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1705 Hill Street – Mortgage 3.0
1705 Hill Street – Mortgage 3.0, by John (1973 & 1975) and Dave (1975 & 1977) Levinson (and a few other Editors for which we especially acknowledge Howard Gandelot)
First a little history on the mortgage(s) for 1705 Hill Street. When the Chapter was recolonized after World War II, there were no physical assets to start the process. The old house (State and Hill Street location, now the Gerald R. Ford Public Policy building) was lost in the depression – likely due to being unable to pay the mortgage. That fact alone would have made for a very difficult effort to get a new mortgage. Then adding to that – there were no Brothers, it was after World War II – WOW, to get that mortgage and the new Chapter House took some real effort and devotion.
In addition, to get a new Chapter House, some of the people that helped bring Delta Chi Michigan back to life had to pledge their own money (a personal guaranty) to get a mortgage to purchase the property at 1705 Hill Street for $38,150 and a $14,000 down payment (REAL MONEY in those days)! Also, it was ironic that the 1705 Hill Street U of M Delta Chi Chapter House was purchased by the Michigan State University Delta Chi Housing Corporation. It was then rented to our Chapter for $5,000 per year with the understanding that the Chapter would get a mortgage and purchase the house from the MSU Delta Chi Housing Corporation.
We all owe a large debt of gratitude to former members/friends like Wilbur Nelson, Henry DeKonig and Joe Lacchia MSU Delta Chi that found a way to get mortgage 1.0 for the 1705 Hill Street purchase. Joe Lacchia was at times really annoying and always talking about how the Delta Chi Michigan State Chapter was so superior to the Delta Chi Chapter at the University of Michigan – the little brother syndrome existed long before Mike Hart’s famous comments about the status of MSU football versus Michigan football. However, without a doubt, we needed their (MSU Delta Chi) assistance at that time. The constant comparisons were very hard to take 20+ years later when he would come to Housing Corporation meetings and berate our lack of size and stature on campus.
At this time, I do not have much more fact- based history to share on Mortgage 1.0, except to say that we had “one hell of a mortgage burning party” sometime during my time at Delta Chi. The best some of us can remember is that the party was in the spring of 1974 as most mortgages were 25 years in length after World War II. Maybe some other alumni will read this and give us the date or as the author has no memory of that party (wonder why??).
During the 80’s, 90’s and in the early 00’s, we did not have the monthly burden of a mortgage to pay each month. We had to pay the property taxes, property insurance and repairs (oh those repairs!!). Sounds like an easy process, collect a little rent and then pay the insurance and property taxes and hire a few contractors to make some repairs. How much damage could 20-25 Brothers do each year to a house that was built as a residence in the early 1900s!! Well let me tell you, IT WAS A LOT. Two new roofs, three times doing the shower room over as a result of leaks from all the horseplay that went on, new fire doors, a complete new inner set of walls in the 2nd floor landing (fire code rules), foundation repairs, kitchen redo, gutter repairs, electrical box upgrades for parts of the old house (we took out nob & tube electrical and replaced that with fuse boxes and finally circuit breakers for any of you electrical engineers – just to name a few.
The other major issue was getting property insurance for a fraternity house – NEVER an easy task. I had taken insurance classes at Ross Business school from Dr. Miller (the Business School was not called Ross in those days), so I was considered an expert. HA, what you learn in classes is everything but the practical things you really needed to know in reality. Sound familiar? Therefore, I was added to the Housing Corporation after getting my MBA and was told, JUST DO IT (long before NIKE claimed that slogan – thanks Duncan). I digress – do they even still offer insurance classes at Ross?
Delta Chi had a good relationship with Dobson/McComber – one of the leading insurance brokers in town. For many years, through their relationships with some insurance carriers we were always able to buy insurance even though the house was old and there was no fire sprinkler system. Near the end, we finally were shopping with Lloyd’s of London, the insurance company of last resort! I really learned about insurance by doing the job assigned to me by the Housing Corporation – boy did I learn. Also, as most know, to have a mortgage – you have to have property insurance, so this would prove to be valuable training later when we designed the new Chapter house.
Now skipping ahead to the modern days and Mortgage 2.0 – when we designed the new house, we used all that I had learned about fraternity house insurance to make sure that we would not have trouble purchasing insurance like I had over the previous 40+ years. Things like a sprinkler system, multiple egress (think the east and west stairwells), windows in every sleeping area and even in the basement (party room), concrete floors, security cameras, plastic plumbing lines, metal framing instead of wood – all of these were incorporated to make sure that we were an attractive insurance client. We were going to have to have property insurance because we were going to need a mortgage. Even with the major and very successful fund-raising campaign carried out by the Four Horsemen (of Delta Chi, not ND – see below), we were going to need a large mortgage for many years after building the new CLUBHOUSE as David Falconer usually called it.
Mortgage 2.0 – The restart of the Chapter (after it went off campus in the middle 2007 time) was very successful. Once again, a GREAT THANKS to the Founding Fathers of that time and all the alumni that assisted or we could have just gone the way of the depression era Chapter. HOWEVER, with all that success on re-establishing the Chapter – the old Chapter House was beyond economical repair (a technical term for all us finance guys).
In addition, the old design/layout did not meet the needs/likes of the new generation of Delta Chis. Things like the group shower room, the lack of separate sleeping rooms, just the lack of modern amenities, the foundation, etc. were either not desirable or just functionally obsolete. Finally, the Housing Corporation was sick and tired of spending good money over and over on the same things and never seeing the end. The fact that we had only amassed about $60K in cash was a testament to how many repairs there were to deal with. However, a new house was going to be millions of dollars and no one was going to give us a $2-3M mortgage to tear down the old house and build a new one. We needed more equity to get Mortgage 2.0.
