Elizabeth Milias: Pacaso – a smart new real estate twist in Aspen
When it comes to art, beauty is most definitely in the eyes of the beholder. And although highly collectable and valuable, the works of Spanish artist Pablo Picasso (1881-1973) are no exception. However, a new real estate phenomenon named to honor the artist’s legacy of innovation is arguably a controversial movement in its own right, much like Cubism, Surrealism, and Expressionism were in the art world at the time.
Pacaso, founded in October 2020, has created a new category of second home ownership by transforming single family homes into unlicensed but legal mini multi-user complexes. Designed to capitalize on the strong demand for second homes in luxury destinations where the pandemic real estate boom has pushed many prices out of the market, Pacaso’s unique model is relatively straightforward. Pacaso creates a limited liability company (LLC) that purchases a luxury home, renovates it slightly, divides the business between two to eight owners, and sells condominium interests through its website. For 12% upfront and a $ 99 monthly management fee, Pacaso locates and monitors all co-owners, handles all the details of the sale, takes care of all furniture, repairs, cleaning and property management, and enables planning. owners through a proprietary app. Currently valued at $ 1.5 billion, this start-up would be the fastest American company to achieve, in investment jargon, the status of “unicorn”, that is to say a stock market valuation of $ 1 billion or more. Investors obviously love the model, and it’s coming to a resort near you. In fact, Pacaso has already arrived in Aspen.
On October 8, Pacaso, under the guise of “28 Smuggler Grove LLC”, closed the local property for $ 9.1 million. An eighth owner of the property-specific LLC member interests that owns the three-bedroom, four-bathroom home in a quiet Midland Avenue cul-de-sac is now listed for sale on the Pacaso website. Interest is currently on the market for $ 1.34 million each, which gets you up to 44 nights per year at this newly renovated and tasteful 3,166 square foot single-family residence. Buy as much interest as you want up to half the property, sign the Owner’s Operating Agreement for the LLC, and you and your co-owners will then collectively own 100% of the house. The only problem? You can only stay there for a maximum of 14 days at a time.
Pacaso’s new model is gaining ground across the country. In addition to homes in Aspen, the website features interests available in LLCs that own luxury homes in Palm Springs, Scottsdale, Jackson Hole, Telluride, Lake Tahoe, Miami, Park City, Napa, Malibu, West Palm, Naples , Carmel, Santa Barbara and Vail, among others. In addition to paying Aspen’s 1.5% RETT on the initial purchase, Pacaso takes good care of local realtors by paying a 3% referral commission on sales and stock options. restricted as a “referral equity premium”. Interests in owner LLCs are marketed on the local MLS.
City Council has long wanted to target second home owners for special taxation as they do not reside full time at their properties in Aspen. An “occupancy tax” is regularly suggested to raise additional funds for pet projects, such as more subsidized housing; the idea is to punish people who dare to pay their property taxes and bills while leaving their private homes empty until they want to use it. But the Pacaso side owners are a new breed. They own vacation real estate that they don’t occupy full time, but the Pacaso homes don’t sit empty. In fact, Pacaso homes will likely be occupied 100% of the time. And although co-owners cannot rent out their interests in the open market, they can “gift” them to friends and family. What could go wrong?
Aspen’s nemesis, the law of unintended consequences, rubs his hands in joy. So the council doesn’t like empty vacation homes? Now imagine vacation homes full, all the time. The Pacaso owner’s code of conduct says “no big parties,” “quiet hours 9 am-7am,” no more than two dogs under 80 pounds each, and recommends avoiding street parking. But since these are not Airbnb-type rentals, there is no collection of the accommodation tax, no commercial license and therefore no official agent in the event of a problem. They are not commercial enterprises, so there is no housing mitigation.
The interest sold is not deed of ownership, it is interest in an LLC that owns the deed, so these sales are not subject to RETT, or are they? It’s unclear. In addition, what will be the impacts on our community services and infrastructure? And given the unprecedented labor shortage in the service industry and horrific commuter traffic on Highway 82, which will just serve the revolving doors of these multi-user mini-stations ?
Many jurisdictions are already fighting the Pacaso model in their communities; however, there are difficulties in doing so. Pacaso does not sell easily regulated fractions or timeshares, or joint tenancies, but rather interests in LLCs that represent beneficial ownership of real estate. It’s unclear what, if anything, Aspen can or should do. And since many local real estate buyers already shop using an LLC, often for privacy reasons, it’s impossible to identify a “Pacaso home” until it’s too late.
Pacaso dramatically lowers Aspen’s property barrier to entry, but comes with its share of serious concerns and unintended consequences. Contact [email protected]