In June of 2006, members of the Davis Area Cooperative Housing Association (DACHA) came forward with a series of complaints about the operations of the Cooperative.
DACHA is a 20-unit scattered site, limited equity cooperative. It was meant to provide ongoing affordability and be an alternative to affordable for-sale units. It was a non-profit and consultant development and transitioned from initially having a board to a member-led and run board.
In the staff report, Jerilyn Cochran cited a large number of challenges and observations with DACHA from a very early time. These included a number of varying agreements, meaning that different members had different agreements. The financing structure was varied, done in an expeditious manner trying to get people aboard in an inexperienced co-op, but this ended up creating financial instabilities.
There was an unaffordable share price of $18,000 to begin with. This was unaffordable for many low and moderate families to come up with. In addition, the original board was not representative of the members.
The developer fees involved here, as Ms. Cochran described, are not unusual except that in an affordable housing project, this adds to costs and compounds the problem of unaffordability. The developers in this case are Neighborhood Partners--David Thompson and Luke Watkins.
Furthermore, there were inadequate reserves and poor record keeping from the beginning. They had problems with sustaining another housing organization--it currently costs $52,000 to sustain the co-op, that is a huge cost that others do not have. And finally, from the city's standpoint, there has been a tremendous amount of staff time required in monitoring and technical assistance with this model.
The 2006 audit found that this was not sustainable in the long-term. Around this time, the members got an invoice from Neighborhood Partners from which they had no money to pay and they questioned the validity of the invoice. The contract was terminated by the members. There have been conflicting accounts of who offered and who declined mediation.
Neighborhood Partners in December of 2006 filed a lawsuit against the members of DACHA.
The city was asked to review the financing, sustainability and affordability of the project. The city found major sustainability issues. They do not have the money to pay the loan obligations. They do not have the money to adapt to the balloon and adjustable rate financing once that comes due. The financing is not helping to contribute to the sustainability of the project.
They also found marketability issues. There are issues with the unit size, the share price, the uncertainty of the co-op and the carrying charges. The impact of the lawsuit is contributing to the problem.
There are also issues of good faith with the members. The members have lost faith in the co-op. There are a number of reasons for this. There have been inconsistent rules applied to the different members. There are unstable carrying charges--there was no understanding that there would be perpetual carrying charges or that the debt would be perpetual, they could never pay down the debt.
Further they were misled about the model itself. This was the source of complaint in mid-2006. Some of the members were qualified with inadequate income. They did not make enough money to move into DACHA. The members have had to spend a lot of time moving into this project especially compared with other types of ownership.
The city then last Tuesday proposed refinancing goals as a major step toward getting that project sustainable and restoring good faith.
The first goal would be that this not increase the current costs to members. Next, is affordability and the idea to assure the long-term affordability of this project to its members. Furtherm there would be assurances that no one would be evicted due to refinancing. They would establish adequate reserves, refinance substandard loans while releasing obligations to others.
They will evaluate the cooperative model after stabilization. The terms will be no more favorable than other projects. Three percent interest rate is standard for city projects. Provide a justifiable basis for refinancing and then finally establish clear preservation goals for the project.
This refinancing would be $4.1 million, 30 year fixed rate at 3 percent per year. This would provide annual income of $214,428 to the redevelopment agency for a total of $6,432,840 going to the agency of the terms of the 30-year agreement.
The results of this refinancing are as follows. It will establish affordability and reserves for its members. It will stabilize the debt and carrying charges. It will reduce the share prices. Part of the problem with marketability is the high share prices starting at $18,000 now it is up to $27,000 which is a tremendous amount for a new person buying into DACHA to pay. So part of this finance would help stabilize there prices for future and existing members.
This will help them evaluate the model in more favorable circumstances in the future. It will allow continuing limited equity which will enable the units to stay affordable. There would be regular repayments to the city and redevelopment agency. This will also enable a good deal more control by the city and redevelopment agency over DACHA.
Critics of the Neighborhood Partners charged that the membership was sold into this arrangement based on false, promised, misleading statements, and an unworkable structure.
From my standpoint, this refinancing is probably the best solution. In June of last year, the members of DACHA stated that they were led to believe that this was a means to own a home outright. That was clearly never the intention of DACHA, whether that was what the membership was led to believe in order to gain their initial buy-in is an open question.
For their part, David Thompson and Luke Watkins issued forth a lengthy statement to the Vanguard that is excerpted here.
Leaving the question of what was promised and offered to the members as a condition of buying into the co-op aside, I think the plan that has emerged from the city staff is is a good solution for all involved. The city will keep DACHA as a limited equity housing co-op which will enable it to retain the income restricted requirements giving us a permanently affordable housing option which is much needed in this community. However, it also relieves a good deal of burden from the membership themselves--giving them housing at an affordable price. It enables those who were not intending to live in a co-op a chance to get out and recoup most of their costs while allowing others to either stay or buy into the co-op at an affordable price in the future.
---Doug Paul Davis reporting
DACHA is a 20-unit scattered site, limited equity cooperative. It was meant to provide ongoing affordability and be an alternative to affordable for-sale units. It was a non-profit and consultant development and transitioned from initially having a board to a member-led and run board.
In the staff report, Jerilyn Cochran cited a large number of challenges and observations with DACHA from a very early time. These included a number of varying agreements, meaning that different members had different agreements. The financing structure was varied, done in an expeditious manner trying to get people aboard in an inexperienced co-op, but this ended up creating financial instabilities.
There was an unaffordable share price of $18,000 to begin with. This was unaffordable for many low and moderate families to come up with. In addition, the original board was not representative of the members.
