Office Building
Problems
BEINQ THE
Proceedings of the First Pacific Coast Conference of Building Owners and Managers
HELD AT
LOS ANGELES, CALIFORNIA February 23rd and 24th, 1923
Copyright, 1923, by P. R. KENT, Executive Secretary Business Property Owners’ and Managers’ Association of Los Angeles
PRICE $2.50OUR ENTIRE ORGANIZATION IS DEVOTED EXCLUSIVELY TO THE DEVELOPMENT, IMPROVEMENT AND MAINTENANCE OF VERTICAL TRANSPORTATION IN BUILDINGS
OFFICES FOR YOUR CONVENIENCE AND SERVICE ARE LOCATED IN ALL PRINCIPAL CITIES
OTIS ELEVATOR COMPANYSIXTEENTH ANNUAL CONVENTION
One National Association of Building Owners and Managers
Atlantic City - The Ambassador JUNE 18-22, 1923
The Officers of The National Association of Building Owners and Managers announce a program replete with topics of vital concern to operators of business property
A RENTAL CAMPAIGN FOR A NEW BUILDING Presentation of Prize Paper
BOILER ROOM ECONOMICS
Guides to Efficiency that can be observed by Building Managers
EXPERIENCE EXCHANGE REPORT FOR 1922
Analysis and Comparison of Operating Expenses, Rental Income, etc.
BREAKFAST CONFERENCES
Round Table Discussions on Operating Problems
APARTMENT HOUSE DAY
Papers, discussions and Apartment Experience Exchange
NEW IDEAS IN OFFICE BUILDING CONSTRUCTION Extensive study by our members for saving in Construction and Operating Costs
The papers listed above and many other important subjects warrant making your plans to attend now
VICE-PRESIDENT LEE THOMPSON SMITH OF NEW YORK IN CHARGE OF ENTERTAINMENT
Meet Me in Atlantic City, June 18, 1923THE TRANSITION OF THE WEST
The entire western slope of America lying between the Rocky Mountains and the Pacific is at the present time in the throes of a tremendous change. The old West, the West of the pioneer, is vanishing. A new West humming with industry, a self sustaining West producing enormously and developing on an unprecedented scale is making its bow to the world. Especially is this true of California, Washington and Oregon. Here on this western edge of the continent there is, for the man who has something worthy to make or sell, the most rapidly expanding market in the world.
All over the Pacific Coast a high tide of progress and prosperity is sweeping. Population and capital, lack of which have been a drag on development in the past, are pouring into every state. Immense advertising campaigns to attract settlers and investors and industries have given a powerful impetus to development. It is estimated that the cost of development advertising campaigns conducted on the Pacific Coast this year alone will reach a total of more than three million dollars.
The transition through which the West is now passing rapidly is comparable to the transition period of the states on the Atlantic seaboard immediately following the Civil War. Within the few years the West has become a producer and exporter of products and manufactured goods. It is no longer merely a consumer. New resources are being discovered and developed. The product of its soil is supplying the markets of the nation and the world and the capacity of its soil for production has scarcely been scratched.
In the twenty years between 1900 and 1920 the population of the West increased 118 per cent; the population of the rest of the United States increased only 35 per cent. The greatest increase of population took place in the three states of the Pacific division, California, Oregon and Washington. In these states for every hundred consumers in 1900 there were more than two hundred in 1920. Since then there has been a great increase in population and consequently a still larger market for the producer and seller. Expanding population and expanding markets have been accompanied by greatly increased buying power as new sources of wealth, agricultural and industrial have been tapped and developed.
Every city on the Pacific Coast is alive with new industries and new business. The remarkable industrial, financial and commercial development of San Francisco and Los Angeles is equally 'true of Seattle and Portland and in a degree of every rapidly growing city on the Coast slope. A striking barometer of the growth of the new West is the faith of the railroads in its continuance. This is expressed in large plans for extension and expansion for new warehouses, terminals, shops, involving enormous expenditures.
The rapidly awakening Orient with its vast and practically untouched markets is a large factor in the future of the new West. The trade of the Pacific, and of the continents and nations washed by the Pacific,
Anns¿already pouring itself into the ports of the Western seaboard is a faint augury of the vast commerce of the coming years.
Unlimited and cheap hydro-electric power, practically untouched mineral deposits, huge oil deposits, vast lumber sources and easy water transportation combine to make an ideal foundation for industrial development and offer the most attractive inducements to manufacturers and investors. All over the Pacific Coast the raw material for profitable industry is abundant. Opportunities for new industries are unlimited. And every condition favorable to large production exists—climate, living conditions, working conditions, labor and wage conditions.
The new West is this continent’s greatest producer of and greatest storehouse of wealth in the shape of raw material. More than half the nation’s remaining timber stands in the Pacific Northwest. At the present time nearly half of the nation’s lumber supply is cut and sold in the West and the volume increases each year. One-fourth of the nation’s petroleum supply is supplied by California alone; last year it produced 140,000,000 barrels. More than half the lead produced in the United States, more than 80 per cent of the copper, 73 per cent of the gold and practically all of the silver is produced in the new West. More than seventy per cent of the nation’s potential water power is in the West; more than forty per cent of it in three states, California, Washington and Oregon.
It is in agricultural development however that the new West is advancing with the largest strides. Despite the lack of population and the fact that millions of rich land remains untouched and more millions of fertile land still awaits the magic wand of irrigation, agriculture and horticulture in the West has reached a remarkably high stage of development. During the war and in the aftermath of depression the farmer of the new West found himself the most fortunately situated in the country with a market for his crops that never wavered. His crop production and crop value made record breaking figures in the agricultural statistics of the country. And now new and gigantic projects are underway to augment the agricultural prosperity and production of the West. Millions of new acres will be made available for production in Arizona, New Mexico, Colorado and Utah by the proposed Colorado River control. In Idaho, Washington, Oregon and California great irrigation projects are under way and will be carried out. With room in the new West, for a population at least five times as great as that shown by the last census and with the certainty of opportunity for every new settler, the future of the agricultural development of the Pacific Coast is incalculable.
Every new acre of land brought into production is reflected in the growth of Pacific Coast cities. Nowhere on the coast is there a stagnant city. All are growing rapidly. Everywhere the scope and diversity of industry and business is widening and expanding. The office in the skyscraper of Los Angeles, San Francisco, Portland or Seattle, today is producing the factory of tomorrow. The factories and plants of today sprang from yesterday’s branch offices. California, Washington and Oregon factory made goods are now on the markets of the world. The food products of the Coast are used everywhere and only a beginning has been made in this enormous industry.
While the West produces a tremendous surplus of foodstuff and raw materials, it remains an enormous buyer of manufactured articles not yet produced within its boundaries. Its buying power is greater thanthe buying power of any other section of the country, for here the farmer is prosperous, farm labor highly paid and wages in most lines of employment far above the average. It is a land where cheap labor, poverty and slums are still unknown. Irrigation has removed from agriculture the element of chance and uncertainty. The natural richness of soil assumes an endless diversity of rich crops. Thus the farming statistics of the West, and especially of the Pacific Coast, crop production, crop value, land value, variety of crops and crop prices tell a story that the farmer of the Middle West and East finds hard to believe. The cold statistics of every other factor in the development of the West tell an equally astonishing story whether they refer to building permits, hank accounts, income tax returns, automobile registration, paved highway mileage, dairy products, poultry or fisheries. All go to demonstrate that in the production of wealth and in rapid development and progress the West, and particularly the Pacific Coast, has no equal anywhere in the world and that nowhere does there exist a better opportunity for the man with money or brains to invest.
