Event:2015/06/23 Until the Revolution Working Group

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Meeting with Jesse P to discuss options for purchasing the Omni

Attendees

  • Laura, Jesse, Matt, Noemie, DZ Brazil, Jenny, Yar

Brewster says: the way we did is created an LLC that was a subsidiary of the NP. Then you can transfer it to different non profits. It's an advantage to move the properties around. If something bad happens on one property, that money can only come from that entity, and the other buildings that you own with other LLC's you wouldn't have to sell them. Because of the limited Liability. If we decided to own other properties it might be relevant. If we didn't have our 501 C3 yet we could have an LLC and later transfer it the Omni. Brewster was also proposing that if you make the control of the property between two NP so a supporting NP can balance control/power. But the other option is the landtrust model where the building is owned by us, and the land is owned by a different non profit. We pay a lease to that other non profit and we can't financilize the building. The problem is: how do you trust that other non profit?

Options for corporate structure of ownership:

  • A. Trust
  • B. LLC subsidiary of a non-profit

Jesse:

  • Reality is there is no magic bullet, you cant escape the reality that human beings are what they are

land trust model is that land trust model is that a non-profit working with a land trust so there are 2 organizations invovled.

  • Northern California Land Trust is an example. They squandered the money.
  • Def in your interest to buy the building becasue it makes the costs go down making it more sustainable.
  • Part of it is marketing to the donor.
  • There is now good landtrusts like the San Francisco one. The way that would look on paper:
  • I've been emailing you about doing your non profit. You have 27 months to apply for tax exempt status so you've only used half of your time.
  • If the donor wanted to give you the money, I have worked with many non-profits that own their own building as a stand alone nonprofit with some kind of representative board. A self selecting board is the situation where you get in trouble
  • Loan is a secured loan.
  • If you closed down you wouldn't be able to just split the money, you'd have to give it to another non profit - CA regulation of non-profits.
  • So once they put the money in, then it exists in this corporation. Owning the building and having a non self-selecting board, that can work.
  • What you could possibly do with a landtrust is buy the building.
  • Buy the building, donate the land under it to a land trust, who'd give us a "ground lease". They'd have a right to monitor and enforce what we do.
  • Matt: We're interested in landtrust and non profit and as due diligence we should examine both.

Someone wants to give us a loan.

  • They have a model: trusts are fallible and non profits are fallible.
  • The grange is an example of trust that have failed and become depoliticized
  • Person who is interested in loaning is concerned about possibilty to refinancialize the building and losing it.
  • That happened with the longshoreman. That's the risk that he's talking about. We should mitigate the risk by doing a contract between the
  • Jesse: the ground lease is that kind of contract, but even that is still fallible because in choosing the non-profit you are looking for one that will hold you accountable. Its unlikely both NPs will go south at the same time.

Matt: Other options on the table besides the land trust is the open library of richmond and open library of SF associated with internet archive. Janelle Orsy suggested making some kind of national organization.

Jesse: Consider if the other NP has a representative board - if there is a single person or a self secleting borad that's the unstable situation. YOu want the non-profit to not be so big that the staff is professional and doesn't really care about the values. Teh founders generation ahs the entrprenurial spirit and that gets diluted as things get passed down.

