Real Estate Announcement
Friends, My apologies for having been so unavailable over these last few
weeks. We’ve obviously been on a major push raising funds for the Salvation Army
building. I’d like to update you on progress. As a reminder, the Salvation
Army building will cost a total of $48 million to occupy. We believe that in 2 –
3 years we will be able to raise tax-exempt bonds, or just a straight commercial
mortgage to fully finance the building. We will therefore need a bridge loan of
$48 million to get us to that point. Our focus has been on raising the bridge
loan. We had one individual who had given us a sense that he might be able to
participate in a major way in the loan. Unfortunately he has not been able to do
so, and so we needed to raise the entire amount in less than three weeks. We
have worked through three major channels – banks, individuals and developers.
While a couple of banks have been willing to lend us the money, their terms were
unacceptable – for example looking for a 100% cash guarantee and the building as
collateral, and they’ll charge an interest rate too! Great business if you’re
the bank, impossible for us. We have been delighted with the response from
individuals, but in the short time we have had, we have got commitments for a
little over $10 million in loans. Great progress, good people, but not enough to
commit to a $48 million deal. Finally the developers will work with us, but by
the time they build in a 20% return on investment, the numbers become too large
for us. In addition to this, two days ago there was a major change in the New
York real estate market when Tishman Speyer defaulted on the Stuyvesant Town and
Peter Cooper Village properties. What was $5.2 Billion of assets is now valued
at less than half of the original purchase price. This is sending shock waves
through the New York market. We have no idea what will happen to residential
prices as a result of this. We know the pressure on prices will be in a strong
downward direction, but how much and for how long is unknown. As a result of
this, the College’s Board decided that it was not wise to commit to a building
in the post-Tishman default era at prices negotiated prior to the default. So
today I met with the Salvation Army and let them know that we had not been able
to close our financing at this point and that we had real concerns about the
price levels in the market. We were unable therefore to push forward
aggressively. We had a wonderful conversation with Colonel Klamanski and he
completely understood our situation. He is likely to push ahead now and try to
close the deal with another party, but there is no certainty over that either.
So what are we doing next?
- The Board is committed to buying real estate in New York – the timing may
be even better now than before. We will continue to be in touch with the
Salvation Army to monitor progress and be ready to renegotiate if their other
deal falls through. We will survey all of the properties in reasonable
proximity to the Empire State Building to build a portfolio of potential sites
for King’s. Real estate will be the first and major agenda item on the
February 10 – 11 Board Meeting.
- The Board enthusiastically endorsed aggressively continuing the money
raising process from Individuals. Our goal is to build an investment vehicle
for individuals that gives the College a pot of money (tens of millions of
dollars) with which we can “go shopping”. Cash is king in this market, and we
believe very advantageous deals can be done with cash, since raising debt
financing is so difficult.
- We will explore Plan “B” with regard to accommodation for all of our
current students who want to live in dorms, and the 200 strong incoming class
we are expecting in August. This might be temporary, might be a combination of
apartments, hotels and other schools dorms, but you will have a place to stay!
So what is God doing? We were excited about 145 East 39th Street. It
seemed to fit all of our needs, plus it’s a great looking building – a
statement building. We felt like this was the building that God was bringing
for us. So what happened? Well maybe nothing. We may yet be back talking with
the Salvation Army. If this is the building God wants us to have, both the
Colonel and I agree we will be back together again. And maybe God will decide
that King’s needs the money more than the Salvation Army at this point and the
price is reduced. But maybe He’s moving us to something different – and
better. The one thing that I know for sure is that we know more about real
estate in New York than ever, we understand more about short-term and
long-term financing options and we have had the opportunity to talk with high
powered people about investing in the building and a number of them stand
ready to do so. This has been a great dry run for us and we are in a much
better position to do a deal than before. One further interesting thing that
God did was to, inexplicably, delay our Salvation Army meeting till today –
two days after the Tishman default. Important timing. God knew that it would
happen – we didn’t! So we walk with God. We will continue to work very hard
to complete the right transaction, but all the time looking for God’s
fingerprints of confirmation. What an exciting life! The Board and I are
energized by the possibilities. As new things happen, I’ll try to report
them as I know them. In the meantime we covet your continued prayers for
strength and wisdom. May His will be done at the College that bears His
name! Andy Mills
President, The King's College |