The West that is now making its bow to the world is a West undreamed of by the pioneers who followed Horace Greeley’s prophetic advice. The hardships and rigors they knew have disappeared; the pioneer stage has long been passed. It is a West of steadily mounting population, of rapidly growing and thriving cities, of highly developed industries, of easy communication, of great seaports linking this continent with the wealth of the Orient; a West of which the recent rapid development has been amazing and whose future possibilities bankrupt the imagination.
(This advertisement contributed by the Local Associations of Building Owners and Managers of Los Angeles, San Francisco, Oakland, Portland, Seattle and Tacoma.)OFFICE BUILDING PROBLEMS
BEING THE
Proceedings of the First Pacific Coast Conference of Building Owners and Managers
HELD AT
LOS ANGELES, CALIFORNIA February 23rd and 24th, 1923INDEX
Page
Registered Delegates .........	9
Address of Welcome—Mayor Cryer.............................11
Chairman’s Address—Shirley C. Ward.........................12
PAPERS
The Owner’s Point of View on the Association’s Work—E. Clar-
ence Holmes, San Francisco, Calif......................14
The Essentials of Efficient Property Management—Robert H.
Strong, Portland, Ore. ........	30
Good Business Methods—Dean Vincent, Portland, Ore. .	.	38
General Rental Conditions in Office Buildings on the Pacific Coast—
J. F. Douglas, Seattle, Wash...........................43
Service—Charles Holbrook, Portland, Ore....................60
Financing Office Building Construction in Los Angeles—George R. Martin, Vice-President Security Company, Los Angeles, Calif. 73
The Power Plant and Its Problems—H. R. Hilton, Los Angeles,
California ..........	83
The Financial Plumber’s Job of Stopping Leaks in the Expense Account—Rae T. Smith, San Francisco, Calif. ...	95
Our Skyline—Earle Shultz, President National Association, Chicago, Ill. ..........	127
ROUND TABLE CONFERENCES
Discussion—February 23	........	140
Discussion—February 24	.......	.	147
Business Session—February 24, 1923, 5 P. M. .	.	.	.150PACIFIC COAST CONFERENCE OF BUILDING OWNERS AND MANAGERS Ambassador Hotel, Los Angeles, Calif., Feb. 23rd to 24th, 1923REGISTERED DELEGATES
PACIFIC COAST CONFERENCE OF
BUILDING OWNERS AND MANAGERS
Chicago, Illinois
Earle Shultz S. Wolstencroft
Fresno, California
Arthur Anderson Huber W. Bryant Earl J. Fenstermacher
E.	A. Hughson
J.	Blaine Rogers
Lodi, California John C. Bewley
Long Beach, California
F.	B. Dunn
Los Angeles, California
F. X. Addleman Chester A. Arthur J. Edgar Brown A. W. Bumiller Harry R. Callender E. P. Clark Louis T. Clark R. H. Cowper J. Coggeshall J. H. Decius J. R. Deering John N. Dew Chas. H. Dickinson Howard Dudley Lemuel Freer Calvin C. Green Vander Veer Hogan
J. H. Harrison Irving H. Heilman Ferd H. Hey wood
H.	R. Hilton Harry G. Henley L. B. Joralmon P. R. Kent
H.	Kressman
J. B. Lankershim E. L. Lewis Benj. F. McLouth Dean Mason James R. Martin George R. Martin Frank Meline Anne Meyers
I.	I. Phillips
T.	F. Pierce
J.	Landor Scott Roy C. Seeley James Sinnett
U.	V. Spendrup W. B. Stringfellow Fred W. Flint
A. L. Lathrop Bullock’s
R.	R. Stockburger J. B. Van Nuys Robert H. Ware
S.	K. Whitcher
R.	G. Whitmarsh Shirley C. Ward P. H. Thomason Geo. T. Woodbury
Oakland, California
I.	C. Allen
S.	P. Cantrell10	OFFICE BUILDING PROBLEMS
REGISTERED DELEGATES — Continued
Portland, Oregon
Charles H. Holbrook W. C. North
F. J. Raley
J. F. Shea James J. Sayer Dean Vincent
Salt Lake City, Utah
J. J. Brennan
J. E. Cosgriff
San Diego, California
Nat Rogan
Rolland C. Springer J. Fred Traggardh
San Francisco, California
E.	M. Applegarth Tyndall Bishop Robert O. Bokee
R. J. Cantrell Philip G. Carlton
A. B. Christensen
F.	C. Dutton
William E. Dwyer
J. F. Dorgeloh
C. W. Fletcher
E. L. Gallien
E. N. Hart
I. W. Hamilton
E. Clarence Holmes
Albert Lachman
A. G. Luchsinger R. W. McElroy R. L. Mack
Vincent T. Meade John C. Newlands John W. Proctor C. D. O’Sullivan P. J. O’Shaunessy Samuel Smith Rae T. Smith J. R. Selfridge John H. Wood J. B. Williams
Santa Barbara, California
Archie M. Edwards
Seattle, Washington
J. T. Curran
S. B. Asia
J. F. Douglas
Frank McDermott I. Shafer
Geo. C. Wheeler
Spokane, Washington
J. L. Cooper
Stockton, California
Sidney N. Hodgkins C. F. Dietrich
TOTAL DELEGATES—111OFFICE BUILDING PROBLEMS BEING THE
PROCEEDINGS OF THE FIRST PACIFIC COAST CONFERENCE OF BUILDING OWNERS AND MANAGERS
Mr. Shirley C. Ward, Presiding
Chairman : Gentlemen of the Conference, you will please come to order.
It gives me great pleasure to introduce to you, Mayor George E. Cryer of Los Angeles. (Loud applause.)
HONORABLE GEORGE E. CRYER:
Gentlemen of this Conference, I am very glad to see you. I like vour appearance. And speaking about appearances reminds me of a story that I sometimes tell about a little family that recently had had a visit from the stork. In that family was a little boy of about six years of age who was of a somewhat inquiring turn of mind. Tommy was taken in to see the little stranger and after looking at him intently for a moment he said to his mother, “Why Mamma, he has no teeth, and he has no hair.” And then clasping his hands in an attitude of despair, he said, “Mamma, some one has done us. He is an old baby.”
While we are on the subject of bright boys, I am reminded also of a story of Johnny and his Mamma. They belonged to a family that followed the good old practice of holding daily family prayers. One morning Johnny’s Mamma said to him, “Johnny, how many times must Mamma tell you that we should always keep our eyes closed during prayers ?” “Yes, Mamma,” said Johnny, “but how do you know I don’t?”
