Relocation, Part Two: Temporarily Postponed, but Very Much Alive

November 1, 2014

Ray Hair  -  AFM International President

As previously reported in this column in July, Secretary-Treasurer Sam Folio and I, as fully authorized by your International Executive Board (IEB), opted to negotiate an agreement to purchase an office condo located in the financial district of lower Manhattan to serve as the AFM’s new home. In my June column, I also provided a thumbnail sketch of the Federation’s decades-old struggle over the issue of acquiring and owning its international headquarters.

Unfortunately, I must report that, for a variety of reasons, as the property purchase agreement was being finalized, Folio and I concluded that the Federation would be assuming certain risks, financial and otherwise, that were, in our view, and in the view of our financial advisors, unacceptable. I will explain why.

By mid-September we negotiated a $12 million deal to purchase approximately 20,000 square feet of space on a single floor in a building just south of the new World Trade Center. That deal was worth approximately $9 million for acquisition of the property and $3 million to construct the necessary office space for occupancy. Long-term financing had been arranged through Bank of America at roughly 5%. We had also fully replenished the Federation’s relocation fund and had the necessary cash on hand to make the down payment and close the deal December 1. We had also developed architectural plans to fit the space, including prospective space for tenants.

By way of its existing lease negotiated in 2001, the Federation spends $760,000 annually for space at 1501 Broadway. After new property acquisition and build out construction downtown, and with an expected move-in date of January 2016, we projected that occupancy costs in our new home would stabilize at an amount equal to or even less than costs associated with any new lease.

Remember that as a renter, the Federation’s occupancy costs payable to its landlord inevitably escalate. As a property owner, though, Federation occupancy costs can stabilize and eventually reduce. Clearly, creating equity and cost reduction and reducing liability by owning our own home is a no-brainer. And we had the cash to close the deal. So why didn’t we do it, you might ask?

The problem arose in cash flowing the occupancy costs for both the existing space under lease at 1501 Broadway and the newly purchased property during the planning and construction period, estimated to extend for 14 months. In other words, we would pay rent at 1501 from December 2014 through January 2016, while also carrying the costs of servicing mortgage debt, taxes, utilities, overhead, and build out in the new space. We anticipated these issues when the IEB proposed and the 99thConvention agreed to provide $1.2 million in new revenue annually for the Federation, effective January 1, 2014. The deal was in-budget. So why the problem?

As $650,000 of the Convention’s annual projected cash injection was earmarked for relocation, if that additional revenue had materialized as expected, my report in this column would have been entirely different. As of this writing, projected new revenue from per capita dues and electronic media work dues has fallen far short of expectations. And it was short enough to raise the question of whether the Federation could operate normally while maintaining adequate reserve to satisfy lender requirements during the build out period and beyond.

I want you to know this: I don’t gamble with other people’s money. And I won’t gamble with yours. We could have gone ahead and bought the place, betting that our cash expectations from the Convention package would eventually turn up. But doing so would shoulder what we believed was an unacceptable level of risk. It was risk which Folio and I were unwilling to take.

After spending nearly $100,000 in feasibility studies, appraisals, inspections, and legal work, we walked away from the purchase because we couldn’t rely on an expected level of new income that would adequately cash flow the deal during the two fiscal years after acquisition.

What are the next steps? We will seek a short-term extension of our current lease, or seek to sublet space in Manhattan on a short-term basis that has a floor plan that would not require expensive reconfiguration. We will continue to cash up by instituting further operational efficiencies, and by eliminating every dime of waste and unnecessary expense. We will bargain hard, we will organize to bargain, and we will do what is necessary to emerge from more than a century of servitude under a landlord’s yoke.

This relocation saga was an enormous undertaking that consumed the better part of six months of working with the realty brokers, agents, architects, financial experts, various bankers, lawyers, accountants, auditors, and a host of others. At the very end of it, when I was down to the shout chorus and in typical form, discovering the hidden deal points and beating them down to the bone, when the tension of all of it seemed to be unresolvable that old queasy feeling would creep in. What should have been an easy and beneficial deal seemed unjustifiably and inexplicably out of reach. That’s when I would go into our boardroom and sit at that historic table and look at the wall of photo portraits of past Federation presidents, beginning with Owen Miller, who was elected our first president in 1896.

All along this journey, I had wondered why not a single one of my predecessors had decided to protect the Federation’s long-term financial interests by investing in a home for this great union, rather than continuing to line the pockets of the wealthy landlords who own Manhattan Island. If they ever could have, they would have, I thought.

But still, in the days of Presidents Weber, Petrillo, Kenin, and Davis, from the beginning of the 20th century to the 1970s, when the Federation was monolithic, flush with cash, and could certainly afford it, why didn’t our leadership buy property, instead of kicking the can to later generations—and now to Folio and me and the current IEB?

Looking at the wall of photos and reaching back into history, it all seemed to converge at a point. And then I understood. I was facing what each of my predecessors had faced. And while the effect of our recent decision—not buying—was certainly the same as in years past, our attitude today is markedly different. Let’s call it a postponement.

All previous AFM administrations faced the same institutional pressures as we do to this day—the internal struggle to balance the needs of the many, versus the needs of the few, or the one. The rise of business unionism over the past 60 years, with its culture of divisiveness and hierarchical bargaining has spawned a host of haves and have-nots in the workplace that serve the interests of the employers. This has come with a terrible cost.

Besides the obvious economic risk associated with slow moving new revenue, the cost/risk of keeping the union together was another factor in our decision to avoid the purchase. In past eras, there were critical concerns over employment instability in radio, theater, television, motion pictures, and more. There were numerous lawsuits against the Federation, lodged by internal forces that threatened its survival.

Today, we have brush fires in Montreal, Vancouver, Denver, Los Angeles, and Minneapolis-St. Paul. We have an orchestra locked out in Atlanta, and we have much work to do to convince our beleaguered bargaining units that, in the face of employer coercion, we can win when we come together to fight the employers, rather than groveling to the union busters or struggling to resist independently.

So here is my promise to you: as long as I am your president, our administration will make decisions that we believe will preserve and protect the long-term interests of the union. While we temporarily postpone a headquarters purchase, we will continue to conserve resources and increase our leverage to enable the Federation to achieve financial security. We see clearly the lessons from our past. We will not run from them. We will embrace them, study them, and learn from them.

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