Issue 2: Community Scale Economics
Making Money Sustainable: Work in Progress at the Los Angeles Eco-Village
In April 1992, parts of Los Angeles exploded into flames in the midst of riots following the Rodney King trial. The event was pivotal for many. In the aftermath, a group of us who were living in the riot zone began to question plans we had been developing during the previous few years to build an 11-acre ecovillage about seven miles to the northeast. Although our vision had great merit and many hours invested in its design, our hearts told us to dig, instead, into the still-hot ashes of the central city and rebuild our own neighborhood. While others were fleeing the city in droves, we chose to stay put -- to commit ourselves to the home we already had, and to retrofit, as sustainably as we knew how, the troubled neighborhood where we were.
Several of the commercial buildings that were back-to-back with our street had burned to the ground, including a print shop, a photo-development lab, and a dry-cleaners. Some of us felt as though we were permanently physically damaged from those three days of simmering toxins. Yet, our spirits soared with the hopes of demonstrating a different way of being in our city -- a city that had been, and continues to be, so responsible for the degradation of our planet.
Within three years we had developed a strong base of security within our two-block neighborhood, and a healthy but embryonic intentional community. Our organization, the Cooperative Resources & Services Project (CRSP), armed with only $20,000 in savings, but a fortune in faith, committed itself to buying a half-vacant, blighted, 40-unit apartment building at the intersection of Bimini and White House Place. The property sat across the street from a four-plex unit, in which I had lived and worked the past 16 years. Renovating that large apartment building would, we hoped, be a major thrust forward for our budding ecovillage community and a demonstration of healing the past. By 1996, CRSP did indeed purchase that first building and in 1999, acquired an eight-unit property next to it.
CRSP's ecovillage vision includes buying all the residential property within our neighborhood and working with the local community to ecologically rehab the buildings. Converting the properties to permanently affordable resident-controlled cooperatives is also a strong part of that vision. Adding mixed uses to the apartment buildings will provide green jobs and business spaces for residents. Many neighbors are engaged in the rehabilitation of their own homes and live/work spaces. As we become increasingly proficient, we can assist adjacent neighborhoods to begin their own brands of ecovillages, and perhaps provide technical assistance to groups throughout the country.
Today CRSP owns nearly a million dollars worth of historically significant property. And, although it was not our original intent, we wound up purchasing our property through a network of private loans, bypassing entirely the institutional banking system. How we secured our non-conventional financing may well be a model for others who want to develop more sustainable economic systems.
ELF-Ecological Revolving Loan Fund
Long before the flames of 1992, in the mid 80s, CRSP had sponsored a small self-help study group on alternative economics. We learned about Michael Linton of Western Canada, who started the Local Exchange Trading System or LETSystems, the Institute for Community Economics and their revolving loan fund movement, the National Center for Community Development Credit Unions, local currencies, gift exchanges, and other community finance systems.
We also started saving money, setting up a group account along with some of CRSP's members. We wanted to make start-up loans to small cooperative ecological businesses. We spread the word about what evolved into our Ecological Community Revolving Loan Fund (ELF). "Save your money with ELF; it will be invested in a socially responsible way for now; it will help create new businesses in the future.
Shortly after starting Eco-Village in 1992 we made the obvious decision: use ELF funds to purchase our neighborhood! Fortunately, we had built neighborhood relations before our first opportunity arose to use the loan fund.
A 40-unit apartment building on our block was in default on a $1.2 million mortgage to a major mainstream banking firm, not known for its grassroots friendliness. We decided to buy it and made an offer to the bank of $500,000. We had only $20,000 in the ELF loan fund at the time, mostly savings that the CRSP organization had put in over the years. At the beginning we assumed we would get the rest of the money from a jigsaw puzzle of loans, as is typical for nonprofit development work -- a few banks, some community lending institutions, some public funds.
A small organization for 13 years (annual revenues typically between $5,000 and $25,000), we had no audited financial statements, little of any financial significance to report on, and no housing management experience. However, we had an academic understanding of the processes.
The more research we did, the more tedious it seemed to get institutional loans of any kind. We had to constantly balance our outreach to banks, community lenders, and municipal lenders with outreach to our friends -- just in case the more conventional loans didn't come through. Financial institutions were excited to lend to us, but the paperwork and restrictions seemed overwhelming. We feared that the institutional lenders would scrutinize us so closely that they could well scuttle our sustainability visions.
One lender would have required us to rehab the building in a way that would destroy the building's historical charm. Another required us to pay union wages for all rehab, although we were planning to harness a substantial amount of residents, sweat-equity. Another wanted immediate lead abatement work on the entire building, which would have put us in more debt than we could handle. Many wanted the rehab work done to such high (and expensive) standards that displaced tenants could never afford to move back in. And, although it would have been absurd for us not to self manage, other banks told us to hire a management company.
