Eastern Diocesan Council Chair Kalustian Presents Further Information on Cathedral Property Proposals

Without developing the cathedral property, Kalustian said, “If we collect money for renovations we are going have to work very, very hard to do the equivalent. I don’t think we are going to get there, but let’s say we do, for the 11 or 13 million that is going to come in to modernize our facility. Let’s say we get it.” After a hard struggle, there still would be no money for the programs, staff and benefits the Council wants to have.

In other words, he said, “Right now our financing allows us to maintain the status quo, which is not good enough for the changed environment in which we are.” Instead, Kalustian said, by selling or leasing part of the New York complex, the Council can both accomplish the latter and do the necessary renovations.

Negotiations

Kalustian outlined the way the Diocesan Council became involved in negotiating on this issue. The Diocese has toyed with the idea of property development before, even as early as almost 50 years ago. More recent proposals included one by a prominent New York developer asking to take over the entire plaza and administration building to create a large tower which was rejected, Kalustian said, as too intrusive. However, the idea never really died.

Kalustian has been on the Council since 2001 and served as its treasurer from 2005 to 2011. After Kalustian became chairman of the Council in 2013, the council recognized that development of its midtown Manhattan property was potentially a great source of revenue. The next year, the Council went to the Diocesan Assembly saying it wished to continue to evaluate this idea. Kalustian said that in response, “there was broad-based support.” The Council in its report wrote that it would pursue a more modest approach than in the past, imposing limitations on obstructions to sightlines. The development idea remained as part of the Council’s report at each of the following Diocesan Assemblies until the present one.

Kalustian said that he and then Primate Archbishop Khajag Barsamian reached out to Ara Hovnanian. The latter, though well-established in real estate, was not involved in New York City development. Kalustian said that this choice was intentional in order to avoid potential conflicts of interest. Both Hovnanian and Kalustian worked as volunteers without financial compensation.

Kalustian also pointed out that it would not be feasible to have a coalition of rich Diocesan donors finance the development project “because it would take too much time, too much effort, too much red tape to put something in place. Frankly it would be expecting too much of our generous benefactors to do something like that. They would need to expect a return on that kind of money and to give them that return would cause suspicion among those people who have an emotional objection to doing anything. We don’t think it is worth putting them through that kind of torment, frankly.”

Kalustian and his cohorts decided to avoid preparing a full-blown Request for Proposal (RFP) to firms, because it would require engineering drawings, designs and a full formal bid process, all of which would be expensive. Instead, Kalustian said, they decided to do what they call a modified RFP. This entails going to prominent developers that the Diocese had talked to in the past, as well as some new ones, and ask whether they have any interest in their project.

Some firms immediately said they were not interested because the project’s scale was too small. Furthermore, the limitations imposed by the Diocese in order to preserve the prominent lines of sight of the cathedral and the integrity of the plaza imposed further costs and decreased the potential profits for the developers. One firm, which is the one the Diocese ended up choosing, brought its own engineers and architects and came up with a proposal to build only on the footprint of the present administrative building that seemed suitable.

Meanwhile, an outside independent appraisal was made of the property in May 2017. Kalustian said that in hindsight the valuation was a little inflated because it relied on comparable properties which were more condominium oriented than rental property, and on more prominent addresses like Fifth Avenue. If the Diocese goes forward with the development it would have an updated appraisal because interest rates are going up, which will increase the costs of the debt that the developer will incur.

Several presentations about the proposal were made with the Council and then several with the Diocesan Board of Trustees. Kalustian said, “There was a unanimous agreement to move forward with the developer with a LOI [letter of intent].” In November, 2017, the Diocese signed the LOI, which is exclusive but nonbinding.

The LOI tries to get the terms of the deal set as much as possible, until the final contract negotiation. For the period of the LOI contract, Kalustian explained, the Diocese cannot go out and shop around with other developers. There are also time limits for the firm to get the required development permits from the relevant authorities. If the two parties cannot come to an agreement, they will mutually agree that they are released from all obligations, without penalty.

Kalustian said that one advantage of the modified RFP approach was that once the Diocesan decided to go with this firm, the Diocesan team “selected our structural engineers. We selected any architectural support that we needed, any HVAC technical support, legal support, tax support –all those professionals we selected, but they paid for it, with hundreds of thousands of dollars. That was part of our negotiation.”

