At the end of March, the facility owned by the church in Big Sandy, Texas, and used as the home of Ambassador University was sold to Hobby Lobby and the Institute in Basic Life Principles of Oak Brook, Illinois.Although the sale was reported to newspapers and to church members through a press release, many of the details were not made public at that time. The WN here prints detailed questions and answers from Bernie Schnippert, the church's treasurer, and the person delegated by the board of directors with the responsibility for handling the sale.
Question. Dr. Schnippert, in order to set a context for the interview, could you rehearse once again why the church wished to sell the property in the first place?
Answer. I would be happy to. The church wanted to sell the property because it wasn't using the facility, and hence it was surplus property.
Consequently, not only was the church losing the opportunity to use the invested funds that the property represented, but it was also expending rather large sums merely to hold the property and keep it from deteriorating.
If it deteriorated completely, then we would of course have lost the bulk of our investment. Therefore we had to continue at least a minimal amount of maintenance, and this, of course, meant we had to keep a minimal staff on duty ever since the university closed. The costs of paying personnel and costs of upkeep, that is, our holding costs, were substantial.
I want to ask you about those carrying costs in a moment. However, before I do, please explain why the church wasn't using the property.
The church wasn't using the property because the university that had occupied it had been closed. And the university closed for two reasons: first was the diminished financial support from the church, and second, was a projected drop in enrollment because of a decline in church membership. Both of these resulted from a split that occurred in the church in 1995.
With the substantial drop in membership that resulted from this split, the church of course had less income. And, with fewer members we had fewer families who would be sending their college age young people to Ambassador University. In effect, our denomination became too small to support its own university. So, it closed.
That explains why the church didn't use the campus for a university, but why didn't the church use it for some other purpose, such as for a new church headquarters?
Now we are coming back full circle to the issue of costs. The short version is that we of course considered this possibility from the very first, as it is only natural to think of this option. However, we quickly discarded it because the Texas facility was far, far too large and far, far too expensive to operate for the very limited headquarters operation we envision just as soon as, ironically, our also too large and expensive to operate facility in Pasadena sells.
Interesting. It seems, though, a few members wondered if the difficulty the church had in finding a buyer for the university facility wasn't a sign from God that he wanted us to keep it?
Yes, it's true that a few members held that view. But there are a number of problems with such reasoning. The first problem, as Mr. Tkach has explained, is that God doesn't really show his will in this manner.
Although some may dispute this, at any rate, the board of directors never took this view, rightly, I believe, and to explain the theology takes a sermon, so I will not elaborate further here.
What are the other problems with the concept of using the Big Sandy property as a church headquarters, then?
Again, the problems are practical ones of size and cost. The facility is enormous, as those familiar with it can attest to. More than 2,200 acres, with 24 houses, a golf course, two lakes, an airstrip, woodlands, dormitories, classroom buildings, administration buildings, its own water purification system, sewer processing system and more.
So?
So, putting a headquarters there with only a small staff isn't practical. Especially when you consider the overhead costs. One reason we didn't move our headquarters operation there was simply because we couldn't use the property economically enough to justify it.
Also, there is the issue of location. Although the location is beautiful and appropriate in many ways for a college, church headquarters conducts its business in a different way than a college and the distance from major cities, airports and the like would have been a real handicap.
In fact, the two issues that prevented us from using it for a headquarters, the costs to operate and the distance from large cities, proved to be inhibitors to people or groups interested in buying the campus as well. Numerous potential buyers told us that the location was too far from large urban areas for them to use it as they might have otherwise done.
Please quantify the overheads a little.
Well, even to keep the campus in mothballs, as it were, was expensive. We figured we spent about $3.7 million on just minimal utility and repair upkeep as we held the property for sale. That is more than a million dollars a year, and during that time we let the property deteriorate somewhat, although not to the point it would not sell.
And this does not even include the taxes. The taxes on the property when used for a college were small because it was essentially off the tax rolls, but when empty the taxes were about $400,000 in 1998 alone.
