Spotlights on Housing Co-ops

Spotlight on Park Forest
Spotlight on Walton Park Manor
Spotlight on Blackstone Cooperative

"Spotlight on Park Forest"

 By John A. Ostenburg

Park Forest, Illinois, is a city of approximately 25,000 residents, some 6,500 of whom today reside in five separate housing cooperatives. The city began as the post-World War II brainchild of Philip Klutznick, a governmental worker in the Roosevelt and Truman administrations who later became an ambassador to the United Nations and Secretary of Commerce under President Jimmy Carter. Working with Nathan Manilow, a Midwestern builder, Klutznick took some empty prairie land about thirty minutes south of Chicago and created one of the first totally planned suburbs in the United States.

According to the Klutznick-Manilow plan, the first phase in building Park Forest was to construct some 3,000 rental townhouses around a central shopping mall and other community facilities. Then, with this nucleus in place, the second phase was the building of detached houses, mostly smaller, two and three bedroom ones. The final phase was the construction of larger single-family residences, many   split-level and custom-built.

As the second phase of individually owned houses got underway in the early 1960s, the developer had increasing difficulty in keeping the townhouses rented. Too many tenants were buying the new houses. FCH, the operating arm of the Foundation for Cooperative Housing Services, Inc., was retained to convert some of the townhouses to cooperative home ownership, thus diversifying the market. A FHA insurance commitment under Section 213 of the National Housing Act enabled conversion of the 370 townhouses in “Area B,” which was then almost half vacant. Sales were slow at first, but when the down payments were reduced to $200, the amount of security deposits then being required of all tenants, Area B was sold out and converted to co-op ownership in a few weeks.

Initially, co-op residents and the various boards of directors that represented them were interested primarily in the governance of their own corporations and paid little attention to the affairs of local government. Eventually, however, it became obvious that government could make decisions that had a huge impact on the manner in which the housing corporations operated and on how they provided services for their residences.

Among of the more troubling actions by local government that brought this awareness were:

·        highly restrictive plat covenants that limited opportunities for expansion and for providing some outdoor amenities;

·        an extremely costly tree-replacement program that the co-ops, as businesses, were obligated to follow even though single-family residents were not;

·        a move-in/move-out inspection program by the local municipal building department that was redundant to inspection programs already underway within each of the co-op corporations;

·        a general treatment of the co-ops as simply rental property rather than as housing corporations whose shareholders were the owner-residents.

An even more troubling development came when a Chicago legislator proposed a bill in the Illinois General Assembly that subjected all housing co-ops in the state to the Illinois Open Meetings Law, thus imposing different restrictions on boards of directors for housing co-ops than for any other Illinois-based corporations.

Park Forest’s co-op residents successfully united to fight each of these impositions and to make their voices heard politically. In the process, they not only influenced government to alter its positions, but also created a system for making sure they were properly represented in government from that point on. In the years since then, co-op residents have been elected as state representative, as mayor of Park Forest, as a member of the Park Forest city council, and as president of the Park Forest school district. Other co-op residents have been selected as chairperson for the city’s Environment Conservation Commission, as vice chairperson for both the Plan Commission and the Commission on Human Relations, and as members of the Cable Television Commission, the Zoning Board of Appeals, the Fair Housing Board, the Equal Employment Opportunity Commission, the Parks and Recreation Advisory Committee, and the Park Forest Housing Authority. In addition, no one seeks elective office in the Park Forest area today without appealing to residents of the five housing co-ops for their support.

How Influence is Generated and Sustained

The battle to stop the Illinois legislature for enacting unfair regulations for meetings of the housing co-op boards of directors was the first unified effort by Park Forest co-op residents to influence government. The battle plan included hundreds of letters that were written to several legislators, not just to the ones who represented the legislative district in which the co-ops were located. Lobbying visits to the Illinois State Capitol by a group of co-op residents followed, with many of the same legislators receiving a face-to-face pleading of the case. On the day the bill was debated on the floor of the House of Representatives, several legislators rose to explain that they had no co-ops in their district but they were voting “no” on the bill because they had heard from so many co-op residents who did not want these restrictions imposed. Overwhelmingly the bill was defeated, even though it earlier had sailed out of the House Judiciary Committee with hardly any objection at all.

