RESEARCH REPORT February 2020 Creating and Sustaining Limited Equity Cooperatives in the District of Columbia Authored By: Kathryn Howell, PhD Urban/Regional Studies and Planning Program, Virginia Commonwealth University Scott Bruton, PhD Coalition for Nonprofit Housing and Economic Development Anna Clemens, MURP Urban/Regional Studies and Planning Program, Virginia Commonwealth University Prepared By: Coalition for Nonprofit Housing and Economic Development Acknowledgements This report would not have been possible without the support of the resident-owners who took time to respond to surveys and participate in interviews and focus groups, which allowed the authors to understand the origins of their buildings and the opportunities and challenges of living in, owning, and managing Limited Equity Cooperatives (LECs) in the District of Columbia. In addition, the technical assistance providers, organizers, attorneys, District agency staff, and lenders who connected us to residents and shared their experiences working with LECs were critical to understanding the full process. Additionally, students in the Virginia Commonwealth University’s Masters of Urban and Regional Planning program’s Housing Policy course contributed to this study through conducting interviews and developing background research during the spring 2019 semester. Peter Tatian (Urban Institute) provided valuable feedback, which improved this report. The authors also would like to thank the following funders for their generous financial support, without which this study would not have been possible: the District of Columbia Department of Housing and Community Development (DHCD), Capital Impact Partners (CIP), National Cooperative Bank (NCB), and the Local Initiatives Support Corporation of the District of Columbia (LISC DC). About the Coalition for Nonprofit Housing and Economic Development Established in 2000, the Coalition for Nonprofit Housing and Economic Development (CNHED) is an association of 140 organizational members working to foster just and equitable community development solutions that address the needs and aspirations of low-and moderate-income District of Columbia residents. CNHED’s members represent a broad spectrum of nonprofits, for-profits, and government agencies that build, preserve, and manage affordable housing; protect tenants’ rights; provide homeownership counseling; advise and lead capital to small businesses and community projects; connect residents to career pathways; deliver critical family services; and engage, represent, and benefit low-and moderate-income residents of the District. Through the power of convening diverse stakeholders, CNHED advances effective advocacy, public education, capacity building, practical research, and information sharing. For more information, visit cnhed.org. About the Urban/Regional Studies and Planning Program, Virginia Commonwealth University The Urban/Regional Studies and Planning Program at Virginia Commonwealth University envisions a better future by enhancing the quality of life in mature communities and regions, particularly in Virginia, but also elsewhere in the United States and abroad, through strong planning education, high-quality scholarship, and professional planning practices. The program creates a diverse learning environment that cultivates engagement of diverse participants—both students and faculty; it prepares students to be effective practitioners in a variety of planning-related organizations, especially in urban communities and regions, with competence in the preparation, presentation, and implementation of professional plans and in doing planning-related work; it produces scholarship that increases knowledge and understanding of sustainability and planning support systems, as well as the development of innovative methodological approaches and solutions to address issues related to sustainable community development; and it Provides useful planning services to urban communities and regions, in cooperation with private and public planners, as appropriate. Creating and Sustaining Limited Equity Cooperatives in the District of Columbia ii Executive Summary Limited Equity Cooperatives (LECs) provide a critical source of affordable homeownership, stable community networks, and political power in neighborhoods across the District of Columbia. The District is home to 96 LECs, representing more than 4,300 units in all 8 wards (Figure 1). While a third are located in Ward 1, due to ongoing patterns of gentrification and displacement, Ward 4 has seen recent growth in the number of buildings opting to become LECs. The LECs in the District have been created steadily over the past four decades and represent a mix of building types, sizes, and resident-owner communities. Increasingly, LECs are being created in newly gentrifying neighborhoods in Wards 4, 5, 7, and 8. These buildings are home to households native to the District, as well as those who have arrived in the past year; immigrant households from Ethiopia, Guatemala, Eritrea, Mexico, and El Salvador, among many other countries; and households with children, seniors, couples, and young, single-person households. What is consistent is that these households have been able to enjoy the benefits of homeownership— stability, community engagement, and consistent networks—in communities that have become unaffordable to others like them. In 2004, the Coalition for Nonprofit Housing and Economic Development (CNHED) produced, A Study of Limited-equity Cooperatives in the District of Columbia, which sought to create: (1) a list of all 81 LECs established in the District of Columbia since 1977, and an inventory of those 57 still functioning; (2) an understanding of the financial and social benefits of living in LECs; (3) a picture of the relative financial health of existing LECs; (4) an understanding of the characteristics of successful and poorly performing LECs; and (5) recommendations to make future LECs stronger and existing LECs better equipped to succeed.1 CNHED’s report found that LECs were a critical resource for ongoing affordability and community stability and that the bulk of LECs were stable and able to maintain the health of their membership and integrity of the property. The report noted that LECs represent a critical affordable housing resource, offer low- and moderate-income households an opportunity for homeownership, and prevent displacement across the District. Importantly, the report established that for those LECs experiencing problems, “Severe financial distress experienced by limited-equity cooperatives is both fixable and preventable.”2 To better support long-term LEC success, the report recommended that LECs should receive ongoing technical and asset management assistance to help them to develop resources for governance and financial stability. Since the publication of CNHED’s 2004 report, the housing and political landscape in the District has changed dramatically. Increased demand from new, upwardly mobile, and high-income residents and rising rental and home sale prices have made the need for affordable housing more acute in nearly every part of the District. Neighborhoods that were once stable communities for low- and moderate- income households have become inaccessible to all but high-income residents, and much of the District’s unsubsidized affordable housing has been lost to condominium conversion, redevelopment, and loopholes in the District’s rent control laws. The lack of affordable housing has led to significant 1 Coalition for Nonprofit Housing and Economic Development (CNHED), “A Study of Limited-equity Cooperatives in the District of Columbia” (Washington, DC: Coalition for Nonprofit Housing and Economic Development, Spring 2004). 2 Ibid., 20. Creating and Sustaining Limited Equity Cooperatives in the District of Columbia iii housing instability across the District and resulted in out-migration of its long-term African American residents.3 Figure 1: Limited Equity Cooperatives in Washington, DC Source: DC GIS, VCU Analysis 3 Jason Richardson, Bruce Mitchell, and Juan Franco, “Shifting Neighborhoods: Gentrification and Cultural Displacement in American Cities” (Washington, DC: National Community Reinvestment Coalition, 2019). https://ncrc.org/study-gentrification-and-cultural-displacement-most-intense-in-americas-largest-cities-and- absent-from-many-others/. Creating and Sustaining Limited Equity Cooperatives in the District of Columbia iv These growing costs for housing complicated the picture for new and existing LECs, as demand grew in formerly disinvested neighborhoods. Tenant associations hoping to purchase their buildings through the Tenant Opportunity to Purchase Act (TOPA) continue to face intense pressure for their members to take buyouts to leave their homes or to agree to extraordinary rent increases for future tenants, resulting in a loss of community and residential and rent level stability. At the same time, the shifting landscape of District funding has made tenant associations’ ability to convert to an LEC and fund large-scale repairs unclear. This changing funding landscape coexists in a context where there is little public information about what an LEC is, as well as how to exercise TOPA rights, register as a tenant association, or apply for acquisition and rehabilitation funding, much less undergo renovations. Figure 2 illustrates the total cost (right axis) and per unit cost (left axis) of buildings that received TOPA notices between 2013 and 2019. Land prices across the District continue