TRAVERSE CITY, Mich. — As the owner of the coffee retailer Higher Grounds Trading Co., Chris Treter had a problem: Business was booming, but his new hires couldn’t find affordable places to live.
“Traverse City is becoming Myrtle Beach meets Hilton Head — a place catering to a population outside the region,” Treter said. “Our workforce can’t live here anymore.”
Treter and others in this small Lake Michigan community with a population of nearly 16,000 came up with a solution: a 47,000-square-foot building that offered spaces for residences, businesses and community activities that had been in short supply as gentrification in the city pushed prices up and local residents out.
What sets this project apart from others like it is how it’s paid for. Treter developed the space with Kate Redman, a lawyer who works with nonprofit organizations, and several other entrepreneurs who were dealing with similar challenges. They created a crowdfunding campaign that recruited nearly 500 residents to invest $1.3 million as a down payment to help finance the project’s construction and earn up to 7% annually in dividend payments. Roughly 500 more residents contributed $50 each to join the project as co-op members.
The $20 million development, called Commongrounds, opened late last year. It is at full occupancy and consists of 18 income-based apartments (rent below market rate based on median income), five hotel-like rooms for short-term rentals, a restaurant, three commercial kitchens (for the restaurant and to be used for events and classes), a food market, a coffee training center (for new hires and developing new drinks), a 150-seat performing arts center, a coworking space, offices and a Montessori preschool.
The owners, made up of more than 1,000 co-op members, also embrace a cooperative management approach to operations. Shareholders, business tenants and apartment renters elect the project’s nine-member board of directors.
Commongrounds is the latest and largest example of what developers of similar projects across the United States call “community-owned cooperative real estate.” The strategy was developed a decade ago by a nonprofit legal group and a nonprofit neighborhood group in Oakland, California, and has been refined by legal and development groups in Atlanta, Boston, Minneapolis, Philadelphia, Portland and other cities.
The cooperative strategy enables neighborhood groups to finance unconventional construction or renovation projects that banks and institutional lenders, which prefer strong cash-flow operations, won’t touch.
“It’s part of a robust movement for community control and affordable real estate, rather than enabling high-priced development at the whims of the market,” said Mohit Mookim, a lawyer at the Sustainable Economies Law Center, a nonprofit in Oakland that helped develop the strategy.
Much of the approach stems from efforts by the federal and local governments to make it easier for small investors to put money into real estate developments. Federal rules once barred small investors — those whose net worth is less than $1 million or who make less than $200,000 a year in income — from participating in development projects; that changed in 2015. At the same time, a few states enacted laws allowing small investors to put their money into local developments.
“Until that change, 90% of the residents in a community couldn’t make direct investments in a real estate project,” said Chris Miller, the board chair of the National Coalition for Community Capital, a nonprofit group. “Michigan allows nonaccredited investors to invest up to $10,000 in a project now. That was unheard-of before.”
Cooperative developments can now be found throughout the country. For this article, we identified roughly 15 cooperatively owned projects in the United States. Here are a few of them:
In Oakland, the East Bay Permanent Real Estate Cooperative is widely credited with being one of the first community groups to apply the community-owned cooperative concept to a neighborhood project. In 2019, the group raised $185,000 from a crowdfunding campaign that attracted more than 25 investors to help finance a $1.3 million project to buy and renovate Co-op 789, a four-unit apartment building in North Oakland.
Noni Session, a co-founder and the director of East Bay Permanent Real Estate Cooperative, said community-owned cooperative projects responded to the economic disruption caused by what she called the “standard capital pathway” of conventional development. Developers and private bankers who live and work outside the city, she said, typically ignore local residents as they pursue projects that are heralded as “neighborhood revitalization.”
“Almost all of that overlooks…
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