Event:2015/12/07 Fundraising

Omni Fundraising WG Meeting Monday December 7, 2015 Today is Sweetmorn, the 49th day of The Aftermath in the YOLD 3181

intros

• juul: hello. i am a part-time human being and part-time minor deity of overcommitment and starting too many projects at the same time.
• Laura,
• Gwen
• remote-jenny

broccoli

• hopefully meeting with him and jesse this week
• Marc: At the meeting w Broccoli we need to state up front how we have the same goal that we want to keep the Omni available as a resource consistent with our current purpose and under NP control. IF we agree to the same goal up front then we can kind of turn it over to Jesse.
  • Marc: So to clarify the major goal: We want to set up a situation where the Omni Commons non-profit, after having paid off the loan, ends up in a situation where they have ownership of the building and property with the following very important safety mechanisms:
    • The Omni Commons cannot hand over ownership or control, in part or in whole, to any other entity, without approval of the OLR, nor can they significantly change the use of the building.
    • The OLR cannot hand over ownership or control, in part or in whole, to any other entity, without approval of the Omni Commons non-profit
  • Marc: We have an idea for how to start this relationship and how to transition / pay back the loan:
    • We start a new LLC. Hereafter referred to as the OmniLibLLC.
    • Omni Commons non-profit puts in our $1 million donation into OmniLibLLC and gets 50% ownership of OmniLibLLC
      • How the money gets from the donor to OmniLibLLC is not important. The imporant thing is the end result.
    • OLR puts in a $1 million donation into OmniLibLLC and gets 50% ownership of OmniLibLLC
      • How the money gets from the OLoR to OmniLibLLC is not important. The imporant thing is the end result.
    • OmniLibLLC buys, or somehow ends up owning, the Omni building and property from John Givens (which hopefully we can figure out, it might be problematic since technically only Omni Commons non-profit has the option to buy)
    • Every month Omni Commons pays some amount to OmniLibLLC and ends up owning a larger and larger percentage of OmniLibLLC
    • At some point OmniLibLLC owns either 100% or 99% of OmniLibLLC but is bound by a contract to need approval from OLR for anything that changes ownership, contro`l or use of the omni commons
    • We have to resolve what happens to excess money from sale of the building in the event Omni Commons folds. Could go to OLR but that gives them an incentive to sell in the future. Idea is to give to another nonprofit that both entities would support.
    • We have to ensure that Omni Commons non-profit can sell 'the option to buy' to e.g. OmniLibLLC such that OmniLibLLC can buy the building from John Givens

Email with comments from Matt from November 29th:

https://omnicommons.org/lists/private/fundraising/2015-November/000779.html

From the email:

> - OLR must be consulted and have final say of the > following two kinds of business: > 1. Omni Commons LLC puts (or intends to put) a lien on the property > at 4799 Shattuck--meaning a debt, such as a loan that risks the equity in > the property. The intention here is that Omni Commons be given a strong > incentive to remain debt-free. > 2. Omni Commons LLC enters (or intends to enter) into a long-term > contract (those greater than 5 years).

It seems like there's an obvious one missing: Selling the building/property.

There's a less obvious one missing: Anything that changes who has ownership or part ownership of the LLC.

It might be useful to state what the purpose is: To create an organization (that is free from the restrictions regarding % of income coming from donations that go with a 501(c)(3)) which will own the Omni property and building

One thing that's not clear is who would own the LLC initially. It seems that once the building is paid off ownership should be 100% or perhaps 99% Omni Commons.

Broccolis idea: https://docs.google.com/document/d/1-T61Fp3CdKJGbwjGN7IEXVpUjdWuPQjuD-ukFgo_9Oo/edit

loans

• david made a spreadsheet last week

paying someone

• anybody know a qualified professional fundraiser we can pay?

great ideas

• any other ideas for getting money?
  • Send fundraising appeal to everyone who has had an event at the Omni
  • Laura will draft fundraising letter

Terms for Omni Commons LLC

• Create Omni Commons LLC to own the bulding at 4799 Shattuck Ave in Oakland with 2 members: OLR & Omni Oakland Commons.
• OOC's donor contributes $1 million and OLR contributes $1.1 million toward the purchase of the building (and related expenses).
• LLC has a board designated by OOC + 1 OLR designee.