Now, when you consider that the church has been cutting and cutting headquarters employees so that we are down to a bare bones staff, and when you consider that, hard as it has been to do, we have had to even terminate some pastors over small congregations to save money, using a property of that magnitude as a headquarters, or even keeping it on the market for too long as you try to sell it, is simply unacceptable financially. It would mean draining money from our main mission simply to run a facility.
OK, that makes sense. As we know, the property was first marketed conventionally, through a broker, and that a buyer was found, and an escrow opened, which lasted more than a year.
Yes, that is correct.
I suppose it has nothing to do with the recent preemptive auction sale, but for our readers, why did the sale fall through?
Actually, it has a lot to do with the recent sale, so I will take a moment to explain. As you will recall, the first purchaser wished to use the property for a college--not a second campus of an existing college, mind you, but for a brand new college.
The problem is that this is quite an ambitious undertaking, as anyone who already has run a college can tell you.
One of the complications was that of accreditation. In short, you cannot attract students and financial support until you are accredited, and you cannot become accredited without being in business for a while. But, you cannot go into the college business without spending considerable upfront funds.
I believe, in the end, it was the potential buyer's inability to find a lender to fund the property and provide money for the first two years of expenses that killed the deal.
But, how does that relate to the auction?
Well, it goes to the heart of the underlying problem we faced in finding a qualified buyer for the Texas campus.
And what is that?
The underlying problem is money, or rather the potential buyer's lack of it. Over the years since the property first went on the market, probably well over a dozen potential purchasers wanted to buy it. However, people who wish to buy a property of this size need money in an amount obviously measured in the millions.
Generally, if they have the money, it is because they are well-to-do, or in some for-profit commercial business. Hence, they are astute businesspeople. However, astute businesspeople quickly discern that the property is not well located for a business campus, nor even, for that matter, for a for-profit business training center, because it is too far from airports and the type of amenities businesses expect and indeed demand.
Also, astute businesspeople quickly see that the campus is complicated and expensive to run and operate. For example, they see they have to run an entire water plant, lake (with many governmental regulations, including those requiring you to keep the lake at a certain level), a sewage treatment plant, etc.--indeed, they have to run an entire city.
When they pencil this out, they remark how beautiful the campus is, but they then walk away. People with money have money because they are astute and make good financial decisions. When they see, as they always do, that owning the campus is not a good financial decision for a for-profit enterprise, they leave.
But the first buyer was a college, not a for-profit business.
Yes, and there is the point: Nonprofit entities--schools, charities and the like--are the ones who have always made offers on the property, because they don't have to use the property to make a profit. All they want to do is to use the property for some altruistic or philanthropic purpose.
They don't mind not making a profit, so they want to own and run it, but, they rarely have much money because all churches and charities rely on donations and, like us, never seem to have enough of them.
So?
So, they must eventually get the money from someone else. Either from a large donor or many, many small donors, or from public funding organizations, such as banks, or mortgage companies.
The problem, however, is that, contrary to what most people think, banks and mortgage companies don't really lend money on real property, in the sense that they give you money if you have property of great enough value. They give you money only if they see you have the yearly cash flow income to pay it.
Yes, they can foreclose if you don't pay, but that only puts them into the same position we the church were in--that of owning property, paying overheads and paying taxes, and wanting to find a buyer.
I realize that it doesn't work quite like this if you want a mortgage on your home, but that is because the bank knows you will try to pay on your house because you need a place to live. Commercial transactions can be for far more money, millions of dollars in this case, and they don't want to foreclose and they will not loan you money until they see you have cash flow to pay it back. And, nonprofits rarely have that cash flow, so loans are denied. This is what happened to our first buyer.
Any other problems that a nonprofit buyer brings with him?
Yes, although it is related to the first problem. It is this: Even when a nonprofit has some money to buy the property, or is able to raise it, they don't have much money to offer, so their offers are low, even though they stretch to raise what they can.