  • Even though Im on theboard of the land trusts and am on the board o
  • With the landtrust model you're donating your ground to a landtrust non profit. I'm on the board of a landtrust. I tell my clients if they can to avoid. You're giving this non profit whom you don't know how they're going to be run. Maybe the donor will require that.
  • A trust is a situation where one person or corporation gives the property to the trustee and they hold that property.
  • I'm one of two trustees for a land. The beneficiaries have to be specific. It's tricky in a situation like this to know who the beneficiaries are: the current tenants, all future tenants? It can't be vague. With a charitable trust like that you need to figure who are the beneficiaries.
  • They have to abide by the trust document. Any of the beneficiaries can sue.
  • A radical attorney set up a trust like this where the beneficiaries are the people who live in the commune, and those people can name the new residents who then become beneficiaries in turn.
  • If you ever sell the building. The assets can not be divided between all the people. The incentive is to keep it going. If you sell it, the money would go to another non profit. No individual has an incentive for the building to be sold.
  • To change this provision of the bylaws you need a high majority.
  • Laura: could we say, if the building did get sold, it would go to a specific type of non profit.
  • Jesse: you can even name the non profit. You can make it restrictive.
  • DB: does it make sense for us to innovate a land trust for our own people?
  • Jesse: we could. But if the donor doesn't trust your non profit, it might not be a strong selling point.
  • This social club was a corporation and they didn't last 40 years.
  • Laura: If an LLC is the actual holder as a subsidiary of a non profit then it makes it easier to transfer.
  • When I used to represent prvate developers. every different building was a different LLC. It helps in that respect;
  • It doesn't make it easier to sell an LLC than it is to sell a property.
  • If this non profit, Omni, buys a bunch of different things, it doesn't change that much, if the LLC is owned by one person it doesn't garantee much (?)
  • I'm thinking of omni as a non profit that might own this building. If you had an LLC that would own a bunch of stuff. Then maybe it would make sense. It only makes sense here if the donor demands that you create an LLC.
  • Matt: what he cares about: we've done this foundation housing model, so do something like that that will prevent you from financilizing.
    • You want to make it open source so other people can reproduce it.
  • Jesse: how does this have more longevity.Yes he has a non profit where people employed have housing that gives it longevity. But I don't know how it applies to your project.
  • Matt: He sees the risk as refinancilizing the project. If people on the board borrow too much money...
  • Jesse: Plenty of non profit didn't do that; Any NP can make bad decision. if you do the ground lease thing you don't own things so you can't mortgage it.
  • It's a long term ground lease: the ground lease is complex and about all the things we can do, you can't get a loan unless you get rid of this ground lease. The bank wants to sell.
  • B. could foreclose if you didn't pay back.
  • You could put in additinal stuff in the bylaws that makes it hard to sell the building.
  • The members of the NP can do a members derivatives lawsuit where the members sue

Are there concerns from the donor side?

  • Laura: the donor has concerned about the organization failing and if we didn't want to do this anymore, how do we know that the space is used for political pruposes in the future.

The 501 C3 NP process

  • We received advice from law students in Berkeley and figured out what made sense, got help with the application. Niki is meeting with an accountant and another volunteer to sort out our finances. They've met twice. They're making progress.
  • We're on the cusp of getting it done.
  • Jesse: the fewer people involved the more at risk you are. the cultural factors are really important.
  • Jenny: At the Blackbear commune they have a family trust with 600 people as benficiaries.
  • Jesse: that's a way to go if you want to name the beneficiaries; But it can be a can of worms.
  • Can't change your documents, though there is a way (cy pres?) to update them to the times
  • Can do the same thing under a nonprofit that has members, if you were to change to a membership model consistent with the nonprofit status (public benefit)
  • Setlor as nonprofit / beneficiary, class of beneficiaries, complicates the public benefit model
  • Matt: What are the culture elements that allow for reliablility:
    • Jesse: If the organization is transparent, and if it's not a debate whether the meetings are open, if people can engage and get involved as opposed to small cliques. You're attracting these loans because they sense that it's a fairly good bet.
    • - Engagement, broad base, open meetings
  • Step into the shoes of the donor: they know that there are no garantees. As a donor, ultimately you decide to trust a group which is enough of a representation of a community. It's not like there's thousands of cutting edge things that are really exciting and there is a lot of money in the Bay Area.
  • DB: the legal side is very connected to our legal side. SO we need to work on that culture. Burnout, etc. It seems like we have internal cultural work to do too.

Yar: Those things only come up because we have so much pressure and buying the buliding will help a lot.

