Learning Curve. A key challenge to implementing this strategy is the necessary learning curve. No CDC has fully carried out a sale of stock to residents, so no implementation blueprint exists. As individual CDCs pursue resident stock ownership, they will contribute to building the practical knowledge base regarding implementation.
Legal and Regulatory Hurdles. Each CDC will need expert legal assistance to explore the most cost-effective way to comply with SEC and state regulations regarding the sale of stock. National or regional technical assistance intermediaries with legal expertise could be tremendously useful to CDCs in this area, and may help to reduce some of the costs incurred in exploring options for regulatory compliance.
Given the legal and regulatory issues, resident stock ownership in CDC projects may not be a viable option for all CDCs. Some may elect to craft alternative mechanisms for offering ownership to residents. Both resident stock ownership in CDC projects and other ownership concepts such as real estate investment trusts merit further exploration to build a broad menu of asset development options for low-income/low-wealth residents. For general information on these and other resident ownership strategies, see the PolicyLink report, Sharing the Wealth: Resident Ownership Mechanisms.
Risk. Investing in CDC project stock carries risks, and financial returns are not guaranteed. Risks can be mitigated, though not entirely eliminated. Some risk mitigation strategies include: training and technical assistance to help residents understand the investment they are undertaking, restrictions on the purchase of stock to prevent a buyer from purchasing a dollar amount of stock greater than a certain percentage of a buyer's net worth, sale of stock to residents after a real estate development project has a profitable track record, and partially subsidizing resident investment through a potential expansion of the Individual Development Account concept. (For more information, see the Financing section.)
Identifying Beneficiaries: Who Benefits . A key consideration for those pursuing resident ownership strategies is determining who benefits. Community stakeholders and the CDC need to determine who will be eligible to invest in a given project. Options include eligibility based on residence in a defined geographic area, income or asset levels, interest and commitment to the project, or some combination. A CDC must also determine whether financial barriers will preclude certain low-income/low-wealth residents from participating in investment opportunities and whether to pursue some form of subsidy for resident investment. Finally, the transferability of shares is another issue to be addressed in the planning process.
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