EI Chapter House Expansion Criteria

January 2003 Update

We've gone through a lot of the bureaucratic hurdles toward getting building permit, but the scope of the expansion and the funding, given the existign size of the undergraduate brotherhood, has been called into question.

See the House Expansion Committee report in PDF format, and also a zip file of Jared's financial analysis.

October 2001 Update

Brothers, alumni and undergraduate alike, are awaiting the house expansion. The blueprints are ready, but are the finances? We are trying to develop a set of dispassionate criteria to decide.

During the July 2001 alumni meeting, a set of criteria were discussed. The House Expansion Committee was left to hammer out the exact details, which it did during a meeting on 8/18/01. The criteria were mildly revised during the 3 to 3 alumni meeting. The page lists the state of affairs after the alumni meeting of 10/20/01. If you have input, contact either David Manthey or Jim Muhr.

House Expansion Criteria Committee Report (amended 10/26/01)

Psi Upsilon Alumni Association

Based on a meeting held on 8/18/01. In attendance were:
Bob Corell, EI 334
James Muhr, EI 350
Kate Konapka, EI 415
Sandy Lucas, EI 416
Edward Hitchcock, EI 420
Soze Lakinger, EI 483
David Manthey, EI 410, meeting chair

Preamble:

The decision to go ahead with the house renovation and expansion involves such a large financial commitment on the part of alumni association that it is hard at a large meeting, such as Three-to-Three or Founders' Day, to have a rational and productive discussion as to whether or not to proceed. Therefore this ad-hoc committee was formed to establish clear criteria to guide the executive committee in a go or no-go decision on house renovation and expansion. These criteria will be introduced at the next executive committee meeting (at Three-to-Three in October) for approval.

Quick Summary:

The committee is pleased to report the following:

• 1. We were very successful in establishing agreed upon criteria in a single committee meeting.
• 2. We feel very optimistic that the alumni association and the undergraduate chapter should be able to meet their goals in order to be able to undertake this project in the summer of 2002.
• 3. By meeting these criteria, we will have reduced as much as possible the amount of financial risk exposure to the chapter and alumni association in undertaking such a large project.

Criteria:

The first three criteria must be met by the January meeting. All other criteria must be met by the April meeting (Founders' Day). Additionally, all criteria must look like they can be met on time (i.e., if it seems impossible to meet an April criterion on time when it is in January, we can't proceed).

January criteria:

• 1. Rent increase. There shall be no more than a maximum of a 15 % undergraduate per-capita rent increase. This increase includes the increase in rent as paid to the alumni (to cover the mortgage, taxes, insurance, maintenance, etc.), plus appropriately scaled utilities and other expenses that the undergraduates currently cover from the existing collected rents. A value of 15 % was selected as this places the new rent halfway between the current house cost for a double ($2758/year) and the amount RPI charges for a typical double ($3600/year). As off-campus housing is cheaper than RPI, we need to still be attractive compared to it.
• 2. Significant cash reserve. The alumni association needs a significant cash reserve in order to cover routine costs and to cover unexpected problems. At the minimum, the cash reserve must include enough for:
  • (a) One year of maintenance on the house, estimated as around $2000/year.
  • (b) Emergency repairs. 1/2 of the cost of the most expensive appliance looks to be a reasonable amount. This would be the furnace, half the value of which is approximately $2500.
  • (c) Cash flow. In the ideal world, all accounts receivable would be received before all accounts payable needed to be paid. Since this doesn't always happen (and not necessarily because anyone has screwed up), a reserve is need to cover cash flow variations. 1/4 of the yearly mortgage, taxes, and homeowners' (fire) insurance was suggested. The expected mortgage is roughly $17000/year, varying depending on a factors such as mortgage rates, plus taxes at approximately $4000/year, plus homeowners' insurance at approximately $4000/year, gives a quarterly amount of ($17000+$4000+$4000)/4 = $6250.
  • (d) Alumni operations for a year. This includes monies for sending out publications, such as the Psi U Material, dues letters, and Founders' Day invitations, including photocopying and postage (33¢/ounce for nearly 200 alumni), all adding up to $1100. Also included is the monetary outlay for Founders (we ultimately make a profit, but we have to spend money to make money), estimated as $800. Additionally, an amount to cover sending undergraduates to Convention, which was picked as $1500 (this varies depending on where Convention is held).
  This gives a total needed cash reserve of $2000+$2500+$6250+3400 = $14150. As always, it is important to send a dues letter out every year.
• 3. Prequalified mortgage. A prequalified mortgage must be in place, and the loan process must be started so that funding will be approved in time for construction to start (this will be the bank's timetable, not completely our choice). The mortgage should include an amount to cover cost overruns on the contract. A cost overrun equal to 10 % of the new construction value is recommended, being around $14700. If the construction does not exceed the expected value, the mortgage will ultimately be smaller. A prequalified mortgage is when a bank agrees that it superficially looks like you should be able to borrow a certain amount. A detailed credit check has not been performed (this is done upon applying for the mortgage); rather, the bank assumes that your statements about savings and income are accurate.