The operating agreement between the members include:

• Omni Oakland Commons pays a 5% fixed-rate capital cost on the remaining balance of the $1.1 million from OLR, plus taxes, lawyer fees, insurance.
• Compound or simple interest? If compound, at what frequency--or continuous?
• No term on repayment, reducing capital-cost is incentive for repayment. Allowing building to become debt-free is also an incentive.
• No penalty for early repayment.
• OOC pays into a prudent maintenance and reserve fund.
• How is this allocated by Omni Commons LLC? To be decided by the board?
• OLR must be consulted and have final say over the following two kinds of business:
• Omni Commons LLC puts (or intends to put) a lien on the property at 4799 Shattuck--meaning a debt, such as a loan that risks the equity in the property. The intention here is that Omni Commons be given a strong incentive to remain debt-free.
• Omni Commons LLC enters (or intends to enter) into a long-term contract (those greater than 5 years).
• In the event of the failure of OOC to be able to meet it's obligations under the operating agreement, resulting in liquidation of the property at 4799 Shattuck:
  • Upon the sale of the building, OLR gets paid back first up to $1,100,000, then second the donor gets paid back up to $1,000,000 (depending on the terms negotiatied to take the donor's intent into consideration), then the rest would go to either another non-profit org to be agreed upon by both members, or a new foundation that will give grants to projects similar to the Omni.
  • OOC's donor will negotiate an arrangement so that their donation will either be returned to them or go to another non-profit consistent with the purpose and value of the OOC.

sam wexler, carolyn craig

Omni Commons Idea -- from Google Doc

@TODO

• Make a more accurate budget, work with finance working group
• How do we avoid:
  • debt: have a restriction from OLR (some sort of contract, probably--lawyers)
  • long-term commitments (effectively debt) (contracts over 5 years)
  • suggestion: have these have to be approved by OLR, and have that approval rarely happen.
• Determine strategy for keeping up maintenance fund
• Conversation with Jesse Palmer and broccoli about how communities scope use / preserve function of property for long terms.
• How would principle payoff occur?
• More clear “rent-to-own” steps?
• 5% capital cost is high compared to interest rates right now. Does he want to peg this to consumer price index or interest rates? Interest rates can’t get any lower so the 5% would only go up. I would prefer to lock in a rate.
• Library does all bookkeeping?

Possible approach with OmniCommons: KISS

Set up OmniCommonsLLC and have it buy the property:

• LLC would have a single member (aka owner): OLR (501c(3) which owns 3 properties for permanent non-profit use already
• LLC would have a board chosen by Omni + 1 OLR rep:,
  • maybe current Omni board, maybe bay area land trust fellow?, others?
• $1Million-ish for purchase would come from OLR
  • LLC would pay OLR 5% of initial capital amount each year
    • (about $50k), fixed rate? Does not have to pay back principal, but it could (to lower/eliminate payments).
• Could define when the OLR would get involved -- scoped down.
  • Do not get liens on property (have debt)
  • Do not be engaged in long-term contracts (effective debt)

The costs associated with running OmniCommonsLLC would likely be:

• capital-cost + ($50k/year if $1M initial capital)
• taxes + (apply for welfare exemption (real estate tax) for ~$20k onetime lawyer fees)
• lawyer&accounting&insurance + ($1k+$1k+15k? based on Internet Archive building)
• maintenance-and-repair-fund ($70k/year ? guess maybe could be lowered later).
• Maybe $135k/year or $11k/month? (then would move up with CPI)

Omni could pay off initial-capital cost at any time and then not owe any more payments to OLR.

Omni could contract with Bay Area Land Trust fellow or others to advise if they want to help with budgeting.

-broccoli

message sent trying to explain a bit:

---

Forwarded Message --------

Subject: Re: Omni Commons followup Date: Fri, 30 Oct 2015 09:43:41 -0700 From: broccoli <broccoli@example.com> To: Jenny Ryan <tunabananas@gmail.com> CC: Matthew Senate <mattsenate@gmail.com>, Yardena Cohen <yardenack@gmail.com>, Laura Turiano <scylla@riseup.net>

Sorry the conversation was crammed at the end of the day when I had to leave.

What I was trying to solve is how to have the omni owned by a non-profit that could care for it physically and financially in a simple, long lasting, inexpensive, and positive way. Bay Area Land Trust would not take any financial risk nor help with "bad guy" status if finances turned bad. At least he was clear, but then of limited value. I am reluctantly taking that on in what I wrote.

