Is the bar crazy to buy a building?

Each month, President James Towery answers questions from members in this column. Please address your questions to: Ask the President, California Bar Journal, 555 Franklin St., San Francisco 94102-4498, fax to 415/561-8247. This month's question and Towery's response:

QUESTION: Sen. Quentin Kopp, I-SF, has charged that the decision of the State Bar to buy an office building in San Francisco is another indication the bar is out of control and should be abolished. With the plebiscite looming, isn't this a crazy time for the bar to buy a building?

TOWERY: On the contrary. The decision to purchase a building in San Francisco is far from "crazy;" instead, it is an extraordinarily prudent choice and sound business decision which will mean savings of more than a million dollars a year and which responds directly to our members' desire for greater efficiency and cost effectiveness.

It is a decision which directly benefits all the lawyers in California. It is a decision which has been blessed by numerous well-qualified consultants, virtually the entire of Board of Governors and implicitly by the California legislature. More on that later.

In the late 1980s, the State Bar found itself facing the fundamental choice of whether it should buy, rent or do a combination of both for its San Francisco operations.

Historically, the bar has owned a building at 555 Franklin Street for many years, which became inadequate in the late 1980s for all bar employees.

In 1989, the bar leased substantial space at 100 Van Ness Avenue, which principally houses the State Bar Court and ethics and certification employees. In addition, the bar has been renting space in San Mateo County for a small number of employees in the admissions group.

This business decision led to the creation in 1992 of the board's real property committee in San Francisco, which retained four different consultants and explored all options of renting, buying or doing both.

By 1993, that committee, chaired by Joe Bergeron of San Mateo, had concluded that buying an existing building was substantially more economical than any other option. For example, the committee concluded that continuing as is (owning and renting current facilities) had a present value cost of $41.7 million. Buying an existing building was significantly cheaper than those options.

This led to a long search in San Francisco, again aided by consultants and real property experts. Over 30 potential sites were examined.

Finally, last summer, the building at 180 Howard Street was identified as a suitable choice. The bar signed a letter of intent for the building in August and a purchase agreement in early December. The purchase price is $22.5 million, again far more cost- effective than any other option.

Let me say a few words first about the building, and then about the deal and its consequences.

This is a 13-story building with 205,000 square feet, constructed in 1979. To meet one of our goals, the space is ample not only for current operations, but for future needs as well. And it will allow consolidation of the one property the bar currently owns and the two rental properties, meeting our cost containment goals.

The building itself is simple and very functional. It is appropriately much more modest than the buildings housing many of our state's major law firms and more modest than many government buildings as well.

I would describe it as a Chevrolet of office buildings and certainly not a Cadillac.

In short, it is precisely the type of building which a membership organization like the State Bar should be buying. No one can realistically argue that it is extravagant.

Now to the deal. All observers agree the purchase price is excellent. The purchase will be financed from three sources.

First, the bar has a building fund of almost $9 million. Second, the bar will sell its existing building as soon as possible (and there are many interested bidders). Third, the bar will amortize the remainder of the purchase price over 10 years, based on the current building fund assessment.

The bar recently negotiated an interest rate of under five percent, fully amortized, to finance the balance. All of the financial assumptions underlying this purchase have been examined and validated by Ernst & Young/Kenneth Laventhol, a highly respected accounting and real estate consultant.

Let me now return to the earlier reference of tacit legislative approval.

Last summer when the legislature was considering the State Bar's dues bill for 1996-97, an amendment was added to the bill requiring the State Bar to submit for review to the Senate and Assembly Judiciary Committees, all documents related to any real property purchase in San Francisco. The State Bar did not oppose this amendment, and in fact, welcomed the legislative oversight.

Last August, the State Bar complied with that requirement and submitted all the documents related to the purchase of 180 Howard Street to the committees. There have been no comments from the legislature. It passed because it is a sound project.

A final point. Some critics have argued that the timing of this purchase is unwise, given the upcoming SB 60 plebiscite. Sen. Kopp was informed, early in the process, of the possible building purchase and he indicated that the upcoming plebiscite should not stop the State Bar from proceeding with the purchase of the building.

Of course, the State Bar could have gone into a state of paralysis when the plebiscite was announced and deferred any decisions until the fate of the State Bar was settled.

We should note that it is a process that could easily take several years, given that even the abolition of the State Bar likely requires not only a vote by lawyers to that effect (which I continue to believe is unlikely), but also legislation and ultimate passage of a Constitutional amendment.

However, if these property decisions had been deferred, it would have meant a waste of bar resources and members' dues. I think that would have been irresponsible.

I understand the concerns many members have about this purchase. I hope this information has dispelled some of the myths surrounding this purchase. The bottom line is that this will save the State Bar---and its members---over a million dollars a year. It is a sound business decision.

I wonder if a state agency regulating our profession would have been similarly motivated to be as prudent with members' dues as the unified bar has been.