MISSOULA — Tucked away off River Road, a cluster of modest homes is part of a bold experiment that supporters and participants hope could prove one approach to tackling Montana’s housing affordability woes: cooperative ownership.
A year ago, the residents of these 14 homes, a mixture of mobile homes, single-family houses and duplexes, weren’t sure whether they had a future here. A visit from a real estate agent — a sign their Seattle-based landlord was considering a sale — had thrown many of the tenants into a panic over the potential that subsequent rent spikes or redevelopment could force them from their homes.
Amanda Malek, a lifelong Missoulian, said that she and her husband saw few palatable alternatives in their price range. They looked on the outskirts of town, as well as down the Bitterroot Valley. They considered giving up their dogs and a cat, which were limiting them to pet-friendly rentals. They pondered crowding into a smaller unit where their three kids would have to share rooms — or even moving in with her parents.
“Honestly, we didn’t know if we’d be able to find anything in Missoula,” Malek said. “We kind of thought we’d have to leave.”
The Montana Free Press reports that a year later, though, Malek is still in her home, not far from where her father and uncle once rented a pasture to graze their sheep. Last month, a resident co-op — where she’s the board president — purchased the structures, giving it control over rents and maintenance spending. A nonprofit land trust administered by the North Missoula Community Development Corporation bought the underlying land, guaranteeing it will provide Missoula with much-needed affordable housing in perpetuity.
The ingredients that made that transition possible? Nonprofit-led organizing, resident tenacity, a flexible seller and some help from public housing dollars.
“This is a great stable tenancy option,” said NMCDC Executive Director Brittany Palmer. “You do get some version of home ownership and tenancy control, but you get to share some of the burden with your neighbors.”
“Basically, what we did was unionize our little area here,” said another resident, Montana Gaddis. “We took control.”
The cluster of homes, now the River Rocks Cooperative, is the second limited equity housing cooperative NMCDC and NeighborWorks Montana have helped organize in Missoula in recent years, building on similar work NeighborWorks has done with mobile home park residents. The first, the Wolf Avenue Collective, finalized the purchase of eight units in a three-building complex on Missoula’s north side in May.
Palmer said she and Kaia Peterson, NeighborWorks’ executive director, learned of the dilemma facing the River Rocks residents and reached out to the prior owner through his local property management company. They found he was interested in selling in an arrangement that would avoid displacing his tenants, many of whom have lived in their homes for decades.
Palmer said she and Peterson printed flyers and walked door to door through the property, inviting residents to a meeting intended to kickstart the organizing necessary for them to establish a housing cooperative.
At first, Malek and Gaddis said, they and other residents, who in many cases didn’t know each other well, were apprehensive.
“At the beginning, everyone was pretty Montana about it — pretty stand back,” Gaddis said. “Everybody needed some clarity on where everybody stood, and then we got comfortable with each other.”
Over time, with encouragement from the nonprofits, the group congealed, meeting once or twice a month to work through the tricky logistics of incorporating as a cooperative association with the wherewithal to purchase the property. They hammered out how much rents would have to rise to buy the property and catch up on some overdue maintenance, including new roofs for some of the homes. They worked through several drafts of their new bylaws, formed a board of directors and hired a property management company to collect rent checks and coordinate repairs.
“We had to have some dark conversations, you know — what if this doesn’t work?” Gaddis said.
“I think it took a few meetings for everybody to really understand what was happening, that we could really save our homes,” Malek said.
The seller was accommodating, giving the group time to organize instead of immediately putting the parcels that are now part of the cooperative up for sale. The city of Missoula chipped in as well, providing a $330,000 grant from its affordable housing fund to help NMCDC purchase the land so it could be placed in the trust.
The sale closed in September. Malek, Gaddis and many of their neighbors are now their own landlords.
“Once the paperwork was signed,” Malek said, “it was just a weight off our shoulders.”
NeighborWorks and NMCDC published a formal case study this summer on their prior co-op project, the Wolf Avenue Collective. As was the case with River Rocks, the nonprofits became involved with residents who were worried that Missoula’s gentrification was putting their relatively affordable rental housing at risk of redevelopment.
While the River Rocks Cooperative took about 10 months to come together, the nonprofits wrote that organizing the Wolf Avenue Collective took two years — long enough that they ended up finding a third party who could buy the property from the original seller and hold it until the Wolf Avenue residents were ready to assume ownership.
It took $987,000 to get the Wolf Avenue project off the ground, the case study indicated — including $300,000 to purchase the underlying land, $521,000 for the buildings and $115,000 for immediate window and electrical upgrades. Other costs included real estate transaction fees and seeding a reserve account for unexpected expenses.
As was the case with the River Rocks project, the Wolf Avenue land was bought and placed in a land trust by NMCDC using city housing grant funds. The co-op itself purchased the buildings, using a combination of dollars from member shares bought by residents and a loan issued through NeighborWorks.
Placing land ownership in a trust, where it is then leased to the co-ops, reduces how much financial burden the residents have to take on. The arrangement also ensures the land will be used for affordable housing on a permanent basis. For example, Palmer said, the leases NMCDC signed with the resident co-ops require them to keep rents below market rates.
Additionally, having the land in nonprofit ownership also exempts it from property taxes. However, the co-op, which state law considers a for-profit entity, does pay property taxes on the value of the structures.
NeighborWorks, which offers housing financing, was also able to work with both co-ops to help them obtain below-market rates on loans. That means lower monthly payments than if the co-op members were taking out individual home loans.
The Wolf Avenue co-op loan is amortized over 40 years, Peterson said, as opposed to the 30-year term common for conventional home loans, and the nonprofit was able to offer the co-op a favorable 3% interest rate.
Borrowing $250,000 on a 30-year loan with 7% interest, for example, requires monthly payments of about $1,660 without factoring in insurance or property taxes. At a 3% rate on a 40-year loan, the equivalent payment is about $895 a month.
“We’re not looking for fast repayment — we’re looking to spread that cash payment over a long period of affordability,” Peterson said.
Resident-owned co-ops, Peterson said, have to do the same sort of financial planning that a traditional landlord would — building a budget that factors in expenses such as taxes, repairs and mortgage payments, then working out what rents are necessary to keep their bottom line in the black. The difference, though, is that a co-op isn’t trying to make a profit on an investment, which keeps that line item out of the math.
The budgets the nonprofits helped the two co-ops develop factor in some level of vacancy and unpaid rent, just like a for-profit investor would, Peterson said. But the nature of the arrangement means that residents are jointly responsible if someone falls behind on rent or needs major repairs to their home.
“Ultimately, yes, the co-op is on the hook,” Peterson said. “As a business they’re running with their neighbors they have to be financially viable.”
Particularly when it comes to maintenance, sharing the burden can be an advantage for lower-income residents. When, for example, a roof needs to be replaced or a heater breaks the bill can be paid through the cooperative’s repair fund instead of dropping a potentially unmanageable expense on a single family.
Malek said that addressed a major concern her family had about being homeowners.
“We’re able to help each other out — like a friendly business,” she said.