From Damien of Lodge Devotion
One key indicator used in investing is Return on Investment. Often the higher the return, the more risk involved and now defunct companies like Lehman Brothers and Bear Stearns achieved a Return on Equity (slightly different from ROI) of 30% - using risky leverage (loans) with ratios of 40:1. Once praised companies like Kidder Peabody were leveraged even as much as 100:1. These ratios mean for every dollar they invested of their own – they had $40 or even $100 in loans. Stellar short term success resulted, but when the chooks came home to roost, it also sent such companies into liquidation because of failures in management but particularly due underwriting by shaky assets – such as the now infamous loans bundled into Collateralized Debt Obligations (CDOs) and Collateralized Mortgage Obligations (CMOs).
Because executives and directors were paid on quarterly and annual profit results, and because the more risk taken - the higher the profit, essentially the Wall Street Gurus who helped to create the Global Financial Crisis were being rewarded for mismanagement and risk taking. Receiving their annual cash bonus they generally had little or no financial accountability or penalties for the compromised future health of the company. They were quarterly focused and ignored the long term picture and risk – resulting in disaster and bankruptcy. They were praised for their short term results for years, but later cursed as they led their organizations into terminal catastrophe. Few questioned the spree and those who did were ridiculed and often sacked. The price companies paid for this culture was disastrous. Let’s keep Freemasonry off that path.
In corporate media around the world the common hackney phrase of “shareholder value” is grossly overused, misused and misunderstood. Dividends are often the focus, and like the above, can be said to be short term. Building strong organizations is not about a creating a healthy quarter, annual report or dividend (that’s a by product of success not a cause), it is about creating Corporations for long term and sustained results. A director’s first duty is to the health of the Company, not the dividends it pays to its shareholders. We should remember to take the long view when considering our Masonic buildings.
We too should be critically questioning our priorities, management and methodologies, and looking for fundamental strengths rather than short term gains – sadly often seen in the sale of assets and heavily subsidizing membership dues.
Examining Masonic buildings purely from a ROI does not work. Firstly we must remember we do not have shareholders, stakeholders and members yes, shareholders no. Our “dividends” are not measured in cash, but the quality and relevance of our meeting places, our ability to sustain the Masonic footprint established by our forefathers and engaging Freemasonry with the wider community.
Relying solely on ROI as a measure of success will lead us into future trouble as it did for the likes of Lehman Brothers. It may look good in the short term- but what will it do in the long term if it means we sell buildings purely on low levels of financial performance? And to be harshly frank, especially when part of that financial performance is poor management. At the very least we should look to make our buildings cash neutral and hence self sustaining, to pass our assets to the next generation intact.
This, of course, also involves maintaining and improving buildings, so to be truly cash neutral, the cash flows in the books of each Masonic building must have provision and expenditure on maintenance - and preferably also capital improvements. Most don’t.
Masonic Buildings in the metro area, like Dallas Brooks Hall and other centres like Canterbury and Camberwell, and our own beloved Collingwood, stand on valuable ground. Ground we could not afford to purchase today and which will get harder to buy in the future as our city continues to grow. Even when taking a grossly conservative estimate of value of $1 million on a building like Collingwood, a 10% return is $100,000 per year. Even on such a conservative valuation that income is not achievable while lodges are using the building in its present configuration. Rather than calculations link ROI and ROA, the test should be if they are self sustaining – paying their bills and keeping the building properly maintained. The subsequent test should be if they are in locations for future success, tested with a long term view, and if they have fundamental strengths; commercial exposure, location, parking, access to transport in particularly in the longevity of construction. These should run second to if the building is being used by masons, and then to its fundamental ability to generate a cash flow. It is the duty of each Committee of Management to examine these questions and solve the problems which arise from the answers to them.
We should be particularly cautious of new buildings with concrete slab construction. These have a limited life and unless today’s cash flow from them in quarantined for replacement, in the future we will be holding titles to land with buildings in need of reconstruction with no funding to carry out those building works. This will become distressingly evident in decades to come. Many of the problems with Dallas Brooks Hall lie in its construction (concrete), configuration and condition – but above all the lack of income it generates and a failure to make provision for upkeep, improvements and later replacement.
When many of our buildings (including Collingwood) were constructed, they were built on the financial assumption that lodges will be able to fund their upkeep. As the Craft as constricted, that is no longer the case. External sources of revenue become critical for the survival of those centres.
The Committee of the Collingwood Centre reviewed its building and financial status. Reduced lodge rents meant the centre did not have the money to be self-funding. A reduced number of lodges limited the income which can be generated internally. A financial analysis based on cash flow and ROA etc resulted in the conclusion to sell, but this is not in the interest of the lodges who meet there nor the longer term health of Freemasonry. The analysis was noted but put aside and the goal became to sustain the building. GL cannot be expected to carry the burden of an unprofitable asset, so the model to generate income from external users was adopted. The model of engaging external hirers at Collingwood, especially through www.abbotsfordhallforhire.org.au is proving very successful. To this we need to add lodge rents and other sources of income and then minus our expenses. Once this maths is completed, Collingwood Masonic Centre it looking good, but nowhere near a ROI expected from a commercial investor, but the investment in the future of Freemasonry is much more important.
The current positive income at Collingwood is a poor Return on Investment and a poor Return on Assets, but a great result for the future of Freemasonry which will see us, like our forefathers, hand the building down to the next generation of Freemasons in a better condition that when it was passed to us.
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