|[asusig] ASU's Response re the Purchase offers||Mon, 26 Aug 2002|
Brother's (I am blind copying this to the other Alpha Drive House Corp's too.),
As you can see from the letter below that we received from ASU they have almost completely backtracked on the months (nee years) of negotiations that we as a body of House Corporations have in good faith taken part in. They even now appear to be engaging in bald-faced extortion, see my comments below (in red) throughout Mernoy's letter.
I don't want to seem to impugn one of our Alums who is the General Counsel for the University (and on our email list) so I hope that he recused himself from these dealings or that the responsibility was taken from him.
August 26, 2002
VIA E-MAIL AND FIRST CLASS MAIL
Alpha Drive Lessee Fraternities
c/o Lynn Ziolko
Kutak Rock, LLP
8601 North Scottsdale Road, Suite 300
Scottsdale, AZ 85253-2742
Re Alpha Drive
It was a pleasure to meet with you. Before I lay out the University's proposal, I want to be sure that you understand the basis for my position. I have every intention of working with the fraternities in the best interests of the University and its students, including your members. I also want to reiterate what Mr. Walton said in his letter to your attorney; ASU is prepared to honor its obligation under the lease and move forward with the purchase options on reasonable terms and conditions and at a fair price. However, I think there is a better, mutually beneficial alternative.
At the outset of our discussions with this new negotiator, who was brought in by the University after we had given notice of our exercising our options and following months of discussion and negotiations, we told him that any discussion of issues beyond the scope of our purchases were not on the table. For example ASU's desire to move us to South Campus would only be discussed after the purchases had been completed. He has chosen to start of his letter by indicating he did not listen to nor hear a single thing we said.
The condition of the Alpha Drive properties does not benefit the University or the fraternities. Only two of the six fraternities the University is negotiating with are in good standing and occupying their facility. The area is an eyesore and an embarrassment to the institution, and it must be remedied.
I personally agreed with Dr. Harrison re the condition of the Row at our meeting and told him that we ourselves refer to it as Beirut. However, I also pointed out to him that investment dollars to repair and renovate the property beyond the bare minimums is difficult to justify given the unstable climate that ASU provides. For example. A decade ago when the Row was still healthy and fully occupied ASU took possession of the Theta Delt House when they defaulted. At that time ASU should have replaced the roof and fixed the property to rent it to another organization (Fraternity or otherwise). Rather than do that they acted like a slumlord by simply boarding up the windows, fencing the property and abandoning this Million dollar piece of property. Over the ensuing years the structure has continued to decay to the point that it is now a health menace to its neighbors with palm trees growing out of the second floor roof and functioning as an incubator for feral cats and other like animals that now we have deal with as neighbors on an infested Alpha Drive. Reportedly the hallways are also littered with their dead carcass.
I pointed this out to Dr. Harrison and told him that once our property is purchased and we are no longer being held at knife-point by the Administration are prepared to invest around $200,000 into the property in the form of renovations since we can feel safe in investing in something that we own. He thanked me for the observation and said they would be sure to consider that while they reviewed our documents.
That has turned out to be just so much lip service on his part.
My best solution ASU is working on the redevelopment of the South Campus and is willing to develop small group cluster housing designed to provide an affordable, safe, and pleasant living and learning environment for students. The design will include community space and features to reflect the individual identity of the groups occupying the facilities. There will be flexibility; some clusters may vary in size and design to meet the needs of the groups. The facilities will also provide for data connectivity, meet appropriate building and ADA standards, and provide essential services to the residents. I think it is in the interest of the Alpha Drive fraternities to be a part of that plan. Working together and in good faith, I believe we can achieve mutually beneficial ends.
I would ask any Alums in the area to drive by these "small group cluster housing" projects that are located south of Campus (they are right next door to "The Vine" on Apache. Get out of your car and walk around the facility. I dare anyone taking an objective look to find a difference in their presentation and what you would find in the layout and color coordination that you might find in a maximum security correctional facility. Drab grey buildings surrounding a central exercise yard encompassed by tall barred fences with locked gates. The only things missing is the razor wire, watch towers, search lights and armed guards with dogs walking the perimeter.
The only thing in evidence to "reflect the individual identity of the groups" occupying the Cell-block like structures are the names of the organizations mounted on easily removable placards (they sure give a feeling of foundation and permanence) mounted on the outside of the buildings.