The success of the lobbying effort with the legislature made directors of the co-op board aware of how much potential influence they bring to bear on important governmental matters. They quickly closed ranks to improve voter registration among their residents and to improve voter turnout at elections. Soon the co-op precincts began to show the highest turnout in local elections of all precincts in the town. That fact, combined with the election of a co-op resident as a city council member, caused local elected officials take notice.

As elected officials began to understand the electoral power of the co-op residents when they voted in a bloc, the doors of city government began to open wider to co-op officers and staff. Meetings between the mayor and presidents of the co-ops began to occur, as did meetings between the city manager and the managers of the five co-op corporations. Department heads within the city government began to contact co-op managers for input on public projects that were scheduled to take place within the geographic region of the co-ops, and to communicate more freely on other issues of local government.

Although the degree of cooperation and communication between the city and the co-ops has faltered at times, it gets back on track very quickly as soon as co-op residents raise their voices in unity again at the polls. Overall, such lapses occur far less often today than they have in the past.

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Walton Park Manor Cooperative

By Altoria Bell Ross

Nakita Webber used to be a reserved seventh grader with average grades at Jefferson Whittier Middle School. Then a year ago, the 12-year-old got involved with programs offered at her co-op, Walton Park Manor in Pontiac, Michigan. "I used to be quiet. Now I'm outspoken. I used to sit at home," she says. "Now I'm out there."

 Nakita is out there working in the community as vice president of the Walton Park Junior Board, as a Big Sister to a three-year old girl and seven-year old boy, and as a volunteer writer and desktop publisher for a community newsletter through the Venturing program of the Clinton Valley Boy Scouts Council. "These programs have had a big impact on my life and educational skills," says Nakita, who is now an honor roll student.

The ability of Walton Park to offer these youth programs for 5- to 18-year olds, along with a score of others, is possible through a $75,000 three-year grant from the United Way of Oakland County. Based on Walton Park's work with its junior board, the United Way in partnership with Michigan State University Extension approached the co-op, along with three other low- to moderate-income communities, to participate in the Pontiac Neighborhood Youth Initiative, a pilot program that provides neighborhood community center support services. Michigan State trained co-op members to go door-to-door conducting surveys to determine the type of services members needed and later recruiting youth to participate in the programs. Michigan State also assisted the co-op's adults and youths in asset mapping, a process whereby the participants used household items to illustrate what their community would look like if they had designed it. "We wanted the community members to tell us what programs they wanted in their communities," said Rose Culpepper, community outreach coordinator at United Way of Oakland County, the only United Way in the state to offer this program. "The intent of the grant was to empower the residents."

 This empowerment came around the same time HUD gave Walton Park permission in 1999 to convert a two-bedroom townhouse into a youth center with the bedrooms as staff offices, the basement serving as a meeting place for youth programs, and the living room as the YAPO Computer Learning Center. In addition to Nakita's groups, Walton Park provides other youth services and programs onsite through the Michigan Metro Girl Scouts Council, Campfire USA, Big Brothers & Big Sisters, Oakland Family Services, and the MSU Extension 4-H Club.

 Nine-year old Aaron Barnett enjoys the 4-H, an organization that takes youth on cultural field trips and work with them on coping skills, making positive decisions, anticipating change, and maximizing their skills and interests to benefit their communities. "I like how we get to learn about different countries and languages," he says of a recent field trip to the 4-H club at the Kettunen Center in Tustin, Michigan. "It's a fun experience."

Barnett also likes using the Internet on one of the 10 computers at the YAPO Computer Center. His brother 14-year-old Alton Barnet, II, who is well versed in several software programs, helps some of the 20 students who come to the center with their computer skills after school. "You really learn leadership skills," said the 12-year member and president of Walton Park's junior board who also spends five hours a week studying at the center.

