Motion Picture News (Apr - Jun 1929)

1470 Motion P i c t u re N e ws What The True Basis Of Building Promotion Should Be* By William A. Starrett THERE is a legitimate and alluring field of endeavor for those interested in architecture and huilding in connection with the financing of huilding projects. One such idea is that of financing buildings by the issue of socalled "leasehold bonds." In the State of New York, and I believe in two other states in the Union, securities that are founded on leaseholds are not accepted by fiduciary institutions as investments for trust funds, thus limiting the use of this method of financing, which is, when soundly planned, about the best and most advanced form of real estate security. Now the true basis of promotion is really the putting together of two valuable components of a creative enterprise. We have on the one hand a piece of land, either vacant or encumbered by obsolete buildings that must be destroyed in order that the land may realize its economic value ; and we have on the other hand a brilliant conception of a great improvement which might be made,— the land to be worth so much and the building to be erected to be worth so much. The sum of those two will be so much; and no matter what its costs, within those reasonable limits that we here discuss, there has been an increment the minute the key turns in the doorway it is opening. Therein lies the lure to the promoter and the legitimate profit in the thing we are here considering. Here is a thing builders and architects are tremendously concerned in, because we help to create that happy combination by bringing together an unproductive or absolutely unimproved piece of land and the highest possible improvement for that piece of land. It would be an impertinence in the presence of real estate experts to suggest a short cut in the matter of appraisals, for we have all used land appraisals of other generations and running down even to very modern times; — that method of calculation which compares what another piece of land cost with that of land under consideration, without reference to the earning power of the newer project. Out of such a circumlocution of appraisal, we finally come to the solemn moment when the apraiser grudgingly says that our project is worth only about so much. However, I dare to pronounce a bit of dictum as a short cut for the whole thing, by saying that land is worth what it can be made to produce. If you want to<(be very meticulous in your definition, you may go> on to say : "What it can be made to pay over a period of years" ; but it is all said in those few words ;— land is worth what it can be made to produce,— its earnings. The difference that must be recognized is the difference between cost and value. Cost is the sum of those actual outlays of cash necessary to produce and complete the whole; that is cost of the operation. The value of the operation is the complete thing,— the cost increased by creative effort that has been put into the operation by the work of the builder and the architect. Promoters are of so many different kinds that one must almost define it every time he uses the word. Considering that type of promoter whom I should describe as reckless, but who * From an article by the vice-president of Starrett Brothers, New York, and a noted authority on building, reprinted in part with permission from The Architectural Forum. calls himself a conservative, we think of him as reaching down into the very bowels of the building business, and with prospective values and deferments in payment, he ponders on that as a possible ground upon which to build his slender project. He thinks of engaging the efforts of the architect and builder, and then reaches over the shoulders of both and proposes to engage the profit and the support of all the subcontractors involved. Here is the way that thing works, speaking for my own part of the country. Take items like structural steel, elevators and perhaps one or two other major items, and you find concerns vending those materials are able to take any part of the financing they say they will take. It is also to be observed that they carefully scrutinize the terms, and prices generally run correspondingly high. Beyond that, there is in the whole industry running down the line, a tendency to lean on the architect and the general contractor for advice, or rather for assumption of advice, concerning the taking of securities. There are 50 or 60 or sometimes as many as 75 subcontractors that enter into the making of a large, complicated, metropolitan structure. You have a great army of those people, ready to take any kind of paper offered, as a portion of their profit. Now what happens? If I could show you into the treasury departments of a dozen of the leading builders of this country, you would find a very sinister state of affairs. You would find there men who promised to take anything in the way of paper and deferments, who are suddenly confronted with the fact that, after all, arithmetic on their books will not produce dollars, — and this is one of the fruitful sources of bankruptcy. WE all know, in this swift transition that has passed through the business, that borrowing is necessary for metropolitan development, and indeed it has become one of the fundamentals sources of our strongest outlets for capital. Insurance companies for years made loans when skyscrapers were early being introduced ; they did it with a considerable amount of what they then thought was risk. It has turned out, to course, as we know now, that there was no risk to it. Nevertheless, there is every credit due to those early institutions for the courage and forward-looking point of view that made possible the financing of these earlier constructions. I want to say that there is a responsiblity there that I think has never been squarely met by the so-called orthodox lending institutions, and that is this responsibility : When an owner (and let's call him also a promoter, because we are also speaking of that) has found a project meritorious, creative, needed and necessitous, if you please, and goes to an orthodox lending institution, and is told that his estimates are too high and that the architects' fees ought to be cut, and that his allowances for this and that and the other thing should all be pared down to arrive at a figure which is not only the cost but something below the cost ; then when the loan is made on that basis, with no creative vision, and the owner is forced to the very edge of his financial scheme (and it is not without historical record that often an enterprise entered into hopefully by people intending to avail themselves of loans, has actually been wrecked (Continued on page ???)