So, although the nonprofits don't care as much about the financial aspects of buying and running the property and want to buy it and may even make offers, the banks or people loaning the money do care and thus often won't fund it. Is that correct?
Yes, that is very well put.
After the first sale fell through, why did you decide on an auction? Why didn't you just continue looking for traditional buyers?
Actually, we did continue looking for a traditional buyer, and, in the end, found one, and the property didn't go to auction. However, it became apparent that no party capable of funding a purchase was out there in the foreseeable future, and that our wait, while ultimately perhaps leading to success, could be very, very long.
Our costs would continue over this time, however long it was, and even if we were to get into an escrow with a party, the escrow would typically have a feasibility period of months, not to mention other delays. And, typically one of the contingencies that would be part of the escrow would be that of the buyer qualifying for financing, with, of course, no guarantee that financing would be obtained, for the reasons I have already mentioned.
Church controller Ron Kelly has been saying that the church will run a deficit this year even if income comes in at projections, because the church does not wish to make the drastic cuts in ministerial personnel that balancing the budget would require.
That's right. We believed that we could withstand that budget deficit for one more year if Big Sandy sold, and then, of course, the Pasadena campus were to sell on time, which seems likely.
Also, please remember that part of the deficit is the taxes and carrying costs of Big Sandy. So again, the church could simply not afford to let more years pass with Big Sandy not sold.
Now, I know that rumors go around that such-and-such potential buyer offered us a huge amount of money for the property, but we wouldn't take it from them for some reason.
However, all those stories are false. Any time we were able to prove the buyer had money and the property was for sale and not tied up in an escrow, we were eager to make a deal. However, once again, the people never seemed to be able to come up with the money, even when they talked like they had it.
But why did the church decide on an auction?
Because an auction puts you in the driver's seat. With an auction you set a date on the calendar and say, in effect, that this is the date the property will sell, and you know that on that date, barring something unusual, the property will in fact sell.
Also, with an auction you avoid long escrows (although they usually run 30 to 60 days if everything goes right), because you stipulate a short escrow as part of the deal. Further, you give the interested parties all the documents you have before the auction date and they must arrange their financing before that date or they are not allowed to bid at the auction.
So, an auction lets the church set a certain and absolute date of sale, and it forces potential buyers to already have their money in place, and, also, it ensures a short escrow.
Yes, but there is more. Potential buyers who have been looking at the property, in some cases for years, but who have never been forced to make a final decision, now know that unless they act immediately--get the approval of their respective boards, etc.--they will lose the deal to someone else. Since every potential buyer knows this, they begin, whether they wish to or not, to compete for the property. So, an auction creates excitement, demand and action.
But don't auctions bring a low price?
Often they do not. First, let's remember that one reason we decided on an auction was because we were simply unable to sell the property up to that time, regardless of the price we indicated we were willing to take. So, a traditional sale simply wasn't forthcoming.
Second, the true market value of a property is that value which a willing and able (meaning, having money) buyer is willing to pay to a willing seller, especially in an environment where there is competition. So, auctions tend to bring the real market price, whatever the seller or buyers may think or hope it is.
I see. Are there any more advantages of an auction?
Yes, and this one is quite exciting, because I had never realized this before learning about it from the auctioneer. This advantage is, ironically, the fact that it is the seller, not the buyer, who is in the position of strength in an auction.
Most people who go to an auction think the seller is over a barrel and that the buyer will more or less steal the property. This, of course, can happen.
However, what the buyers do not realize is this: From the time the property is advertised and the buyers call the auctioneer to learn about the property, the buyers are being asked questions by the auctioneer's staff.
They are asked what they think the property is worth, what they intend to offer, and whether they have money, and, if so, where the money is coming from. Thus, even before the auction, the seller knows who the potential buyers are, what they are going to bid, how much money they have and where the money is coming from. This puts the seller in the driver's seat.
But the church sold the property to a buyer before the auction, not at the auction. Why?
