Coops—Ultimate goal is not to make a profit; it's to provide benefits

Don White's smitten with the Park Forest town house he and his wife: Susan, moved into last August. After the couple married in January 2008, they began looking for a home that could accommodate visiting grandchildren and also deliver economic sense as retirement neared.

A 32-year veteran of the real estate industry, White, a Realtor based in south suburban Flossmoor, turned to one of the area's hidden gems: Park Forest's cooperative housing inventory where he and his bride could fetch savings and build equity. "For me, this was an easy choice," White says of the four bedroom, three-bath, 3,200 square foot cooperative town house he purchased for $30,000. “We wondered if we should pay interest on a 30-year mortgage or save like mad for the next dozen years and what we hope will be a normal retirement"

As costs rise, savings shrink, and some question the housing market's value potential in coming years, more conservative housing options namely cooperatives, are wiggling into the America’s lexicon.

"So much in the last decade has been driven by high values and low rates that cooperatives have become incidental." White said, “But now things are shifting and cooperatives are gaining steam as a practical alternative.”

What is cooperative housing?
Various cooperative arrangements are sprinkled around the American landscape. In rural areas, electric and telephone cooperatives provide utility service. Food produced by farmer owned cooperatives line grocery store shelves from recognized names such as Land O'Lakes. Sunkist and Ocean Spray, while credit unions are perhaps the most widespread cooperative venture.

"The ultimate goal of any cooperative is not to make a profit, but to provide benefits to the groups members at cost.” said Paul Hazen President of the National Cooperative Business Association based in Washington DC.

A housing cooperative forms when individuals create a non-profit corporation to own the building in which they live. As a member of the cooperative, individual residents hold an ownership share in the corporation, which entitles them to a unit in the dwelling. Residents themselves run the co-op from electing a board of directors, hiring managerial staff and setting membership requirements. “Cooperatives are perhaps the most democratic way of living - it's majority rule “Hazen said, noting that some New York City cooperatives have rejected movie
stars to avoid the attention.

In 1978, some of New York City's most affluent residents pioneered the cooperative housing concept in the U.S. Over a half century later, amid the swoon of the Great depression, the city's labor unions built affordable housing cooperatives for workers.

By the 1970s, however; condominiums, the cooperative housing model's chief rival, had arrived on the scene and replaced co-ops as the preferred owner occupied model. Condominium residents, eager for a slice of real estate ownership. turned to the residential model most resembling the single family home experience. Cooperatives, where residents own a share of the corporation and not real estate, wilted into virtual obscurity in most communities.

Today, cooperative housing, holding over 1.5 million households, comprises less than one percent of the nation's housing. Largely concentrated in high density urban areas, cooperatives range from luxury homes in posh urban areas, such as the Watergate in Washington, D.C., to suburban town houses and senior high rises like those found in Minnesota's Twin Cities. In the Chicago area. a few luxury co-ops line Lake Shore Drive, while roughly 20 percent of residences in southern suburb Park Forest fall under the cooperative banner.

Sounds nice, but what's the catch?
Residents in Park Forest's cooperatives generally pay $10,000- $20,000 for a two story, two-bedroom town house with a full basement. Those desiring a three bedroom town house face an $18,000-$20,000 buy in, significant savings from the mid- $100,000 price similar area town houses draw. Few homes have garages and, given the high-density living quarters, few homes include children.

Garry Barnett, a hired employee who serves as the executive director for Park Forest's Area J cooperative, says residents in the two-bedroom town houses pay approximately $400- $500 a month, which covers everything regarding the building structure, including heating and air, roofing, windows, plumbing and electric.

"As a nonprofit entity, every dime of revenue we take in is spent maintaining and improving the property,” Barnett said, noting that similar two bedroom rental properties in the area run about $1,000 a month. Residency in a cooperative provides short-term and long-term benefits. Members are considered homeowners and can deduct their share of the real estate taxes and mortgage interest paid by the cooperative corporation. As shareholders, members accumulate equity in their unit. Cooperatives also offer anonymity, which can be of particular value to the luxury market or those desiring a shield from public records.