The developer fees involved here, as Ms. Cochran described, are not unusual except that in an affordable housing project, this adds to costs and compounds the problem of unaffordability. The developers in this case are Neighborhood Partners--David Thompson and Luke Watkins.
Furthermore, there were inadequate reserves and poor record keeping from the beginning. They had problems with sustaining another housing organization--it currently costs $52,000 to sustain the co-op, that is a huge cost that others do not have. And finally, from the city's standpoint, there has been a tremendous amount of staff time required in monitoring and technical assistance with this model.
The 2006 audit found that this was not sustainable in the long-term. Around this time, the members got an invoice from Neighborhood Partners from which they had no money to pay and they questioned the validity of the invoice. The contract was terminated by the members. There have been conflicting accounts of who offered and who declined mediation.
Neighborhood Partners in December of 2006 filed a lawsuit against the members of DACHA.
The city was asked to review the financing, sustainability and affordability of the project. The city found major sustainability issues. They do not have the money to pay the loan obligations. They do not have the money to adapt to the balloon and adjustable rate financing once that comes due. The financing is not helping to contribute to the sustainability of the project.
They also found marketability issues. There are issues with the unit size, the share price, the uncertainty of the co-op and the carrying charges. The impact of the lawsuit is contributing to the problem.
There are also issues of good faith with the members. The members have lost faith in the co-op. There are a number of reasons for this. There have been inconsistent rules applied to the different members. There are unstable carrying charges--there was no understanding that there would be perpetual carrying charges or that the debt would be perpetual, they could never pay down the debt.
Further they were misled about the model itself. This was the source of complaint in mid-2006. Some of the members were qualified with inadequate income. They did not make enough money to move into DACHA. The members have had to spend a lot of time moving into this project especially compared with other types of ownership.
The city then last Tuesday proposed refinancing goals as a major step toward getting that project sustainable and restoring good faith.
The first goal would be that this not increase the current costs to members. Next, is affordability and the idea to assure the long-term affordability of this project to its members. Furtherm there would be assurances that no one would be evicted due to refinancing. They would establish adequate reserves, refinance substandard loans while releasing obligations to others.
They will evaluate the cooperative model after stabilization. The terms will be no more favorable than other projects. Three percent interest rate is standard for city projects. Provide a justifiable basis for refinancing and then finally establish clear preservation goals for the project.
This refinancing would be $4.1 million, 30 year fixed rate at 3 percent per year. This would provide annual income of $214,428 to the redevelopment agency for a total of $6,432,840 going to the agency of the terms of the 30-year agreement.
The results of this refinancing are as follows. It will establish affordability and reserves for its members. It will stabilize the debt and carrying charges. It will reduce the share prices. Part of the problem with marketability is the high share prices starting at $18,000 now it is up to $27,000 which is a tremendous amount for a new person buying into DACHA to pay. So part of this finance would help stabilize there prices for future and existing members.
This will help them evaluate the model in more favorable circumstances in the future. It will allow continuing limited equity which will enable the units to stay affordable. There would be regular repayments to the city and redevelopment agency. This will also enable a good deal more control by the city and redevelopment agency over DACHA.
Critics of the Neighborhood Partners charged that the membership was sold into this arrangement based on false, promised, misleading statements, and an unworkable structure.
From my standpoint, this refinancing is probably the best solution. In June of last year, the members of DACHA stated that they were led to believe that this was a means to own a home outright. That was clearly never the intention of DACHA, whether that was what the membership was led to believe in order to gain their initial buy-in is an open question.
For their part, David Thompson and Luke Watkins issued forth a lengthy statement to the Vanguard that is excerpted here.
"NP commends the city staff for proposing the comprehensive refinancing of the Davis Area Cooperative Housing Association. Their plan is good for the DACHA families."Critics such as Mayor Sue Greenwald and Councilmember Lamar Heystek, as well as key members of both the Senior Citizens and Social Services Commissions, clearly have very serious concerns about the handling of this project from the start. Frankly, the fact that Neighborhood Partners turned around and sued DACHA looks very bad for the partners, as they are in essence suing low-income residents who have put up their meager assets and bought into this project. There are further concerns that this arrangement is being extended to Rancho Yolo at the same time the city is in essence bailing out the Neighborhood Partners on DACHA.
"We are also glad to see the staff pointing out the problem of the diminishing size of the affordable home units which reduced the value being obtained. We brought this problem up almost three years ago and provided detailed information to the Social Services Commission and staff on the shrinking size of the affordable units. We do hope that the city will now set a formula for minimum standards that works both for the developer and affordable housing.
As part of the process we look forward to DACHA honoring its contractual obligations to NP for the work we have done. DACHA staying as a limited equity housing co-op was one of our major goals and this financing allows that to occur. As the original demand of the co-op members was to own the homes by dissolving the co-op we commit ourselves to ensuring that if anything does occur that these homes will be made available by lottery after a very public process. We will make sure that the law on limited equity housing cooperatives is maintained and that no co-op member will have any private gain from the dissolution of the co-op. DACHA must remain a community asset."
Leaving the question of what was promised and offered to the members as a condition of buying into the co-op aside, I think the plan that has emerged from the city staff is is a good solution for all involved. The city will keep DACHA as a limited equity housing co-op which will enable it to retain the income restricted requirements giving us a permanently affordable housing option which is much needed in this community. However, it also relieves a good deal of burden from the membership themselves--giving them housing at an affordable price. It enables those who were not intending to live in a co-op a chance to get out and recoup most of their costs while allowing others to either stay or buy into the co-op at an affordable price in the future.
---Doug Paul Davis reporting