The center, which is opened every day but Sunday, is not just for youth, says program director Yolanda Terry, who was hired by the co-op's management company, Huntington Management. Seniors are encouraged to tell children stories from manuscripts they have typed on the computers, and the center has open lab time for the community. The Clinton Valley Boy Scouts Council, through its Explorer program, also uses the center to teach youths and adults how to build and upgrade computers. Technology Integration Group Services and U.B. Consulting, companies that have existing relationships with the co-op, donated the training and the memory for the computers. The computers then were given to the community.

Joe Bradley, board president, says facilitating the grant has been a learning experience. "Year one was overwhelming," he said. "It was a new initiative. We had two many programs serving the same age group competed against one another. However, Bradley said by the second year, the co-op had worked out the scheduling problems.

In addition to the various youth organizations that operate at Walton Park, the co-op's junior board, which receives United Way dollars, is vibrant. The first board petered out in 1997 when its members went to college; the current board was born again two years later and now meets twice monthly to discuss strategies to recruit more youth for programs, organizes fundraisers for such educational opportunities as attendance at the NAHC annual conferences, and holds annual management meetings.

Walton Park's leaders suggest co-ops that are seeking similar funding should organize youth into councils and survey them and other members to find out their needs. Then build goals and visions around them, while including the youth in the process. Walton Park's leaders also recommend contacting the local United Way, youth service organizations, area schools, universities, and businesses to ask if they would be interested in doing community outreach programs. This initiative just might garner young leaders for your co-op like Nakita, Aaron, and Alton--valuable resources for the future.

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Walton Park Manor Cooperative, built in 1970, is a 221(d)(3) limited equity co-op with Section 8 funding. It is located in northwest Pontiac, Michigan, two miles from I-75. Its current monthly carrying charges range between $440 and $550. The 401 Walton Park members live in 25 one-bedroom, 134 two-bedroom, and 20 three-bedroom townhouses.

"Spotlight on Blackstone Cooperative"

Blackstone Manor Cooperative is a 373-unit limited equity co-op originally built in 1949 by the Smokler Company as one of its several apartment complexes in the northwest Detroit area. In 1964, it was converted to cooperative homeownership under the Foundation for Cooperative Housing’s consumer sponsor program with financing insured under Section 213 of the National Housing Act. Its current monthly carrying charges range between $230 and $282. With its close proximity to expressway access, shopping, and community services, it provides housing opportunities for both senior citizens and young professionals.

Of its 373 units, Blackstone Cooperative offers 34 two-story, two-bedroom townhouse units, and 48 one-bedroom units, and 291 two-bedroom configured in two-story stacked apartment buildings. Upon the retirement of its HUD-insured mortgage, the Blackstone Cooperative Board of Directors reallocated its former annual mortgage budget funds ($183,000) to capital improvements for the infrastructure of the buildings and future plans include improvements to the landscaping.

Blackstone Cooperative Revisits Mortgage Payoff in Hindsight

By Ralph J. Marcus

Editor’s Note: Mortgage payoff is fast approaching for many co-ops. Cooperative boards have many questions about their options. Members can learn from the experience and hindsight of the 373-unit Blackstone Cooperative in Detroit, Michigan, that retired its HUD-insured mortgage in 1999. The co-op formed a special committee years before payoff, and, after several membership meetings, the board adopted a written Mortgage Payoff Plan of Action that covered an assessment of the co-op’s position in the marketplace, bylaw changes, changes to the equity transfer values schedule, capital improvements, and a policy not to lower carrying charges.

As in every important business decision, the most beneficial aspect of considering the various options is to have accurate information. The ability to assemble the historical data for the replacement of all major housing components was of critical importance in laying out the financial picture for the membership at Blackstone. While the co-op did assemble much of the replacement inventory data from its files, in hindsight, it may have been cost justified to employ additional personnel, on a short-term basis, to retrieve housing component replacement records from the archives that would complement the last decade of information contained in the computer system. Also, it may have been fruitful to conduct unit-by-unit inventory inspections on all 373 units. In this regard, it would have been advantageous to use the archives to compile an electronic file for the major replacement items for each unit over the past 30 years and to use the inspection process to obtain a current day visual inspection of the condition of the major housing components and their actual remaining useful life. If other co-ops see the additional benefit of the unit-by-unit inspection process, I recommend beginning early and allowing extra time to compile the historical data.