  • J: when we put the bylaws together there was a lot fo time pressure so we had the diea that they might need changing later. There are ways to make them more reflective of direct democracy adn more transparent. If you did own the build you can put in there that you cant sell the building unless there is some kind of supermajority, or you can only use the building to do x, y or z.
  • Thnk about that you are depending on other people who will be invovled after you all are dead.
  • The way to maintain a radical vision for a long time is to have a broad base.
  • DB: As the foudner's generation and that generation passes. We may need to internalize that fact.
  • JEsse: It's dramatic in housing groups. The founder's replaced the foundation. New people move in and they see that there are solar panels and a hot tub but they don't take stake holdership of the work. People who live there now, if a minor thing comes up they hire somebody.

Takeaways

1. Land Trust - own half each, can we trust them? OR Ground Lease - no financialization, no mortgages

2. Omni Commons owns property - direct oversight

3. Add to Omni Commons bylaws - members have to vote to sell by a supermajority, limits on loan amounts, etc

4. Culture vs Legal Structure (Historical)

  • Brewster - building put into an LLC subsidiary to protect the assets
  • For now, put under one of his nonprofits until Omni gets 501c3 status
  • Contract between 2 groups to maintain this property

Debrief

What did you hear?

  • DZ: Ground lease legally superior to a contract and would satisfy lender's desire to see another party participating. We've talked about starting our own land trust to buy this building and eventually others.
  • yar: the law has no silver bullets to guarantee the security of that which we value. Trust is the key, and all the law can do is strengthen that
  • Noemie: Finding another nonprofit to guarantee us; in the end there's always a risk to giving us money. Finding another nonprofit is the same trust problem
  • Matt: Jesse has a conflict of interest, is on the board of a land trust (or several) + lots of land trust clients
    • "No silver bullet" is boilerplate lawyer stuff. They're all just wizards, always exceptions
    • We should ask many lawyers and look at other examples
  • Jenny: openness, transparency, trust, broad base to participation

Surprises? Anything intriguing or surprising?

  • Matt: Third way to long-lasting, sustainable solutions. Want more information about his experience.
  • Yar: We should watch that movie Brewster recommended ' "The Art of the Steal'

Intimidating?

  • Matt: Subleties between land trust and what he's calling a nonprofit were not really distinctive, could use clarification
  • DZ: The hard work we have to do on our culture is immense
    • Jenny: Stipulation: must spend 10% of donation on sending certain individuals on 6 month vacation

What's this going to mean for Omni?

  • Yar: Feeling a tension between short-term and long-term values/ Solidarity means solidarity today, not tomorrow.
  • Noemie: Need to be working on our values today
    • Yar: Playing that game by paying out the lease every month. Winning the game somehow changes the game that we're playing
      • Laura: How so?
        • Yar: The money we spend each month could buy so much food today... or maybe it's not that much money, not world-changing in and of itself. Ultimately unresolved
  • Matt: This is the right moment, and we're doing the work...potential actors we want to work with, can't let them flutter away. We have time to resolve the community stuff and figure out what we need to iterate on this summer.. A lot of folks say our process is BS (the ones we kick out), but in the end it couldn't be that much better - just that reality doesn't match the model.

Questions?

  • Matt: Is it clear what decisions we have to make and what the options are?

Options We Have

1. 501(c)3 Non-Profit Land Trust

  • Relationship: Leasor / Leasee
  • Recommended by Jesse: Ground Lease w/ a Land Trust that we actually trust.
  • No LLC necessary, nonprofit owns the building and puts limitations on selling into its bylaws.
  • More about cultural than legal security - requires trust in those who run it.
  • Need nonprofit that we trust for the land trust.
  • Not actually a trust, a nonprofit with a mission specific to owning the land under buildings. Not the model where you name beneficiaries.
  • Real estate in a land trust isn't subject to liens against the trust's beneficiary, which is a significant protection.
  • Public Benefit clause, can engage in contracts i.e. ground leases.
  • Leasor / Leasee relationship
  • Land Trust and Nonprofit check and balance each other via a contract that holds both parties accountable

