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Permanent Real Estate Cooperatives: Building a Sustainable and Equitable Future

CEO Khai Intela
Caption: East Bay Permanent Real Estate Cooperative (EBPREC) is a pioneering movement cooperative that aims to transform neighborhoods and disrupt racialized inequality. The Vision The East Bay Permanent Real Estate Cooperative (EBPREC) is revolutionizing the...

Image Caption: East Bay Permanent Real Estate Cooperative (EBPREC) is a pioneering movement cooperative that aims to transform neighborhoods and disrupt racialized inequality.

The Vision

The East Bay Permanent Real Estate Cooperative (EBPREC) is revolutionizing the concept of cooperative real estate with their innovative model called the Permanent Real Estate Cooperative (PREC). This model seeks to remove land from the speculative market and place it under community stewardship, effectively decommodifying land and empowering structurally excluded communities. By enabling community control and addressing the root causes of racialized inequality, PREC aims to create a sustainable and equitable future.

Unlike conventional housing cooperatives, PRECs are "movement cooperatives" that not only provide housing but also work towards transforming local neighborhoods and systems of finance and land ownership. With hundreds or even thousands of members, PRECs empower communities to take ownership of their land and buildings, ensuring that their collective future is no longer determined by wealthy speculators, large companies, or absentee landlords.

In collaboration with the People of Color Sustainable Housing Network, EBPREC was officially incorporated in 2017. Through community design sessions and participatory governance structures, the cooperative has become an autonomous organization led primarily by women and people of color. It is expected to take title to its first property in late 2018 or early 2019 - a Berkeley home donated for joint stewardship by EBPREC and the Oakland Community Land Trust.

The Model

The Basics

Entity structure

PREC is a cooperative corporation that offers three significant perks. Firstly, decision-making is based on a one-member one-vote basis, ensuring that democracy is embedded within the legal structure. Secondly, cooperative corporations are limited in their ability to generate high returns on capital, preventing the concentration of wealth among a few individuals. Lastly, thanks to a recently passed law, PRECs can raise capital by selling membership shares for up to $1,000 each.

Decentralized organizing and governance structure

One of the key features of PRECs is their decentralized nature. Rather than having decisions made by individuals at the top of governance hierarchies, PRECs encourage grassroots involvement in land and housing acquisition and development. Members can self-organize, raise capital, search for properties, and shepherd housing into the cooperative, with the board and staff serving a supportive role.

Homebuying

PREC members who live in cooperative properties pay a "purchase" price for a long-term "diminishing rent lease," which simulates direct homeownership. Over time, monthly payments are reduced as residents pay off the purchase price. This approach gives residents the experience of homeownership while maintaining affordability.

Resident control

While the cooperative sets minimum maintenance standards, most decisions related to the property are controlled by the residents themselves. This ensures that the cooperative is truly community-driven and reflects the needs and aspirations of its members.

Price stabilization

When a member decides to sell their lease, they receive a predetermined price that includes a modest return on their purchase price, tied to an index such as the Consumer Price Index. This approach keeps housing affordable for the next buyer and eliminates the bidding process that often favors the wealthy. By removing the speculative market, communities can allocate housing and land resources more equitably.

Title and long-term protection

The cooperative holds title to the land and housing and implements various restraints on its ability to sell properties. To prevent speculation in the long term, the cooperative grants multiple land trusts and other PRECs rights to enforce affordability restrictions and take ownership of abandoned projects.

FAQ on the Model

How are PRECs different from Community Land Trusts (CLTs)?

While both PRECs and CLTs share the goal of equitable and democratic control of land, there are some key differences. PRECs, as cooperative corporations, have a more flexible financing structure, allowing for multiple forms of capital. Unlike 501(c)(3) nonprofits, PRECs are not restricted to providing housing solely to low- and moderate-income individuals. PRECs can spread the expectation that everyone, regardless of income, should live in price-stabilized housing. Moreover, PRECs foster mutual aid and self-help, promoting empowerment among community members.

Where did PRECs come from?

The concept of the "Permanent Real Estate Cooperative" emerged from the Sustainable Economies Law Center, combining elements of CLTs, limited equity housing cooperatives, real estate investment cooperatives, and self-organizing social movements. The name PREC was chosen to distinguish this hybrid model from other existing models.

PREC: A movement for change

While a single PREC may not change the world, a widespread PREC movement has the potential to do so. As people reject the inequitable nature of conventional land ownership and financing structures, PRECs offer a solution. Anyone can join and support a PREC, irrespective of their intent to live in PREC housing. The decentralized organizing structure facilitates rapid scaling and leadership growth from the grassroots. The vision is to see PRECs in every community, stewarding multiple properties, and empowering individuals to join multiple PRECs.

FAQ on PREC Finances

What does it mean to buy an ownership share of the Cooperative?

The Cooperative initially sells ownership shares for up to $1,000 each. Purchasers can later redeem their shares at face value, along with a small rate of return, depending on the availability of funds. The Cooperative aims to pay a reasonable return (potentially around 2%) and provide value to owners in the form of good housing, jobs, education, and community-building.

What does it mean to buy into Cooperative housing?

Buying into Cooperative housing involves structuring the purchase to simulate homeownership as closely as possible. Instead of selling on the speculative market, owners sell their shares at a predetermined price, designed to provide a rate of return similar to a savings account. This price stabilization ensures affordability for future residents. Residents make monthly payments, with a portion allocated towards the purchase price. Once the purchase price and financing costs are paid off, monthly payments are significantly reduced.

How will the Cooperative finance everything?

The Cooperative aims to raise capital continuously to support the acquisition of many properties over time. While selling ownership shares generates some capital, the Cooperative also explores other forms of leverage, such as partnerships with banks, cities, and other institutions. Moreover, PRECs are designed to source capital from grassroots divestment movements, allowing individuals and businesses to invest in local communities rather than Wall Street. The cooperative will obtain a permit from the State of California to offer securities, allowing it to raise capital from ordinary people in the community through a direct public offering (DPO).

What will the Cooperative do with its profits?

Cooperatives prioritize benefitting their members, with profits being returned to owners in various forms. Dividends are used to improve the Cooperative's offerings and opportunities based on the interests and needs of owners. Owners who pay dues and participate in events and activities receive dividends as a refund. Resident owners receive additional dividends representing funds from their monthly payments not spent on maintenance and management. Dividends are often retained in owner accounts to serve as operating and reserve capital for the Cooperative and its properties.

In conclusion, East Bay Permanent Real Estate Cooperative is paving the way for a new era of cooperative real estate. By decentralizing ownership and empowering communities, PRECs are redefining the concept of homeownership, ensuring affordability, and building sustainable and equitable neighborhoods. With their innovative model, PRECs have the potential to change the world, one community at a time.

Disclaimer: The financial structures of East Bay Permanent Real Estate Cooperative are still evolving, subject to feedback and adjustment.

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