You gentlemen from elsewhere will hear, if you have not already heard it, that ours is a great city. Some one has said that it is the largest city for its size in the world. When he said that, he paid tribute to the main characteristic of our people. We are indeed all boosters, proud of our city and state, and we seldom hesitate to tell about it. An eastern father found out about that. He had sent his young son to California to study in the hope that he would be where he would get over his habit of exaggeration. It was not long, however, before the young man began writing letters home about what he found out here. He told of the height and grandeur of our mountains, of the rich atmosphere, of the beautiful trees and of the wonderful growth of the city, but he capped the climax when he told about the size of the potatoes. He said he went to a market and on being told the price of potatoes said he would take fifty pounds or so. “Oh,” said the man, “we never cut a potato for anybody.”
It is said that the traveller crossing the High Sierras breathes such a rarefied atmosphere that ever afterwards he sees all things as through a12
OFFICE BUILDING PROBLEMS
mirage. Just over the line in Arizona there is a river called the Hassa-yampa and travellers are frequently informed that he who drinks of the waters of the Hassayampa never tells the truth thereafter. I have sometimes thought as visitors went about in our midst and listened to the tales we tell about our city and state, they must often suspect that we breathe the rarefied atmosphere of the High Sierras and that we have been drinking very deeply of the Hassayampa. At the risk of being suspected of having done both, I make bold to say that we have indeed here a great city; the greatest in all the west, save, perhaps, the cities from which some of you gentlemen come. It is great not only in population, but in natural advantages, beauty of location and surroundings, in all that goes to make life pleasant and agreeable. It is surrounded by great mountains and it is building a harbor which is destined to make of it one of the great seaboard cities of the world. And it is a growing city. Twenty years ago we had a population of a hundred thousand, but now we estimate that we take in that number every year. During last year, our statisticians inform us, we built and completed a new structure every 14 minutes, hotels included.
So this is indeed a great and growing city, and it is to that city, gentlemen, that I am privileged to welcome you this morning. Because of your personal qualities, because we know you to be men of affairs, builders, men who are engaged in the upbuilding of your civic communities, because, moreover, we know you, each in his own way, to be good fellows, we are pleased to welcome you to our city for a brief session of business and good-fellowship. We hope that your business session may be helpful to you in a business way. We hope you will enjoy this session that is arranged for your benefit. We want you to feel at home with us and with each other. We want you to enjoy your stay here. In fact, we would have this visit be but a happy memory for those whose coming we hail with delight and whose departure we view with regret. Accept the hospitality of our city and enjoy yourselves while you are here, and as you go hence to your homes know that you carry with you our very best wishes for your every prosperity and for the success of the organization under whose auspices you are met today.
CHAIRMAN’S ADDRESS
Chairman : It is with very great sorrow that I have to announce to the association the death of our President, Mr. Bartlett. He died just one week after our program was printed. It is exceedingly unfortunate for this Conference that Mr. Bartlett should not be with us. He was a man whose heart was in this work, and a speaker of great interest. He was one of the leaders of our city and deeply interested in everything tending to advance the welfare of the community. He was President of our City Planning Commission and a member of our Board of Public Service Commissioners. He was also President emeritus of the City Club, which is one of the most influential factors in the upbuilding of Los Angeles. He had awakened to the fact that this association had never accomplished the purpose for which it was organized, and he was going to put into it a tremendous amount of his own personality; and itOFFICE BUILDING PROBLEMS
13
is exceedingly unfortunate that at the time of the coming of this Pacific Coast Conference we can not have his influence with us.
We realize that as an association we are far behind the city as a whole. Our city in most things stands for progress and advancement and we want to keep up with the procession. The Building Owners and Managers Association of Los Angeles has been asleep, and until the last year has not realized its mission, what it could accomplish, and the benefits of organization. We never realized what a haphazard sort of association we have had here until recently, nor what a haphazard sort of business this business of building ownership and management has been as usually conducted. Most buildings have been built by people who have made a marked success in life by some other line of work and the building was a monument to that success, and was built with the idea that a building was a building; that all you had to do was to see a good architect and a good contractor and you could get the building built and the thing would run itself. Well, it usually does run itself—into the ground—and the building owners and managers of this city now begin to realize that they must get in step with the building owners and managers of other cities and get the benefit of organization and all the efficiency that comes from it; and we hope that this conference will do a great deal to wake us up to the situation and to what is being done elsewhere.
On behalf of the Association of Los Angeles I welcome you with great pleasure. We hope your stay will be pleasant. If you find anything that is not agreeable you of course will take it for granted that that is unusual. Everything that is pleasant is usual. If you find anything unpleasant it is unusual and only goes to prove the rule that we are what we think we are, one of the most advanced cities of the world. We know we are the center of the boosting spirit, not only of the United States, but of the world. We have educated ourselves in the belief that we are so great that it has become an obsession with us and we cannot talk of anything but our greatness; but we have many lessons to learn and we expect to learn a great deal from the papers to be delivered here.
I would like to have Mr. Shultz, President of the National Association, and the officers of the Seattle, Portland, San Francisco and other organizations, take seats on the platform, if they will.
Chairman : Gentlemen, our first paper this morning is on the Owner’s Point of View on the Association’s Work. I am pleased to introduce Mr. E. Clarence Holmes of San Francisco.THE OWNER’S POINT OF VIEW ON THE ASSOCIATION’S WORK
By Mr. E. Clarence Holmes San Francisco, California
Mr. Chairman, and members of the Conference: Before passing on to my formal paper, I want to say that Mr. George Lent and myself had a game to see who would be stuck first in writing this paper. It is meant to be a joint paper, but in the mixup it was put up to me to express the idea on this subject of the owner’s point of view. I will say this, although I tried to evade the necessity of doing this work, that this is a subject very dear to my heart. I think it is a very necessary thing to get over to the ownership part of our work what we, as an association, can give—what we can contribute to the owner. The idea, I think, is big; the necessity is big and I hope the owners’ ears are as big on this occasion.
As George Lent, than whom few men are better known in Central California, picturesquely remarked recently, the trouble with the office building investors in the past has been that though they had a public service to sell, they had no State Railroad Commission to guarantee a fair return on their investments. In this striking way Mr. Lent has emphasized the helpless position in which the individual office building owner has until recently been situated; also that he should have written this paper as was originally intended.
The search for the answer to the insistent question of every building owner—“How can I make my investment pay? How can I insure that it will continue to pay?” is the underlying purpose that brings us here— you managers and specialists who seek to keep your owners on the straight and narrow road to dividends. But why an owner on your program? What can he contribute towards your technical problems? As one who has been privileged to see both sides of the office building business, as manager and as managee, I might almost say, as coroner and as corpse, I am, I think, in a position to appreciate pretty fully the necessity of your getting the owner’s point of view.
If asked to state the greatest need in this office building business today, I would unhesitatingly answer, the necessity that the owner get a true understanding of the factors that go to make up and insure a successful office building investment. That understanding, I also maintain, can only be obtained through the fullest cooperation with your fellow owners and managers.
This need of an intelligent understanding of our problem, this need of an exercising of the spirit of cooperation is the theme I wish to get over to you in this first Pacific Coast Conference.
Most of you managers appreciate the need. Many of you owners do not. It is because they do not, because so many building owners are still living in the Middle Ages of ignorance, of suspicion and doubt, thatOFFICE BUILDING PROBLEMS
15
I have been drafted out of the ranks of your silent partners to sound this tocsin of our Association to convince those owners who are still existing in the past, that we are living in the present, to endeavor to persuade them that “the water is fine.”