In general, the conventional lenders wanted to direct our renovation of the property in ways they thought would guarantee the value of their investment. We were equally concerned about protecting our investment and eager to learn sound real-estate management, but most of the strategies presented by the banks were not flexible enough to accommodate our community-based, ecological approach.
Raising the Money
For the entire nine months it took us to raise the capital for the building, we had no assurance our offer would be accepted by the bank that held the note. Our real estate broker kept the bank hanging in there with us, however, and we eventually secured all the money through ELF loans. We created a document explaining what kind of money we needed by when and how we planned to pay it all back. We asked everyone we knew who had discretionary savings for loans -- long time CRSP members, personal friends, family members, city departments we had worked with in other capacities, and other nonprofit organizations. We encouraged them to talk with others who had already loaned to us, to go slowly, ask questions, visit the property, come to dinner, and meet the neighbors. We wrote our own "no hassle loan document, and only accepted money from people we knew and trusted.
People loaned! We gave them choices on the interest rates (0 - 8%), loan amounts (minimum of $5,000) and length of the loan (18 months to five years). Those who chose higher interest rates would do better with ELF than in their traditional money market accounts. We asked that the loans be interest-only for the initial term of the loan, and that after that, the lenders could decide if they wanted to renew the loan on an amortizing basis.
Because we were accumulating money through these mostly smaller loans for several months before actually closing on the building purchase, we asked our lenders to permit a full three months after the closing on the building before we would be required to begin interest payments. This would give us time to adjust to ownership and management issues after the incredible nine month stress of raising the money.
Since we were not forced to rent out the empty units (half the building) in order to meet an oppressive debt service, we were able to do many things at the pace that best fit us. We put energy into finding people interested and skilled in being part of an ecovillage intentional community. Both new and prior residents have been able to participate in our decisionmaking.
We fully expected to obtain a large mortgage after purchase and thereby pay back many of the short term ELF lenders. We never got a mortgage! We kept getting more ELF loans. And we kept paying back the short term lenders. The cash flow on the building was healthy enough that we could pay back lenders larger sums than the new amounts we were borrowing (e.g., if we paid off a $25,000 loan, but only borrowed $15,000 more in order to pay off that loan, we had built $10,000 in equity). Now we have accumulated about $150,000 in equity -- in just a few years. Our lenders feel connected to our project -- some come by for visits; some give advice, some even pitch in and help with the gardens or the rehab.
The Future and Our Values
This has been a wonderful lending group, but it could improve. We currently have loans from throughout the United States and several other countries. Maybe all our loans could come from within a few miles of Eco-Village-- We want to apply our sustainability criteria -- of acting locally -- to money; we now plan to raise ELF funds from people within 15 miles of the neighborhood.
So many people think it would be much easier for us with just one mortgage payment each month. Yes, it would be easier to write one check each month rather than 30 every three months at different interest rates! However, sustainability is about building community and about living in alignment with our values.
As we learn how to do things more sustainably we have the responsibility to continue doing them that way, even when it is more difficult. Others will come along and figure out how to make sustainable ways of living easier. Maybe credit unions and community revolving loan funds and LETSystems and gift exchanges will all be part of healthy neighborhoods everywhere in the not so distant future. Perhaps even big banks will play a role in such transformations.
The Building of an Urban Ecovillage
About 17 Eco-Villagers have participated in some aspects of the rehab of the apartments, and seven residents have extensively improved their own units. Our guidelines urge people to use the least toxic, least polluting, most local, and most recycled materials obtainable. Several Eco-Villagers have become so proficient through this experience that they are considering forming a small eco-rehab business to offer such services in adjacent neighborhoods.
CRSP will sell the buildings to the residents as the residents develop the organizational capacity and knowledge necessary for permanently affordable co-op ownership. As residents acquire the buildings from CRSP, the monies, combined with other monies raised through the community loan fund, can be used to purchase additional buildings within Eco-Village.
In the 40-unit building the residents are converting two of the pre-existing apartments into common space. They have also enhanced a courtyard, backyard, and frontyard with organic vegetable gardens, orchards, and recycling areas. The gardening committee has started an organic food co-op, to which about 15 residents belong. In another yard seven chickens are providing eggs to the co-op. Six to twenty-five people attend weekly community dinners, while the building committee meets weekly to manage the buildings.
Sustainable economics is a work-in-progress as are all of our efforts here. What can we demonstrate on the way to becoming a healthy neighborhood-- How do we need to change ourselves to live in better relationship to one another and our pre-existing neighbors-- Will our own model persuade others to change-- And, what role does the source of our monies play in all of this-- --
Lois Arkin is the founder and executive director of Cooperative Resources & Services Project (CRSP), a nonprofit, all co-ops resource center. She has co-authored and co-edited two books: Sustainable Cities: Concepts and Strategies for Eco-City Development and Cooperative Housing Compendium: Resources for Collaborative Living. She can be reached at firstname.lastname@example.org. For more information on L.A. Eco-Village, visit www.ic.org/laev
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