How can a group of civic-minded individuals take control of the future of a main street building and spur economic development in their city?
Twenty-two Adrian residents, civic and business leaders pitched-in equal amounts of money to buy a long neglected and significant mixed-use building on their main street.
Inspired by a presentation about the power of investing in your own community instead of Wall St, a group of 22 Adrian residents and leaders chipped in funds to buy and rehab a historic but long-neglected structure on their main street.
It was a presentation by Amy Cortese, the author of Localvesting, that inspired four local business and civic leaders to get together and identify ways they could promote greater investment in their own community.Â The group identified the soon-to-be-foreclosed mixed-use building at 120 E Maumee.Â The building had not been maintained to the standards they expected of a prominent downtown building, nor was it being best utilized as a mixed-use building offering quality housing.Â The initial group of four decided to invite 10 other individuals apiece to an informal meeting over coffee to discuss their idea, the need, and gauge othersâ€™ interest.Â Out of these initial meetings, 22 people agreed to invest $2,000 each into a limited-liability partnership with the purpose of acquiring and redeveloping the property.
The individual investments and the collateral provided by the original four investors was enough to secure a mortgage from a local bank that covered the cost of acquisition and rehabilitation of the structure. Â In the year since acquiring the building, the group has improved the condition of most of the apartments, found higher quality tenants, and expanded the first floor retail.
- Got over 20 local residents to agree to invest in an under-utilized, 7,400 sq ft building on Main Street.
- Made faÃ§ade and structural improvements to the building to ensure its long-term viability while enhancing its appearance and that of downtown as a whole.
- Provided a stable landlord to a long-term and expanding first floor retailer.Â Structured an option for the retailer to acquire ownership of his space over time.
- Updated second floor apartments, improving the housing stock and quality of renters in downtown Adrian.
- Through the donated work of partners, the project has been able to exceed initial financial projections.
The building was acquired for $80,000. Â The group secured a $60,000 mortgage to make improvements to the building.
The partnership is organized under a limited-liability corporation. Â The group is structured around a four-person management group that oversees the improvements and management of the building. Â The 22-person group meets regularly to discuss the progress of redevelopment and status of tenants.
Professionals were contracted for faÃ§ade work, but most general contracting was overseen by partners who had building experience, in order to keep costs down.
The investors are a diverse group of civic-minded individuals, ranging in age from their 30â€™s to 70â€™s, and include local business owners, retirees, a city councilman, and other residents who had $2,000 to invest and were not expecting an immediate return on their investment.
Identify the Need: First step is recognizing a problem building and deciding if it is an important project to the viability of the community. Â If the property is in better condition and under better ownership, would it markedly improve your community and surrounding areas?
Develop a Core Group:Â At the heart of any large ownership group is a small core of dedicated individuals committed to seeing the project through and in the process taking on more responsibility and potentially greater risk.Â In Adrian, it was four individuals who have been the key leadership of the project and LLC, and who pledged to back the mortgage. This core group is responsible for setting the general goals of the project to be presented to potential partners.
Identify Potential Members: The core group needs to identify other civic-minded individuals in the community who want to see good things happen in their community and have the ability to make investments without the guarantee of an immediate return. Â It is also helpful to identify potential partners that not only bring money but beneficial skills and connections, such as backgrounds in construction or lending.
Informational Meetings: Once the core group has reached out to potential members, start holding frequent and informal meetings to discuss the potential project, what members would want to see out of the project as individuals and as a community, as well as ways to make the project as successful as possible.Â
Due Diligence: Like any real estate project, it is important to study the viability of the actual structure and ensure that its redevelopment is financially possible.
Lock Down Partners and Proceed: Once the property has been surveyed and a financial pro-forma has been constructed by the core group, present the findings to the potential investors.Â At this point, it is important to quickly determine who will be participating in the project and for them to financially commit to the group.Â Once your partners have made their financial contributions, proceed with acquisition and redevelopment.
Stay in Touch: It is essential to the success of the project to keep the members of your group abreast of all pertinent things pertaining to the project.Â Hold regular meetings to inform them of progress on the project and future plans, as well as allow opportunities for input as decided by the group when the LLC was formed.
Â Lessons Learned
- Your investors have to be city-minded individuals who truly believe in your downtown. Â You should be confident in the investment like any other financial undertaking, but itâ€™s important that everyone understand that the driving force behind the project is as much, if not more so, improving your city as profit.
- Keep everyday decision-making to as small a group as possible, but create a formal mechanism for individual investors to weigh-in on large decisions and continue to feel a sense of ownership.
- Make sure the core group comes to an agreement on the size of the overall ownership group that they are comfortable with.Â While it is great to have a large group of individuals who are financially invested in making the project a success and have resources beyond finances to contribute, too many cooks in the kitchen, even if they donâ€™t have a formal leadership role, has the potential to become overbearing.
The 120 E Maumee LLCâ€™s Operating Agreement is available upon request.
Don Taylor, [email protected]