Chapter Housing: The Important First Steps
If your chapter is on a campus where fraternity-owned facilities exist, then it only makes sense to strive to see that Sig Tau is one of the housed fraternities on campus. There are many fortunate chapters who, thanks to the foresight of their leaders many years ago, have the most ideal location, have an architecturally pleasing edifice of distinction, or have a residence of an imposing nature that has ensured the success of that chapter for many years. One needs more than a nice structure to be a successful fraternity, but there is no question that the physical facility has helped many a chapter through "rough times" and made the difference between good and very good during other times.
As a chapter leader, you have the opportunity to greatly enhance the likelihood of your chapter's well-being for many years to come by your decisions in this process toward better chapter housing. As in the Boy Scouts, the most basic rule for success in upgrading your chapter's housing is, "be prepared." The following illustration provides a good example.
Fraternity "A" currently has 39 members, having ranged from a low of 21 to a high of 45 during the past five years. We know they exist because they are listed in the college directory, and we understand it is a good national fraternity; however, little is typically heard of them in the campus community. Their financial records are adequate, although not very professional looking, and their major creditor, a food vendor, says they are often slow to pay. They have an alumni housing corporation, but it does not appear to be very active. The fraternity wants to grow and wishes to purchase a former sorority house that will accommodate 50 members because the sorority is moving into a new 80-member house they are building right across the street.
Fraternity "B" has 68 members, having grown steadily from 41 members four years ago. They have good name recognition in the campus community because of their many activities (including a charity fund raiser done with the very bank they have contacted for financing). Their financial records are computerized, and they have shown a profit for each of the past three years. They adopted the new alumni chapter concept two years ago, and they now have an active group of alumni involved with the fraternity's programs. This fraternity also wants to upgrade by purchasing the same sorority house.
Which fraternity will be residing in a 50-man colonial home with columns, right across the street from the best sorority on campus? Which fraternity will be living in obscurity on the side street in a former rooming house with a leaking roof and a leaning front porch? Which fraternity does your chapter more closely resemble?
"We can't grow until we have a better facility," say the undergraduates. "You can't keep current with bills on the present house, how can we purchase one twice as nice?" answer the alumni. Unlike the old chicken-and-egg question, there is little argument about which comes first. In this case, your banker will answer the question for you. You simply cannot buy, build, or improve a fraternity house unless you have the size, strength, quality, and sophistication to handle the increased financial responsibility.
It does not matter whether you are going to try to raise the money from your alumni or go to a lending institution to borrow it. Three areas must be in order if you expect any degree of success. You must have the size first to fit the new house--you cannot "grow into it" and survive financially. The alumni board must be solid and competent. The chapter's "public image" is equally critical.
Here is an outline of what must be accomplished before you can expect to attain better chapter housing:
Your mission: To make sure that your Sigma Tau Gamma chapter exemplifies the qualities that alumni respect and support and to develop a track record of campus activities and financial success that others will want to invest in your cause. The following sections provide a step-by-step process toward attaining first-class housing for your chapter, complete with alternatives that may best fit your situation.
Do you have a Competitive House? One of your chief responsibilities as an alumni corporation is to watch over and protect your chapter's real estate. This represents the major, if not entire, asset of most chapters. It is not only imperative that the property is maintained prudently, but that wise business decisions are made which further enhance that investment.
When was the last time your board made an assessment to determine how competitive your facility is versus that of other fraternities on campus? Many strong chapters have been "left behind" the competition because they assumed that they maintained a property which was adequate, only to discover major improvements done by other fraternities for their facilities. Normally, it takes two to three years to "catch up" if no pre-planning has been done.
Once each year, a committee of alumni and undergraduates should be charged with submitting a written report on the status of the facility. Members should actually walk through the homes of the major groups on campus to objectively determine if we compete. Contact should be made with other fraternity alumni officers and university officials to determine what trends or plans are being considered. Specific recommendations should be made as a result of the information obtained.
The Fraternity's standard is that the alumni board saves 3% annually of the value of the property. This is in addition to funds required for annual maintenance. Unlike a private residence which is an "investment" of its owners, a fraternity home may serve as a Sigma Tau Gamma home for many lifetimes. This long-term use requires considerable funds for regular maintenance. Compounding this is that a fraternity house requires special and additional maintenance. Certainly, while the loan the Fraternity has may be 20 years in length, the problem is the Fraternity will likely require extensive renovation before the 20-year term of the loan is complete. Much of the original principal of the note remains unpaid, and unless the alumni board has significant savings, needed repairs may not be completed due to lack of funds. So, savings are the only answer...the only answer!