2. Create an LLC subsidiary of Omni's 501c3

  • Relationship: Omni nonprofit & nonprofit subsidiary (owned by Omni)
  • Recommended by Brewster: LLC formed as a subsidiary under the Omni's 501c3 nonprofit entity.
  • The way Internet Archive did with Foundation Housing: created an LLC that was a subsidiary of the NP.
  • Advantage: if something bad happens on one property, that money can only come from that entity (LLC), and the other buildings that you own with other LLC's you wouldn't have to sell them. Because of the limited Liability.
  • Allows Prop 13 tax protection
  • Isolates assets
  • Makes easier transfer (helps get around property transfer tax)

3. Family Trust

  • Relationship: Trust / Trustee / Beneficiaries
  • Use an existing trust or start our own - family trust.
  • Trustee oversees the stewardship for the benefit of the benficiaries.
  • Hard to work w/ 501(c)3 mission
  • We could add a membership model where members have to agree to what we do with the building

4. Church!

  • Must have a congregation (regular body of people that meets)
  • Doesn't require tax filing
  • IRS discourages audit, no tax filing
  • lots of jewish groups. chochmat halev, etc.

5. Nonprofit (public benefit) - we already have one!

  • Relationship: Board of directors (member collectives) and Members (?) as stewards serving the class of public benefit (eg; Public, patrons, businesses, etc;)
  • Could put into the bylaws that a supermajority of members must agree (can be basically modified consensus)
  • Directly owns building, *maybe not land*
  • Keeps it in-the-family
  • Requires stakeholdership and investment in culture
  • Simpler
  • If the org folds, all assets need to be transferred to another 501c3

Resources:

What do we need to present to Omni?

  • Our options, simplified (handout)
  • Present to Finance WG first
  • Fundraising WG now revitalized - meeting Mondays at 6:30 (stay for Building!)

What do we need to present to lenders?

  • What is it that we need to present the potential lenders in order to meet the requirements to access the loan?
  • Lots of examples of other institutions that have bought buildings and not lost them
  • Also failed groups and what models they were using
  • Case for why lenders should lend us money

How do we strategize the funding model?

  • Various people can donate money. Timeline and strategy.
  • Why set up all these agreements with a lender before we've sufficiently prompted donors

What are we getting behind? What makes the most sense?

Other Questions

  • does anyone know a land-trust skeptic?
  • Noemie: Could the land trust model, and creating a LLC, contribute to a wider goal of tackling the housing crisis?
    • DZ: We wouldn't want to ensure the building against financialization, right?
    • yar: building has other value as a venue. that's worth a lot in itself. we're sort of a landlord.
  • Laura: Need to clarify our position on what kind of scenario would we be willing to take out a loan?
    • DZ: Vision stuff - long-term stewardship of this building? Something else?
  • Matt: How do we make this reproducible? Something Brewster was very interested in
    • Matt: Legal handbook (see below)
    • Jenny: Commons Spaces Design Patterns
    • DZ: Not everything a blueprint, also material reproducibility. Meditating on what reproducibility means literally. Like going to NY to consult on a new space.
    • Yar: Value of this community is not that we have the answers, but that we know that we don't
  • yar: another q: who do we trust? who will trust us?

Possibilities?

To Research

  • The Women's Building
  • Jesse Palmer's land trust up in Northern California since ~1970 (Jesse is 1 of 2 trustees)
  • SF Longshoreman building (cooperative, sold out)
  • The Grange in Manhattan, NYC / The Grange generally
  • Black Bear commune
  • SF Land Trust
  • East Bay Community Land Trust
  • Bay Area Land Trust
  • Partnering w/ Quakers
  • Community-Supported Everything
  • Planting justice
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