurant and for use events and classes), a food market, a coffee training center (for new employees and new beverage development), a 150-person performing arts center, a co-working space, offices, and a Montessori preschool .
The owners, comprised of more than 1,000 cooperative members, also take a cooperative management approach to operations. Shareholders, commercial tenants and apartment tenants 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, California, and has been refined by legal and development groups in Atlanta, Boston, Minneapolis, Philadelphia, Portland, Oregon , and other cities.
The cooperative strategy allows neighborhood groups to finance unconventional construction or renovation projects that banks and institutional lenders, who prefer operations with strong cash flows, won’t touch.
“It’s part of a strong movement for community control and affordable real estate, rather than allowing high-priced development at the whims of the market,” said Mohit Mookim, an attorney with the Sustainable Economies Law Center, a nonprofit group in Oakland who helped develop the strategy.
Much of the focus stems from efforts by federal and local governments to make it easier for small investors to put money into real estate developments. Federal rules once prohibited small investors (those whose net worth is less than $1 million or who earn less than $200,000 a year) from participating in development projects; that changed in 2015. At the same time, some states enacted laws allowing small investors to invest their money in local developments.
“Until that change, 90 percent of a community’s residents couldn’t make direct investments in a real estate project,” said Chris Miller, board president 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.”
Currently, cooperative developments can be found throughout the country. For this article, we identified approximately 15 cooperatively owned projects in the United States. Here are some of them:
In Oakland, The East Bay Permanent Real Estate Cooperative is widely credited with being one of the first community groups to apply the community-owned cooperative concept to a neighborhood project. In 2019, the group raised $185,000 from a crowdfunding campaign that attracted more than 25 investors to help finance a $1.3 million project to purchase and renovate Co-op 789, a four-unit apartment building in North Oakland.
Noni Session, co-founder and director of the East Bay Permanent Real Estate Cooperative, said community-owned cooperative projects responded to the economic disruption caused by what she called the “standard capital path” of conventional development. Private developers and bankers who live and work outside the city, she said, typically ignore local residents as they pursue projects billed as “neighborhood revitalization.”
“Almost all of that overlooks every single person in a non-affluent community like West Oakland,” Ms. Session said. “Our model is economic inclusion. The objective is to recover our city and regain power for its development.”
In Boston81 community investors raised $142,500 to begin construction in 2022 on a vacant lot on Dorchester Avenue for a five-story building consisting of 29 affordable apartments and a ground-floor bookstore.
The developer, TLee Development, recruited individual investors for the $9.65 million project, which was completed last year.
“We’re involved in 15 projects like this in Boston,” said Declan Keefe, co-founder of CoEverything, a Boston architecture and development consultancy that specializes in community-owned cooperative projects. “The goal is community ownership so people are not displaced.”
in atlanta, a worker-owned cooperative called Guild established the Community Stewardship Trust, in which local residents could buy shares and have a say in future projects in which Guild is involved. The Guild’s first project is the purchase of a 7,000-square-foot abandoned building on Dill Avenue that is being expanded to 21,000 square feet for 18 units of affordable housing, a grocery store, a co-working space and three commercial kitchens. The project is expected to open this year.
“Our goal is to make sure that in neighborhoods that are gentrifying, the people who made these neighborhoods great benefit from the development that is happening,” said Nikishka Iyengar, founder and director of the Guild.
In Traverse City, Commongrounds was driven by some of the same principles of affordability and community oversight. The city, once a warm-season beachfront outpost, has added 1,000 new residents over the past decade and has evolved into a busy and increasingly expensive all-season urban center.
Downtown is booming with expensive new residential and commercial construction. A one-bedroom apartment typically rents for more than $1,900 a month, while annual median individual incomes have barely topped $31,000. The median home price rose to nearly $400,000 in February, more than double what it was in 2010.
Joe Sarafa, a local developer and property manager, helped guide Mr. Treter through the details of purchasing the half-acre Commongrounds site along the Boardman River, which runs through town. Eight residents, most of them prominent community activists, invested $550,000 to purchase the property and become the project’s first investors.
Ms. Redman, with the help of volunteers, organized public meetings to decide the main mission of the project and develop the crowdfunding strategy. They worked with city officials to adjust several zoning restrictions, such as drastically reducing parking requirements.
Another major player was Jeff Hickman, a Traverse City-based vice president of Coastal States Bank who secured $8 million in loan guarantees for rural businesses and industries from the U.S. Department of Agriculture. The balance was funded by a nonprofit lender and state and county grants.
The finished building, with its sunlight-filled public spaces and welcoming offices and residences, was designed by Ray Kendra, a local architect.
“What I want to do now is work on more community-owned projects,” said Ms. Redman, who leads the building’s staff. “There is interest here in developing more housing and more real estate that meets the needs of the community.”