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Sonoma neighbors fight controversial new homebuying model

A well-financed Bay Area startup real-estate company called Pacaso is in the process of buying its first three Sonoma houses, with plans to immediately resell the properties to groups of six to eight co-owners, using a new model of second-home ownership.

The red-hot housing market in Sonoma Valley is driven by a shortage of inventory and an abundance of demand - particularly for second homes. More families having the freedom to work remotely has also exacerbated the situation.

What effect Pacaso’s fractional home ownership real-estate model will have on Sonoma is sparking heated debate - and a group of neighbors has organized a campaign to stop such deals, which they and local housing advocates, like the the Sonoma Valley Housing Group, describe as an end-around scheme to skirt laws regulating commercial vacation rentals.

The Pacaso shared-ownership model

Pacaso CEO Austin Allison, 36, told the Index-Tribune Tuesday that Pacaso can actually help alleviate the local housing shortage.

Pacaso CEO Austin Allison.
Pacaso CEO Austin Allison.

“In Sonoma, we are only offering high-end, luxury houses that are priced three-to-four times above the median,” he said. “We are taking a group of eight people who might each remove a $730,000 house from Sonoma’s inventory and instead pooling their resources so these buyers can afford a really high-end luxury house together.”

Pacaso’s first Sonoma Valley property is 1405 Old Winery Court, which is located on the east side of town, outside of city limits. The house was listed for $4 million, purchased by Pacaso on May 17, and now appears on the company website with a price of $606,000 each for eight co-owners. The house fits the company ideal, according to Allison ‒ turnkey with two-to-four bedrooms and a pool.

Allison feel strongly that Pacaso homebuyers are not competing with the local workforce to buy property.

“We get second homeowners out of the median price here and over to the luxury price tier, which creates more opportunity for the local workforce,” said Allison. “By no means am I saying that we're solving the housing affordability problem. It is way bigger than Pacaso ‒ but we definitely help.”

Source: Pacaso
Source: Pacaso

Sonoma Mayor Logan Harvey disagrees.

“Pacaso is the newest addition in a long line of vulture capitalist companies here to put the final nail in the coffin of Sonoma's middle class,” he said. “The advent of Pacaso and other horrific ‘innovations’ in the housing market are more examples of the growing chasm between the wealthy and the working class.”

Would co-owners make good neighbors?

Regardless of the company’s impact on Sonoma’s housing market, Old Winery Court homeowner Brad Day says most people just don’t want to live next to a co-owned house.

Day has banded with other neighbors to form STOP (Sonomans Together Opposing Pacaso) in protest of the Pacaso purchase on Old Winery Court. They started a petition voicing their objections to Pacaso on Change.Org, which quickly garnered more than 750 signatures. Every house on the street now displays a sign protesting Pacaso’s “attempt to maneuver around regulations that apply to commercial vacation rentals,” according to Day, one of the group’s organizers.

Day says this isn’t NIMBY-ism.

“Pacaso is starting to look at homes all over town and overpaying for properties, which in no way helps our housing market,” he said. “This purchase is just the tip of the iceberg.”

Napa residents have voiced concerns about Pacaso homes there and a neighborhood group has reached out to STOP about joining to form a full wine country coalition, said Day.

“Pacaso has the potential to ruin the sense of community that makes Sonoma so special,” said Day. “And once you lose it, it is really hard to get it back.”

While Pacaso isn’t a short-term rental company, and in fact bans rentals even in areas where they are allowed, time in the house can be “gifted” to guests. STOP spokesperson Holly Kulak believes that Pacaso has simply found a way to circumvent limits on time shares and vacation rentals.

“And unlike similar commercial properties, no TOT (transient occupancy tax) will be collected,” she said.

Potential Sonoma neighbors of the co-owned houses also don’t love the idea of multiple owners coming and going.

Carl Sherill of Sonoma did the math on the typical house with eight owners.

“There’s a 14-day maximum stay so if a single owner uses all of his/her 44 days, that would mean 32 separate stays in the house – and that’s a minimum,” said Sherill. “If owners stay for shorter periods, there would be even more turnover.”

Day says the more people understand the Pacaso model, the more concerned they are going to be.

“It’s going to be a rotating door,” he said. “You know when you hold your breath wondering what your new neighbor is going to be like. Well multiply that eight times… or more.”

Better Homes and Gardens real estate agent Mara Kahn makes the point that you are buying into a group in which you have no control.

“If the other owners aren’t good neighbors, you might be shunned even though you are blameless,” she said.

Kahn also thinks resale-ability will be an issue.

“If you want to get out because you don’t like the other owners, selling your share might be really difficult,” she said. “It’s so new, it might be really hard to market.”

Day feels strongly Pacaso has the potential to ruin the sense of community that exists in Sonoma.

STOP signs on Old Winery Court in Sonoma. (Submitted)
STOP signs on Old Winery Court in Sonoma. (Submitted)

“And once you lose it, it is really hard to get it back.”

But Allison says Pacaso homes can benefit the community in a way typical second homes do not.

“Most second homes – close to 70 percent – sit vacant for 10 to 11 months a year. As crazy as that sounds, it is the truth,” Allison said. “So the occupants in those homes aren’t supporting the local businesses.”

“Our owners are spending $650,000 or more to own a home in a community they care about and they become members of that community,” he said.

How does it work?

Pacaso identifies a property and offers it on its website – frequently prior to closing and without needing permission from its owners. “We're a licensed brokerage and we display homes once we decide they are a good fit for us,” said Allison. The company then vets potential co-owners and facilitates the purchase but retains no ownership itself.

“Our goal is to own properties for as short a time as possible,” stresses Allison, who declined to provide the current number of Pacaso-managed houses across its West Coast service area.

Pacaso “takes the hassle out of second-home ownership,” said Allison, because it takes care of all the maintenance and upkeep, partnering with local businesses to provide cleaning, maintenance, landscaping and pool services.

A fight looms

Permit Sonoma confirmed with the Index-Tribune at least one “warning of lodging violation” has been issued to Pacaso, but county staff decline to comment further on the company.

"About a week ago, we confirmed to the County that Pacaso homes are not used as lodging or rentals. We have not received any follow-up since then,“ said a Pacaso spokesperson.

Allison acknowledges Pacaso has a target on its back.

“The anger against us comes from a valid frustration with what's happening with second home buyer demand but I think the thing to realize is that that's not a Pacaso problem, it is a macro theme that's happening for reasons that are way outside of any of our control,” he said. “And it's a new reality unless something causes people to be disinterested in the Napa and Sonoma region entirely, and that’s not happening anytime soon, because this is a beautiful place.”

“I would just ask the community to allow us to help and be part of the solution here,” he said. ”We can help make better use of the housing stock through co-ownership.”

Day is skeptical.

“Pacaso is the answer to Pacaso making a lot of money, not the answer to our housing problems,” he said. “If this works, other similar companies will follow. It is corporate greed at its worst.”

About Pacaso

Founded in October 2020 by former Zillow executives, Spencer Rascoff and Austin Allison.

Recently received $1 billion in financing.

How it works

Pacaso facilitates home co-ownership by 6-8 buyers, who can finance up to 50 percent of their purchase. Co-owners each pay Pacaso a $99 monthly fee plus their share of all operating costs. When they want to sell, they list their share of the house with a real estate agent.

The name

CEO Austin Allison was inspired “by Pablo Picasso’s revolutionary thinking, and decided on Pacaso to honor his legacy of innovation.”

Contact Lorna at lorna.sheridan@sonomanews.com.

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