My theme then is the owner’s need of an intelligent understanding of the office building business and particularly the cooperative service our Building Owners and Managers Associations render to them in making possible that understanding. And first I wish to forget you technical men, you experienced managers, and to talk directly to the owners present and to the absentees you represent. In doing so, let us discuss the following phases of my theme:
First: Our Association’s service to the prospective builder, the man who is contemplating improving his property.
Second: Its service to the actual builder, the man who is improving his property.
Third: Our Association’s service to the active building owner, the man who has his finished product.
Lest you busy men should be getting anxious, let me assure you I shall be brief. Although I am a salesman today, I am also an equally busy man and am as anxious to sell my wares, pocket the proceeds and go, as you are, no doubt, to see me do it.
And now first, out of my hand-picked audience, let me single out you prospective builders, and on the principle of “catching ’em young,” “picking ’em green,” I should make doubly sure of closing a sale with you. You have, let us say, through success in other lines, accumulated a sizeable bank account. You feel it needs exercise. You have also reached that stage in your career when something enduring appeals to you to mark your success in some permanent form. Something on which you and the passing world can see your name chiselled in stone over an imposing entrance. It is a perfectly natural and normal thing to desire. A hustling real estate agent and an imaginative architect mayhave helped to crystallize that desire. One has sketched a pleasing picture for your eye, the other has as effectively sketched your certain profits.
What have you done to separate their fiction from their facts? Are you making the same intelligent effort to get at the facts necsssary for forming a sound judgment as you would do in your own business? Or have you concluded that in listening to your agent, your architect, your banker and maybe your lawyer, you have heard the whole story—you have done all that a prudent investor should do? You may also have consulted other owners. What more could you be expected to do?
To those of us who did just those things, who had at the time, maybe, no other available avenues for getting expert advice, we envy you your present opportunities. You want to know, or should want to know, whether the location you are considering is a suitable location for that office building your agent has sketched. Will there be a fair demand for the office space it will provide or will you be compelled to raid the neighboring buildings for tenants ? Will your location offer your tenants something besides the novelty of moving into a new building? In brief, are you working with or against the law of supply and demand? If you decide to defy the law of Supply and Demand, if you erect your monu-16
OFFICE BUILDING PROBLEMS
ment or your advertisement instead of building on a sound investment basis you are working against your own and your communities’ best interests. Many offenders against good business judgment have had as you now have offered to you, the expert services of the Building Managers of this Association, who offer you technical advice based on years of experience in selling office space. The Association makes available to you accurate tabulated data on vacant office space from month to month of
As example of types of work a wide awake local Association would do for its members I have had prepared for the purposes the following slides:
Slide No. 1 is a map of the down town district of San Francisco showing in the shaded areas the foot traffic count for the down town district for April, 1922. This count is taken twice each year and furnishes an owner with a bird’s eye view of the changes as affecting his property.
Slide No. 1-A. shows the relation between rentable area and population; also the occupied area over a period of years in San Francisco. You will note in the years 1922 to 1924 there is a very great increase in rentable area. In order to better show the effect of this we prepared a study of these increases shown in slide No. 1-B.OFFICE BUILDING PROBLEMS
17
Slide No. 1-B: The upper line shows the increase in rentable area; the lower line our estimate of its effect on the occupied area, assuming the normal increase as 7 square feet of rentable area per person of population increase. You will note that at the end of 1924 we estimated a vacancy of 300,000 square feet. Unfortunately, since this was prepared, other factors have increased this materially.
Slide No. 1-D shows a similar survey of Detroit.18
OFFICE BUILDING PROBLEMS
mobile traffic. I would call your attention to the value of being able to obtain this information when negotiating leases for your ground floor space. This is illustrated in a graphic way in slide No. 2.OFFICE BUILDING PROBLEMS
19
each district and each class of tenants. Charts whether available space is leading or lagging on population increases are also prepared for you; as well as maps showing the traffic count in your business district taken twice each year. So I say to you if you are contemplating building, consult first with your local Association. Use its traffic count foot rule for measuring your prospective ground floor rentals as well as for checking your land values. Study its data and charts, so that you may accurately determine whether you would be building ahead of a real demand and whether your agent’s promised rentals are in accord with market values. If you will do this and then through the service of our Association check your construction costs and your operating estimates, you will be intelligently using your opportunities and converting possible failure into a reasonable, certain success.
(2) Now, having, like your traffic cops, done what I could to stop some of you from being run over by economic forces crossing your path,20
OFFICE BUILDING PROBLEMS
let me pass on to. my second group, the actual builder. You have your building site. You have your capable architect and engineer, and are ready to sign your building contract. But pause a moment. Is your architect also a salesman of office space and office service? Is he intimately familiar with the thousand and one details that a competent manager knows are needed in a well-designed building? Has he given the same degree of thought and study to his floor plans that he has to his elevations ? Has he so placed plumbing and pipe shafts, and structural columns, also windows and doors, as to insure maximum light and maximum quality as well as quantity of rentable area? Has he planned the mechanical equipment, piping and wiring so as to insure the greatest accessibility and economy in making future repairs and replacements ? Finally, has he maintained a proper balance between his artistic impulse and his business judgment? If he has done all these things as well as worked out all the other vital details that go to make up an intelligently planned office building and without consulting a competent building manager, he is indeed a Burbank product.
It is a recognized fact today by all up-to-date investors that the old order of things 'has changed. Instead of the architect being the first one to consult, it is now the building manager. His services are found to be indispensable during the planning and construction as well as the managing of the modern office building. Would you not make sure of the salability of your product before you produce it? As has been well said by Mr. George T. Mortimer, President of the Equitable Building Company in New York City, “This is the era of specialization; the day of the ‘Jack of all Trades’ has gone by, and it is no longer possible for buildings constructed on the haphazard plan to compete with buildings which have been laid out by the expert.” The architect primarily is an artist, if he wasn’t, he wouldn’t be an architect; and being an artist, though an architect, does not exempt him from the faults usually to be found in the average artist. His primal instinct is to erect an artistic pile which will be a monument to his professional genius. Great care is given to exterior ornamentation, but the relation of the exterior to the commercial result to be derived from the interior is too often ignored and economy of operation is seldom considered.
If time permitted and your patience would tolerate, I would enumerate many things an architect usually overlooks. Who of the managers present doesn’t know of buildings where valuable rental space is needlessly wasted for other purposes; where water and waste outlets for room cabinets are not of uniform height from floors in all rooms—thus failing to facilitate transferring fixtures from room to room ? Who hasn’t seen that cardinal sin committed of placing risers in the dividing partitions instead of in the corridor partitions or in outer walls? Who hasn’t seen doors not placed opposite windows, thus interfering with flexibility of partition arrangement? Also who amongst you managers hasn’t seen owners, even in these informed days, who, like the architects, fail to appreciate the value of your expert advice and the facilities of this Association in the planning stage of the office building business?
(3) Now for the third group. You active building owners. You who get into the business “for better or for worse.” Some of you withOFFICE BUILDING PROBLEMS
21
your noses wedded to the grindstone grinding out your 2 or 3% and trying to look happy on that one meal a day. Such of you have, as I know, been told by your tenants to satisfy your remaining hunger in contemplation of your monumental pile of brick and steel and stone,—that monument to your past if not your present business intelligence and success. As one of those grown restive under this monument business that threatened to become a headstone, I am glad to give you my testimony and to do my bit towards convincing you owners who may yet be in the toils of the past, that your office building may be made to pay if you will but use your heads and your opportunities.
