Tartu College from Concept to Reality – Vision, Opportunity and Risk (2)

The Funding Challenge for TC

Cash flow is paramount in any construction project. As of September 1969, $85,000 in debentures had been purchased, mainly by members of the Estonian academic community. This was far short of the $400,000 Series A Debentures issued. Funding the cash flow was to be problematic for the TC Board until the very end of the project. Solutions needed to be found to minimize the immediate requirements for cash since TC owed close to $380,000 on mortgages and had serious limitations for borrowing additional monies.

Although the building lots were secured, an agreement was needed to pay for the services of SMS and Tampold Wells Architects. In lieu of immediate fees, SMS agreed to take a promissory note where their fees and expenses would be paid back over a lengthy multiyear period. SMS would be the project manager responsible for choosing the general contractor, supervising the construction, its planning, dealing with CMHC, and working with the architects. SMS would also end up playing a major role in the bridge financing requirements for TC.

Previous CMHC loans practices had been to pay out the land costs on their first payment. However a change was made by CMHC to this practice whereby it did not make a full payment for TC’s purchased land. The result was that the contractor AG Murphy was paid only $48,000 on the first CMHC draw of $383,000 in 1969, since the TC Board chose to use the majority of the first CMHC payment funds towards paying off the land mortgage debt. By the end of 1969, TC’s account payable and accrued liabilities amounted to $870,919 as indicated in their 1969 financial statements. Their cash position was $17,928.

Also in December, TC was informed that the cost for the basement room and the new commercial addition had been removed by CMHC from their first mortgage since CMHC no longer was willing to pay for non-student area spaces. With limited financial resources the TC Board struck a deal with AG Murphy to pay for these two building areas by providing a 50 year lease of TC’s office space at $1 per year to finish their construction and fit-up.

Construction Period (November 1968 – April, 1970)

The contract with the builder AG Murphy Construction Ltd. scheduled for completion of the building by September 1, 1969. The actual completion date for the entire building was April 1970.

Difficulties were numerous – cash flow continued to be a problem, and strikes by various building trades slowed down progress. The strike by the elevator installation workers caused serious scheduling problems. The first 45 students moved into TC on December 1, 1969 but were only allowed to occupy floors 2 to 4, since “with the elevators not in working order and the Building Department of City of Toronto objects to renting under said conditions”. On January 1, 1970 another 30 students moved into TC, bringing the total to 75. Construction continued on the upper floors until spring.

The dilemma with not having the building’s elevators operational, was that the City would not issue an Occupancy Permit for TC, which in turn then led to CMHC not releasing their final payment plus the 15% construction lien holdback monies. This resulted in larger bridge financing costs for construction.

By March of 1970, the financial difficulties further increased, as the building was only occupied for 3 floors and TC had not received their final payments from CMHC. Elmar Tampõld arranged a $250,000 loan with Metropolitan Trust at 15% interest for a term of 6 months. Board of Directors minutes indicated “E. Tampõld offers his guaranty and surety that the loan, if arranged and obtained, shall be repaid in the terms of the mortgage and assured the Board that he is financially able to be responsible for the repayment of the said loan...”. This was clear evidence that TC could not raise any funding on its own and had to rely on E. Tampõld personally to raise the bridge financing and pay for the contractor’s commitments.

In July 1970, E. Tampõld informed the TC Board that SMS was willing to assume the commitment made to AG Murphy as contractor and advance TC a further $100,000 in cash and that they will also restructure their payment schedule for their TC debentures totalling $275,000 (this was the amount TC owed SMS for all of their services). In addition, the Board is informed that AG Murphy has assigned its lease rights to the commercial space to SMS. Further, 3 Directors of TC’s Board each lend TC $5,000 to assist with their cash flow issues (Vello Muikma, Juhan Toomes and Edmund Waldin).

The grand opening party for TC is held on September 19, 1970 in the suur saal, with close to 200 participants admiring the new facilities. The building was rented to full capacity however CMHC had yet to pay all of their promised monies. A payment was made in October, 6 months after construction completion. The final reconciliation with CMHC only occurred in 1971 with a final payment of $272,224.

The final costs for Tartu College can be summarized as: land ($ .45 M), construction ($ 2.6 M), other costs including SMS and professional fees ($ .30 M), and interest payments during this period ($ .43M), resulting in a total cost of $ 3.83 M. In the end CMHC paid 87% of the final cost of the building and land. To put these costs in perspective, in today’s dollars, the Consumer Price Index has increased by a factor of 7.1 since 1968. [The final construction cost in 2020 dollars would be equivalent to $27.2 M.]

Tampold Wells costs of $275,000 were paid down in full 22 years later in 1992. Their return was 7% on this amount. They also received the assigned office lease rights from AG Murphy for 50 years. The owners of Tartu College, the Estonian korporatsioonid and seltsid, invested $120,000, 50 years ago, and today own the land and building now worth more than $40 M! [Verified by MPAC’s market value analysis which is the basis for TC’s municipal taxes and a recent real estate assessment required for a future loan application.] They also received their own floor for which they pay neither rent nor expenses.

The reason that Elmar Tampõld’s picture hangs in the TC foyer is that he is not only the visionary, benefactor and architect for Tartu College, he had a crucial financial role as well. He guaranteed and provided financing during critical periods when TC itself was not financially able to do so. Without his support in all likelihood, Tartu College would not exist today. He personally took financial risk, deferred income to his firm, and played a major role in guiding the project to a successful conclusion. All to have a home for the Estonian academic community and also to establish an Estonian academic centre to promote and preserve the Estonian experience during the cold war period. Fifty years later, Tartu College is not only home to the academic korporatsioonid and seltsid, it is a sustainable and valuable centre of support for the Estonian community as a whole.

JAAN MERI

(The President and Chair of the Board of Directors for Tartu College during the past 11 years.)