Second home co-ownership startup Pacaso has implemented a number of operational changes in response to community members in Napa and Sonoma counties voicing concerns about the company taking over properties in their neighborhoods.
In April, Pacaso filed a lawsuit against the city of St. Helena in Napa Valley, California after the city banned the startup’s fractional homeownership model, stating it violates a city ordinance prohibiting timeshares. Pacaso, however, disagrees, claiming that the company’s properties are not timeshares.
As of Monday, Pacaso had four properties in the Napa-Sonoma region listed on its website, valued between $2.8 million and $4.99 million, and available for between $418,000 and $745,000 per share.
Amid backlash from community members in Napa and Sonoma, Pacaso announced this week it would only buy homes in the area valued at more than $2 million, so that it would not compete with homes in the markets’ median price tier of about $800,000. In addition, Pacaso pledged a $20,000 donation ($2,500 for each one-eighth ownership interest) for each Pacaso home sold to an unspecified local nonprofit that aids in housing affordability.
The company is also adding new regulations to its owner code of conduct in relation to noise levels at properties, with new limits on the level of decibels output by home sound systems. (The code of conduct had already prohibited parties and vacation rentals at Pacaso properties.) Furthermore, a Pacaso-appointed point of contact will also be available receive feedback from community members 24/7.
The updates to the owner code of conduct will be effective across all of Pacaso’s markets of operation, but the company is still evaluating whether or not its new policies specific to Napa and Sonoma will extend into other markets at some point.
The moves by the company came after Pacaso purchased a home at 1627 Rainier Avenue in Napa in April for $1.13 million and the community voiced its displeasure at Pacaso taking away a property considered to be part of the area’s workforce housing inventory. Pacaso subsequently decided that it will resell the property to a single owner, rather than as fractional shares.
“The misconception in Napa is that we’re a timeshare and that we’re commercializing residential neighborhoods, and the misconception is just not true,” Austin Allison, CEO of Pacaso, told Inman. “With co-ownership you’re buying real estate, you’re not buying time.”
Allison went on to give an example about how an individual who purchases a timeshare at a Marriott club is investing in time at the club, and would essentially be left empty-handed if the company went out of business. However, someone who invests in a share of a Pacaso home becomes part owner of the property, and if Pacaso were to go out of business, that factor would not change the property owner’s ownership status.
Allison also pointed out that Pacaso-owned homes are a fairly small percentage of the homes owned by second homeowners or investors in the region. He added that in one recent month, out of 700 homes sold in Sonoma, Pacaso represented co-owners in about two of those home purchases. But, about 50 percent of those home sales were not categorized with a primary owner exemption, meaning that those sales were made by either second homeowners or investors.
“So we’re one of a fraction of a single percent of second homes that are being purchased in these local markets,” Allison said. “So I think there’s absolutely reason, valid reason, for people to be frustrated right now around housing.”
Still, some community members in Napa and Sonoma have felt like the company has overextended its reach into the local housing stock.
“It’s obvious the [Napa] community doesn’t want them there, just like here,” Brad Day, a spokesperson for Sonomans Together Opposing Pacaso (STOP), told The Press Democrat. “A company with a moral compass would announce that they are backing out of all residential neighborhoods. Fractional ownership time shares destroy the fabric of communities by turning local neighborhoods into a revolving door of people on vacation. Pacaso is kryptonite to communities.”
STOP has formed a petition on Change.org against Pacaso’s fractional ownership homes in Sonoma and the surrounding neighborhoods, which over 1,890 people have signed as of Monday.
“With its deep pockets and slick marketing, Pacaso thinks it can do business in any community and ignore regulations pertaining to time-shares, vacation rentals, and transient occupancy,” the petition reads. “Their position seems to be that because a vacation home is owned by an LLC, rather than being rented, none of these regulations apply.”
“Houses listed on Pacaso could have been sold to local families,” the petition continues. “Instead, they are destined to be flipped into vacation homes. It is unlikely that Sonoma residents will ever get to live there. Meanwhile, the increasing demand for vacation homes will continue to drive prices out of reach for working class families.”
Susan Gorin, First District Supervisor in Sonoma County, who has a fractional ownership on a home in Lake Tahoe herself, added that fractional ownership on a property in a resort town versus an established residential town is a “very different” situation.
“It is not surprising neighbors are angry about this ownership model intruding into their neighborhoods, especially when there is a vacation rental exclusion zone already overlaid on that neighborhood,” Gorin said to The Press Democrat. “There is an impact on neighborhoods from fractional ownership homes. A single-family home might have a certain level of services coming into the neighborhood to maintain the house, but probably not at the frequency required for this ownership model.”
Pacaso told Inman that the average home the company owns in Napa and Sonoma is valued at about $4 million, which places the majority of its inventory in a luxury tier.
Amid the general outcry, however, some locals have expressed their support for Pacaso.
“Empty second homes with absentee owners are not a good solution for the economic recovery of our small business community,” Travis Stanley, Napa Chamber of Commerce CEO, said in press materials provided by Pacaso to The Press Democrat. “Pacaso’s business model actually provides more sustainable economic support, and utilizes local vendors to buy, sell, sustain and maintain the properties on a year-round basis.”
Allison told Inman much the same, adding that through co-ownership, Pacaso’s business model allows second homeowners who might otherwise be looking for housing stock within the median price range of $800,000 to climb into a higher price tier by sharing that cost with other co-owners, thereby freeing up lower priced homes for locals.
He also added that it felt like the company was bearing the brunt of pent-up frustration from locals at increasingly high prices in the market, which are a result of a variety of market factors at play — not necessarily just Pacaso entering Napa and Sonoma.
“We actually relieve pressure from the median price tier, not add to it,” Allison said. “Even though what we’re doing, even though co-ownership is not new and we didn’t invent that … the service that we’re providing is new, and there’s a lot of attention around Pacaso right now, and I think it’s easy to point at somebody and direct your frustration.”
Pacaso’s federal lawsuit against St. Helena, which was filed on April 6, aims to “guarantee the legally protected rights of [Pacaso’s] homeowners to enjoy the benefits of owning property in the beautiful surrounds of St. Helena.” The lawsuit further claims that letters distributed by the city “have scared real estate agents and chilled their efforts to buy and sell ownership interest in Pacaso Properties.”
Pacaso currently owns or manages five homes in St. Helena.