Because of another phenomenon that sometimes happens, and did in this case. Sometimes, like in our case, buyers want the property badly, so they come to you and make preemptive offers. In this case, we had almost every potential buyer out there come and make a verbal or written preemptive offer. Thus people were bidding before the auction. They didn't know what each other was offering, like they would at an auction, but we did. This again put us more in control of the situation.
What did you learn about the bidders from the preemptive offers?
We learned that most of the bids were going to come in at the same approximate price, and that those who were talking numbers far removed from the pack didn't really have the money, or, if they did, they didn't have it ready at hand, or weren't really committed to spending it, even though they may have wanted to talk like they did.
What do you mean "they didn't have money"? Why would someone express interest in the property if they didn't have money?
That is a good question that I am not totally prepared to answer. However, time and again people without money made offers on the property. I would like to share two illustrations that make my point.
Go ahead.
Well, one party told us that his group had a relatively large sum they were prepared to more or less immediately commit to purchase the property. Further, the party implied that his group had made us an offer near that amount and that we refused it. I spoke to our broker and he refuted this story, by the way.
However, although I was skeptical, in response to this information, I personally, our broker and our auctioneer all contacted the party, who reiterated his organization's desire to purchase near that price, and stated he would call us later in the day. However, he never called back, in spite of our repeated attempts to contact him.
Although I mention this case specifically because it occurred while we were receiving other offers, most below the amount this party purported to be offering, it is a scenario that we saw repeated one way or another again and again since the day we put the property on the market.
You said you wanted to relate one more story.
OK. This one concerns an offer from a group who said they would offer a sum only slightly less than the other offer I just mentioned. This group promised to have their money ready in two days. We had our attorneys work far into the night to have the contracts ready to sign for that day. Further, a tentative signing meeting had been set up for that very afternoon.
However, in preparation for the meeting, the escrow officer called the party's bank and was informed that the funds in the bank were not even close to the amount needed to fund the transaction. After this came out, the buyer told us it would take them 10 days to get the money together (which was far too close to auction day to risk) and then said it might be 15 days.
At this point the party's credibility was in so great a doubt that we simply could not and would not enter an escrow with them without at least a 20 percent nonrefundable deposit. However, they were not willing or able to produce these funds, and the party we were dealing with admitted he didn't control the funds anyway.
The deal, if it were ever made, which looked doubtful, would have likely stretched on and on over many more days, and even into months, with us having canceled the auction, and being involved in a prolonged escrow that might lead nowhere.
So what did you do?
We examined closely the remaining offers and took the one we felt that was most likely to be funded, without delays or contingencies, and which, to our knowledge, was at the best price.
And that was Hobby Lobby and the Institute in Basic Life Principles (IBLP)?
Yes, with terms of a total price of $9 million, with escrow to be opened immediately with an approximate 10 percent nonrefundable deposit and escrow to close within a day or two.
We had confidence that they would perform because they sent the deposit to the escrow company even before we had a signed contract. (The deposit was held by the escrow company and not put into our escrow until the contract was signed, of course, but it was refreshing to see talk about having money replaced with actual money.)
You said earlier that the other offers were near the same price.
Yes, once we were certain that the two higher offers were really not going to perform, or if they were, would perform only long after the auction date, if ever, then the decision became one of picking the offer most likely to close from among the others.
How many others did you have?
Three or four. One had shown interest for many months but did not yet have their financing in place, and, for the long time during which the property had been on the market, had not been able to get financing.
We felt, knowing as we did that banks won't finance properties without a large cash flow, that the party was unlikely to get a commitment for the sum they needed, which was nearly the same as the offer we accepted anyway.
And the others?
One of the others simply could not get their offer to us in time for us to consider it, although, again, we knew about where their final number would come in. The last group made an offer substantially under our accepted offer. They professed to want to raise their offer, but we never heard back from them.
So summarize why the board of directors accepted the offer they did.
They accepted it because it was an offer near the others but with the added benefit that it had real money behind it, not just talk, and because the parties were willing to open and close escrow without contingencies. In fact, the escrow was less than two workdays in length.
