A showdown appears to be brewing over a San Francisco startup company’s bid to operate timeshare properties in residential neighborhoods on Nantucket.
Pacaso, which promises its customers “second home ownership at 1⁄8 the cost,” is charging ahead with its plans to expand to Nantucket, which began last fall with the purchase of a home on Meadow Lane. The town, meanwhile, has issued an enforcement letter warning Pacaso about the town’s prohibition on timeshares in residential zoning districts, and is sponsoring a new zoning amendment to strengthen the island’s existing bylaw prohibiting such ownership schemes.
After Pacaso purchased 11A Meadow Lane last September, the company began marketing 1⁄8 ownership shares of the 6,800 square foot home for $1.25 million. According to its web site, it has already sold six of the eight shares of the seven-bedroom, single family home on the edge of town.
Neighbors immediately protested, filing a formal complaint with Nantucket’s zoning compliance coordinator Marcus Silverstein “to report an illegal timeshare” and asking him to issue a cease and desist order. Silverstein responded with an enforcement letter to Pacaso, informing the company that time-sharing and time-interval ownership constituted a “transient residential facility,” which are prohibited in the R-20 zoning district where 11A Meadow Lane is located.
The letter prompted Pacaso to file an appeal with the Zoning Board of Appeals that was scheduled to be heard in February. But just last week, Pacaso curiously withdrew its appeal.
Why would it do that?
Nantucket Current requested the formal withdrawal request that Pacaso sent to the Nantucket Planning & Land Use Services (PLUS) department. The letter, obtained by the Current, references a meeting earlier this month on Jan. 11 at the PLUS offices off Old South Road that was attended by Pacaso’s attorneys, including local counsel Steven Cohen, along with town staff members including Silverstein, deputy director of planning Leslie Woodson Snell, Nantucket building commissioner Paul Murphy, and town counsel Alex Weisheit.
“This meeting was to discuss the October 21, 2022 letter from Marcus Silverstein (the 'Zoning Letter'),” wrote Pacaso attorney Anthony Panebianco. “At this meeting, we were informed that the Zoning Letter is not a Zoning Determination or a Notice of Violation. Rather, it was explained that the Zoning Letter is an informational recitation of a portion of the Nantucket Zoning Bylaw, sent as a precaution, and contains no assertion or application of facts to the law. That is, the letter was to advise that Transient Residential Facilities, including Time Shares and Interval Ownerships, as defined by the Nantucket Zoning Bylaw, are not allowed in the R-20 Zoning District, but the letter was not an assertion of a violation of the Bylaw. We do not object to the information in the letter. As noted at this meeting, the Applicant intends to abide by the Zoning Bylaw. Accordingly, since there is no pending assertion of a violation of the Bylaw, the Applicant’s Appeal of the Zoning Letter is hereby withdrawn.”
Pacaso has been adamant that its business model is "fractional ownership," and not a timeshare.
Does the withdrawal letter indicate the town has capitulated and agreed with Pacaso that its ownership model for 11A Meadow Lane does not constitute a timeshare? We reached out to PLUS director Andrew Vorce for clarification.
“What I can clarify (is) that an enforcement letter was sent - it was not described as a ‘cease and desist’ type letter because a property listing is not a violation - yet,” Vorce said. “There are legal issues around this matter that I can’t discuss at this time.”
Just hours after Vorce’s message to the Current, the situation took another turn when Woodson Snell, the town’s deputy planning director, appeared remotely at the Select Board meeting Wednesday night to describe a new zoning bylaw amendment for Town Meeting in May that she described as “late-breaking” and “unexpected.”
The amendment would clarify the definition of prohibited time shares and time interval ownership dwelling units to include “fractional ownership” situations. It appears to be an attempt to directly address the Pacaso situation. Snell emphasized that “this isn’t something we were expecting to submit,” but that it was "time-sensitive."
"It's about amending our timeshare or time interval ownership dwelling unit definition, and we would add fractional ownership to this,” Woodson Snell said. “We have had a potential enforcement situation come up and we realized our bylaw is not as clear as it should be. We think this is something that’s important, it's time sensitive. It won’t deal with the current issue, but it will have often future issues.”
The Select Board voted to include the new zoning amendment proposal on the Town Meeting warrant.
Nantucket’s current zoning bylaws defines timeshares as:
The new zoning amendment proposed by PLUS for this year's Town Meeting would add the following text:
“Or fractional ownership, which shall include any form of ownership where more than one owner without a familial relationship shares an ownership interest in a property and where the maintenance responsibilities for the property are shared among such unrelated owners and managed by a third party individual or entity.”
The latest machinations mirror a dispute that is playing out across the country in communities where Pacaso and other companies like it are buying residential properties. And it’s a fight Pacaso is prepared to wage on the premise that its business model is actually not a timeshare.
The company calls it “fractional ownership,” and has been attempting to persuade abutters, zoning officers, and town officials in communities from California to South Carolina that it should be exempt from existing regulations and restrictions on timeshares.
Opponents have even organized a website, StopPacasoNow.com. And yet...
“Pacaso is not a timeshare,” said Brian McGuigan, Pacaso's director of corporate communications. “We help families co-own second homes, an established practice in Nantucket and around the country. Pacaso is modernizing the process and bringing together buyers. Otherwise these homes operate similar to any other co-owned home which have never been considered a timeshare.”
Beyond the Meadow Lane home it already owns, Pacaso has its sights set on more Nantucket properties - one specifically in Monomoy - that it has identified as a “prospect.”
Pacaso sets up limited liability companies to buy properties and then sells shares in that LLC to customers while retaining management responsibilities for the home. The company describes itself as a licensed real estate broker and property management company that ultimately retains no ownership in the homes it buys after selling shares to second-home buyers. It acts as a property manager after those sales, and claims to enforce a “Code of Conduct” among the fractional owners which prohibits rentals, limits the number of guests, and regulates noise, parking - even garbage.
As it notes on its web site below, Pacaso apparently has big plans for Nantucket. Unlike the short-term rental cases that have prompted zoning enforcement requests, however, it seems as though neighbors of Pacaso properties may have an ally in the town in pushing back against the venture capital-backed start-up.
But it appears to have fallen on challenging times recently, laying off 30 percent of its staff in October, 2022.