Luckily for us, a group of senior alumni were willing, capable and dedicated to leaving a new legacy for the future Delta Chi Chapter at Michigan. I nicknamed them the Four Horsemen (Howard Gandelot, David Falconer, Frank Morrey and Keith Hellems). Those guys were like those heroes of ND football. They were very Talented, Devoted, Energetic, etc. They were eager and willing to put their time and treasure to work to preserve Delta Chi for another 50 years. Those guys had many fond memories from that old house, but we all knew that it was the fraternity that we actually loved and cared for, not a house.
The Four Horsemen were able to raise $1 MILLION DOLLARS from less than 400 living alumni and that would make the bank sit up and take notice. Therefore, off we went on this incredible journey that took down the old house, designed and built the new house and moved onto Mortgage 2.0. It was certainly miraculous what was done in 1948 but no less miraculous as to what the Founding Fathers, the Four Horsemen (and the helpers who also saw the vision and gave their treasure) others were able to accomplish with this undertaking. Now Delta Chi has the largest and most successful Fraternity on the Michigan Campus (take that Little Brother in East Lansing).
The completion of the new Chapter House was not without problems. The active chapter had to find a place to live during the construction, we ran into asbestos problems with the tear down of the old house (we never did find the urban legend motorcycle during the excavation process), getting all the City of Ann Arbor approvals (talk about an uphill battle), the huge increase in costs from the time of the design estimate to completion (starting budget with contingency of 10% – $2.5M – final result of $3.5M two years later), a lawsuit with one of the subcontractors, a temporary Certificate of Occupancy obtained on move in day of August 25, 2016 and probably a whole lot more that I wanted to forget and have done so.
As we progressed through all those trials and tribulations, we had the Construction Mortgage to pay the contractors as the “Clubhouse” was being built. We had to beg the bank several times as the costs would go from $2.5M to the eventual $3.5M final number. Of course, if you are familiar with this process, the real challenge is then to get Mortgage 2.0 after you have completely blown your Budget and Creditability.
After all the problems discussed above, the number of banks that were left to choose from for Mortgage 2.0, was ONE – the Bank of Ann Arbor. No other bank would talk to us due to the large over budget result. This is despite the fact that our new Chapter House was the envy of every Greek organization on campus.
As luck would have it (literally), the Manger of the mortgage group at Bank of Ann Arbor wanted to meet me at their offices to discuss this problem. It turns out that he was the back-up goalie for the University of Michigan Lacrosse team that I played with for four years when in the Fraternity. We renewed our acquaintance for the first time since 1974. I then suggested that we tour the now ½ finished chapter house. After taking the tour, he was completely enamored with the design and all the features that we had incorporated into the new house. That tour cemented the deal and we then completed Mortgage 2.0 in December 2016. The mortgage was more expensive than we hoped, but still, we had a non-recourse (no personal guarantees by anyone like the guys in 1948 had to do). The new mortgage was for five years and had a fixed rate of 5.29% – pretty decent when looking at how we over shot the budget by ONE MILLION DOLLARS on a $2.5 million base!!
Well, let the good times roll as they say and we fast forward to 2021. The Chapter is thriving – even during the PANDEMIC. It is the largest fraternity on campus. The functionality of the house has been excellent – except for the drop ceiling in the basement that members keep destroying each year (and then having to pay to have it fixed). We have been filled to capacity for 9 of the 10 semesters since opening. There have been very little repairs to pay for. The insurance companies love our business now. We generated only a small amount of cash ($15K) over five years due to the larger mortgage costs. In summary, life has been very good and then five years is upon us and we have to do MORTGAGE 3.0.
The 2021 timing seemed to be good – interest rates were low (but soon to grow much higher – at least in my view). We had good financials, just a little strained on the cash flow but nothing we could not handle. The bad thing is that we are still a fraternity house and there has been a lot of bad press about fraternities in the last few years.
So, we started the process early in the spring of 2021. We wanted to get a lower interest rate, a fixed rate for at least five years, NO RECOURSE (no personal guarantees), roll the closing costs into the mortgage – all of which seemed very reasonable. We started with Bank of Ann Arbor and had the wind knocked out of our sails with their unsatisfactory offer. We pushed back and they did not budge. That is when we went to find other alternatives.
Thankfully, my sibling and fraternity brother (Dave – ’75 & ’77) had spent most of his career in the real estate financing industry. He was recently retired but still had LOTS of connections.
We quickly found new financing interested parties through a mortgage broker type firm that Dave used to work for. We provided financial statements, tax returns, etc. and soon we found that we were not being unrealistic in our original goals that we started with. Long story short – we found a written offer that was pretty close to our original targets. With my new-found baseball bat/commitment letter, I went back to Bank of Ann Arbor and stated – you helped us when we needed it, so we are giving you one last chance to keep our business.
In an ironic twist of fate, my old lacrosse teammate had retired but the new “Manager” was someone that Dave Levinson had worked with and kind of mentored long before he ever came to work for Bank of Ann Arbor. It turns out that they did like our business and wanted to match to offer. At this point, I extracted one final interest rate pound of flesh to seal the final deal. In short, we have a 7-year fixed rate mortgage with a balloon payment at the end. The interest rate is 3.99% and the closing costs were all rolled into the new mortgage. The total amount of the mortgage was a little over $2.2M and our payment dropped from approximately $17.7K per month to $13.5K per month.
I think we will all look back in a couple of years and be very happy that we made a very good deal. However, when writing this account of the processes for Mortgage 3.0, I began to wonder what challenges we will face next. More importantly, who will take up the task for Mortgage 4.0 – seven years from now? We will once again need a few GOOD MEN to step up and carry the Delta Chi Chapter at the University of Michigan onto the next phase.
In the Bond – John and Dave Levinson