In my google doc I was suggesting using an entity that exists for this purpose already and putting $1M+ in initial capital (for 5% ongoing). Then the LLC that would be the actual owner of the property could be set up any way we want, most importantly a board that works for this purpose.

One thing you might want to consider are the fees required for the Bay Area Land Trust. If I understand it, they have ongoing expenses that will be paid for by the renters of their properties. If they are successful and build staff, then it could be thousands a month. It might be worth it, but if they own the land, they can charge whatever they want, no recourse.

OLR does not need any money from its properties (now 3 of them). All the money (except the cost of the initial capital) stays serving the building inside the LLC. In other words, no fees.

The new LLC would manage the maintenance fund, legal and such. The Omni would get to make the decisions on the use of the space.

If the Omni thinks it needs property management services to help it run, then you may want to contract for that, maybe with the bay area land trust guys maybe others, but allowing yourselves to renegotiate in the future can be helpful.

If this feels more "other" than the non-profit structures you were thinking about, then don't do this. Really. The only upside in this for me is to help keep a property supporting non-profit purposes. What I don't want is a bad scene-- not worth it. This has to be simple, long lasting, and positive. The other buildings are in this state.

-broccoli

Message based on broccoli's response to our proposal

   I had a personal conversation with broccoli today--I sent a chat transcript detailing the terms of this discussion we planned to have. This chat does not prevent the omni commons community from holding a formal discussion between members of the fundraising working group, Jesse (our lawyer), broccoli, and Mary. In fact, I made it a contingency that any conversation broccoli and I had was not in lieu of another discussion of this sort, for the sake of transparency and accontability.

The conversation broccoli and I had today went well, we did clarify some misunderstandings on both ends that had come about from our last personal conversation. Our conclusion is that we do indeed need to hold a direct discussion (preferably in-person, perhaps with some phone-ins) with the fundraising working group, Jesse, he, and Mary. broccoli is available today to discuss, but that is not very feasible for us to orchestrate on the omni commons side. I went ahead and gave Jesse a call, but he didn't pick up, so I left a message, relaying some of the situation and asking for available times. Jesse probably has the most constrained schedule, so we'll see what works for him, then step over to see if broccoli can make any of those times, and lastly determine which of the remaining options (if any) would be best for most members of the fundraising working group, etc.

Ideally a next discussion should have the goal of drafting the actual terms that would be formalized into all legalistic agreements by lawyers, generally terms that would not be intended to be negotiated or discussed in-person at another session.

Here are some notes in-line that hopefully get at what broccoli and I discussed and can elucidate where to pick up our next discussion:

On Tue, Nov 24, 2015 at 10:12 AM, Laura Turiano <scylla@riseup.net> wrote:

Dear broccoli:

Thanks very much for your proposal. We're very excited about it and we have the following questions, comments, and proposals about the details of the arrangement.

1. Our long-term goal would be to repay the $1,000,000 of capital provided by OLR. We wanted to confirm that the lease between the LLC and Omni would provide that upon full repayment of the $1,000,000, the Omni non-profit could purchase the LLC from OLR since, after repayment of the capital, OLR would no longer have a stake in the LLC. Having some kind of a pathway to ownership is important to us.

OK, this was of major concern to broccoli for several reasons, most of which are based on a misunderstanding of entities and relationships for legal entities as we are mostly non-experts. We have to forgive ourselves and have patience about language--certain words evoke ambiguities and concerns, but we are all sincerely trying to navigate a complex legal territory, with ample jargon and subtlety, all in the spirit of learning and growing with good intentions to support the Omni Commons project for as long as possible and through the current, larger legal / political / governance system.

For example, I shared with broccoli about how Omni Oakland Commons needs to obtain its own 501(c)3 tax-exempt status, not necessarily to own the building, but so we could provide fiscal sponsorship and handle charitable income from our various projects operating out of the space. He understood this and could see how such an entity's existence would not necessarily contradict the proposal and the relationship of LLC to OLR's 501(c)3 non-profit. This is the kind of clarification I mean.