Was it a tough decision for the church to make?
Not really. In the end the decision essentially made itself, because the other offers melted away because of price, terms, delays and the like. Of course, I personally did not make this decision. This offer, and all the surrounding circumstances and entire field of other offers, was presented to the board all along the way, sometimes two or three times.
Further, we conferred with many others. Our auctioneer, one of our brokers, our outside attorneys, our real estate consultants and even our auditors were consulted. The overwhelming advice was that we accept the offer. So, the decision was made with a great deal of information and counsel.
Are you glad, then, you didn't go to auction?
Absolutely. Not only would the property probably be broken up into as many as 17 different pieces, the prospect of up to 17 different escrows was daunting.
And for what? There was always the risk that we wouldn't get realistic bids on the core campus, and that the surrounding properties would have sold, leaving the core, now stripped of personal property and surrounding land, virtually unsalable, but still costing us hundreds of thousands in taxes with perhaps a total of a million dollars or more each year in upkeep. This was always our hidden fear about going to auction. We thank God for the answer he gave to the prayers of our members around the world.
So, a preemptive sale was the best decision for everyone, wasn't it?
Yes, it was, and, since we knew at the time of the sale about how much money the bidders were going to bid on the core campus, we felt comfortable going forward.
Was there any other reason you went with the Hobby Lobby/IBLP offer?
Yes. Since our organization is a church, the board is allowed, when making important decisions, to consider not simply temporal but also spiritual factors, such as the religious purpose of our organization. Although the financial terms were extremely important, the fact that the property was purportedly going to be used for important charitable and spiritual purposes by one of the buyers also appealed to us.
We firmly believe that the world sorely needs more organizations that have as their mission some spiritual purpose that helps humanity, as indeed was the case when the property was used by us as a school. So, the fact that the property was going to be used for the public good was a plus.
Wouldn't the church like to have sold the campus for more than they did?
Of course. We would like to have sold it for a billion dollars, but it wasn't worth that much. It is worth what buyers are willing--and able--to pay, and, in this case, the buyers spoke with one voice clearly.
Yes, I heard of the rumors on the Internet that the property sold for $55 million, but that kind of number is preposterous. It is simply not worth that price or anywhere near that price.
I heard other rumors, reported in the press, that the property was worth $20 to $40 million dollars, but, again, these guesses were made by people far removed from the process. No one serious about actually buying the property was prepared to pay anything like those numbers.
The potential buyers were almost all nonprofits who didn't have a lot of money, and the for-profit buyers were going to have to lowball us in order to make the campus commercially viable.
So are you personally satisfied, then?
I am more than satisfied, I am profoundly pleased and relieved. Sure, more money is always better, but, as I told the newspapers, we never invested in the Big Sandy property, or the Pasadena property for that matter, in order to speculate on real estate and turn a profit.
No, we invested in the future of young people. This investment has already paid dividends for the young people who went to school there, to us as an institution, and to the public who benefit from the young people who enter the work force.
Further, the sale of the Texas property helps us enough for all of us to breathe a sigh of relief and know, with relative certainty, that the Worldwide Church of God is financially on solid ground, and, with the pending sale of the Pasadena property, here to stay. Those of us in the financial area are elated. For all of this we thank God.
I would like to add one more thing.
Go ahead.
In spite of how diligent we have been to find the right buyer, I was telling some of my staff that you can be sure a couple of people will pop up after the sale and say, "We would have given you twice what you accepted from Hobby Lobby and IBLP."
However, I want everyone to know that the truth is that every time we have checked out one of these claims we found them to be without basis in fact. If the party had money at all, which, again, we found they often did not, they attached so much delay and so many contingencies to their offer that the terms were simply unacceptable.
I mention this because, as I said, parties are certain to pop up--after the fact, and after the time when they would have to actually put money into a deal instead of just talking the talk--and make claims about what they would have done.
Again, so there is no misunderstanding, we checked out thoroughly every single offer and claim we received, and we took the one with the most credibility that met our requirements.
