What is it?
The buildings were built simultaneously and with the same plan.
Bower moved into 127 Whitehills in 1964.
In 1971, the group became a founding house of SHC in order to pay off its land contract and help expand cooperative housing in East Lansing.
More recently, 131 Whitehills has been divided into apartment units. The building’s owner, Hans Larsen, has been interested in selling the property to SHC so that it can be converted into a co-op housing.
In the fall of 2019, the SHC received news that Hans passed away. His family needed to sell the property, but knowing his intentions, offered the property to SHC before putting it on the market.
The SHC Board of Directors discussed the feasibility of the prospect and ultimately agreed on our need to purchase the building, but we weren’t in a position to do so on such short notice.
Enter the Godfather. Jim Jones, SHC founder, first president, and first full-time staffer, agreed to purchase 131 Whitehills from Hans’ family so that the SHC could purchase 131 Whitehills from him at a later date. The Board met to discuss this arrangement, and formally resolved to support the purchase.
So, Jim Jones bought the property from Hans’ family, and the SHC has been managing it since.
We’re faced with our next opportunity to expand cooperative housing.
But first, just as was done for each of our houses, the membership must vote on whether to approve the purchase.
…there are a number of possibilities for the future of Bower and its neighbor. Should 131 become its own co-op, or will Bower finally be able to become a two-house co-op? Should the two buildings be combined with a structure in between them? To outline the things to come in the nearer and farther future, Casey Paskus of Bower has made a video on the planning process of Bower’s members thus far, and what possibilities lie ahead.
The process technically began at the November 2019 Board meeting, when the prospect of buying 131 was first introduced and discussed by the Board of Directors, but it doesn’t really begin until we hold a referendum.
At this moment, 131 Whitehills is still apartments, and it’s owned by Jim Jones but being managed by the SHC on his behalf. A year ago, SHC entered an option-to-purchase agreement for the property. In effect, this agreement is basically a (refundable) $263,000 down payment on the property from the SHC.
In order to buy the property, there’ll need to be a referendum beforehand. Article XII of the Bylaws outlines how that process will look.
The total cost of 131 Whitehills is $682,418.
($260,000) SHC development fund
We pay a few tens of thousands of dollars into this fund every year from the annual budget for the purpose of expansion. Board Policy dictates that these funds only be used for property acquisition or to expand the co-op.
These funds were used in 2012 to purchase and renovate Howland, and last used in 2017 to purchase and renovate Rivendell and The Shire.
($440,000 + Construction Costs) Loans from MSUFCU
These loans would be acquired by leveraging the equity of the property. The loans would be a 20 year mortgage that we would make payments on each month. Based on initial studies of the budget and income from new members of Left Bower, the SHC is in a good financial position to take out a loan.
The Board of Directors will not take out a loan if it is not financially feasible. Basically, we’ll ensure that we’re able to make payments before entering into a loan agreement.
Technically, we would take on some debt from this purchase. But that is not a dire situation — far from it.
The money that won’t come out of our Development Reserve will come out of taking out a mortgage on our existing property. Almost all cooperative systems, including the SHC, started out this way: refinancing an older house to “pull out” the equity, and using that money for a down payment on a new property. This is the only way short of government assistance to access really large amounts of capital, and it’s done without affecting member assessments. This may bother us members with debt aversion, but it’s absolutely crucial for growth. Needless to say, it was impossible to start the co-ops without increasing debt, and it is impossible to expand increasing debt.
But we’re in a much better position today compared to any point in the past. We’ve built up a tremendous amount of equity in the properties we own. Meaning, in the 50-year process of expanding to our current 17 houses, the value of our properties, like the rest of the East Lansing-Lansing real estate market, has shot through the roof. The debt we have now and would additionally take on from purchasing 131 Whitehills wouldn’t come close to reaching even half of our borrowing capacity.
The SHC has, and in all respects will continue to have, an extremely comfortable amount of money to use for expansion or even just for its operations, if needed. It’s just that so much of it is locked up in the brick and mortar of our houses. We could hypothetically buy several “Left Bowers” without any noticeable impact on our budget, solely by tapping into the equity we’ve amassed. When co-ops expand, they borrow against this equity to secure the funds needed for a purchase. Aside from Hedrick, Bowie, Bower, and Rivendell, none of our houses would exist if it weren’t for this approach.
