Grassroots financing

When Bob Bruegel left Colorado in 1969 to serve in the Peace Corps in Malaysia, he knew he wanted to help change the world, but he never dreamed that might eventually involve managing an investment fund. Similarly, when Kathryn McCamant was community organizing in the Mission District of San Francisco, she didn’t imagine that it would someday lead her into real estate development.

On January 31, a reception at Swan’s Market Cohousing (Oakland CA) celebrated the success of Support Financial Services, a 10-year-old investment fund for cohousing projects, and CoHousing Partners, LLC, a new development firm expanding cohousing in California. Both entities demonstrate the evolution of cohousing.

Reinventing financing

Cohousing has matured in many respects since it immigrated to the U.S., but none so much as the development structures or the financial savvy of cohousers themselves. Since future residents expect to be involved in the design of the future neighborhood, the instruments for conventionally financed development don’t always work in the same way. Consequently, in the process of learning about real estate development and financing, cohousers are reinventing them.

According to McCamant, when she and her husband and architect partner Charles Durrett first published Cohousing: A Contemporary Approach to Housing Ourselves, they saw themselves exclusively as architects. However, she soon realized that few developers were willing to embrace the new concept, and so if they were ever going to design projects, she would need to learn development.

Fortunately for McCamant, at that same time veteran homebuilder Jim Leach in Boulder was being recruited by the Nyland forming group to develop Colorado’s first cohousing community. Leach pioneered a method of taking early-stage investment from group members and creating a profit share arrangement, a system that he replicated through future Wonderland Hill projects, and that McCamant brought to California. Leach and McCamant recently joined together to create CoHousing Partners, where they have integrated this pioneering method into new project offerings.

By the time Bruegel, a Nyland community founder, had moved into that first Colorado project, he saw that idealism alone wasn’t going to get cohousing built. A founder of several entrepreneurial ventures in the medical technology field, Bruegel knew how to assemble investors, and he soon found himself being recruited by cohousing pioneer Zev Paiss to do the same for cohousing. Thus Support Financial Services was born.

Financing cohousing projects

An investment fund largely composed of cohousers, Support Financial provides second-stage financing for cohousing projects. It comes in after the core groups’ money and before the construction loan financing from banks. To date, nearly all of the projects they have financed have been in Colorado and California.

Bruegel, who emphasizes that the returns are modest and that the fund is intended for people who hold a shared value around cohousing, laughs about the early days when many cohousers considered that social responsibility and investing were mutually exclusive. “I remember attending the national cohousing conference in Berkeley a few years ago, when outside investors were considered suspect, even though they were just other cohousers! In our first few years, the notion of using private capital to create social change was still a new concept.”

According to Leach, Support Financial plays a valuable role as an intermediary, bundling investments in the $25,000 to $50,000 range. Leach and McCamant independently accept a few larger investors, “but they require more time and attention, because they are participating directly in our projects,” said Leach. “Bob serves as the advocate on behalf of the small investors, making it manageable for us to accept their money. Bob gets full access to our books and he in turn fields their questions.”

Although Bruegel emphasizes the risk inherent in any real estate venture, he structures his financing conservatively. Developing groups are expected to produce 5 to 10 percent of the initial cash, and before Support Financial will invest, it typically requires committed buyers for at least 70 percent of the homes in a cohousing project.

The specifics of the investment

Unlike larger, direct investors, who typically invest in a single project, Support Financial spreads its funds over several projects at a time, typically placing only $200,000 to $250,000 in any single project. Bruegel requires local planning approval in advance of any investment, and he restricts investment exclusively to experienced cohousing developers. “Until you have been through this cycle a few times, it is just too easy to miss something and have a budget blow up on you,” said Bruegel.

Annual returns to investors “have historically been in the 6 to 9 percent range, with interest paid quarterly along with a modest bonus at the end of a project,” according to Bruegel. “If a person is concerned with receiving the highest possible return, they shouldn’t invest in us. We see our mission as allowing people to do good, while still receiving a respectable return. That mission is consistent with many of the people who believe in cohousing.”

Investors clearly see cohousing as a means to advance something they believe in. As one participant at the Swan’s Market event shared, “I’ve invested in these projects for nearly 10 years. It is a great feeling to visit a community that my money helped make happen.”

With the growth and acceptance of a cohousing investment fund, however, lies the question, “What next?” Chris ScottHanson, principal at Cohousing Resources, with projects in the Northwest and in Boston, also attended the Swan’s Market event. He suggested that in the future, another fund might be created to acquire new sites. As early stage money, it could offer higher risk and higher reward.

In the meantime, however, Bruegel reports that more projects are in the pipeline and that he plans to continue to carefully expand Support Financial under its existing model for these new projects. “If I have a choice between having lunch at Il Fornaio in Silicon Valley with venture capitalists, or meeting at a common house with cohousing investors, I’ll always choose cohousers.”