Previously, broccoli and I had discussed various ways of making his proposal work, which was mainly me trying to just understand what his proposal was saying, what the various items meant, and what were his motivations for those terms. I also elucidated some things about how Omni Commons works, is structured, and how we are seeing the whole buy-the-building initiative, as seeking sustainable, long-term institutional security, that fundamentally depends on culture--not $ or the law.

At this point, from broccoli's point of view, there's no need for a lease, no need for a lessor / lessee relationship. We had discussed this structure before, but it wasn't clear to me that that was such a critical shift. For me, this is strange to hear/understand because I had learned that Jesse would be the kind of expert who might look at a lease simply as a kind of contract, and so other kinds of contracts might in the end be equivalent (or even inferior) to a lease for various reasons. That had been my understanding based on previous discussions about leases. However, I completely defer such interpretations (and elucidations of consequences) to Jesse, and any other lawyers who we trust and from whom we seek advice, but the rhetoric and sentiment of lessor / lessee is what's important to note here!

The idea of creating the Omni Commons LLC (the title-holding entity of 4799 Shattuck, not Omni Oakland Commons the non-profit, nor Omni Commons the community, nor any of the collectives, nor any other entity) is intended to essentially allow the Omni Commons community to pretty much own and control the building in almost every sense except:

• OLR must be consulted and have final say of the following two kinds of business:
• Omni Commons LLC puts (or intends to put) a lien on the property at 4799 Shattuck--meaning a debt, such as a loan that risks the equity in the property. The intention here is that Omni Commons be given a strong incentive to remain debt-free.
• Omni Commons LLC enters (or intends to enter) into a long-term contract (those greater than 5 years).

This term and its two clauses are the most critical thing for broccoli as his interest to him in this deal. It is essentially the most important term of receiving the loan of $1,000,000 from him and Mary. This term does allow for some release of pressure, because if Omni Commons can convince the OLR that it's necessary and not exploitative to take on a debt or take on a long-term contract, then we can still do so, but the burden of proof is high.

I believe I understand how this is a subtle alternative to the Community Land Trust and the full-non-profit-ownership models of structures for long-term sustainable institutions. It's not the same as those other two options, and (to me) whether it can work at all depends on an understanding of the law that I do not have. I am depending on Jesse specifically to hear if this sort of direction is feasible, what the consequences / risks might be, and comparisons to other options.

Please see that from broccoli's point of view, the essential idea is that Omni Commons itself owns the building already and is merely paying off a loan without a term (that ultimately does not need to get paid off as long as we pay the interest). Ideally, we do pay off the loan, in which case the project can stay very-low-cost and debt-free after that.

2. We would like the lease to reflect that if we paid a portion of the $1,000,000 in capital, the rent would decrease proportionately. So for example if we paid 1/2 of it, the interest portion of the lease would decrease by 1/2. We might pay a portion of principal in addition to interest each month similar to an amortized loan and would want those payments reflected in the next month's interest portion of the lease.

The term "rent" was a red flag here, sending in some confusion. It was also used in the Google Doc, but to clarify we changed "rent" to "costs". Otherwise, I believe this is agreeable, and was in broccoli's original intention.

3. Another question is the 5 percent initial interest rate. We think we may have thrown out the initial 5 percent number. We've done some additional research and it appears to us that commercial loan rates are currently ranging from 3-5.5%. We propose to use 3.5 percent as the initial interest rate.

broccoli contends that 5% is already a crappy interest rate from the lender's perspective. Others' interest rates are low because they're backed by the government, and if you get a traditional mortgage/loan, they're often with adjustable-rate interest anyway. From broccoli's perspective, the interest is an incentive to pay off the principle (rather than not pay it off, which is possible because there's no length of term on the debt repayment). Further, this is the same rate that broccoli used when providing some financing for two other projects by good folks that he was trying to support (though at a much smaller scale than Omni Commons and on 5-year terms). Also, if we're looking at inflation, this apparently isn't a big deal because we're soon going to see inflation. I don't understand this part about inflation, perhaps someone else gets it?

4. You said that the percent payable against the capital would be variable and we would like to know more specifically how this would happen. We would prefer a fixed rate, but if a variable rate is important to you, we looked at a commercial loan that another non-profit recently got, and we would propose similar terms:

--The initial interest rate would be fixed for 5 years.