What is it that has now brought to some of us our full three meals a day? What is it that has brought us out of the wilderness of price and throat cutting, of groping uncertainty, of suspicion of our competitors, of fear of our tenants and their suspicion of us ? It isn’t solely the prosperity that followed the Armistice. Those of us who lived through the past know that the greatest factor in the change that has come to some of us and awaits all is the spirit of cooperation offered and practiced by our Association.
In our local association in San Francisco there is developed a mutual understanding and a good fellowship that has unlocked for each of us the secrets of all ? I for one feel sure there isn’t a secret in the operation of their properties that my fellow managers wouldn’t tell me if I asked them, and this good fellowship is born of a feeling of confidence and a recognition of our common interests. We realize also, I am sure, that the amounts of dividends we receive in this, as in any other association, is dependent on the degree of service and cooperation given.
At this point of my argument you are probably saying to yourselves, “This all sounds very well in theory. You may be right, but can you give us an owner’s actual experience.” I can and will, for I recognize a testimonial is far more convincing than a prospectus. You have a right to demand security on a promissory note.
As joint owners of an office building completed in 1908, in the period immediately following the San Francisco fire, we fell for a broker’s alluring picture and acquired a centrally located building site, though largely surrounded by bricks and ashes. A capable architect had little difficulty in focusing our eyes on his eight story elevation with its glazed tile and copper trim.
Our attention was also directed to an equally engaging picture of estimated earnings. The initial prospectus of the proposed office building promised us a net return of 9.6% with a full building, or 8.2% with a 10% vacancy allowance. An alternative plan for a loft building for a possible large retail tenant, was also offered us which the prospectus showed would yield us 6.8% net. Being investors we naturally chose the larger slice of pie. In fairness to the achitect’s and to our own judgments of rental values, it should be pointed out that in 1907 when our building plans were being matured, the small group of operating Class A buildings were getting from $2.00 to $2.40 per square foot per year. This attractive rate was short lived, having fallen into an early grave as a result of the competitive struggle for tenants which met us on the completion of22
OFFICE BUILDING PROBLEMS
The year 1906 saw 357,953 square feet of office space completed, our building at the close of 1908.
The year 1907 saw 721,828 square feet of office space completed.
The year 1908 saw 1,116,727 square feet of office space completed— or a total of 2,196,508 square feet of office space completed, with more to come, amounting to 574,897 square feet in 1909.
Of the thirty Class A office buildings facing us as competitors, eight were built by banks and insurance companies and about as many more were in the class of monuments to their owners. This large proportion of buildings whose owners were satisfied to take a nominal return for their space above the ground floor, gave magnificent support to the massed attack on office rental rates.
PER CENT OF VACANT ROOMS
Slide No. 3 shows the per cent of vacant offices in our building from the date of opening to the end of the past year. It is to be noted that we began with a vacancy of 30%.
An average reduction throughout the city of over 25% was the chilling reception which greeted us and which clung closer than a brother for the twelve years that followed. During that period it is of interest to note that although from 1908 to about 1912 office rents in San Francisco dropped from about $2.25 to $1.60 per square foot per year, operating expenses rose from $0.75 to $1.00 per square foot per year. For the following eight years while rents remained stationary at that low point, operating expenses increased to $1.30 per square foot, demonstrating that office rents with us have not kept pace with increases in expenses.OFFICE BUILDING PROBLEMS
23
Slide No. 4: You will note that in 1913 we reached the dizzy height of 3.6% net on our invested capital.
We were doubly penalized. Not being a bank, we could not make our ground floor pay the piper for the tragedy overhead, and an unanticipated shifting of the retail center caused by the “after the fire” condition, extended the tragedy in our case, causing us to carry an excessive floor vacancy for a period of four years.
As slide No. 4 will show, after allowing for depreciation we earned less than one meal a day in the first four years (just about a cup of coffee), and later the war conditions that helped some but swatted us put us again on a coffee and sandwich menu from which we only emerged following the Armistice.
Had our Association been in existence when we started and been functioning as it is today, how could it have aided us ? First, in advising24
OFFICE BUILDING PROBLEMS
Slide No. 5 illustrates the typical floor plan of our building.
SCHEME S
Slide No. 5-A illustrates an alternative floor plan for the same lot area, which, if we had adopted it, would have effected the change shown in slide No. 6.OFFICE BUILDING PROBLEMS
25
us as to floor plans and, secondly, in eliminating unnecessary items of construction costs. The gain, as would also have been the case in the majority of office buildings erected in the past decade or more, would, I am sure, have been large.
Our slide No. 6 illustrates one of a number of alternative floor plans that woul d have effected a considerable saving in first cost as well as operating costs later and would also have materially increased our gross rents.
In our 8-story building we save 358 sq. ft. per floor or 2,506
sq. ft. of floor space or 33,293 cu. ft. at 32%c per cu. ft.$10,820.22
We save 78 lineal feet of exterior wall 91 ft. 6 in. high, or 7,237
sq. ft. at $2.50 per sq. ft................................ 6,843.50
Total................................................$17,663.72
We also save the care and maintenance of 805 square feet of hall tiling for 50 years.
I regret that time does not permit a detailed study of that interesting problem.
But beyond and above the foregoing benefits, we would have come sooner to an adequate return on our investment and have been enabled to have maintained it more consistently. Prospective builders would have more intelligently observed the law of supply and demand and hesitated to add new office space to a saturated market. Those who did would have seen the folly of filling their buildings with stolen tenants. The highwayman amongst owners and managers would earlier have become outcast. We would all have realized at an earlier date that in the office building business, in injuring our competitors through stealing their tenants or in cutting their rents, we, in the long run, injure ourselves.
It should be recognized as a truism that cheap rentals do not make more tenants. We may increase the demand for and consumption of our orange crops by advertising or by cutting the price. But the demand for office space does not vary with changes in price. That demand increases with population and increase in business. If you cut your rentals you may shift some of your neighbors’ tenants to your building but the general demand is not thereby increased. The returns we should get on our investments should be the basis on which to figure our rentals and the owner who sells his space at less than a fair price reduces the value of his own and his neighbor’s property.
The long-standing continuance of a price-cutting competition brought about a “habit of mind” on the part of not only the owners and managers but the renting public as well. With your consumer accustomed over a period of years to a very low rental basis, you immediately become profiteers in his eyes when you adjust your rentals to a fair return basis. To overcome this habit of mind on the part of your tenants and to convince them that our recent schedule increase was justified, we found it only necessary to lay before each tenant a clear showing of the facts. This enabled us to increase our schedule 17.3% on the first of January so as to fairly adjust our rents to the market rate and to our necessities for a reasonable return.
The service the Association has rendered us in a reduction of our26
OFFICE BUILDING PROBLEMS
operating costs will be more adequately told in another of our Conference papers. To mention but one item in the past year, we saved approximately $750.00 in the cost of repairing our corridor tile floors through a friendly suggestion of a fellow member manager.
