The following article appeared in the July 10, 2001, issue of Eli's Senior Housing Report
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Development Update


Seniors may sell their homes to move into independent living communities, but they are far from ready to relinquish control of their new environments. That's why they're buying into senior apartment cooperatives in growing numbers, and developers hoping to take advantage of this latest trend in affordable senior housing should consider financing such ventures, say industry experts.

Co-ops attract independent seniors with moderate incomes who want the benefits of a senior community and control over how the community is managed, lender and developer Terry McKinley, regional vice president with the Minneapolis office of National Cooperative Bank and NCB Development Corp., told attendees at a session of the Assisted Living Federation of America's conference in

Rather than purchasing units, seniors buy a share or membership in a cooperative corporation composed of other shareholders who own and control the operation of the building or community. Membership in the co-op gives seniors the right to live in a particular unit and receive the same tax benefits as homeowners. Members also accumulate equity on their shares, which in one co-op cost between $22,000 and $45,000, McKinley noted.

In addition, co-op members pay a fixed monthly fee that covers all basic expenses, including property taxes, maintenance, insurance and utilities. Since members collectively set the monthly housing costs, these fees cannot be changed without warning.

McKinley added that many cooperatives hire management companies to operate the community but elect a board of directors to make all of the decisions. "They set the budget and hire staff and really run the building," he observed, noting that that can present difficulties for managers who are used to having control.

Advantages for Developers

Developers discouraged by the lack of financing from conventional lenders for independent living construction projects should look to federal funding earmarked for senior co-ops. Most of the projects McKinley has supervised are financed by the Department of Housing and Urban Development's Section 213 loans (see related story on page 81).

Most lenders, including HUD, require a pre-sale agreement, which usually means that the buyer has signed a purchase contract and made a down payment. Typically, it takes about a year to reach the 90-percent pre-sale agreement mark required by HUD and other lenders. McKinley pointed out that local financiers might be more flexible than HUD on what constitutes a pre-sale agreement. Developers, rather than the co-op members, would be responsible for unsold units, according to McKinley.

Another plus for developers is that co-ops have very low turnover rates. McKinley noted that units in the first cooperative he developed 25 years ago are still owned by the original buyers. "It's 100 percent occupied and has an eight-year waiting list," he added.

While co-ops are gaining popularity in rural communities, McKinley and others advise developers not to expect to fill these units as fast as they would in urban areas. Seniors in rural areas tend to be more resistant to moving and will take longer to make such decisions.

Some of the co-operatives funded by the Homestead Housing Center, a non-profit seniors housing development organization based in St. Paul, MN, underwent loan workouts because seniors were slow to move in, observes Doug Kleine, executive director of the National Association of Housing Cooperatives in Washington, DC.

Mega-communities that already have the senior for-sale market cornered could shut out smaller companies considering moving into the affordable for-sale market, explains Geoffrey Brown, president of USA Properties Fund Inc. of Roseville, CA. Brown says that his company considered developing co-ops as a product type "but couldn't make the economics work on the pro forma," owing to the competition of another large builder in the region.

Even so, the demand for co-ops will continue to gain momentum. Seniors have been asking for ownership alternatives for a long time, and the market has been slow to provide these options, observed McKinley.

Moreover, seniors in the 65 to 75 age group outnumber by a 2-to-1 margin older age cohorts who need more services, and developers haven't focused enough attention on accommodating the needs of this new low-acuity market.

"The co-op, by its common ownership, creates a community that I've found unmatched in any other form of housing," concluded McKinley.

Editor's note: For more information on co-ops for senior, contact the following organizations: Cooperative Services Inc. at 248-967-4000, the Homestead Housing Center at 612-451-4930 and the National Association of Housing Cooperatives at 202-737-0797.

Federal Funding


Senior housing developers looking for money to finance independent cooperative projects may find the loan package they need through programs offered by the Department of Housing and Urban Development.

Loans for affordable senior housing are available through HUD's Section 202, 213 and 221 programs, Doug Kleine, executive director of the National Association of Housing Cooperatives in Washington, DC, tells Eli.

"Section 213 is specifically for co-ops and is so successful that it returns the mortgage insurance premium as a dividend every year back to the co-op," says Kleine. "It has some wonderful features, such as 98-percent loan-to-value and a 40-year mortgage," and is available for both nonprofit and for-profit projects. He adds that the 213 program does not require that developers budget for a vacancy allowance, whereas other programs require a monthly fee based on a vacancy

Section 213 applicants must meet pre-sale requirements, which eases the application process, according to Terry McKinley, regional vice-president of the Minneapolis office of National Cooperative Bank and the NCB Development Corp.

Kleine notes that the Section 213 per-unit mortgage rates are long overdue for a boost and expects Congress to pass a 25-percent increase this year.

Editor's note: For more information on Section 213 loans, go to; see for more on Section 221 loans; see for more on the Section 202 program.

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