April criteria:

• 4. Signed leases. We must have 11 signed leases in hand (for the full year or functional equivalent). If we can't fill it the first year, we shouldn't expand.
• 5. Brotherhood size. There must be at least 16 people who will be eligible to sign leases the subsequent year (year 2 of the renovated house). If we don't have this many, the odds of filling the house the second year are grim. Eligibility includes pledges and brothers who will not graduate (and will still be attending RPI) before May of the appropriate year. Note: We had a lively discussion of this point at 3 to 3 (10/20/01), and settled, as a group, upon the number 16.
• 6. Mortgage. The loan must be properly applied for in a timely manner (this is coupled with #3).
• 7. Undergraduate debt. "One of the criteria for determining whether we go ahead with the project is our belief that the undergraduates will be able to pay their rent so that we can pay our mortgage. In order to determine the credit worthiness of the undergraduate chapter, we set them the following goal: that the AVERAGE accounts receivable of the current undergraduate members, including pledges, be no more than 25 % of the annual budget for the current fiscal year in the first six months of the fiscal year at the January executive council meeting, and the first nine months of the fiscal year preceding the annual meeting in April." By accounts receivable of the current undergraduate members, we mean to exclude alumni debt.

Additional items:

• A. Breakage deposit. The alumni should charge the undergraduate chapter a breakage deposit. In the event of damage to the house that is not part of normal wear and tear, this can go to having the damage repair professionally. An amount equal to 1/2 month of rent was suggested. The intent is that with the newly remodelled and expanded house, repairs should be done professionally, and not by alumni. Note: During the 3 to 3 meeting, it was decided that a breakage deposit is a good idea, but the matter was referred back to committee to hammer out some functional details.
• B. Funds. As of 8/21/01, the alumni association has approximately $34000 in the 47k fund, and approximately $14000 in other monies. The $14000 is roughly enough to cover the significant cash reserve, leaving all of the funds in the 47k for use in downpayment and closing costs for the expansion project.

Needed funds:

At present we have approximately $34000 in the 47k fund. We need at least 20 % of the new mortgage amount plus closing costs (1 %, according to Marine Midland, other banks may vary. Note that there is also a fee of 2 %, but that this is part of the mortgage amount, not required for closing). Also, we need at least enough that the above criteria will be met. The mortgage amount will vary based on the current interest rate. While Marine Midland said that their corporate mortgage rate was a half point over prime, the prime rate fluctuates (we can always hope the economy tumbles). Any extra decreases the mortgage load and decreases the amount we need to raise rent. It has been suggested that the original goal of $47000 would be ample (unless the prime rate shoots up unexpectedly), which would require raising another $13000. While less will be needed if the prime rate holds steady or declines, if we aim for this target value we know we can proceed with the expansion.

8/31/01-DWM, with help from the rest of the committee. Updated 10/26/01 based on the 10/20/01 alumni meeting.

Relevant Data

Information you might want to know.

• There is about $34,000 in the 47k Fund. This includes monies that came from the previous house improvement fund (a.k.a. the window fund), and has had monies that were spent on the project (blueprints, etc.) deducted from it.
• We are likely to know the number of brothers who can live in the house for the fall semester by early March.
• Marine Midland said that their corporate mortgage rate was 1/2 point over prime. The current prime rate can be found at this site. As of 26 October the prime rate was 5.50 %. [Manthey's note: I don't personally believe we can actually get a loan at only 1/2 point over prime. I suspect it will be more like 1 or 1 1/2 points above prime.]
• A spreadsheet of the financial numbers is available as a zipped excel spreadsheet, with some PDF comments. Updated 10/26/01.
• The House Expansion Criteria Committee members are James Muhr, David Manthey, Sandy Lucas, Soze Lakinger, and Ernie Daniels. The House Expansion Committee members are James Muhr, David Manthey, Joe Ader, Ted Hitchcock, and Dave Hinners.