Campus Development Minutes

Campus Development

St. Mark’s Roadmap Discussion No. 4

Sunday, April 2, 2006

Discussion leaders: Tom Berardino, Paul Reiss, Jan Annunziato, and Bob Stephan

Tom Berardino opened the meeting with a power point presentation entitled, “St. Mark’s Strategy for Campus Development—Being Good Stewards of Our Assets”, a copy of which can be found on the church website. The presentation covered the following:

The Issue:

St. Mark’s is a land-rich and cash poor parish. Too much time and expense is spent on maintaining assets and financial matters. We don’t have a plan for what space is needed to accomplish our mission or how to efficiently use it. We need to establish appropriate strategic relationships with campus tenants.

The Goal:

Develop a master plan for rationalizing parish assets to fit strategic goals consistent with the economic realities facing St. Mark’s; thus enabling us to shift our focus from infrastructure and financial issues to the true business of the Parish.

The Facts:

What land and buildings we currently own and what is it worth.
The total cost each year to maintain and repair our properties is about $540,000.
Anticipated capital needs during 2006-2011 will cost about $2,500,000.
How our properties are used—church programs and outside groups. Financial support from outside groups does not cover costs.
Economic realities facing St. Mark’s: Operating deficit for 2006 of $185,000 (plus $160,000 unfunded maintenance reserve) is likely to grow in future years. Reserve funds total about $325,000. Vestry resolution adopted last December requires balanced operating budgets by 2008.

Paul Reiss then led a discussion, which focused on the following two topics:

Can we reduce our cost structure by better utilization or sale of our buildings?
Should we sell unproductive land to substantially improve our balance sheet?

Paul Reiss also mentioned that a campus development committee, headed by Treasurer Chris Gruseke, will address the issues discussed today and make recommendations to the Vestry and the Parish.

The following is a summary of discussion comments from parishioners, organized by general subject area:

Reducing cost structure and improving the balance sheet through sale of land.

Reducing our cost structure and improving our balance sheet through sale of unproductive land are the critical issues and should be addressed first.

There are four properties on the East side of the campus that could be sold for the following estimated amounts: Hampton Lane house--$1,100,000; the Cottage--$900-950,000 depending on where the lot line cuts; two additional lots at $895,000 each.
Renovating Parish House to create housing for clergy should be considered.
The current market value of our properties is higher than the figure given on the slide, which was based on the October 1, 2003 assessment. (The Colonial Road house will be going on the market May 1 with an asking price of $1,295,000.)
We should do a comparative market analysis on our properties to learn their true worth, for example, if subdivided and sold.
It is important to remember that sale of empty land would not lower our annual maintenance costs.

As fiduciaries, it is our responsibility to diversify our assets and put us on sounder financial footing. Our asset allocation today is not properly balanced. We are too heavily invested in land that is not very productive and have few other investments. We need to actively manage our assets in order to realize a greater return on investment.
It is good to see in the budget the real cost of our building and grounds, including the annual maintenance reserve, and $540,000 is probably the right number. We need to fund that amount each year, even if we sell land to improve the balance sheet.
For the past several years we have been spending down our capital reserve to cover operating deficits.
We need to put an end to annual operating deficits. We should not use the proceeds of asset sales to cover operating expenses. That is a dead end. Proceeds of asset sales should be used to improve the balance sheet. We should remove operating deficits by improving revenue through better stewardship.
We will not raise enough money through asset sales to solve the operating deficit problem--$5 million would have to be raised to cover operating deficits at current levels, assuming a 4% annual draw rate. We need to address the revenue shortfall.
We have over $2 million in capital projects projected for the next 5 years. There are two ways to pay for such needs: put money annually into a budget reserve or undertake periodic capital campaigns. So far, we have relied on the latter method.

Sale of Colonial Road house and location of new rectory:

Decision to sell Colonial Road house was approved at the last annual parish meeting—where should the new rectory be located?
The Hampton Lane house might make a good location for the rectory, because it is on campus but affords considerable privacy for the Rector and his or her family—it has a separate entrance and is not readily visible.
Renovating the Hampton Lane house and other on-campus alternatives should be considered. If we build a new rectory for $800,000 and sell Hampton Lane for $1,100,000, we will gain $300,000.
Will it be a detriment to force the Rector to live on campus? Can we afford an off-campus rectory?
Father Rider pointed out that many rectors prefer to live on campus and that about 50% of parish rectories are located on campus. He also addressed the issue of whether a rector living on campus would be precluded from building equity in a house, pointing out that there are financial planning tools available to parishes that would provide a similar benefit to the rector; for example, give the rector a home equity allowance that would grow over the years in a tax advantaged 403(b) plan.