Indian Wells debates whether homeownership models like Pacaso should be allowed

Indian Wells is looking at its ordinance banning timeshares to consider whether additional language should be added that would target Pacaso and other similar home co-ownership or fractional ownership businesses.

While Indian Wells is the fourth city in the Coachella Valley to examine timeshare restrictions since Pacaso's entry to the market, the City Council remains undecided whether it believes the home-share model is a timeshare.

The city does not allow timeshares anywhere in Indian Wells, except two properties that were grandfathered in when the ordinance was adopted several years ago.

There are two known Pacaso homes in Indian Wells, City Attorney Todd Leishman said.

The Bay Area-based company, founded in 2020, buys and maintains titles to properties, then forms a limited liability company, selling interests in the homes to up to eight individuals. Each of the investors can use the property for a specified number of days per year.

The properties serve as second homes for the investors.

While not used as short-term rentals, each of the investors can opt to let someone else stay on property during their designated time.

Leishman said the city views Pacaso as a  timeshare. Pacaso, however, says its properties are not timeshares.

Pacaso is a licensed real estate broker and property manager, not a timeshare or short-term rental company, said Gabe Dima-Smith, a public affairs manager with the company.

Once the property is sold, Pacaso does not retain any ownership, but works as home manager, Dima-Smith said.

“There is a lot of conversation around our model being a timeshare and I think that’s the tricky point of contention here,” he said. “We find that we are not a timeshare. We are a real estate broker, a property management company that helps people who want to co-own real estate together,” Dima-Smith said.

Home co-ownership is not uncommon, he said.

“If you were to remove Pacaso out of the conversation entirely, this type of housing use (fractional ownership) is prevalent within the city,” he said.

When the city first learned of Pacaso, it appeared that the company’s business model satisfies the city’s definition of timeshare, and timeshares are prohibited by the city’s zoning code, Leishman said.

He pointed to a lawsuit filed by Pacaso against St. Helena after the city applied its timeshare definition to Pacaso and banned such shared ownership. That lawsuit is making its way through the courts, Leishman said.

Indian Wells has no immediate plans to take legal action against the two existing Pacaso properties, Leishman said.

“Rather than follow St. Helena’s course and risk an expensive, uncertain litigation, we waited to see if the St. Helena litigation revealed a clear path forward,” Leishman said.

Leishman read a letter his office sent to Pacaso’s attorney in April, stating “the city does not intend to pursue any further action with regard to Pacaso … at this time.”

The city, however, will monitor uses of the two properties and reserves the right to take legal action, if necessary.

“So, we basically said, we’re going to put a pin in this and watch and see what happens. But we might just come back, because what happened … is Pacaso sold shares in properties to buyers without establishing it as a legal use,” Leishman said.

A fine line separates timeshare, fractional ownership

Council members weren't convinced Pacaso is a timeshare and said they need more from Leishman before they can taking formal action one way or the other.

“There’s definitely a difference between fractional ownership and timeshare, and it’s a fine line …,” Mayor Pro Tem Donna Griffith said Thursday when the City Council discussed whether Pacaso homes qualify as timeshares or should the city amend its ordinance to address that business structure.

It’s how the property is used that determines on which side of the line Pacaso falls, she said, explaining that home co-ownership between friends and family give the investors a sense of ownership in the home that timeshares do not, she said.

“I don’t know that we can moderate how people behave or who they allow to use their home. But we have a timeshare ordinance here and it needs to be strongly worded … and we cannot allow any timeshare type thing to seep into our single-family home neighborhoods,” Griffith said.

Councilmember Greg Sanders requested the issue be put on the agenda to discuss the city’s current timeshares policy and whether any changes need to be made to specifically address Pacaso and similar businesses.

Indian Wells council members on Thursday said they aren’t sure what direction to take and asked that Leishman return in June with more information, including what, if any legal action the city can take regarding the existing Pacaso homes if it so chooses.

Councilmember Greg Sanders said there are two key issues the council must decide: The status of the two Pacaso homes that currently exist and whether the city finds them out of compliance with the city’s ordinance; and how does the city regulate against future Pacaso homes in Indian Wells if that’s the direction council members want to take.

“My great concern is that, if we don’t take any action very soon, we may have more Pacasos in town and, if the council decides that Pacasos violate our timeshare ordinance, not doing anything about it is just going to make the problem worse,” Sanders said. “Not just legal problems, but other problems as well.”

Griffith agreed with Sanders that wording needs to be stringent and the city needs to enforce the usage.

Councilmember Richard Balocco said he didn’t know if Pacaso met the definition of timeshares.

“I’m not sure they’ve created anything illegal yet,” Balocco said.

Additional information is needed as to where Pacaso and other similar businesses fall in the definitions of timeshare vs. fractional share homes, he said.

“We are more than happy to work with the city of Indian Wells, as we’re working with other cities, in providing a regulatory framework that works, that protects ownership rights but at the same time addresses some of the concerns in local communities,” Dima-Smith said.

At least three valley cities have addressed the Pacaso issue already. Palm Desert recently voted to include Pacaso and similar businesses under its timeshare ordinance, banning them in residential neighborhoods where short-term vacation rentals are also banned.

In March, Palm Springs City Council voted to maintain the city’s ban on timeshares in residential neighborhoods and asked the city attorney to rewrite city ordinances to make the ban apply more explicitly to Pacaso.

Cathedral City recently made some changes to its short-term rental ordinance, which included the addition of a section prohibiting timeshare properties from being used as STRs.

Leishman said he will return, possibly June 2, with more information and possibly a revised ordinance for the council to consider.

Desert Sun reporter Sherry Barkas covers the cities of La Quinta, Indian Wells, Rancho Mirage and Palm Desert. She can be reached at sherry.barkas@thedesertsun.com. Follow her on Twitter @TDSsherryBarkas