Why we should think that the University will act in good faith now when even at this date they refuse to do so is beyond me.
I have made an assessment of the houses on Alpha Drive and taken into consideration the condition of the facilities, their age, their as-is value, the quality of the construction materials used, and recent improvements. The health and viability of the chapters were also given significant consideration. I have arrived at a value (please see table below) for each house that I firmly believe exceeds any reasonable outcome the fraternities could achieve through alternative means. That value reflects what the University would pay to each house for a release of the lease and the option. Ideally, I would like to work with each house over the coming school year and treat that value as a credit towards relocation, new facilities, and other considerations that ASU could provide at less cost to the institution and greater value to the fraternity. However, it is a cash offer for the housing corporation's release, if that is how a fraternity would prefer to proceed.
The only "assessment" that we have seen from the University was the appraisal they commissioned this past December. Since Mernoy has only been in his position as negotiator for the University since the early part of July ASU has not had anyone come around our property to conduct an inspection of the facility (beyond the Fire Marshall and the Health Inspector to look at the Kitchen and the Pool). I was not aware that Dr. Harrison could see through walls and was also a Building inspector and Real Estate Appraiser in addition to his Administrative Staff duties for the University. It is also amazing that he is able to perform personal evaluations of our members when even he acknowledged having meet us just two short weeks ago for the very first time and he has yet to meet and talk to any our Active Members.
On January 23, 2002 ASU provided us with their appraisers analysis of our property that as he indicated in his report the value was determined based on the site as "vacant and unimproved". In that report he valued our property as worth $215,000.00. Dr. Harrison now wants us to walk away from an 11,567 sq. foot structure on a 29,308 sq. foot lot located at the northwest at the corner of University Dr. and Rural Rd adjacent to the ASU Sports Complex, across the street from the Cornerstone shopping Center and just south of the Tempe Town Lake Development for $5,000.00 less that their own appraisal for the bare dirt? What about our 40 year investment in the equity of the structure that our Certified Home Inspector determined on January 16, 2002 to be "we;; constructed and appeared to be structurally sound" to say nothing of our emotional investment that our continued occupancy has built up among a loyal group of Alumni that continue to this day to support both the Chapter and the University.
We are supposed to do this in exchange for Dr. Harrison's warm words and feelings of what he would like to discuss doing in the future.
For those houses that are occupied by their respective chapters, ASU will extend the lease and depending upon the amounts in reserve either 1) cancel the base rent obligation or 2) apply continued rents to the maintenance reserve account. In either case the University would agree to allow the houses to draw upon the reserve account for routine maintenance and other obligations during the extension, provided a reasonable maintenance reserve balance was maintained. The reserve balance will be paid to the fraternity at the end of the extension.
Here Dr. Harrison continues to branch out to create his own personal interpretation of what the lease and purchase option allows. All the Houses have exercised their Purchase option right as outlined in the Agreement. The ability to extend the lease was given as "Leasee shall have the option to renew", but it had to be noticed in not less than 60 days prior to the expiration of the Lease, a date which occurred back in July of 2002. Regardless of that now where in the agreement does it say that the structure must be occupied by "their respective chapters. This is obviously a plow to separate Sigma Chi and Delta Sig from Sigma Nu, Phi Sig, Pike and SAE as we are occupied and they are not, although Phi Sig is looking at renting their house to either SAE or Fiji for two years while they recolonize their House and SAE renovates theirs.
This option is available to each house irrespective of what the other houses choose to do. I hope that amplifies my confidence and intent that no fraternity that declines this option will achieve a better result in the future. Additionally, we are currently developing our program requirements for fraternity housing to be located on campus. The fraternities that decide to release their options and work with the University on a relocation plan have the opportunity to participate in our programming effort. Those fraternities that decide to exercise their option to purchase have no guarantee that there will be a place for them in University developed fraternity housing.
Again we told Dr. Harrison in the presence of our Legal Counsel (all six houses have common representation) that we were speaking with one voice and here he is again trying to divide and conquer. Their offer is hundred's of thousands to little and years to late despite is obvious and clumsy attempt at extortion. "Do what we want now by moving into our public housing projects South of Campus or later after we condemn your property and take it from you in the courts you will not have a place to live."
