Fractional home ownership startup Pacaso sparks controversy in Napa, Sonoma counties

A well-financed Bay Area real estate startup called Pacaso has acquired homes in Napa and Sonoma counties as well as elsewhere, selling shares in ownership of those homes. That’s sparking protests as well a lawsuit from the company against a Napa Valley city.

The Sonoma Index-Tribune reported 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 the same of second-home ownership as in Napa and other locations.

Up to eight parties can purchase shares of a single property, though on average Pacaso homes are shared by between five and six buyers, Pacaso CEO Austin Allison told the Napa Valley Register. The startup purchased its first home in Napa in June 2020, he said.

As of Friday, the company’s website listed one property each in Sonoma, St. Helena and Napa, with prices per share ranging from $418,000 to $745,000.

In Sonoma, a group of neighbors has organized a campaign to stop such deals, which they and local housing advocates, like the Sonoma Valley Housing Group, describe as an end-around scheme to skirt laws regulating commercial vacation rentals.

Allison, 36, told the Index-Tribune on May 18 that Pacaso can actually help alleviate the local housing shortage.

“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.”

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.

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.

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.”

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.

On a recent weekend, according to the Register, several dozen protesters gathered in St. Helena to protest the company’s activities in the Napa Valley city.

Further In April, Pacaso filed suit against the city of St. Helena. According to reporting by the Register, the complaint requests a judgment declaring that St. Helena’s timeshare prohibition does not apply to Pacaso and an injunction barring the city from interfering with Pacaso’s economic interests.

According to the complaint, Pacaso owns or manages five homes in St. Helena.

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.”

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Napa Valley Register contributed reporting for this story