Acquiring Your First Home First-time home buyers often must resort to innovative ideas for making that initial purchase. This is all but a necessity for a young chapter. No down payment and no "track record" are virtual guarantees for a "not welcomed" sign at most lending institutions. However, this should not discourage you from having ambitious housing plans. Your "buying power" is much greater than you probably realized. Anyone who represents 60 or more men who seek campus living accommodations is negotiating with considerable financial force. Not many real estate developers or owners have 60 or more potential buyers at their door at one time. Use that power effectively.
Any chapter house property, whether leased or purchased, should be done in the name of your alumni board. As your chapter grows and takes on a housing responsibility, the role and needs of the alumni board also change. Make sure that you have alumni board members who have a background in real estate, accounting, and financing. If the board does not currently have that talent, recruit these men before you proceed with your housing plans. They will prove invaluable.
It will probably be wise for you to consider leasing, rather than buying, your first chapter residence. There are several good reasons for this, the most important of which is that it will be much easier to do the new obligations and responsibilities of first-time chapter house occupancy are also much greater than most new groups anticipate. They must be kept to a minimum so they do not distract from the other things a growing new chapter must accomplish.
Since the first-time chapter house is typically an older and, hopefully, temporary residence, you do not want to saddle yourself with a property that requires heavy maintenance, eats up your hoped-for savings, and ultimately becomes an overwhelming burden. Be sure the responsibility of maintenance remains with the property owner. Relatively short-term commitments for the first property will give you much greater flexibility to take advantage of improved housing opportunities as they arise.
Before you lease or purchase a property, be certain that the facility can be legally used as a fraternity house. Insist upon written proof from the city council and/or local zoning entity. Compliance with the fire and other safety codes are increasingly problematic, especially with older structures. Confirm with the college or university if they have standards or regulations which the facility must also meet. Sometimes in the euphoria for that first chapter house these important details are forgotten.
If the time has arrived when you feel that the chapter is prepared to purchase a facility, you will most likely need more than the amount of money a typical lending institution will loan on the property. Normal chapter house mortgages are 60% to 75% of the value of the property, depending upon the piece of real estate, the strength and age of the chapter, etc. It is unlikely that you have acquired that amount of savings yet. Therefore, you will need what is known in the real estate industry as "secondary financing" or "seller financing" to acquire the chapter house.
The most straight forward method is to convince the seller to be your banker. This is done in the form of a "lease/option" or a "contract for deed." Simply stated, this entitles you to the right of immediate occupancy and use of the property as if you owned it, with the obligation to make full payment (via your saving and a conventional loan) at a date two, five or more years later, at which time you will actually take deed to the property. This is not an unattractive method to the seller because there are tax advantages for him, and he often does not need his cash equity at the time of the contract.
If the seller will not provide full financing, perhaps he can be persuaded to fill the void between your down payment and a first mortgage obtained from a lending institution. Another alternative is a second mortgage from an alumnus, the National Housing Corporation, or even from college or university funds. Beware, however, that you can often borrow more on a piece of real estate than what you can safely obligate yourself for as an annual repayment schedule.
Sit down first and determine the maximum annual payments the chapter can make and tailor any financing package to that schedule. Do not budge from that figure no matter how enticing the proposition looks. The destiny of your chapter and future brothers rides on the document you are about to sign. Do not let them down.
Before you approach anyone for financing (bank, seller, alumnus, etc.) first read the section entitled "Dealing With a Lending Institution." Follow this advice closely because you are a "high risk" borrower and you will need every assistance you can find.
The easiest way to achieve competitive chapter housing quickly is by maintaining a large and "high profile" membership. More than one chapter has obtained new or highly sought-after properties because they were a robust group at an opportune time. Two chapters, in recent years, were approached by local lending institutions which had repossessed houses from failing fraternities and offered the facility at a bargain price with below market rate financing. Fortunately, both chapters were in a strong position to act and both are now among the campus leaders today, despite their relatively late start. You must see that your chapter is in a position to take advantage of any opportunity which arises on your campus.
Wise real estate investors realize that the best properties are often sold before widespread public knowledge of their availability. Do not wait for real estate signs to be posted before you act. Seek out the assistance of local real estate dealers, talk to college or university real estate departments, ask for help from alumni, and do not hesitate to knock on doors if you seek a property in a specific area. Find out if any other fraternities or sororities have move-up plans, which will make an existing facility available.
Despite the disadvantages of little cash and a young chapter, real estate opportunities abound. The more attractive you make your chapter to a seller, lender, or investor, the better your initial chapter housing can be.
Whether to Build or to Renovate Your current chapter house is too small and outdated. How do you determine whether to renovate and expand the existing one, or build an all new structure? That is a decision facing many of our older chapters.