In Area J,390 families spread over 76 buildings ,share ownership of the 47-acre property. Barnett describes Area J as a stable middle-class community filled with teachers. Civic employees and local business workers. "Because these units must be owner occupied, people aren't coming and going with little commitment to the community or here for speculative purposes," he said. “It’s a rooted place.”

Yet, Area J is not quite a utopian society either.

Hurdles must be cleared to purchase a corporate share - 20-25 become available each year - while residents surrender some individual freedoms. The board must accept an applicant as a resident, a process in Area J that involves a credit and background check, a 45-minute interview, and a minimum income of $25,000 for one family member. Residents cannot own dogs or motorcycles, rules that change in the adjacent Area E.

"You're relinquishing a little bit of your independent freedom in cooperatives because you've bought a share in a corporation, which can make rules as a way to preserve the community's value”, said Anne Reynolds, assistant director at the University of Wisconsin-based Center for Cooperatives.

But for many, including White, the trade-off's an easy one.

"I get an affordable home with lower upfront and monthly cost virtually maintenance-free living. and equity," the 54-year-old White said, "The advantage seems pretty clear cut."

Can cooperative housing make a splash in Chicago?
The Noble Square Cooperative near Milwaukee Avenue and Division Street in Wicker Park is one of Chicago's largest cooperative housing entities. With one and two-bedroom apartment-styled units in a 28-floor high-rise as well as town houses running along Milwaukee Avenue and the Kennedy Expressway, residents enjoy the unique structure of coop living.

"I get to have a say in where I live and that sense of controlling my own destiny is paramount,” said Bill Magee, a 32- year resident of the community and the cooperative's board president, "Plus, I get to live in good housing at an affordable price.”

Magee's compliments and White's compelling argument aside, cooperative housing has failed to make a splash in the Chicago area, even if the city is ripe for the housing option.

"Cooperatives make the most sense in urban areas where the costs are high, but the density is needed, “ Hazen said. "But organic housing co-op’s just don't spring out of the ground; somebody needs to take the lead." Despite it’s merits. governments big and small have largely ignored the cooperative housing model. Yet, perhaps Washington D.C. will show others, including Chicago, the path toward cooperative housing's practical model. In the nation’s capital, a landlord wishing to convey apartment buildings into condominiums- must allow residents one year to purchase the building, a provision allowing residents to investigate the cooperative model.

"It's usually a mad rush, but at least the option is there and it's been successful." Hazen said. "If Chicago had this you'd see cooperatives become a much more viable option.'

Reynolds, who intricately studies the cooperative business model, says Chicago suffers from a deficit of technical assistance. While New York City, a co-op friendly environment, claims attorneys, lenders, realtors, and other housing market insiders specializing in cooperative purchases, Chicago, by demand alone, possesses far less technical expertise.

"There are simply too few who under-stand the legalese, the contracts, and the financing of cooperatives, which creates a real disconnect,” Reynolds said of Chicago.

But as the real estate market plods along, some wonder if cooperative housing won't make aggressive inroads in the Chicago area, particularly stressed traditional condo and town house complexes. In fact, Hazen says. cooperatives have historically been a reaction to economic turmoil, citing New York City's labor units and their establishment of cooperative housing prior to World War II as one example.

"I think it's quite possible that we'll see more cooperatives come about as a reaction, to the mortgage meltdown and as one potential solution to the foreclosure mess," he said.

Yet even if cooperative housing delivers a positive experience and economic benefits, the limited knowledge or the arrangement in the Windy City makes them unlikely to supplant traditional residences, says Genie Birch, president-elect of the Chicago Association of Realtors. "Cooperatives have some intriguing benefits,' she said, "but in this town, condos prevail.'

Daniel P. Smith is a local free-lance writer, Chicago Tribune, Real Estate Section, Sunday, June 7, 2009