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Home, Home in Your Range



Even before Judi Kinch's rent went from $600 to $950 she knew she'd have to take drastic action if she wanted to stay in Chicago. She's a 29-year-old geologist employed by an environmental consulting firm, so she's not poor. But she's far enough from being rich that she sees Chicago's real estate boom not as a way to make money but as an obstacle to finding a place to live.

Around the beginning of 2000 she started looking to buy and saw "real small condos" selling for $65,000. "Six months later they were sold," she says, "but if they'd still been available they would have gone for $95,000." How about a fixer-upper? "When I owned a house before, it was assumed that you'd need to do some work on it. This time I went looking for a condo that needed work--and there weren't any."

Kinch needed a place she could afford. She wanted one that was congenial. "I'd lived previously with great apartment mates and in a house on a block with great neighbors," she says. "That was coincidence. I wanted to re-create that experience."

Today Kinch lives in the Logan Square Cooperative, a limited-equity housing cooperative she helped organize. She can pay her bills, she doesn't have to worry about moving every year, she has good neighbors who won't be gone with the next rent increase--and she's doing her part to keep Chicago affordable.

Too good to be true? Limited-equity co-ops have been around Chicago since at least the 1960s, but few people know about them, and most of what they do know isn't true.

In the fall of 2001 Maureen Dolan, Gary Arnold, Deborah McCoy, Chris Fitzgerald, and two couples, Michael Stanek and Audrey Thomas and Judi Kinch and Mark Smithivas, formed a nonprofit corporation called the Logan Square Cooperative. The corporation had a total of eight shares, which could be owned only by those who lived in its building. That's the definition of a housing cooperative--a nonprofit corporation in which the residents own all of the shares. Co-op residents, unlike condominium residents, don't own their apartments directly; instead the share they own entitles them to live in an apartment and to help make decisions about managing the building. Shares for Logan Square's one-bedroom apartments cost $67,000, for two-bedroom apartments $89,000. The two remaining shares were sold later to Kelly and Corey Conn and Nina Joy Lichtenstein.

On October 31, 2001, the corporation put $100,000 down on a $580,000 deal to buy an eight-flat near Diversey and Pulaski; to cover the rest it took out two mortgages with nonprofit community lenders, which are being paid off through the shareholders' monthly assessments. The building itself cost $482,000; the rest went toward closing costs, repairs, and a reserve fund. The monthly assessment for a one-bedroom shareholder who paid nothing down is $822--which includes the mortgage payment, all utilities, maintenance, repairs, and taxes. And the shareholders know the assessment won't be jacked up in a couple of years.

The co-op members got their building cheap partly because they got it early--the condo frontier is still roughly a mile south and east of them. Being a co-op also helped keep the cost down. By pooling their funds they could buy more property, and by postponing noncritical rehab work they didn't have to pay as much up front as they would have if they'd bought individual condos. Over the long haul, being a co-op will save them money in more ways, beginning with taxes. As an individually owned property, just like a condo or single-family home, their building will be assessed at 16 percent of its market value; the rental buildings they'd been living in were assessed at 33 percent of market value, a cost that was passed on to them. They'll also save money because any future sales of individual shares won't be real estate transactions, so anyone who leaves or joins the co-op won't have to pay brokers' commissions, closing costs, and the like--all costs people buying condos and single-family homes must bear.

But the Logan Square Cooperative isn't just a group of enterprising people far enough ahead of the curve to get a good deal for themselves. It's a group of enterprising people who want others to be able to get a good deal in the future. So they've deliberately renounced a traditional privilege of property owners: they can't sell their home someday and make a bundle. They've agreed to limit the equity they can build in their place--hence the name "limited-equity cooperative."

Even if their area becomes a real estate mecca and gets a trendy new nickname, doubling or tripling their property's value, none of them can sell his or her share in the co-op for big bucks and reap the profit. Logan Square's corporate bylaws fix the share price right where it was in October 2001, plus the cost of any approved improvements. A share in their eight-flat will be just as affordable to the next resident as it was to them, whether that's 5 years from now or 50.

Choosing to be a limited-equity co-op sets Logan Square apart from the well-known and often pricey market-rate cooperatives along the lakefront. Kinch knows that many people would think she's crazy not to treat her home as an investment, but she sees it as justice more than charity--as a way for members to express through their actions their belief that housing should be affordable.