List the "pros and cons" in a logical manner. In most cases the decision becomes surprisingly easy. Here are some factors to consider:
Within the real estate profession it is said that the three most important criteria for selecting a piece of property are location, location, and location. There is absolutely no reason for you to waiver from this advice in your fraternity real estate endeavor.
A choice location can often overcome other disadvantages. Being at Number One Fraternity Row, "the closest fraternity to campus," or a large and widely visible site is hard to beat and it will certainly be helpful during rush.
Don't race out and purchase that "perfect site" without first doing your homework. Sometimes the real reason the site is available is not so obvious. Find out what the university plans in the way of expansion. In which direction do the other fraternities and sororities appear to be headed? Have you talked to any other groups about their plans? What about zoning? Drainage and utilities? Is it even permissible to build a fraternity house on the site? What about parking requirements? What plan does the city have for the area?
Make sure you have researched the site well and that the site selection committee includes both alumni experienced in real estate, as well as undergraduates.
Since most properties are at a premium price in today's college communities, finding a site large enough often presents a dilemma. It would be wise to ask an architect to look at the site with you to determine if he can design a building large enough to accommodate your needs, plus meet the required parking, setbacks, other easements, etc. How will it relate to the buildings on either side? Nothing is worse than to be stuck with a site that will not meet your long term needs or a new fraternity house squeezed into a site too small.
In some cases, if several fraternities and sororities are all seeking property for new homes, it is possible to purchase a larger site to subdivide, or to work with a real estate developer, or possibly the college or university. This may enable you to acquire a larger site at a lower cost. In such circumstances, it is vital that all partners (including the developer) are of adequate financial strength and are of one accord to follow through with the purchase and development.
There is also a limit as to how "choice" your land purchase can afford to be. Review the total budget of what you can safely support financially with undergraduate payments and determine what is the maximum amount of that to be set aside for land versus "bricks and mortar." If your land purchase is too expensive, you may find that the cost of building is beyond your means or that the actual construction will be delayed for several years.
Unfortunately, there is no rule of thumb for land costs that will be applicable on a typical campus. The site for a new chapter house at an urban university such as Minnesota or Ohio State will be much smaller and more expensive than at small town campuses such as Kansas State or Western Illinois, as an example. Assume one thing: If the university is anticipating continued growth (which is not always the case, check that out first), the best locations will only become more expensive. Buy now, not later. You can almost surely sell at a profit if your plans change or if they become too expensive.
You and your committee are making the most important investment your chapter has ever made. You must be certain that you are using prudent judgement in spending your brothers' dollars.
An Architect is a Necessity You must engage the services of an architect to build or renovate a fraternity house. It is a requirement in most communities, and your lender will likely insist upon it. For the financial investment that you are about to make, it would be foolish dealing with anyone but a competent and trained professional.
Where to go and whom to select? The giant firms in a huge city are not normally a good choice, even though they may have the most acclaimed record. A fraternity house is not large enough to warrant their close attention. (Unless, of course, you have an insider who will personally handle the design and supervision.) A one-man firm fits your need only if the principal is local and has designed several other fraternity and sorority houses.
Your best source is a small to medium size firm. You need a firm small enough for personal attention and a local one for supervision, knowledge of local contractors and regulations. An absolute must is a firm which has designed other similar fraternity facilities. You can then discuss the architect's services with former clients, and you will have an opportunity to judge his design ability. Preferably, the designer himself should be a fraternity man so that he can better understand your needs.
What about a member/architect? Yes, by all means--if he is qualified. Your building committee should draft the criteria the architect must meet (experience, locale, etc.) to judge each candidate by. If, for any reason, your member/architect is not given the assignment then your committee has written guidelines for making its decision. These same guidelines are also valuable later after building has begun, or is completed. Everyone, it seems, becomes an amateur architect or sidewalk superintendent for a fraternity house.
In engaging the architect, as with any professional, get in writing exactly what service is to be rendered, at what specific cost and the time period involved. An architect can be a designer only, or he can supervise the bidding process through completion. A design could be completed within a few weeks if it got full-time attention, or it could take a year or more if the firm is busy with other clients. Depending upon the qualifications of your building committee, determine exactly what services you require and when you need them, and make sure the architect is in agreement with this arrangement.
You have located the best site possible, it is equally critical to find the best architect to design the house upon it. For better or for worse, the building design he executes will be the chapter's home for the next several decades.
The National Housing Corporation can provide you guidance when selecting an architect, and perhaps of greater value, it will review your plans and suggest specifications appropriate for a fraternity house. The National Housing Corporation has been involved in the construction of numberless fraternity houses, so use the resource.