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Practitioners and residents exploring resident ownership are finding that to adequately evaluate the suitability of these strategies, they must undertake a process of community reflection on the different dimensions of ownership and how resident ownership fits into broader community building objectives.
Some central issues that should be considered by the organization and the broader community include:
Relationship between collective and individual ownership . While these strategies are not mutually exclusive, communities and practitioners interested in resident stock ownership are assessing the respective benefits of each and how individual and collective ownership can best complement each other to enhance community building and asset development.
Voice and control. An ownership stake in a project does not necessarily guarantee resident control. Issues of community control must be resolved locally, in the context of each development project.
Timing and Risk. Exploring resident ownership strategies may involve confronting tensions between residents who want to maximize short-term returns and those who want profits reinvested to produce longer-term benefits. Building a consensus on these questions early in the process will help determine the most appropriate technical and legal alternatives to pursue. Projecting neighborhood and commercial development out 20 years will help the community conceptualize the trade-offs in real terms.
Legal and Regulatory Issues. Communities that are considering resident ownership strategies must confront regulatory and legal hurdles. Sales of stock are overseen by the federal Securities and Exchange Commission (SEC) and similar state entities. CDCs pursuing this strategy must comply with all applicable state and federal regulations. Because of the legal complexities and the volume of tasks involved, preparing a stock offering involves significant costs. A CDC must carefully weigh anticipated costs in comparison to the total capital to be raised through the offering.
Practitioners and residents must determine the type of legal structure that best meets their financial and social objectives regarding stock ownership. For example, in San Diego, California, the Market Creek Plaza development is pursuing a Limited Liability Company (LLC) in which resident stakeholders will constitute a special class of investors. Other communities are exploring a real estate investment trust (REIT) structure as a promising alternative. CDCs will require significant legal expertise to help them craft an approach that meets regulatory requirements and fulfills financial and broader community development goals.
Training and Technical Assistance. Training and technical assistance is a critical component of implementing resident investment strategies. Financial literacy and development finance training are needed to ensure that residents have a clear understanding of project finance, of factors influencing the rate of return and profitability, and of how to interpret a project's financial position. This training can build effective project investors as well as long-term asset-builders in the community.
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