Profit Sharing Cotati Cohousing

PROFIT SHARING

COOPERATIVELY OWNED COMMERCIAL

In Cotati, California, there is a thirty-home cohousing neighborhood called “FrogSong.”

One of their eight buildings is mixed-use, with eight two-story lofts above and leased commercial frontage below.

I heard about their commercial space, owned by the homeowner’s association, and got a contact number for Stephen, the property manager, who lives in FrogSong. Stephen graciously shared their evolution with me.

The site was zoned for commercial along the main street (Old Redwood Highway). Cotati had no chain stores except for gas stations and storage units and wanted to keep it that way.

The biggest challenge was to convince the folks moving into FrogSong that keeping the ownership of the commercial was a good idea. It was a stretch for first time homebuyers, more risk than they wanted to take on. As it turned out, the cost of the commercial space was offset by profits from the sale of the homes, and 80% of the balance was repaid after refinancing the space with a bank loan.

Jim Leach, a developer of cohousing neighborhoods, along with the Cohousing Company of Berkeley and the homebuyers formed the development LLC that built FrogSong. Thanks to good project management, they had profits left from the sale of the homes. A new LLC was formed, with only one member, the homeowner’s association, and it bought the commercial space from the development LLC.

They hired a commercial realtor to lease out the property, 20 foot wide bays, 40 foot deep with a hall way in the back to common bathrooms (“Hallway running the whole length of the building is a lot of wasted space 5-6’ wide for handicap access”). They hired a second realtor to finish leasing out the spaces.

The 800 sf spaces turned out to be in demand, and spaces set up to be double or triple wide, (1600sf or 2400sf), were too big for the locally owned startup businesses the spaces attracted. Subway wanted to come in but was turned down, as it was a chain and there were already two restaurants in the building. (Some of the five heating and cooling units are now shared; it would have been better to put seven in at the start. Tenants don’t like having to share heating and cooling.)

PROFITS GO TO HOMEOWNERS

Some folks couldn’t come up with their share of the down payment on the commercial space, so other neighbors at FrogSong loaned them the money. In this way, each homeowner has an equal stake in the success of the commercial. This was deemed a better solution than having the commercial owned by outside investors or a small group (“less friction”).

Summer 2006. The original investment is paid back. All the profits from the commercial leases now go to the homeowners association and are used to reduce homeowner dues. About 1/5 of the association’s budget is covered by these profits. Dues cover insurance, utilities, landscaping, etc. Water is especially expensive, as much of it is pumped over the hills from another watershed.

The 13 diagonal parking spaces in front of the commercial are very tempting to the residents of FrogSong, especially those that live in the lofts above, but they’ve learned to not park there. Some of the interior parking is shared: employees during the day, residents who commute in the evening. By covenants, all business must close at 8pm. No tattoo parlors, no discos. The hair salon wanted to add a manicure station, but the covenants say no stinky nail stuff.

Stephen loves being able to run downstairs and charge his copying and the ease of shipping, not having to drive across town to UPS.

One bay was leased out to an engineering company (KEMA) from New England, who’s local representative was a resident of FrogSong. KEMA doesn’t need the whole bay, so it subleases office space to residents who need 200-300sf. “Turn-key office space…there is big demand for that,” Stephen said.

For up-to-date details about FrogSong and its commercial space, go http://cotaticohousing.org/faq.shtml#commercial

Beyond suburbia lives a spirited, mutually-beneficial neighborhood…We’ll meet you there!