Charles Daas, executive director of the Chicago Mutual Housing Network, estimates that about 20,000 of the three million housing units in the Chicago area are co-ops, and roughly a third of these are limited-equity co-ops. Tiny as these numbers are, the Logan Square members think that more co-ops like theirs could hold down the skyrocketing housing costs that accompany gentrification, one apartment house at a time--especially if more people understood them, and if more lenders were willing to write loans for them.

If few people know about co-ops, fewer still know how to start one. Maureen Dolan, a longtime activist and ordained minister who teaches yoga and meditation at DePaul University, knew about them because her son was a member of the Stone Soup housing co-op in Uptown. While she was recovering from pneumonia in December 1999 a vision came to her. "I saw the co-op forming," she says. "It was one of the possibilities that were out there."

In the spring of 2000 Dolan began circulating a flyer for what would become Logan Square Cooperative. She didn't start with a location or a building. Real estate may be about location, location, location, but co-ops are about people, people, people. "I took the flyers to parties and sent them out to friends," she says.

Organizing is nothing new for Dolan, who held the first of a series of exploratory meetings that June. Interested people came--and went. "Most people hadn't owned before," recalls Judi Kinch, who was there, "and it made them nervous." It wasn't just the commitment involved in owning. It was the idea of doing it with a group. "It's experimental. There aren't many models out there." (Condo ownership isn't the same, she adds, because a co-op shareholder has a stake in the entire project, not just his or her unit and a few common areas.)

A co-op--even a limited-equity one--isn't a commune. Members don't have to share meals or child care, though they do have to be able to work together, as shareholders in their corporation and as neighbors in the building. Doing even this much as a group was a new concept, says Dolan. "We're not trained to think in terms of the democratic process of consensus. It's been an education for all of us." Logan Square members now meet every other week and make decisions on the basis of "consensus minus one."

"In hindsight, I'd say we had little clue on how to go about this," says Judi Kinch. "But our July 2000 meeting was with Charlie Daas." Daas's Chicago Mutual Housing Network is a nine-year-old coalition that develops, supports, and promotes resident-controlled housing for low- and moderate-income people. He introduced the prospective co-op members to the world of lending, inspections, contractors, incorporation, tax assessments, and building self- management. He also suggested that they attend the network's training sessions.

Kinch soon learned that the Logan Square Cooperative was unusual and that she wasn't a typical Chicago co-op member. "The first [training] meeting I went to, there were a lot of retired black women who had lived in co-ops since the 1960s. They'd grown up in them, raised children there," and now they were coming into leadership roles. The movement was older and broader than she'd thought.

Cooperation has been a movement ever since the first hideous excesses of the industrial revolution hit England in the early 1800s. A group of weavers and other workers living near the factory city of Manchester organized the Rochdale Society of Equitable Pioneers in 1844. They didn't invent the cooperative tenets that came to be called the Rochdale Principles--open and voluntary membership, democratic control, limited return on invested capital, patronage refunds to cooperators, cooperative education, and cooperation among cooperatives--but they were the first to build lasting institutions based on them.

Housing cooperatives have enjoyed episodes of popularity in Chicago's past. Expensive ones were built along the lakeshore in the 1920s, before the 1963 Condominium Property Act made it possible for apartment dwellers to own their own homes. (Today these market-rate co-ops differ little from condos, though co-op members still buy and sell shares in the co-ops, whereas condo owners buy and sell the units themselves.)

Limited-equity co-ops are more recent. They came along in the late 60s and early 70s, when the federal government--hoping to keep declining neighborhoods from becoming uniformly poor--loaned money at low rates to private developers to build limited-equity co-ops for low-income owners.

Those were the days when the federal government viewed affordable housing as a social good. London Towne Houses on Cottage Grove south of 100th Street opened in 1966 with 801 units. Eugene Morris Jr. has served on its board for all but two years since 1976 and has conducted training workshops around the country for co-op organizations. He worries that too many residents appreciate the cheapness of the co-op--the monthly assessment for a four-bedroom apartment with full basement is an astonishingly low $450 a month, which includes everything but utilities--without understanding its principles or its convenience. "When interest rates are low, like they are now," he says, "people tend to move out" and buy their own homes. "But some of them come back after a year or so and ask if we have a space. At the co-op you can call maintenance and say, 'My furnace is out,' and someone will come and fix it. All these things are cared for without additional expense. They woke up in the real world"--a world in which a marginal home owner can be wiped out by unexpected major repairs.

