Hello St. Paul’s,
From time to time you’ve heard mention of “the LLC” which owns our space in 525 Olive. You may have wondered why it exists and how it uses its assets, especially as we start to contemplate raising funds to build out our masterplan for the Cathedral campus. Here’s some information in Q&A format that I hope will be helpful.
When and why was the LLC created?
Nutmeg & Olive, LLC was created as a wholly-owned subsidiary of St. Paul’s Cathedral in 2004 to manage the development of the available Cathedral property for the benefit of the Cathedral. The Diocesan Standing Committee approved this approach and agreed with transferring the ownership of Nutmeg parcels and the Olive parcels, including the Parc Chateau apartments, for this purpose to the newly formed LLC. The plan would be to sell the property to a developer that showed competence and was the best among the bidders. The LLC would have the right to agree with the structure being planned, which must include space for Cathedral offices/ministries.
What is the LLC’s purpose today?
Providing operating income for the Cathedral through wise investment of the funds earned from the sale of the parcels, along with managing the commercial unit and appropriately reinvesting any rental proceeds after LLC expenses are met.
Who are the members of the LLC?
Nutmeg & Olive has five managers. Since the beginning of the LLC the Dean has been a member of the LLC. Dean Penny is one today. The other current members, appointed by Chapter to five year terms, are Cathedral Treasurer and parishioner Betsey Monsell, and parishioners Mark Lester, Jim Greer, and Ken Tranbarger. Kendall Squires, former Cathedral Chancellor, is an Emeritus member. Tom Delaney, our project manager, has advised us since 2002. Bob Francis with Latham and Watkins has been our counsel since 2004. Recently Cathedral Chancellor Andrew Brooks has been instrumental in constructing the legal relationship with the Cathedral and the Diocese. Kathleen Burgess is providing administrative support in several areas.
Did the LLC have significant funds before the Greystar deal, and if so where did they come from?
Yes, the funds had three sources: sale of the Nutmeg property in 2014, sale of two donated condos, and rental income from the Parc Chateau apartments (which were demolished as part of the 525 Olive project).
How were those funds used for the benefit of the cathedral?
Funds were used by the LLC to provide the cathedral with additional operating funds, and in capital projects to construct new bathrooms, repair the elevator in the Great Hall building, and enhance the telephone system. These capital projects represent an investment in cathedral facilities of approximately $467,000.
What has happened to the proceeds of the land sale to Greystar?
In addition to paying for tenant improvements in the office condo (both first and second floors), as well as broker, legal, project management, and consulting fees, the balance of the proceeds have been invested by the LLC through the Episcopal Church Foundation (ECF). ECF also provides investment management services for the Cathedral’s endowments and reserves.
Who owns 525 Olive?
Greystar owns the residential units and common areas, while Nutmeg and Olive, LLC, owns the office and commercial condo units. The Cathedral has an easement to use the labyrinth courtyard.
What’s the nature of the arrangement by which the cathedral gets to use the space in 525 Olive?
The LLC and the Cathedral have mutually agreed to a lease which allows the Cathedral to rent the office unit in 525 for one dollar per year. The diocese has approved the first year’s lease, and we are working on a long-term lease subject to approval by the diocese.
What’s the nature of the arrangement by which MRKT Space will be opening an outlet in 525 Olive? Who benefits?
MRKT Space has signed a lease and will pay the LLC rent once they open for business. They will also pay utilities, property taxes and a portion of the common area fees. The commercial unit is currently an unfinished shell and will require up to a year of improvements before being suitable for business. The LLC will pay for the Tenant improvements, which will become our property at the expiration of the lease. We expect the rent income to start in early 2024.
What does it cost for the LLC to own space in 525 Olive?
The LLC will be responsible for paying common area fees which are permanently capped at $3500 per month, or $42,000 per year, and some other fees to be agreed upon by the 525 Olive Association (equivalent to an HOA). We are working on getting exemption from property taxes on the Office condo now.
Once we know the ongoing costs of owning space in 525 Olive, how much money does the LLC expect to be able to invest?
Our current investment balance is just under $5 million. Our only current income is interest on investments, but this will be supplemented by regular rental income beginning in 2024. After LLC expenses are paid, the balance of the rental income will be invested to the long-term benefit of the Cathedral.
What will happen to the income from those invested funds?
The LLC recently adopted an investment policy which mirrors the Cathedral’s policy and permits withdrawals of no more than 5% of the principal. We would expect to continue to provide for the annual distributions with some increase each year. These distributions, like the distributions of the cathedral’s invested funds, are a critical component of the cathedral’s general operating budget.
Why can’t the LLC donate a portion of the land sale proceeds to the proposed capital campaign?
Our investments are barely capable of supporting the current distribution to the Cathedral. Sadly, support for the capital campaign could make long-term support for the Cathedral unsustainable.
What is the impact on the cathedral if the LLC fails to make its annual grant?
The LLC will make every effort to fulfill the annual distribution to the Cathedral, currently providing approximately 14% of the cathedral’s operating needs. In the event that this distribution becomes impractical we will engage with Chapter to determine the best course of action for the Cathedral and the LLC.
See you on Sunday!
Your sister in Christ,