As the owner of coffee retailer Higher Grounds Trading Company, Chris Treter has a problem: Business is booming, but his new hires can’t find affordable housing.
“Traverse City is becoming Myrtle Beach meets Hilton Head — a place that caters to a population outside the region,” Mr. Treter said. “Our workforce can’t survive here.”
Mr. Treter and others in this small Lake Michigan community of about 16,000 came up with a solution: a 47,000 square-foot building that would offer spaces for residences, businesses and community activities that in short supply as gentrification in the city drove up prices and local residents moved out.
What sets this project apart from others like it is how it is paid for. Developed by Mr. Treter shared the space with Kate Redman, a lawyer who works with nonprofit organizations, 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 the construction of the project and earn up to 7 percent annually in dividend payments. About 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 used for events and classes), a food market, a coffee training center (for new hires and developing new beverages), 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 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 “cooperative community-owned real estate.” The strategy was developed a decade ago by a nonprofit legal group and a nonprofit neighborhood group in Oakland, Calif., and refined by legal and development groups in Atlanta, Boston, Minneapolis, Philadelphia, Portland, Ore. , and other cities.
The cooperative approach allows neighborhood groups to finance unconventional construction or renovation projects that banks and institutional lenders, who prefer strong cash-flow operations, won’t touch.
“This is part of a strong movement for community control and affordable real estate, rather than enabling high-priced development at the whim of the market,” said Mohit Mookim, an attorney at Sustainable Economies Law. Center, a nonprofit group in Oakland that helped develop the strategy.
Much of the strategy stems from federal and local government efforts to make it easier for small investors to put money into real estate developments. Federal rules sometimes bar small investors — those whose net worth is less than $1 million or earn less than $200,000 a year — from participating in development projects; that changed in 2015. At the same time, some states have enacted laws that allow small investors to put their money into local developments.
“Until that changes, 90 percent of residents in a community cannot make a direct investment 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 are now located throughout the country. For this article, we identified approximately 15 co-owned projects in the United States. Here are some of them:
In Oakland, the East Bay Permanent Real Estate Cooperative is widely recognized as 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 fund a $1.3 million project to purchase and renovate Co-op 789, a four-unit apartment building in North Oakland.
Noni Session, a co-founder and director of the East Bay Permanent Real Estate Cooperative, said community-owned cooperative projects respond to the economic disruption caused by what she calls the “standard capital pathway” of conventional development. . Developers and private bankers who live and work outside the city, he said, typically ignore local residents as they pursue projects heralded as “neighborhood revitalization.”
“Almost all of that overlooks every single person in an underprivileged community like West Oakland,” Ms. session. “Our model is economic inclusion. The goal is to take back our city and take back power for how it develops.”
In Boston81 community investors have 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 bookstore on the ground floor.
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 around Boston,” said Declan Keefe, a co-founder of CoEverything, a Boston architecture and development consultancy specializing in community-owned cooperative projects. “The focus is community ownership so people are not displaced.”
In Atlanta, a worker-owned cooperative called the Guild established a Community Stewardship Trust, where local residents can buy shares and have a say in future projects involving the Guild. The Guild’s first project was the purchase of an abandoned 7,000-square-foot building on Dill Avenue that it is expanding to 21,000 square feet for 18 units of affordable housing, a grocery store, a co-working space and three commercial kitchen. The project is expected to open this year.
“Our goal is to make sure that in revitalizing neighborhoods, the people who create these neighborhoods will benefit greatly from the development that’s happening,” said Nikishka Iyengar, the Guild’s founder and director.
In Traverse City, Commongrounds is driven by some of the same principles of affordability and community stewardship. Once a temperate seasonal beachfront outpost, the city has added 1,000 new residents over the past decade and become a bustling, increasingly expensive all-season urban center.
Downtown is booming with new and expensive residential and commercial construction. A one-bedroom apartment typically rents for more than $1,900 a month, while annual median individual incomes are just over $31,000. The median price for homes climbed 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 details the purchase of the half-acre Commongrounds site along the Boardman River, which flows through the city. Eight residents, most of them well-known community activists, invested $550,000 to purchase the property and became the project’s first investors.
Ms. Redman, with the help of volunteers, organized public meetings to decide on the main mission of the project and develop a crowdfunding strategy. They worked with city officials to adjust some zoning restrictions, such as drastically reducing parking requirements.
Another key player is Jeff Hickman, a Coastal States Bank vice president who lives in Traverse City and arranged $8 million in rural business and industrial loan guarantees from the US Department of Agriculture. The balance was financed by a nonprofit lender, and state and county grants.
The finished building, with sun-filled public spaces and inviting 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 manages the building staff. “There’s an interest here to build more housing and more real estate that meets the needs of the community.”