Herbert Fisher, an attorney who's been involved in co-ops since the 60s and has an encyclopedic knowledge of those in Chicago and elsewhere, agrees with Morris that the "movement" aspect of cooperative housing isn't widely appreciated. "Most local housing-cooperative officers and leaders haven't been swayed to take their interest beyond the housing service." Some local co-ops, he says, even seem to think that their anonymity is the source of their benefits, and so they choose not to join the national cooperative groups or even to publicize their existence as co-ops.

The history of co-ops that turned away from the movement isn't encouraging. "The failure of some of the farm cooperatives in our country has been attributed to the fact that the second generation of cooperators did not share the cooperative knowledge and spirit of their parents," Fisher told the National Association of Housing Cooperatives in a September 12 speech. Co-ops whose members don't understand cooperative principles and never caught the movement's spirit may be vulnerable to what seem like generous cash offers to buy them out, he says. "There are housing cooperators, even in affordable-housing cooperatives, being seduced by developers who see a big return for themselves if they can convince the requisite number of members to approve the sale of their cooperative property." (At Logan Square the requisite number would be everybody: all eight shareholders would have to vote to change the limited-equity provision in their bylaws.)

Nevertheless, limited-equity co-ops may be poised for a revival, because the city's current housing market offers so little to those who aren't affluent or who aren't already owners. As Charles Daas puts it, limited-equity co-ops can "temper the effects of raw capitalism that are leading to the destruction of working-class enclaves in the city." That's right: the same unconventional institution used 35 years ago by the federal government to keep deteriorating neighborhoods from becoming uniformly poor may now play a role in keeping gentrifying neighborhoods from becoming uniformly wealthy.

Or it may not. Limited-equity co-op housing isn't for the faint of heart. Owning and running a building is a challenge under the best of circumstances, and limited-equity co-ops don't enjoy the best of circumstances. They aim to provide a more communal, less individualistic choice in what can only be described as a hostile environment. American culture is hostile: two-thirds of all households own their own homes as individuals or families without benefit of formal cooperation, and many of the remaining third aspire to do so. And our financial institutions are hostile: lenders and government agencies usually take individual home ownership as the norm and see any deviation from that as a problem. Limited-equity co-ops remain inconspicuous islands in a capitalist sea, always in danger of being flooded out.

Once the Logan Square Cooperative had enough committed members, they set out together on what Kinch calls "our next big struggle"--finding a building. Starting in March 2001 the group looked at 22 different ones. Most had between 6 and 12 units, and most were in or near Logan Square, where the majority of the prospective members already lived. Some amenities they'd hoped for proved unattainable: "Right away we found that buildings near el stops were out of the question," says Kinch. And the pressure was on: "Half of us," she says, "had the buildings where we rented come up for sale during the search."

Shopping for an apartment building is more complicated than shopping for a single-family home, and shopping for anything with a group of people is an extra challenge. "We had a spreadsheet with the pros and cons of each building," says Kinch. Meanwhile the group was shrinking, not growing. They found a building they liked, she says, and "the day we were to discuss whether to make an offer and of how much, one of our members dropped out. That left us with four of eight units filled. Could we get four units filled in a few months? I was ready to call it quits, but then Maureen, who had dropped out [earlier] for family reasons, said to count her in--without even seeing the building--and everyone else was ready to bid."

The 85-year-old building they ultimately settled on had three stories and needed work on the roof, electrical system, kitchens, and bathrooms. It was owned by a man from Mexico who lived in one of the apartments. The co-op members offered his tenants a chance to stay and join in; they declined, but several moved to nearby buildings and remain friendly neighbors. By the time the group closed on the building, six of eight shares were spoken for.

