Community Investment Cooperatives
Summary
Community investment cooperatives (CICs) that focus on real estate (also called real estate investment cooperatives) are community-owned and controlled cooperative financial entities that, similar to Community Investment Funds (CIFs), use members' shares and investments to acquire, redevelop, and steward local community-serving properties and land. As cooperatives, CICs uphold cooperative principles and often have an even stronger focus than CIFs on community organizing, engagement, and empowerment.
Rochdale Cooperative Principles:
- Voluntary and open membership
- Democratic Member Control
- Member Economic Participation
- Concern for Community
- Autonomy and Independence
- Education, Training, and Information
- Cooperation among Cooperatives
Advantages
Democratic control: Being cooperatives, CICs utilize the one-member-one-vote mechanism for decisions ranging from board membership to property acquisition to individual building income and expenses.
Example 1: Midway Investment Coop in Saint Paul is currently in the member recruitment stage and clearly states that “site(s) selection will be discussed and determined by the member-elected Board of Directors and with substantial engagement by the local community.”
Example 2: East Bay Permanent Real Estate Cooperative (EB PREC) is a cooperative of cooperatives where individual cooperative building residents make their own income and expense decisions.
Higher member engagement (requirement): Cooperatives foster and reinforce the sense of ownership for their members in part by requesting active member participation in cooperative functioning.
Example: Northeast Investment Cooperative (NEIC) stresses the importance of membership engagement and participation by including the following in their member application form agreement:
“The success of NEIC depends on member participation and active engagement in the life of the Cooperative. Member participation includes activities such as serving on committees or on the board of directors, helping to recruit business tenants, supporting our business tenants, attending member meetings and voting in elections, reading newsletters and other communications from NEIC, and providing NEIC with my current address and contact information.”
Legal limits on the ability to pay high returns on stocks: Preferred stock of cooperatives, which can be sold to non-members, usually has an 8% return cap per year as regulated by state statute and the Internal Revenue Service, meaning they legally cannot be vehicles for profit-maximizing.
Organizing as a key component: CICs are often a grassroots product with a strong community organizing component built-in well before the first membership share is sold. This quality lends CICs conveniently to its grass-top organizing (among organizations) efforts.
Example: New York City Real Estate Investment Cooperative describes the CIC model as an “organizing tool attached to a financing and asset management platform” in developing a project pipeline with partner organizations
Challenges & Critics
State cooperative law and regulations vary: Cooperatives are incorporated under state laws, which vary widely. Some states have favorable policies, such as securities exemption for cooperatives allowing CICs to raise capital beyond the sale of membership shares without having to register with the Securities and Exchange Commission. This means CICs might be less effective in states with more restrictive cooperative laws.
Example: Minnesota’s liberal cooperative law is reflected in its thriving cooperative sector; more than half of the CICs we came across are in Minnesota.
Complexity navigating securities regulatory requirements: the Securities and Exchange Commission (SEC) requires registration if you are involved in securities-related activities. Being registered with the SEC comes with challenges such as compliance costs, strict and ongoing reporting requirements, etc., which often requires additional staff time with specific expertise.
Slower capital assembly: All the CICs we came across prioritized organizing a strong membership base (and the investment fund through the sale of membership shares) before property acquisition. Further, being a for-profit cooperative could make access to alternative low or no-cost capitals (e.g., philanthropic program-related investments or grants) less straightforward.
Example: NEIC works with nonprofit fiscal agents to apply for grants and receive donations
Limited liquidity: CIC membership shares are considered long-term investments; investor members are not able to sell back the shares before the minimum timeframe or call of redemption. For CICs with higher membership share prices (e.g., $1,000), limited liquidity could deter lower-income community members from joining the CIC.
Example 1: EB PREC requires investor members to hold the share for at least five years (with exceptions for members experiencing financial hardship). EB PREC might not be able to pay back the share immediately when the member redeems their ownership.
Example 2: NEIC reserves the right to not sell back shares if this action would compromise the financial stability of NEIC.
Emerging Practices
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Multi-stakeholder cooperative model
As opposed to drawing membership from a single class of stakeholder (i.e., investor), CICs with a multi-stakeholder model are controlled and owned by membership classes such as investors, residents, workers (e.g., staff for the CIC if not volunteer-run), and the broader community. The multi-stakeholder model makes CICs more accessible, especially for interested community members unable to afford the investor membership share.
💡 Example: EB PREC has four membership classes: residents, investors, workers, and community. Each class has different requirements to become a member. Investor owners need to invest $1,000; resident owners live in or co-purchase a property with EB PREC; community owners are part of the East Bay community and pay $10 annual membership due; staff owners are employed by EB PREC. And members can belong to one or more membership categories.
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Affordable membership share with options to purchase additional non-voting shares
Not all CICs have the same affordable membership share. About half of the CICs we came across have a $1,000 membership share. Other CICs have membership shares at $50-$100 with the option to purchase additional non-voting shares. The affordability can bolster a stronger membership base, and the one-member-one-vote principle projects CIC’s democratic control.
💡 Example: Northside Investment Cooperative Enterprise’s (NICE) membership share is $50, and those with more funds can buy additional non-voting shares.
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Locally owned, community-minded businesses commercial tenants
True to the coop principles, many CICs prioritize not just local community-serving small businesses but also other cooperatives and non-profits.
💡 Example 1: One of NEIC’s properties houses a cooperative and unionized brewery.
💡 Example 2: Vermont Real Estate Cooperative’s (VREC) first property houses a nonprofit and sits on a community land trust owned land.
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Leverage other community ownership mechanisms
Partnering with land banks and community land trusts can enhance project financial and operational feasibility.
💡 Example: NICE is collaborating with the Twin Cities Land Bank to repurchase two properties from the land bank with two more properties in active purchase agreement. For the same properties, NICE also works with Partnership in Property Commercial Land Trust to put the land in the trust, ensuring long-term affordability and broader community control.