Kalustian said that a decision between leasing or selling air rights has not yet been made. The sale terms have been defined by the developer and are open to negotiation. This was what was presented at the Assembly. If air rights are sold over the Diocesan administration property, and a building is built over this land, the land itself technically goes with the building to the developer. A large upfront lump sum payment would be made, and residual revenues would continue to be received over the life of the building.

The financial structure for a lease of the air rights, not a sale, would be different. It would allow the land to remain with the Diocese and an annual payment would be made for 99 years. Kalustian said, “We are not pursuing either/or. We are pursuing both. This is another piece of misinformation.” The developer has not formalized its proposal of the terms of the lease, unlike its sale proposal. Kalustian concluded, “Would our preference be to lease and not to sell? Yes, that would be our preference. But we have to look at both to make sure we get what is best.” The rise in market interest rates affect the developer’s offer.

Kalustian noted that during the past few months, some misunderstandings or incorrect information spread in the Armenian community, and corrected one such point. It was claimed that a new midtown zoning law allows the transfer of air rights to non-contiguous properties, but the cathedral property is six or eight blocks outside of the midtown zoning area to which this regulation applied.

What next?

Concerning the petition for a special Diocesan Assembly, Kalustian said that there was no response until the signatures were examined and the Council ascertained whether they were of valid dues-paying delegates. He declared, “We intend to abide by that request. The request was to have the assembly before any decision was made. We don’t have a contract. We are still negotiating the terms. By negotiating that does not mean we are finalizing the contract. We are still negotiating the terms of the two options. When those are done we are going to go back. We intend to do that anyway.”

If the terms are ready and a decision can be made by the end of the year, a special assembly would be held, but, Kalustian said, if this happens by next spring, it will be discussed at the next regular assembly in May, which would save the time and expense of a special meeting.

The immediate response to the petition, Kalustian said, would be given in the forthcoming “Statement,” which indeed states that “any final proposal or contract” would be brought “back to the Assembly prior to adoption or execution.”

Meanwhile, he said, “We intended to have community meetings in New England, New York/New Jersey and the Mid-West to let them know what we are doing and hear what they have to say. As things are still in flux they will probably be in the fall, but we are having smaller meetings to discuss things more in detail. We have had several of those already and several are planned.” In addition, individual conversations have been held with some prominent benefactors in the greater New York area.

While the proposals will be discussed at a forthcoming Diocesan Assembly, Kalustian declared that what will happen next “is the decision of the Council collectively with the Board of Trustees.” However, he emphasized that a development project would not be adopted if there is a great split in the community and alienation, and said: “We know this is a very important issue on a purely financial and economic basis for the future of the Diocese, but we also know that it is a very important issue emotionally, and the emotions in New York and New Jersey are very different than New England because of the proximity, but it is still a very important issue. We are not going to do this based on a vote.”

Kalustian continued: “This needs to be something that the community can get behind and get excited about, and as they are educated and understand the benefits, and we put the falsehoods and mistruths to rest, and people get excited, that is going to be the basis for moving forward. If we are really concerned about the future and want to make it a vibrant Christian Armenian center for the life of all of our children and grandchildren, we have to do something.”

If the construction project in either of its two variants is adopted, the developer estimated it would take 18 to 24 months to complete. The Council is planning, Kalustian said, for 24 to 34 months to be on the cautious side. In both of the options being considered, the developer would spend between a minimum of 11 million dollars up to 13 million to completely renovate and update the Diocesan facilities underneath the plaza. This would disrupt Kavookjian and the other halls as well as the kitchen. They would all be modernized, the HVAC system upgraded, heating changed from steam to gas, the electrical work and plumbing would be modernized.

The work that will take place would allow three options for the staff in the Diocesan headquarters, Kalustian said: stay in the new building, move under the Cathedral after that area is renovated, where he said there is more than enough aboveground space, or move to another location, either in Manhattan or somewhere else. Each one has financial implications as well as emotional considerations.

Kalustian commented that the space in the administration building right now is “incredibly inefficient. It is much more square footage than we need but we need it because of it is inefficiently laid out and designed.” He added that “one of the things that we are looking at would be more of a hoteling concept, where there are people that are there every day, and there are people that are there a few days a week or a few days a month, and accommodate that flexibility.”