This article has already been on European Tribune in late December, and there is an update now concerning the fact that I have registered an LLC in Washington for the purposes outlined in this piece. I will send the update along after folks have had a chance to consider the idea.
This – or something like – will be happening, so I’d appreciate any input. The update piece is essentially a draft Members’ Agreement, which spells out the legal protections, suggested relationships between membership classes, and other components of such enterprises. It has been critiqued by several people who are involved in such endeavors, and who will probably invest, so things are moving along. I can see something concretely happening this year.
One other thing – although this piece is all about and for the potential principals, this same approach can be used for almost every conceivable economic arrangement – including ‘charity’. For instance, affordable housing could be arranged via the same basic set-up. The investors would be people looking for a ‘reasonable’ return with transparent terms and conditions and real assets supporting the investment. In fact, what would you think about creating a section of TRB to ‘tag’ co-operative movement type articles and discussions?
Paul
A Real Estate Co-op – Dollar Hedge Or Lifestyle – Or Both
By Paul Spencer / The Rag Blog
More than 100 years ago, somebody (J.S. Mill? Henry George? Ricardo?) stated or implied that land is the only real (tangible) value. Far as I’m concerned, that’s pretty close to true (except that love and honor count for at least as much, even if less tangible). Land gives us the best opportunity to earn a living on our own terms. On the other hand, if we have dollars, we are participants in a system that relies on the large-scale interaction of the self-interests of untrustworthy gamesters. Now – if you can have land in concert with peer stakeholders, you have the potential advantage of larger-scale action, and your partners should be natural allies in the pursuit of added value.
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[One caveat – this is not a solicitation or a prospectus. This is a discussion of hypothetical business/personal relationships and arrangements. If some individuals express an interest in actual development of some of the concepts developed, then we will get together on another channel to discuss specific proposals.]
[Second caveat – when I bring up an example to illustrate some suggestion, you can assume that the example represents my personal preference in the matter.]
Over time, and since the inception of capitalism, land is the one inflation, deflation, stagnation, bust, you-name-it hedge. In ‘boom’ times land-price appreciation may not keep up with other investments. In ‘bust’ periods land “values” may fall in terms of some particular currency. But the value of the land is inherent: home, food source, aesthetic, psychological grounding, work site.
Co-operatives – in this case, registered as a Limited Liability Company or a Limited Liablity Partnership – give the stakeholders a scale of buying power that lone individuals of similar means cannot match. In other words there is an immediate financial advantage in terms of our means. After that, it’s all about the membership: what do they want to accomplish? What do they bring to the task?
So – what does a co-op do? What are the relationships of the members to each other? To the land? How is it funded? How are funds channeled? Protections? Duties? These are all questions that can be resolved by articles of incorporation and by bylaws. Here are a few possible answers:
It is legally registered in one corporate form or another, which form automatically defines some constraints and responsibilities. I have a copy of the Washington state LLC regulation, for instance; and, based on several readings, it appears to cover every concern that a member might have. However, it allows the membership – advised in a sense by the provisions of the regulation – to construct their own, majority-defined rules for operation and control of the organization.
The co-op can have a fiduciary function. It can be the ‘bank’ for transactions or construction loans; it can hold a fund for maintenance or for common-use construction projects; it can serve as a company for intra-cooperative distribution or for outside sales of products produced by common-ownership areas – e.g., solar- or wind-generated electrical power, agricultural produce, timber.
Members can own individual lots and the ‘improvements’ thereon. Or the co-op can own the land, and members can rent the land for purposes of – whatever the co-op registration articles allow (e.g., building a house {presumably for the member to inhabit or let}, gardening, raising llamas {they’re quiet}).
They can participate in economic activities that are generated on common-owned (co-op owned) property (e.g., growing hops and barley to brew beer, timber harvest, solar-based generation of electricity).
Members can collectively decide (in my opinion based on some kind of super-majority) what kinds of activities are appropriate to the commons. They can collectively decide on restrictions or covenants on activities and standards appropriate to the member-owned properties (again, my position would be to require some kind of super-majority basis).
There could be classes of membership, including ownership, worker, investor, renter. But the essential principle for me would be that they are essentially equitable. For instance, a long-term worker – say, a Utilities technician (for common water projects, solar generation station, common ‘geothermal’ pipe beds, wind turbines) – would be paid some standard wage, but could also gain some dollar-equivalent share of the commons value of the co-op. (This is because labor creates/adds value to the organization.) A renter might have some kind of equity relationship to the property where he/she resides, arising from all or some portion of rents paid within a formula that incorporates some measure of the owner’s prior equity – perhaps a market appraisal performed at the commencement of the renter’s occupation of the property.