Leaving my own experience I wish to quote from the story of a fellow manager who tells of the striking savings he is now effecting in a fourteen year old building for which a new addition is now being constructed. The old building has never before had a real manager, just an office man who attended to the routine details. What he did to the architect’s plans is shown in the following slides:
(1)	By moving an automatic elevator to a new location and
extending a new hatchway another floor, cost of a new elevator was saved (which had been ordered) making a net saving of............................................$ 4,000.00
(2)	By utilizing present 2-3 opening elevator doors and refin-
ishing them, rehanding them in a flush hatch, center opening, making a net saving of.......................... 2,500.00
(3)	By changing type of elevator door hanger from two speed
to center opening hangers netted......................... 1,200.00
(4)	By cutting out two of four electric drivers centrifugal
pumps, which were specified and utilizing one of the present plant, saving of................................. 800.00
(5)	Utilizing all of the vento heating units of present ground
floor heating system by adding to the required amount of
new units to cover additional area, saved................ 1,500.00
(6)	Five months saving on operating cost....................... 3,124.55
Total...........................................$13,124.55
Not a bad showing and yet he estimates that could he have been put on the job about six months before, he could have saved his owners between $25,000 and $30,000 on the elevator installation alone.
Having proven by point that a competent manager can effect material savings during the construction period of a building, he also demonstrates his value in placing his building rentals on a fair return basis. The old building has produced only an average return of $1.54 per square foot and were it not that the owner (a bank, of course) was making enough money out of its ground floor occupancy, the ownership might have shifted to the sheriff. The new manager has recently leased considerable space in the new addition at $3.60 per square foot and expects to show in the end an average of $3.25 per square foot. In effecting this extraordinary increase he is not profiteering but rightfully converting a loss into a fair return.
To sum up my argument to you owners, no single man or manager can accomplish much by himself. His task is bigger than himself and he needs add to his own, the judgment, the experience and the intelligent cooperation of other owners and managers. Only through joint research into problems as they arise, only through joint effort in educating owners and tenants, producer and consumer into a clearer understanding of the real factors in their joint problems, and above all through the promotionOFFICE BUILDING PROBLEMS
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of confidence between owner and tenant, can we insure a reasonable return on our investments and thus encourage the investor to adequately supply the needs of our community.
In brief let us use our intelligence in our common interests and let us use our heads cooperatively and better results to all are sure to follow.
Chairman : Gentlemen, you have heard this very enlightening and interesting paper. I would like to have discussion of it and the views of the members are desirable.
Mr. Bewley (Lodi, Cal.) : I would like to inquire if you can employ a business manager just as you can an architect, for a short time as you might need his services, and not continuously.
Mr. Holmes: I think you can, unquestionably.
Mr. Shultz : The National Association has just worked out a plan of having what we call a Building Planning Committee. We find that a good many prospective builders are sending to the executive offices of the National Association inquiring for suggestions on their plans and it seems to me that instead of trying to handle them in that office we should get a committee which would be composed of the leading operating and renting men of the country to whom we could send copies of any proposed plans and get them to give us their criticisms and suggestions, and it would be a very fine service to our managers and particularly to new buildings throughout the country, and it would serve to get the national and local associations and individual members on a much higher plane. This committee would be recognized throughout the country as an authority on building plans. We hope to announce the personnel of this committee very shortly. I might say that we have already had handed to us a commission to go over the plans of one of the largest buildings being constructed in the city of Chicago. It is our intention to charge for this service and the income would be divided between the National Association and the members of the committee. I don’t know just how we are going to work out all the details and I would be very glad to have suggestions. One thought was to have a member on this committee from each local association so we could have the benefit of their advice from each district, and I think it would work out so the local association would gain standing.
Chairman: Anything further, gentlemen?
Mr. Douglas (Seattle, Wash.): I think that those of us who are here and those of us who eventually get a copy or get acquainted with Mr. Holmes’ paper owe him a great debt of gratitude for the reason that he has given us something concrete and has taken an actual building that was not planned as well as it could be planned, and he has given us such an accurate history of that property that we see as we could not see in any other way what building management and building plans mean. I want to say this in connection with Mr. Holmes’ paper, that the building management profession, or the building management business, has not made anything like the progress it should have made, or as I believe we will make in the future. You can hardly think of any line of endeavor that has not made more progress than the particular business in which we are engaged. I could name all sorts of things, but take for instance, the hotel business. I mention that for the reason that it is not long28	OFFICE BUILDING PROBLEMS
ago that there was not such a thing as a 500-room hotel in this country. The Waldorf in New York City, when it was built of 500 rooms was considered too large for any business use, but it turned out later that they put on an addition of 500 rooms. But if you take the hotel of 30 years ago and see the progress that has been made in the planning and the progress made in operation, and particularly the progress that has been made in getting the net returns, I tell you the building manager’s business is knee-high to the development that has been made in the hotel business. Recently I had occasion to have something to do with the plans for a hotel and to find out what hotels were making, and one of the ways I did was to drop in any old place and try to dig it out. One Sunday I took an excursion out from New York City to a hotel built 13 or 14 years ago and greatly improved, and the proprietor there told me he made $263,000 net last year. I went the following Sunday to a hotel in another town, not very large, certainly did not correspond in investment with many of our buildings, and found a hotel that had produced last year $120,000 net. And I could give you seven different examples on seven different Sundays that I worked out of New York. I think the owners of office buildings in this country should almost be ashamed of themselves in the fact that we have not made more progress in facilities for our buildings and in the planning and operation of them and in the net returns we have gotten from our properties, and the reason for it in most cases is that the owner is the owner of only one property. Take Mr. Bowman, he is the owner of a chain of hotels and in every one he builds he increases the facilities. So it is with Mr. Linnard. He has acquired a knowledge of hotel business and knows how to make it pay. The reason that office building owners have not made any advance is that they build one building and then stop. If we could find some one who would build a string of office buildings we will finally get the idea of how to build them and get the proper net return.
Mr. Cantrell (San Francisco, Cal.) : Mr. Chairman, I would like to say, quoting Mr. Shultz’ idea, I think there is a very great and growing need for the services of someone competent to pass upon the general arrangements of office buildings, or any class of building, in addition to the service we get from the architect. Now I am representing an organization that has perhaps one of the best engineering departments or organizations in the country, and with that organization of high-priced men, men specializing in certain lines of work, we now are contemplating and planning a 17-story office building in San Francisco. That office building is entirely different from anything we have been doing. I am with the Pacific Gas & Electric Company. We are building power houses, we are building dams, flumes, gas stations, and we have men who have specialized in these lines of work, and at the same time, today—without undue criticism, simply stating what I consider to be a fact—we have no real specialist in our organization for planning buildings; and when I notified our engineering department that I was coming down here to attend this convention they requested me to get certain information here in Los Angeles that was not available in San Francisco, to help them out. _ I think that is the situation all over the country, that men building buildings with competent architects, competent engineers, and all that,OFFICE BUILDING PROBLEMS
29
still need in addition to that outline, men who are really versed in getting the best out of planning buildings, considering every detail, every element, the future operation, and everything that goes into making that project a success. Now it came to my attention just a short time ago in San Francisco. It is a little matter, at the same time it shows where better efficiency can be obtained by going to specialists in certain lines. Coffin & Redington in San Francisco have a big wholesale drug store; they have a lot of salesmen and managers and all of that, but primarily, they are druggists, not architects and not used to building buildings or planning offices or anything of that kind. M. G. West & Company have been of great assistance to that organization by being in position to go and plan out economically and along the lines of efficiency, an office arrangement for an organization of that kind; and I think it is the same thing in the general building line, that we do need the services of men who have had that particular experience and who have the knowledge to make suggestions necessary to the proper completion and success of a building.
