Industry: Co-operatives and Commerce: Finding the Real Estate Opportunity

Finding the Real Estate Opportunity

When a business seeks a new permanent location, it’s common that a relationship is formed that puts a commercial real estate professional together with an owner or top executive of that business.

Let’s call that player “the boss.” Together, the boss and the commercial real estate professional work through all the options in the property market, building understanding between them so that the offers and choices made best fit the goals of the business. But what happens when there is no boss?

Your Target Client: Think Outside The Boss

What if the commercial property professional faces the workers, who undertake management decisions democratically and who collectively and co-operatively own the business?

It’s tempting—and convenient—to imagine a business’s viability is defined by the skill of a small group of its managers making all of its choices, or its real estate goals are best defined by a single executive. Pragmatically speaking, this traditional view and structure of business ownership and management is not the only one available.

In an economy as strong and diverse as the U.S., alternative business models based on co-operative principles do thrive. Successful firms operating under “labor management,” known as worker co-ops, number in the hundreds today. These are only one facet of the wider co-operative picture.

Two Common Types of For-Profit Co-Operative Enterprises

Worker: Owned and controlled by worker-owners.

Retailer: A business-to-business pooling of buying or marketing power. Commonly used in franchise business models.

How Big can Worker Co-Ops Get?

The largest worker-owned and managed co-op in the world, Mondragon Corporation in northeastern Spain, has over 74,000 employees and revenues over 11 billion Euros. They have divisions in industry, retail, finance, and information services. There are over 300 worker co-ops and thousands of cooperative enterprises in the US. For example, the U.S. Federation of Worker Cooperatives has 3,500 employees nationally and $400M in annual revenues.

How the Commercial Real Estate Industry Can Serve Co-Ops

The central challenges that co-operatively structured businesses face when contemplating relocation or acquisition of new property are similar to those traditional businesses face together with their brokers, property managers or landlords. Contacts for financing, community knowledge, market experience and deal making acumen are all in demand by co-operative clientele.

Flexibility is also in high demand. “One thing that’s in big need is rent-to-own,” says Amy Johnson, co-Executive Director of the US Federation of Worker Co-Operatives. “Because worker co-ops have a much better track record of survival past five years than the average business -- that co-op isn’t going to outsource jobs or leave the community -- longer term leases and owner financing can be very attractive to our member businesses.”

Special Approaches to Financing: CDFIS, SBA, FUNDS

Finding sources of capital for the purchase of real estate by labor-managed businesses can be a special challenge. Explaining the co-operative structure to a traditional lender can be tricky. Property professionals would benefit from learning about the ecosystem of investment and credit sources available for co-operative businesses, starting with Community Development Financial Institutions (CDFI).

A designation by the US Treasury Department, CDFIs receive equity capital from the CFDI Fund through a range of programs geared toward community development. A CDFI might be organized as a community development bank, loan fund, credit union, or venture capital fund.

Already well-versed in the vocabulary and culture of worker co-ops, CDFIs can be invaluable partners in getting a property deal done when your client is a co-operative venture. As of 2013, there are 808 certified CDFIs including 96 banks or thrifts plus over fifty depository institution holding companies.

CDFIs with special histories in the co-operative business lending space include those found at Community (source:

SBA Recognition Opens Doors

The Small Business Administration has long served as a go-to for loan guarantees for conventional businesses and the financing of real estate under its 7(a) and 504 loan programs. Until the passage of the 2010 Small Business Jobs Act, SBA recognition of worker co-ops as viable businesses was practically non-existent. With the Act’s passage came a new era, adding a traditional capital source to the toolbox in funding expansions and relocations of co-operative operations of all types. To learn more about SBA’s lending to co-operative business through CDFI entities, reach out to your SBA District Office (

Financing Opportunities Already in the Ecosystem

Any commercial real estate professional working with a worker co-op on a property purchase might shy away from the uphill battle that can come with involving traditional lenders -- the explanations and the business-cultural gaps that need to be navigated can prove difficult.

It should be noted even in the universe of loan funds created especially to provide capital to worker co-ops, there are financing opportunities left unused on the table. Loan funds intended for worker co-ops have reported unused funds in their loan pools.

The Local Enterprise Assistance Fund (LEAF), a CDFI based in, Brookline, MA supports co-ops and community enterprises with investment. According to Newell Lessell, former Director of LEAF’s parent organization ICA, as recently as 2012 “LEAF [has been] underutilized. We don’t get many applications from worker co-ops, and many of those that do apply are not creditworthy.”

Creditworthiness in the co-operative financing space remains a matter for the lender to settle, and the health and successful history of the business will speak volumes, just as we expect it to in structured businesses seeking financing. What a commercial property professional working with a worker co-op can do to help is to learn about the capital sources in the co-operative space by becoming familiar with CDFIs. This will make adding value to an expansion or relocation of a co-op much easier, while at the same time enabling a more direct commitment to economic development that is more resilient.

Worker co-ops that need funding for real estate may be able to find it if they have sound business plans and meet other common loan criteria. And on that level, this “radical, alternative” business structure doesn’t look very radical at all. It just looks like business.

Want to learn even more?

Take a Deeper Dive

Visit and for a list of local CDFIs and program information.

Meet with a local CDFI to understand their mechanics and process for small business loans.

The REALTORS® Federal Credit Union has a SBA Loan Program. For more information, contact Vice President of SBA & Commercial Lending Tony Price at 703-925-5105 or

Work through your local REALTOR® association to arrange an educational program on commercial lending and small business.

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