Why is it that the church waited until now to disclose the price?
First, even before the open of escrow, the buyer asked for his own business reasons that we not disclose the price, and I agreed, but told him we were going to disclose it to our members, which he understood and accepted.
In the press release, the buyer said, quite rightly I believe, that they didn't want announcement of their mission for the property to be overshadowed by discussion about money.
If there is a first reason, then there must be a second one also.
Yes, there is. We delayed disclosure because we wanted our members to hear it first, and to hear it from us directly rather than from an impersonal press release.
Here's another question. Everyone wants to know what the church will do with the money.
Again, as I mentioned in the press release, the money has been added to the general fund, where it is used to further the church's mission, like all our other monies, where it will appear on our audited financial statements.
We need to put it there, rather than fund some new enterprise, because, as we have stated, to avoid ministerial layoffs this year we have to run a budget deficit. The sale proceeds will first go toward offsetting that deficit.
So none of the proceeds can go toward a pension plan for the ministers and other employees, can it?
No, although, as we have said, a large part of our deficit this year will go toward funding our current discretionary assistance program, and, as I also said, the Big Sandy sale proceeds help offset that deficit.
We have known for some time that pension plan funding will have to wait until the sale of the Pasadena property, although, as we have also said, the Pasadena sale proceeds will be sufficient for other uses in addition to merely funding the plan. I have listed those uses in detail in previous WN articles, although I realize that from time to time people forget we have covered it there.
One final question. What has happened to all the important records that were once held on the property, such as student transcripts?
We of course removed all records relating to personnel and the student records and moved them to Pasadena. Anyone needing a transcript should see the Ambassador University web site (http://www.ambassador.edu).
My staff members, who were primarily responsible for the sale, went to great efforts to find the best possible deal with the time frame we had, and we are all grateful for their efforts.
Our employees, both here and in Texas, are the best in the world, and made even this difficult job enjoyable. The facilities staff in Big Sandy worked hard to keep the campus in salable condition, and they did a fantastic job.
And, the various members of the sales team here in Pasadena worked many long hours to make the sale a reality. Plus, the support from the field ministry and church members has been gratifying and encouraging. Please allow me to close with a hearty thank-you to all of the wonderful people of the church.
P.S. The Worldwide News has learned and Dr. Schnippert has asked for prayers for William Vaughan III, the 14-month-old son of William Vaughan II, our Big Sandy broker, and his wife, Kathryn.
William has an inoperable malignancy on his kidney that has spread to his lung.
Cards may be sent to
William and Kathryn Vaughan
P.O. Box 263
Addison, Texas, 75001
DEDICATED WORKERS--From left: Rocky Ware, Charles Landwehr, Jeff
Ferguson, Mac Callender (back row), David Leach, Keith Murray, Dean Newcomb, Thomas Reed,
Gary Giles, Shasta Kalin, Ron Avey and Robert Miller. Not pictured: Nina Rogers, JoAnn
Rogers, Harold Roe, Albert Bruhn and Nadine Van Laecken. [Photos by Ruthie Fuller]
Swan sculpture in front of Hall of Administration
WORKING TOGETHER--From left: Mat Morgan, Cheryl Simpson, Dean Newcomb, Ruthie
Fuller, Bernie Schnippert, Amy Pieper, Dale Trow and Shasta Kalin. [Photo by David Leach]
FORMER SITE MANAGERS--From left: Dale Trow, facilities director, Jeb
Egbert, Dean Newcomb, Shasta Kalin, Lee Berger and David Leach. Jeb Egbert was site
manager in 1997, then Lee Berger, David Leach and finally, Dean Newcomb. Shasta Kalin has
been administrative assistant for the site managers.
SITE MANAGER--Bernie Schnippert (right) talks with site manager Dean
Newcomb after a March 30 staff meeting.
Roy Hammer Library
PASADENA AND BIG SANDY STAFF
Copyright © Worldwide Church of God, 2000