Event:2015/12/12 Mtg w/ Potential Lender

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Buy the Building - Meeting w/ Jesse Brewster @ the Archive - 12/12/15

Attendees

  • Brewster, Jesse, DK, Robb, Jenny, Matt, Marc

Agenda

1. Brewster presents his viewpoint on the idea. 2. We share the same goal. 3. Enough protection in LLC model? What about 2-member structure? 4. Can we come to consensus on a basic model?

Brewster's Idea

  • Omni forms an LLC (run by Omni) with one member - Open Library of Richmond, which would have restrictions on what it can do. Open Library would lend to Omni 1.1mil. That loan would be repaid as an interest-only loan which ensures 1) no new liens on the property and 2) no long contracts. No one 'home' at Open Library - holds properties as a nonprofit.
    • Questions about Open Library of Richmond: used to be called "television Archive", vague mission to support access to information. Owns four buildings - two warehouses in Richmond - one leased by Internet Archive and another for general storage; another 'foundation house' for Archive employees to live.
      • Small board - Brewster, his wife and Rick Perlinger - meets once a year. Has a ton of cash in it. Philosophical orientation is all about long-term sustainability.
      • If you can go debt-free, can pay way under market value for rent.
      • Silk, Adler, Colvin? -- Rob Wexler, senior partner non-profit lawyer -- consult with him, he'll collaborate with us.
    • Hedges? How do we think about the long-term strategy to (a) keep 4799 Shattuck from being co-opted and (b) recover it from a co-optation.

Discussion

  • Jesse: Need to institute a check and a balance on the Open Library - can limit their power with an operating agreement
  • Brewster: Worried about stasis of having too distributed a power structure (a la Omni). Omni LLC that owns the building, Omni nonprofit rents the space.
  • Discussion of welfare exemption, can get an exemption in which % nonprofit activity = % of space that is tax-exempt
  • Jesse forwards that his experience in getting a check on the OLR membership status of the LLC could be balanced by making multiple members. Also, it's not that hard to make welfare status in ca state (alameda county) to get property tax exemption! There's a Rule 136 to make the owning LLC that is totally compliant.
  • Jesse: If LLC has a sole member (Open Library), Omni has no enforceable rights. Best idea I've come up with is: 1.95 mil option. LLC is a 2-member LLC - Open Library and Omni. Operating agreement between them defining each group's enforceable rights. Omni is also a member and can enforce its part. No need for a lease. The loan would be a membership contribution (at first, 50/50). Open Library could hold its membership in perpetuity to maintain these checks and balances, even if we pay back the entire loan.
  • Ways to ensure Omni is living up to its stated purposes:
    • Minimum number of member-collectives
    • Minimum number of events (eg NOT become the Black Reperatory Theater)
    • Can write into the Operating Agreement a series of triggering events and consequences of each
  • Brewster: If this doesn't feel 'you' at the end of the day, then don't do it. I want this to feel right for Omni.
  • Marc: Other concern is for the donor, where does that million go if the Omni fails in 6 months?
  • Jesse: Not inappropriate for Omni to want to have the right to use the building for some period of time
  • Brewster: Omni LLC would have a board with 1 rep from Open Library, in relationship to the Open Library that was constrained on when the strings can be pulled
    • Good to charge rent just to ensure the building stays in active use (cites a coop house in Boston he owns)

Proposed Structure

  • Two member LLC (OLR & OC) form the Omni LLC that owns the building, enforceable through an Operating Agreement (eg, 5% interest paypack preferred, no liens, no long-term contracts, right of OC to use real estate)
  • No lease needed, since Omni is one of the 2 owners
  • In the LLC, maintenance fund is covered, signature authority (from both members), expenditure of funds

Draft of currently desirable terms for Omni Commons

Create Omni Commons LLC to own the bulding at 4799 Shattuck Ave in Oakland with 2 members: Open Library of Richmond & Omni Oakland Commons.

  • OOC's donor contributes $1 million and OLR contributes $1.1 million toward the purchase of the building (and related expenses).
  • OOC and OLR have an operating agreement as sole members of LLC [all members managers or they both select one manager]
  • The operating agreement between the members include:
    • OOC pays LLC whatever the LLC charges OOC (including but not limited to taxes, lawyer fees, insurance, debts, etc).
    • LLC pays a 5% fixed-rate capital cost on the remaining balance of the $1.1 million from OLR.
      • 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.
    • LLC bills OOC for a prudent maintenance and reserve fund.
      • How is this allocated by Omni Commons LLC? To be decided by the board?
      • Agree to initial budget, then add mechanism in operating agreement to ammend it if necessary ;)
      • Would be nice if it increased with CPI.
    • Need unanimous agreement for the following transactions:
      • 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.
      • LLC enters (or intends to enter) into a long-term contract (those greater than 5 years).
      • Alternative: make a more general statement like "decisions with material impact require unanimity", etc.
    • In the event of the failure of OOC within the first seven years to be able to meet it's obligations under the operating agreement:
      • The property will be liquidated
      • Upon the sale of the building, OLR gets paid back first up to its loan balance, 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 OLR.
    • In the event of failure of the OOC after the first seven years:
      • Then OLR becomes the sole member of LLC.
    • In the event of failure of OLR:
      • Then OOC becomes the sole member of the LLC.
    • Add clauses for ensuring long-term use of building:
      • e.g. OOC Must have at least # member-collectives.
      • e.g. OOC Must hold quarterly public fundraising events, each hosting at least 50 attendees.
      • e.g. OOC Must allow non-omni communities to hold at least ?? hours of open to the public free events per year
      • e.g. Each OOC member collective must have at least ?? members
      • e.g. Each OOC member collective must have at ?? hours of free and open to the public events per year