An important matter – I strongly recommend that some elements of such an LLC contract should be set in perpetuity. They should not be subject to amendment or dilution by addition. For instance, if the Purpose is to create a fully democratic device to purchase, hold, and improve property in pursuit of an appropriate balance of sustainability, sustenance, and social health – well, this should not be subject to modification in my opinion.
Those are some suggestions for some elements of an organizational scheme. There are many elements to be covered in the creation of such an entity; I am just trying to demonstrate some of the considerations in order to encourage discussion.
Concretely – speaking for myself – I want to buy land in Klickitat County between Goldendale and WA Route 141 (preferably with others in an LLC). It is mostly high-prairie land with arboreal remnants from the eastern edges of the Cascades mountain range. There is water, good soil, substantial sunlight, plenty of wind, four seasons, clean air – all of the best stuff. Down the road we – or you and your friends – can talk about doing this in Umbria, New Zealand, South Africa, Romania (Bulgaria?), Viet Nam, Tasmania, Costa Rica, Wales, or ??. But we need to prove something first; we need to model this idea in some form. And western Klickitat County has everything needed to do that – plus good prices for large chunks of land.
The region of interest for me is mostly Rural Residence with a 5 acre minimum lot size (RR5). There is a subcategory that allows cluster development, as long as the lot plus the lot’s share of the commons equals 5 acres minimum. Generally, 200 to 1,000 + acres range from $2,000 to 5,000 per acre in this area, counter-respectively. So the base investment is $10,000 to 25,000 per lot. To develop water, roads, utilities – and to get started on common solar- and wind-generation systems would about double the investment. For example, if an LLC buys 300 acres total for $1 million U.S, leaves 50 acres in common ownership, then it will need 50 investor/owners @ approximately $40,000 each. The extra million would be used for infrastructure, but best practice would be to leave some part in a contingency fund, too.
[Quick aside – property of this sort goes for about $70,000 for bare land currently in this area. The infrastructure raises this to a minimum of $100,000 per 5-acre lot.]
[Second aside – look up Bend, OR to see the probable future of this area. Most people like or love Bend and the surrounding resort developments. This area is essentially the same, except closer to Portland, OR. Why hasn’t it been similarly developed? I’d say that, first, Bend is closer to California, and the phenomenon has a certain cycle of discovery and cautious growth; then a threshold is reached at which point the whole boom mentality takes over, until the area is overgrown and over-developed, and ‘smart money’ looks to the next cycle. Secondly, there is a town named Hood River, OR (located about 30 miles to the southwest of Goldendale, WA) that is the current ‘darling’ for development. It is reaching geographical saturation in several senses of the phrase. Klickitat’s time is coming, and there’s two ways to look at it from our viewpoint: 1) take the money and run, or 2) create the new paradigm, enjoy your home and community, and thumb your nose at the ‘smart money’. I’m for the second option.]
I’m posting this here, where the members appreciate the underlying concerns and can propose solutions. Plus, I will be discussing these ideas with some of my friends and relations.
One question that might arise is: What’s in it for paul spencer? The answer would be: the same share as yours at the same price. If enough people indicate interest, then I would want to charge, say, $40 per hour to draft an agreement, to coordinate the creation of the details, and to register the LLC. The invoice for this could be credited against my share of some eventual membership’ purchase price.
If we were to get some such organization going, there would also be the matter of how to draw the subdivision and how to allot the lots. Actually, there would be many details of this sort. By the end of the process, it might behoove all participants to agree quickly, or you could be buying my share for me, after all.
Just for fun, here are some samples of possible parcels from Klickitat County, Washington, U.S.A.
http://68.178.238.98/coltprintcr.asp?brn=CR1&lid=23555
http://68.178.238.98/coltprintcr.asp?brn=CR1&lid=23118
http://68.178.238.98/coltprintcr.asp?brn=CR1&lid=23288
Last items: I have been discussing these concepts with Chris Cook in the UK and a nearby friend, Steve Nieman (who is a Founding Member of an aircraft-owning co-op called Downwind Corp.). They have several strong opinions about the how-tos and what-fors. One particular matter is that they both think that all of any land that might be involved should be commonly held. A second matter is that they look more to a Founders’ group – or a Sustaining Members class – in ultimate control of any such potential LLC or LLP. I’m probably in disagreement with both points, as I am inclined to: 1) vest property rights in the owner/members, keeping some agreed portion of the total parcel for common purposes and ownership; and 2) rely on some level of full-membership supermajority assent for any changes to rules and relationships to best preserve the individual rights of members.
