Financial Considerations
A cooperative is a way of sharing ownership and responsibility. Each member owns a portion of a very large “house”. Our cooperative is self-managed and maintained. This keeps it affordable for its members. Each member shares responsibility for the upkeep and management of the “house”.
A housing cooperative forms when people come together to own and control the building in which they live. They form a cooperative corporation and pay a monthly amount (Monthly Carrying Charge or MCC) which covers the building’s mortgage and operating expenses. The MCC also covers expenses associated with the studio. It is the cooperative that owns the building, land and any common areas. Each member buys a share in the cooperative to become part owner of the building and gains the right to occupy a studio in the building.
Limited equity cooperatives have a master mortgage on the cooperative. While this type of ownership does not require a member to go through the paperwork of getting a mortgage on their own, it does limit how much they can sell their share for in the future.
Transfer Values and How They Are Determined
Once accepted into an available studio within the cooperative, individuals purchase their share by paying that particular studio’s Transfer Value. With this purchase they become members with all of the legal rights and responsibilities of membership and are entitled to occupy the studio.
Each studio has a different Transfer Value based on a formula. This formula includes the cost of the original share plus interest, the original coop deposit plus interest, sweat equity, capital improvements and corporate assets. The original share for every studio was $100. The original cooperative deposit was determined by the studio’s size and location in the building. Each original member was required to provide sweat equity which included things such as painting walls and finishing floors. Over time some members have added permanent improvements to their studios with prior approval from the cooperative. Things such as additional walls, loft extensions and stairs are called capital improvements and change the Transfer Value of that studio. The corporate assets portion of the Transfer Value increases as the cooperative pays down the mortgage.
Each time an outgoing member sells their share they receive the Transfer Value from the incoming
member. It increases over time based on the formula above. In some instances members have removed capital improvements which then decreased the Transfer Value. When an outgoing member wishes to sell their share, a Transfer Value Worksheet is generated to determine the present value of the studio. This value does not include non-permanent fixtures such as stoves, refrigerators, freestanding closets and ceiling fans. These fixtures are owned by the outgoing member and can be sold to the incoming member. The fixture fees are determined by the outgoing member and are paid directly to them.
Once a member has decided to move, they remain members until a new member has purchased their share for the determined Transfer Value. The cooperative works as a whole to find new members as quickly as possible and sales of shares generally move quickly. Outgoing members remain responsible for the
financial and other membership commitments until a sale has been finalized at closing.
All information on the Transfer Values of each individual studio is available to all members and detailed
records are kept as the value changes over time.
Loans for Transfer Values
In our new member selection process, proof of ability to pay the Transfer Value must be included as part of the application packet. This can be in the form of bank statements or proof of loan approval letter. Check with your bank or other lenders about the possibility of a cooperative share loan. The Lowertown Lofts Artist Cooperative does not have loan money and is not responsible for obtaining loans for an incoming member.
Monthly Carrying Charges
The Monthly Carrying Charge (MCC) is an amount separate from the Transfer Value but also varies between studios. It covers the member’s portion of the mortgage as well as other expenses in the building. These expenses include property taxes, property insurance, building maintenance, district heat, water and sewer, payroll, bookkeeping, marketing, and trash removal among other things. The MCC differs depending on the studio size, the floor on which it is located and the direction it faces. There is an MCC Spreadsheet which determines each member’s MCC on an annual basis. This information is available to all members.
Have a question about financial considerations? Submit your question here and we will get back to you as soon as possible.