In an absolute worst-case scenario in which the SHC begins struggling financially (so, a scenario significantly worse than a deadly pandemic), we would be able to comfortably leverage some of our additional equity (see the “What about debt?” answer) to avoid any damaging budget cuts or raising our monthly assessments. There isn’t a possible scenario in which the purchase of 131 would negatively impact assessments.
When co-ops have a high member turnover like the SHC does, there’s a tendency to think that things always have been, and always will be, like they are now. It’s not true with climate, and it’s not true with co-ops.
Over the past year, we’ve seen between 10-15% vacancy system-wide. Prior to the pandemic, it was rare for our vacancy to exceed 2%. In truth, the demand for co-op housing in East Lansing far exceeds SHC’s supply.
Additionally, demand for co-op housing is set to grow especially among MSU undergraduates. Sophomores will be required to live on campus as of 2022, and the University is planning to only grant exemptions to those living in Greek or co-op housing. From that point onward, the SHC will be the only major, non-Greek option for the population of sophomores who are interested in living off campus.
These are not mutually exclusive — this is, understandably, the most common misconception surrounding almost every co-op expansion throughout history.
Financially, money going toward the purchase and renovation of 131 Whitehills comes from a budget that’s completely separate from maintenance. This money comes out of our Development Reserve and additionally via a lien on SHC’s existing equity, of which we have at least $6,500,000 available. The money put toward maintenance, both routine and improvements, comes out of our usual cash flow.
The Problem: We have an almost 100% static cash flow. As in, the money SHC brings in almost entirely comes from monthly assessments. Usually, the only viable way to allocate more money to maintenance and house improvements would be to raise how much we pay to the SHC each month.
The Solution: By opening another co-op house and getting additional assessments, we would bring in anywhere from $8k -$12k a month, most of which would go towards maintenance system-wide.
This raises an important follow-up question: How would the costs associated with the maintenance needs of the co-op at 131 Whitehills balance with the now-increased maintenance budget?
Of course, the maintenance needs of a new house will mirror those of our existing houses. This is where it’s important to point out economy of scale. As a co-op federation like SHC grows, there’s more money coming in, more money being spent, but its margins increase. The maintenance budget is able to grow along with the number of members and number of properties, but the maintenance expenses do not necessarily grow at the same rate.
Should the SHC turn down the purchase, Jim Jones will be forced to sell the property to one of the interested for-profit rental management companies.
One way or another, the property is going to be sold, re-enter the market, and filled with new occupants. Our decision boils down to this: Do we want 131 Whitehills to become affordable cooperative housing, or an expensive apartment complex? We’ve been trying for the former since April of 1971, and for the first and last time we finally have the opportunity to do so. We’ve never had an opportunity this conveniently arranged for us in our existence, and if decades of market trends are any indicator, we never will again.
The full, signed document of the option to purchase agreement between the SHC and Jim Jones. This PDF includes the original document (p. 1-10) signed on June 1, 2020, and the amendment document (p. 11-15), signed on November 11, 2020.
For those who want a tl;dr of the option to purchase agreement, this is a bullet list summarizing it. Each bullet point corresponds to a paragraph of the actual document.
A financial spreadsheet analyzing the expected costs of the construction and management of 131 Whitehills.
The SHC Board of Directors meeting in which the possibility of acquiring 131 Whitehills was first presented and discussed. After two and a half hours of discussion, the Board passed a motion declaring its unanimous support of the purchase.
An article by Maddie Elliott of Ferency which addresses common questions and concerns expressed by SHC members about the purchase and new property, from her interviews with Erik Berg, Holly Jo Sparks, and Jim Jones.
An article by VPE Emily Tyler answering common financial questions members have about the purchase, its feasibility, and how it benefits our existing houses.
A presentation given to Orion’s membership at their Nov. 29, 2019 house meeting by then-House President & House Board Rep. Erik Berg. It explained the early process behind the purchase, its feasibility, its importance, and addressed the concerns previously expressed by members.
A 5-page paper, written by Jim Jones in 2004, explaining the connections between co-op expansion, its effects on the organization, the financial implications, the adverse trend of co-op systems (including SHC) slowing down expansion as they mature, the psychological reasons for this trend, and how to overcome it.