With respect to the purchase options, I am prepared to recommend the $5.50 price to the Board of Regents. With respect to the transaction, I have attached the University's position on terms. The lease provides each house individually the right to exercise its option to purchase the plot of land it sits on. The lease does not contemplate the existence of a homeowners association, and it does not address "common areas," parking, maintenance of the street, or any of the other issues that have been raised by the collective group of houses. I see the University's obligation as a simple one to offer to sell the plot at a fair price in a manner that is consistent with the purchaser's ability to reasonably operate a small group student housing facility. The attached transaction documents accomplish that, and the University is willing to stand by and defend these terms and conditions.
Because our appraiser was able to knock such huge holes in the study prepared for the University to show that at best $5.50 and not $7.35 was a more reasonable price for the dirt and the fact that the University had taken without compensation parking and other facilities that we had paid for through our Bond Funds he is will to throw us this scrap. Taking this amount now into context he is essence placing a value of only $48,806.00 to the improvements on our property. A Value of only $4.22 sq. ft. for the structure.
The option also calls for the price to be separate and apart from the value of the improvements. The reason is that we already paid for them. The Street, parking lots, lights, utilities, etc.. did not spring from the earth of its own accord. Each and every one of those items were bought and paid for through our bond fees. As for a Home Owners Association this was erected to demonstrate to ASU that we would be establishing CC&R's to help keep the property in a good state of repair on a go forward basis so that it would look better than the condition that ASU kept the development under.
The only condition laid out in the option is the property will be for Student Housing - it does not even limit it to "small group student housing"
With respect to the lease extension for houses that purchase, if a fraternity has not closed on the transaction by December 31, 2002, the reason will be evident, and the property effectively will have become ASU property. To avoid having to move students during the school year, the University is willing to commit to another extension to occupied houses through the end of the school year at the same monthly rent, but there would be no purchase price to apply it to.
The only thing evident is that ASU will have dragged it's feet in the negotiations in a sign of its continued bad faith. By his statement they have merely to delay and obfuscate despite our placing our purchase funds into escrow to close the sale and finalize the remaining sticking points that even ASU has acknowledged need to be addressed and anticipate addressing when the remaining houses purchase. In the memo endorsing the sale of the Sig Ep property at the January 2002 Board of Regents Meeting ASU indicated there would exist an easement for the use of the common areas and the street and "A reservation of rights allowing ASU to grant a deed for the common areas, the street, and reasonably sufficient, contiguous parking to a homeowners association, in the event such as entity is developed by the purchasers on Alpha Drive." That agreement also called for the ASU to provide Parking permits based on Historical use "until such time as the fraternity is granted a deed for reasonably sufficient and contiguous parking spaces."
Additionally, the transfer documents that ASU and the Board of Regents executed with Sig Ep in January anticipate that should another House or Houses on Alpha Drive be granted a deed prior to Oct. 1, 2002 with additional rights regards "utilities, parking, common areas, or the street..." Then Sig Ep's agreement will incorporate those additional changes.
They also call for a maintenance condition until CC&R's are recorded. In fact Sig Ep is required to execute CC&R's for a home owners association is one is created by the fraternity houses on Alpha Drive. The Deed also says that ASU may transfer the parking to a home owners association.
Obviously ASU anticipated and even encouraged an entity like a homeowners association to exists and to govern common areas.
But hear again the University is engaging in double as well as underhanded dealing. But yet they now want us to ignore what they promised and obligated eight months ago in favor of more promises they can break in another eight months.
With respect to reserve accounts, it is the fraternity's money, and it will be credited to the purchase price or paid to the housing corporation upon expiration of the lease extension.
Well gee thanks! Can we talk about interest that "our" money has earned over the past forty years and to which we never saw a penny.
Please be advised that any resolution will be subject to Board of Regents approval. My commitment in this letter is for recommendation and support before the Board. If any house has questions or needs clarification of this offer, Matt Walton is the University's contact person at 480-965-4550.
Mernoy E. Harrison
Executive Vice President
for Administration and Finance
Fraternity Purchase Option Release Prices
Delta Sigma Phi $300,000
Sigma Chi $210,000
Sigma Nu $210,000
Pi Kappa Alpha $150,000
Sigma Alpha Epsilon $120,000
Phi Sigma Kappa $120,000