The meeting just ended. Participants were Federico Bisschop for Cohousing Projects (CP) and @Lee and myself for The Reef.
Possible forms of pre-financing from CP
After the niceties, Federico’s first questions were:
- Have people been asked to pay money?
- Have you done financial checks?
- Are you looking for a site?
This is because, in their experience, cohousings are a game of chicken, where most people drop out. In their first project, they presented a site to 200 people; of these 60 paid some money to start the process; of these, only 2 ended up buying a unit. For them, a cohousing starts with a suitable site, which then looks for a group.
Of the three forms of financing listed above, rent-to-buy is closed to us: it is only available to people in their own in-house projects. Of the remaining two, the one with which they are most familiar is interim financing. it works like this: CP are asked by an incomplete group to buy a site, and then sell it back to the group once it is completed, and the permission to build is awarded. This is preferrable for many groups, because banks do not like to give mortgages on purchasing sites, so the group needs to pay it in full. But it is expensive: CP re-sells the site with a 30-40% markup (“A normal developer would take more like 100%”). This covers acquisition costs, profit margin (target: 4% a year to the shareholders) and risk (main risk: the group breaks down, and the site needs to be resold). If the price of the site is right, and the project is good, CP “will always find financing for it”.
Rental properties might also be possible, but here Federico was more vague. This is because these forms of financing evolved as services that CP supplies to its own groups. There is almost no precedent for them financing a third-party group. Nevertheless they are, in principle, open to it. This is because they are in fact two companies: a cooperative, whose sole purpose is to build cohousing projects, and a RE developer. The former is looking for more projects.
Conditions for CP to get involved
Getting involved with a third-pary group like The Reef poses the question of CP’s participation in decision making. Again, there is not much experience to go by: “we would have to talk about that, if we finance we would have to have some involvement, some kind of checks”.
For CP to make a financing decision, the key element is a feasibility study. This needs to include:
- volume projections (how many units, how large etc.)
- construction costs (here architects “cannot be trusted”, because they systematically underestimate costs)
- benchmarking of the resale value of the finished units in the area (building assessors can do it, or you could also do it yourselves with good research on the immo-websites in the neighborhood)
A piece of advice from Federico
They recommend to all groups to not become too big. Stop recruiting, then look for a site, then once you have the site you “sell off” the extra units to newcomers. Consensus on the site does not work (here Lie replies that we have a majority vote rule on the site). Federico think that, if we find a suitable site, we should buy it even if only 10% of the group wants in.
@reef-finance, any thoughts?