Northcountry Cooperative Development Fund

1
Northcountry Cooperative Development Fund

• Frogtown Family Lofts
• A Case Study for Applying the
• Limited-Equity Cooperative Model
• Long-Term Affordability Conference
• Minneapolis Consortium of Community Developers
• Four Points Sheraton, St. Paul
• April 26, 2005
• Kevin Walker
• Cooperative Housing Program Manager

2
Frogtown Family LoftsOverview

• Low Income Housing Tax Credit 36-unit project
  (1992)
• Leasehold cooperative all residents are members
  of Frogtown Family Lofts Cooperative
• Now owned by Brandt Jens Kluge partnership
  (Artspace, Twin Cities Housing Development
  Corporation, and NEF)
• Leasehold cooperative wants to buy property and
  become a limited-equity cooperative
• Compliance period expires on January 1, 2007
• Apartment units range in size from 1200 to 2000
  sq. ft.

3
Frogtown Family LoftsStakeholders

• Frogtown Family Lofts Cooperative
• Seeks affordable homeownership for current and
  future generations of artists/residents
• Partnership
• Artspace (Co-general partner)
• Twin Cities Housing Development Corporation
  (Co-general partner)
• National Equity Fund, Inc. (Limited partner)
• Lenders
• First Mortgage U.S. Bank (Conventional)
• Second Mortgage Family Housing Fund
  (Below-market)
• Third Mortgage City of St. Paul HRA
  (Below-market)
• Minneapolis-St. Paul Housing Finance Board
• Responsible for enforcing extended-use agreement
  (thru 2021)

4
Frogtown Family LoftsStrategy

• Partnership Cover exit taxes and opportunity
  cost
• Lenders
• First Mortgage U.S. Bank Prepay / assume
• Second Mortgage Family Housing Fund
  Restructure
• Third Mortgage City of St. Paul HRA
  Restructure
• Minneapolis-St. Paul Housing Finance Board
• Add provisions to extended-use agreement for
  resident purchase
• Frogtown Family Lofts Cooperative
• Make cash requirements for share purchase
  affordable to existing residents
• Introduce new amortizing financing with debt
  service that residents can support
• Identify potential sources for management and
  operating cost savings

5
Frogtown Family LoftsWhat will limited-equity
cooperative ownership deliver?

• Delivers
• Ownership to tenants promised a right to purchase
  their building
• Sustains existing strong artists community and
  history of governance
• Perpetually affordable homeownership
• Self-governance and autonomy
• Zero displacement of current residents
• Defined by sources of funding? No.
• Based on residents wishes to stay organized as
  cooperative
• Change occurs in relationship between property
  and cooperative

6
Frogtown Family LoftsChallenges

• Address expectations and needs of all
  stakeholders
• Resolve cancellation-of-debt income tax issues
  triggered by soft debt restructuring
• Anticipated challenges with some of the
  traditional HUD mortgage insurance program rules
  and requirements under Section 213(i)
• Enable Section 8 voucher recipients to become
  co-op members when Cooperative buys property

7
Frogtown Family LoftsAffordability,
marketability, price

• Affordability philosophy
• Should be affordable to all current residents
• Decision to join the cooperative should not be
  only for the haves
• Entrance price should reflect meaningful
  investment by residents to make transition to
  ownership meaningful
• Marketability
• Marketability should be strong both initially and
  over time
• Units will be very cost-competitive as an
  ownership option
• Building is historically significant and unique
• Very well-defined market niche for artists
  living
• Share price
• To be limited by limited-equity formula

8
Frogtown Family LoftsWhat difficulties do
resale restrictions create?

• Limited pool of lenders. Not every co-op lender
  lends to limited-equity cooperatives.
• Less favorable terms. Limited-equity cooperatives
  lack access to a Fannie Mae secondary market.
  Terms available are therefore less favorable.
• Mitigating Factors
• Nominal amounts involved. Amounts that buyers
  will borrow will be nominal (about 2,000 now,
  30,000 in fifteen years, 100,000 in fifty
  years), so share financing is still affordable on
  monthly basis for foreseeable future.
• Both 1 and 2 may change. Secondary markets for
  limited-equity cooperative lenders may be
  developed in several or more years, given
  cooperative momentum in Minnesota and elsewhere.

9
Frogtown Family LoftsMonthly housing charges
and rent
10
Frogtown Family LoftsLimited-equity growth
relative to market-rate value