--After the fixed period, it would adjust once per year on the first day of the year

--It would adjust to be the "Six Month LIBOR (London Interbank Offered Rate for six month deposits) as published by the Wall Street Journal, Western Edition, rounded up to the nearest 0.125, plus a margin of 2.0 percentage points."

This was a mistake on broccoli's end--a fixed rate is preferable, indeed. A variable-rate loan would have better applied to a project like Foundation Housing (another property held by OLR), but not to Omni Commons as much.

5. As you know, the cost of the building is $1,950,000. Under your concept, OLR would put up about $1,000,000, and the other $1,000,000 would be contributed by the Omni donor.

broccoli is expecting given a proper budget and some of the actual costs of making a purchase, the loan on his end is going to look more like $1,100,000, but that's TBD and just fyi.

The building would then be owned by the LLC, which would in turn be owned by OLR.

broccoli suggests there is some subtlety to "being the sole member of an LLC" versus "owning", but essentially, agrees with this statement. I defer to Jesse on this topic.

The Omni donor has asked about what would happen to the $1 million donation if Omni wasn't able to pay rent or dissolved. If the Omni donor gave their money directly to Omni instead, and Omni purchased the property in its own name, the Omni donor's money would be re-directed by the Omni community if they lost the building. However, if OLR owns the building through the LLC, if Omni dissolves OLR would have the power to decide to either sell it or use it for other purposes.

Naturally Omni's intent and commitment is that Omni will be a long-term project. However, given the size of the $1 million donation to Omni, the donor wants some consideration of what would happen if things don't work out as expected.

One possible option is that the million dollars would go to OLR as a no-interest, no principal payment loan that would convert to a donation after a particular number of years or at such time as Omni repaid the $1,000,000 OLR capital and purchased the LLC. If the lease with Omni was terminated because Omni failed to pay rent or dissolved, the loan would be repayable to preserve the Omni donor's funds for similar community purposes. Since the building is likely to be worth at least the purchase price if not more, this arrangement is not a bad deal for OLR in that OLR through the LLC would own the Omni building and any property appreciation.

broccoli empathizes and sees where the donor is likely coming from, and if appropriate, is willing to communicate with the donor or a liaison on this matter. It seems like a pretty reasonable compromise that broccoli is wiling to support is some kind of Inferior debt instrument in case of sale. Meaning, if Omni Commons fails, falls apart, etc, and OLR has to sell off 4799 Shattuck to make its loan $ back, then OLR gets paid back first up to $1,100,000 (or whatever it ended up being), then second the donor would get paid back up to $1,000,000, then the rest I'm a bit confused where it goes, but I believe OLR gets it unless we agree it goes somewhere else. The catch is that broccoli believes this has to have a term on it--that after some # of years, the donor no longer will get repaid, as it is a gift and otherwise it would actually be more like a loan. From broccoli's (and my own) perspective, this kind of loan-like structure sounds like donor restrictions--something that libraries and archives have to deal with a lot--that you can only spend the money on very specific things that can be really frustrating to navigate. Not a completely negative situation, but something to consider how to keep simple.

I think the donor would likely be willing to deal with a fairly short term for repayment in case of sale, but not sure how long that would be, we'll have to ask to find all this out.

6. For the lease between the LLC and Omni, Omni wants to have a 99 year lease if possible, or alternatively a 19 year lease with an option to extend for 4 additional 20 year periods. The point of this is to have the security we would have had if we had purchased the building ourselves.

Idea is no lease! If that's possible, then 6 is moot.

7. We also need to specify the details of which organization will carry out accounting related to the LLC, how the building and maintenance fund will be administered and accessed, and if you have specific insurance requirements for the Omni organization and the member collectives who will be the building residents.

This would be entirely up to Omni Commons LLC and not the jurisdiction of OLR, as described above in (1). It would be convenient to utilize OLR's same accountants and insurance broker since they come highly recommended and would make their work easier, but it's not necessary. broccoli understood that, for example, our current accountants are donating their labor, which is great for us (he said "great, keep them!"). No insurance requirements.

Aspects of LLCs

For informationsal purposes:

• The functionality of internal operations are outlined in the operating agreement including:
  • Percentage of members' ownership
  • Voting rights and responsibilities
  • Powers and duties of members and managers
  • Distribution of profits and loses
  • Holding meetings
  • Buyout and buy-sell rules (procedures for transferring interest when members chose or in the event of a death)