As they looked for a place, the cooperators also looked for someone who'd give them a loan. Most would-be home owners can pick and choose among private lenders, who are happy to compete for their business. Limited-equity co-ops have to find their own way. Kinch says Charlie Daas told them about the Chicago Community Loan Fund, a ten-year-old nonprofit lender dedicated to providing flexible low-cost loans to community groups. "They were willing to meet and work with us before we found a building," despite the group's lack of experience in buying or managing real estate. In the past two years the fund has made four loans to three co-ops--Logan Square, Freedom Road, and Stone Soup--and it's committed to making more. According to lending program manager Gregory Sills, the fund sees co-ops as part of "a multi-element effort to end the affordable-housing crisis in Chicagoland," a sentiment shared, at least verbally, by nonprofits such as the Metropolitan Planning Council, which is interested in affordability but has no direct involvement in co-op work. Because the Community Loan Fund limits the size of the loans it makes, Logan Square ended up negotiating two loans--$332,000 from the fund and $148,000 from the Northcountry Cooperative Development Fund in Minneapolis.

What if the co-op idea hadn't come along? "I'd probably have roommates," says Dolan. "I've done that in the past. And keep moving every year. Alone I couldn't have done this. Judi couldn't have done this. But with a group of people--we have an eight-unit building!"

"We thought we had a lot of barriers to affordable co-op housing in the 1960s and 1970s," attorney Herbert Fisher told a south-side workshop on October 19. "Now I would say [that back then] we had none. Then we had no end of builders competing for HUD financing. Today the barrier is financial....In order to be affordable today, it takes not just one FHA loan [as it did 30-some years ago], but layers of finance--three or four loan packages involved in one development." Nuestro Hogar Cooperative, an affordable 31-unit limited-equity co-op on Wabansia, was opened in June by the Mutual Housing Network and the Bickerdike Redevelopment Corporation. Charles Daas describes it as "a veritable multilayer cake of financing," with money coming from six different sources. It also benefited from $2.3 million in rehab funding from the Chicago Department of Housing and from an intricate, innovative "master lease" arrangement that allowed residents to benefit from tax-credit affordable-housing financing vehicles.

Conventional lenders shy away from limited-equity co-ops because they're something of an unknown, says Terry Lewis, vice president for cooperative development at the National Cooperative Bank in Washington, D.C. A known risk can be managed and hedged against; an unknown risk takes time to assess--time most loan officers would rather spend making the kinds of loans they already understand.

Most lenders are afraid they may have trouble getting their money out of a limited-equity co-op loan if foreclosure becomes necessary, though this fear has little foundation. In a May 1994 Urban Institute report, Charles Calhoun and Christopher Walker analyzed the performance of HUD loans to multifamily low-income projects between 1958 and 1993. "Cooperatives represented relatively low-risk investments," they concluded. "In the...Below-Market-Rate Program, Management Cooperatives out-performed all other ownership types." Co-ops also performed well in other lending programs. As for the National Cooperative Bank's experience, says Lewis, "We've been in existence close to 30 years, and we've virtually never foreclosed on any co-op, limited equity or otherwise."

Conventional lenders are also afraid that limits on the value of co-op shares might somehow reduce the market value of the building itself. But Lewis says that's a problem only when the limited-equity provision is written so that it survives any dissolution of the cooperative corporation--a practice she discourages. They're also afraid that loans to limited-equity co-ops may be difficult to resell on the secondary mortgage market. Again, Lewis reports that the National Cooperative Bank has had no trouble doing so.

Finally, conventional lenders worry that limited-equity cooperators don't have enough incentive to keep up their property and thereby protect what remains the bank's asset until a loan is paid off. After all, limited-equity co-op members can't look forward to selling their shares for a big capital gain--so how can a lender count on them to invest time and money in preventive maintenance and repairs, the way someone would who's anticipating a big return?

This last worry could spark all sorts of arguments. But Calvin Holmes, executive director of the Chicago Community Loan Fund, just lets the numbers speak for themselves. Every one of the fund's borrowers would look risky to a conventional lender on these grounds and more. Yet in ten years the fund has loaned about $10 million--and has had to charge off just $4,000. That's 0.04 percent--well below the 0.9 percent average for commercial banks.

"We are attempting to provide our local banks with millions of dollars of business," says an exasperated Charles Daas, "and they are engaging in a fool's errand of dismissing housing cooperatives as 'risky loans.'" Maybe limited-equity co-ops could be a bonanza for enlightened lenders as well as a safety net for those of us who just want a place to live.

Art accompanying story in printed newspaper (not available in this archive): photos/Paul L. Merideth.

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