A03-27

B O A R D D O C U M E N T

TO: Board of Directors

FROM: Richard Geiger

DATE: December 19, 2002

RE: Sale of the Building

Recommendation: The AOOC and Finance Committee recommend to the Board of Directors that the acting executive director be instructed to prepare the building for sale and formally initiate the process of seeking a new headquarters building and that all final decisions regarding the sale, purchase, and leasing of the current and potential properties shall be approved by the Board of Directors.

Background information: At the fall 2002 Board meeting, the Finance Committee made the above motion in Document A03-07. The Board of Directors desired additional information and referred the issue back to the to Finance Committee: The Finance Committee will further explore options for leasing the building and/or other potential options. The Finance Committee will prepare a report for the Board that will include a rationale and fiscal detail.

The rationale and fiscal detail is attached.

[COMMENT1] Financial Impact Statement: The estimated net profit on the building is currently $5.8 million that could be utilized for innovative or new program development for the membership as contained in the attached scenarios.

Prepared by: Finance Committee

Produced by: Scott Smiley, Lynn Smith, The EZRA Company

Reviewed by: Finance Committee

Rationale for Selling the Building

The current location at 1700 18^th Street, NW has been limiting for the following reasons:

High allocation of resources related to maintenance and routine expenditures

Security risks

Displacement of staff amongst five floors limits team work

Office layout and dark environment

Historical society involvement

Lack of parking

Antiquated systems (electrical, plumbing, technology, mechanical, etc.)

Contradictory to the image we desire to convey

Expensive commuting costs

We feel that the resources tied up in the building would better serve the membership in the development and delivery of desired products and services.

Building Investment Scenarios

In the event that the building is sold, we anticipate $5.8 million in net proceeds from the sale. The question arises, what should we do with this sizeable sum? We have identified two plausible scenarios for your consideration as found below.

Scenario 1: Invest the $5.8 million in a Board-designated fund for the purpose of establishing or enhancing products and services. Principal is protected; only principal earnings may be withdrawn. Let’s say the funds are invested with a 5% annual return.

50% of earnings to programs and services $145,000

75% of earnings to programs and services $217,500

90% of earnings to programs and services $261,000

100% of earnings to programs and services $290,000

Scenario 2: Invest $2 million in the purchase of a new building. Invest the remaining $3.8 million in a Board-designated fund for the purpose of establishing or enhancing products and services. Principal is protected; only principal earnings may be withdrawn. Let’s say the funds are invested with a 5% annual return.

Asset: Building $2,000,000

50% of earnings to programs and services $95,000

75% of earnings to programs and services $142,500

90% of earnings to programs and services $171,000

100% of earnings to programs and services $190,000

In the event that it is decided to retain the building asset and lease elsewhere:

Scenario 3: Invest the rental proceeds from 1700 18^th Street to offset the costs of maintaining the building and leasing another office space.

Miscellaneous

In Section III. of the EZRA Report, Section A states that the advantages of remaining at 1700 18^th Street, NW include:

Cost Effective: We respectfully disagree with this statement. The annual operational costs for our building are in excess of $200,000. Given the issues identified in remaining in this building, we do not agree that spending $200,000 is an effective use of our resources. Further, we sit on an asset that is only of value upon liquidation. The building does not provide any tangible benefit to the membership.

Favorable Image: We also disagree with this statement. While the building is certainly attractive and stately, we feel that the image reflects an antiquated and stiff image better reserved for a law firm, historical collection, etc.