I noticed the other day in reading one of the building journals where a building manager had advanced a wonderful idea which had been worked out in moving the elevators from the point the architect had placed them to a different corner of the building and in doing so had been able to save a great deal of rentable area and floor space without doing any particular injustice to the general structure. I think the idea advanced by Mr. Shultz that men of this organiaztion and kindred organizations should get themselves before the present owners and prospective owners of buildings, is a wonderful idea, and would advance office building construction and management and the entire scheme of making a successful investment of it.
Chairman : Gentlemen, are there any further ideas on this subject of the building planning department of the National Association? If not, we will pass on to the next matter on our program.
Our second paper this morning is on the essentials of efficient property management, by Mr. Robert H. Strong, of Portland, Oregon. He, unfortunately, could not be with us to present it himself, and he has asked Mr. Sayer, the Secretary of the Portland Association, to do so. I wish now to introduce Mr. Sayer.ESSENTIALS OF EFFICIENT PROPERTY MANAGEMENT
By Mr. Robert H. Strong Portland, Oregon
Essentials of Efficient Property Management is a fine large subject. It is a subject about which one may preach or pray. I’ll try not to preach —although, as we all know, that is an easy job—and if I pray it will be a silent prayer reduced to M. Coue’s well known formula. It might even be in order to suggest that we rise and repeat together “Day by day in every way I am becoming a better manager,” so that no one may get the jump on his neighbor. But this I will leave to the reader of this paper, because he can look in your faces and decide if you look like a praying bunch.
I do not think a listener to a paper like this gets much good out of it, but the writer gets a lot because it is a well-defined habit of mind to think about things in a vague and general way and not concretely or conclusively unless forced to do otherwise. When attempting to put nebulous thoughts down in black and white, one is forced to coordinate and arrange ideas (which is quite troublesome at times). The mind is a lazy fellow and real thinking makes him work harder than he is accustomed to.
This bit of philosophy was called forth by the effort it cost me to try to answer concretely this simple question, “What is the most important of the qualifications necessary to successful property management.” Now I’m not going to tell you which I selected after discarding the other fifty-one, but I recommend that some morning when you have done your daily dozen, you sit down and seriously, soberly and in the fear of God try to make up your mind what you think is the high trump. It won’t get you anywhere when you answer it. When you have chewed the cud of your reflections for thirty minutes and you have scanned with care all of the fifty-two favorable qualities that comprise the deck of an efficient property manager, then you will know my state of mind as I begin to write on this simple little subject, a paper that was wished on me by one Apple-garth of San Francisco.
It was my intention to select the more important qualifications, arrange them in the order of their merit, and then discuss them one by one in logical sequence. This proved to be a hopeless job. So now I am going, hit or miss, to discuss certain things and gossip with you about questions on which I have strong convictions. On some of these questions there will be, I think, decided differences of opinion which I hope will provoke discussion, for it is in discussion that the real value of these conferences lies.
Please take note that my subject is PROPERTY management, not BUILDING management. I am conscious that the whole business of organized property management centers around office building manage-OFFICE BUILDING PROBLEMS
31
ment. But I am going to stay entirely away from the details of office buildings because, first, I think these questions are much better understood and, second, I think if we can direct our thoughts and our discussion of this paper along lines of broader significance to us all that we shall profit by it. I know that we can all agree that property management is now a very poorly developed business,—that it is only imperfectly understood, and that with the growth of cities it is becoming highly technical and vitally important both to the owner and to the community. I would like to state here that it is as well paid as it deserves to be in its present undeveloped condition. Also, that the future holds in store a fine, profitable business in property management; that the plum is ripe to pick and, lastly, that we are the fellows to pick it.
And now that I am fairly launched on my subject let me say Property Management is big enough, profitable enough and important enough to proceed in the future without the support of the real estate business. I believe property management should be a business by itself, whether by an individual manager of a single property or by an agency organized to handle many properties. The brokerage of real estate is a fine, dignified and important business, but the type of man who makes a successful broker is not the type of man that lends himself to management. In brokerage, salesmanship is the essence of success. In management, its importance is negligible. If a man is constituted by nature or by training to enjoy the excitement and uncertainties of barter and trade he is not often the type that makes the successful manager whose gait must be slow but constant and steady. The sooner these two businesses separate the better for both of them. This to me is fundamental to the future of our business. I say this with the full knowledge that many very successful agencies over the United States are operated on the combination of the two businesses. This came about because in the beginning property management was a little orphan child and the real estate men took it in and reared it. But it is! now able to go into the world and support itself and it should not rely on its foster parent.
I believe that it is better for property that property management be a separate business. I will mention a few reasons why, only, but to me these are so fundamental that they leave no room for doubt.
1.	The management business requires an analytical mind and executive capacity. The brokerage business primarily requires an adventurous mind coupled with salesmanship. Few men have both.
2.	The aims of the two are often antagonistic and their methods are conflicting. This is particularly true when real estate business follows its natural development and engages in the brokerage of leases. This part of the real estate business is proper and valuable. But when you manage property and broker leases you offend one of the cardinal rules of commerce. You trade in the commodity that you are managing for another.
3.	It lays one open to the subtle temptation of disturbing rental conditions for the benefit of the brokerage end of the business. I say this without apology because no guiltless man will take offense and all reasonable men will admit the danger.32
OFFICE BUILDING PROBLEMS
4.	A successful broker must be dominated by an optimistic nature. A manager should never be.
I,	therefore, give you this as the first and most important essential —that property should be managed by those who give it their entire time. For this reason I don’t believe in trust companies managing property. These financial department stores have shown themselves, as. a rule, ineffective in this respect. The cardinal principle of trust companies is to conserve what they have, and the essence of real property is to develop and increase. To place a group of properties in the hands of the average trust company is to bury it forever in the graveyard of dignified conservation. The motto of the trust companies is “risk nothing” and this is a dangerous slogan in property management. Their ambition is to give back to the master on his return the talent wrapped in the same napkin in which it was received—and who would want trust companies to operate on any different basis.
The property manager should stand half-way between the real estate man and the trust company. He should neither buy nor sell, barter nor trade, nor enter into any phase of speculative activity. But neither should he “sit tight” behind his marble counter and refuse to develop or to improve or to sell because he fears to risk the corpus of the estate.
Success in business lies in seeing the opening in the wall and getting through it first. Now there is an opening as big as a hay-wagon directly in front of the noses of all property managers—real or incipient. It’s the best unoccupied profession in the country today. It is going to take knowledge, however, and skill to stay in the game. It’s a student’s opportunity, a highly specialized calling. Let me illustrate what I mean. For example:
Business moves toward the densely settled communities; the high grade shopping districts toward the high grade residence districts unless checkmated by counter influences. County roads cause the streets into which they debouch to develop faster than other streets. Dense automobile traffic is little help to rental values. Shopping centers seldom remain fixed. Financial centers seldom move. Land taxes have little to do with net income. The automobile is changing the method of retailing merchandise.