Blackstone adopted a plan to increase the limited-equity values scheduled in the bylaws. Blackstone took a conservative approach to equity adjustments by phasing in the increases over several years, in order to keep the cooperative membership and equity “buy-in” values affordable. Blackstone is glad that the equity values were not increased greater than they otherwise were, because as wise as this delayed equity schedule was, the number of move-outs experienced since the payoff of the mortgage has been greater than expected. We knew there would be a large exodus if the co-op approved an immediate change to market-rate equity. One would have thought that the modest equity increases that were adopted would have moderated the number of members taking advantage of the equity increase and “cashing out.” 

In addition, the greater than expected number of members moving out has negatively impacted the maintenance repair program budgets for the last two years. Typically, the co-op experiences about 20 move-outs per year. For 2001, the co-op had about 38 move-outs  --almost double. Thus, the maintenance costs increased due to the rehabilitation program for vacant units. When a unit becomes vacant, many of the unit components are updated. All wall stress cracks and other plaster imperfections are repaired; ceramic tile back splash above the kitchen countertops are installed; floor tiles are replaced as necessary; bathtubs are reglazed; wooden doors refinished, and the like. In short, the unit is updated in total as needed. These updates are completed at the co-op’s expense both in labor and materials. Obviously, the greater number of move-outs affected the maintenance expense categories. The co-op experienced budgetary overruns in several maintenance and repair related accounts to the extent that the co-op either had to use reserve funds or increase the monthly carrying charges to offset these increases. Management also needed to allocate maintenance staff time to handle routine maintenance repairs for these move-out units and was not able to complete a number of planned maintenance events in 2001, such as the basement storage locker inspection program and other non-essential preventive maintenance programs. However, volunteers assumed a portion of the basement inspections and kept some momentum for this program.

Notwithstanding the additional number of move-outs and its impact on various budget accounts and time allocation of staff, taking the conservative approach to increasing the equity values in steps over five years was a good business decision. Not only will there be some control over equity related expenses (i.e. increased real estate taxes), the membership will have the opportunity in the summer of 2003 to review the status of the scheduled equity increases and again vote to consider amendments to the equity values.  In this regard, the co-op has maintained control over future economic conditions and not locked itself into a long-term equity plan that may conflict with the successful operations of the co-op.

On the financial side of the mortgage payoff equation, the annual savings from mortgage interest and principal ($183,000 per year, or $41.00 per month, per member) is being used to fund capital improvement programs such as electrical service improvements, galvanized water pipe replacements, and furnace/boiler replacements. Given the age of the co-op’s buildings (constructed in 1949), the decision to maintain the current level of carrying charges after the mortgage payoff was appropriate. 

While the board’s plan of using the former mortgage principal and interest funds to finance capital improvement programs was well conceived, the co-op now has come to learn that a fairly large number of cooperative members now support an accelerated plan to complete the electrical and plumbing improvements. In looking back, it may have been wise to take a more aggressive position with respect to acquiring new financing to complete the capital improvement programs “today” as opposed to planning the completion of the capital improvement programs over a four-to-five year period. On the positive side, the more conservative approach bore out the membership’s willingness to acquire the financing, and I am not so certain that the membership would have voted for the aggressive plan in the first instance.

All in all, the best decisions were made on the more significant aspects of the Mortgage Payoff Plan of Action. Attending the various mortgage payoff workshops at the NAHC Annual Conferences over the past five years and obtaining the expertise of the trainers on this topic (as well as other topics) proved to be an invaluable resource.

Ralph J. Marcus is the president of Marcus Management, Inc. Marcus Management is a family owned and operated property management company specializing in cooperative housing management in Detroit and its surrounding suburbs for over 30 years. Marcus Management currently manages 10 cooperative housing communities including three 213 co-ops, five 221(d)(3) co-ops and two 236 co-ops.