Every statement made above provokes the same query—“Why?” Never mind why. Let us ask ourselves this: “Can we handle our job without becoming a student of the fundamentals.” There is this interesting thing about our work. Cities develop consistently by certain laws. We can know why property has value and why certain things happen or why they don’t. Therefore, I set down as a second essential to property management the necessity of being a student of city development.
Business cycles are an established recurring economic phenomenon. Let us start at any stage of the circle—say immediately after the peak of a boom with deflation well under way. This phase brings urgent demands from the banks for loan reductions. Speculators in equities are wiped out. Jobbers, manufacturers and finally retailers cut prices to the bone. There is a general desire to get the “feel of one’s money.” Then comes the slow process of economic regeneration. Economy becomes a virtue. Labor becomes more efficient, everyone becomes thrifty andOFFICE BUILDING PROBLEMS
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bank deposits grow. Increasing deposits are followed by decreasing interest rates and the value of securities with fixed interest return increases. With lower money rates and efficient labor, industrial activity begins again and with it speculation becomes rife—real estate booms and everyone gets excited. Unemployment disappears while wages go up and living costs soar. Bank loans increase in spite of rising interest rates. Inflation develops, extravagance becomes rampant and then the banker hangs out the danger signal. Investors become cautious, at last the consumer declines to buy and trade stagnates. Solvency of credits is questioned. Hesitation and suspicion become dominant. Rents decline rapidly and once more we find ourself at the point in the circle where this brief analysis began.
At various stages in this mad circle there are periods fraught with possibilities for the property owner, and there is this interesting fact, that the favorable and unfavorable moments do not coincide with similar periods for the merchant and jobber. For this reason the banker who is usually surprisingly ignorant of the underlying principles of property development, cannot advise you as he can advise the merchant. Therefore, a close study of the business cycle is another real essential to management, for there is no stage in the cycle that does not have a message for the property owner—a caution for him to go slow or to speed up, as the case may be.
Retail merchandising is carried on very largely by amateurs. At least there is always a large crop of amateurs struggling to get into the charmed circle and establish themselves in business. These embryo merchants are the men who are absorbing the new business property that is continually building up around the commercial center and they are a very valuable factor in our business. It is the duty of every manager to understand enough of merchandising methods and of the theory and practice of trading to advise this man correctly in the selection of his site. It is not only a breach of good faith to rent a man a location in which he cannot succeed, but it is also an injury to the property in which he locates. Faulty methods of this sort mean vacancy and lost rent at a time when business is depressed and locations are easier to find than tenants. Anyone can keep property full in times like the present but the real manager is the man who can turn the trick in dull times. Furthermore, dull time vacancies force the owner to negotiate leases with tremendous losses. Therefore, I say a good working knowledge of the fundamentals of merchandising principles is another essential.
In outlining these so-called “Essentials” I have had in mind principally this thing—to bring home the fact that property management is a large enough and a hard enough job to absorb all of one’s time. We none of us are in business for the love of humanity and if we can’t make good money out of the business then it isn’t enough of a business to justify my optimism. I claim that it can be made highly remunerative —especially when it is not combined with lines of work that do not properly coordinate with it.
While I have tried to show that this management business should be divorced from the brokerage business, there are other lines of work which may be drawn into it. There are those which form an integral34	OFFICE BUILDING PROBLEMS
part of it, which require the same type of person to conduct it, which appeal to the same temperament and require the same mental qualifications and which increase the knowledge and strengthen the organization. One of these is appraisals. Now the ordinary method of appraising property is to me quite scandalous. It consists in appraising the land at its market value, appraising the building at its sound value, then adding the two together and saying the property is worth that much money. That is nothing but scientific lying. In fact I doubt if it should be called scientific. After a building has been placed on the property the land no longer has a value of its own; neither has the building. The two together, however, are worth their earning power capitalized at a given rate of interest. Therefore, an economic appraisal is the only thing that counts, and who can make such appraisal except the man skilled in property management. Such appraisals pay well as do reports on proposed improvements. Also they enhance one’s knowledge of his own subject and are a distinct advantage to both sides.
There is another avenue for the enlargement of property management which is yet untouched—the vacant land problem. This is the hardest of all nuts to crack. It is the speculative end of real property wherein much real money is lost. It is the horse in the stable eating off its head on high priced feed. It is impractical to go into this large and interesting subject at this time other than to say that we have found it to be a most satisfactory department of our business. It is constructive and therefore satisfies. It is profitable. It adds to the reputation of those successfully engaged in it and it produces more new business than any other department. It consists mainly of three things:
1.	Advising type and style of building and procuring tenant.
2.	Analyzing the possibilities of the property and, where proper, appraising and directing the sale.
3.	Developing subdivisions. This last consists of platting, pricing, selecting brokers, collecting on contracts and taking care of all those details that an owner would ordinarily do himself but which the experienced man can do so much better.
In all cases the fee comes from the owner and no split should be made with the agent, whether it is brokerage for making leases or sales. This is fundamental to the management business. In no other way can you get full cooperation from the brokers and this cooperation is absolutely necessary. If you expect him to stay out of your business then you must stay out of his.
The loan business is not incompatible with management. In fact it can be made an integral and valuable part of it.
The fire insurance business is a border-line business. Personally, I do not think it belongs with us and we do not engage in it, but there is less to be said against it than against other side lines that might be named.
In brief, my plea is that we make property management a real business—one that can stand on its own feet. We should carve out a clear and distinct place for ourselves. There is by far more capital invested in real property than in any other one thing in the world. It runs into so many billions of dollars that it makes one dizzy to look at the figures, and yet there is so little money spent in its management that it is laughable.OFFICE BUILDING PROBLEMS
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Chairman : Gentlemen, you have heard the paper. We would like to hear from anyone who has views on the subject and who would like to give us the benefit of such views.
Mr. Clarke: Mr. Chairman, it appears to me from the tone of Mr. Strong’s paper that he is arguing for and with property management. Of course that is just a little bit broader than our particular field of operation. There are several of us who are in that particular field of business—but he doesn’t say very much about office buildings. That is the only comment I have to make.
Chairman : You have heard Mr. Clarke’s suggestion. I suppose probably the answer to that would be that the greater includes the less. General property management includes office building management. Mr. Sayer, have you any response to the suggestion?
Mr. Sayer : Mr. Strong, of course, has made It clear in his paper that he was going to emphasize property management because the details of office building management will probably be discussed by other speakers and it is really a department of general property management.
(Delegate) : These papers will probably become a matter of record and I would like to enter one protest against a portion of that paper in regard to the fact that salesmanship is not essential to building management. My view is that salesmanship is essential in any business and is certainly one of the essentials of building management. We know that a building manager has his wares to sell, and if he is a good salesman he can sell better than if he is not.
Mr. Sayer: Mr. Chairman, may I say that the paper stated that salesmanship qualifications are negligible if not available, but only negligible as compared to all the other features of property management.
Chairman : Gentlemen, it seems to me that the revenue, the gross return, must necessarily be the measure of the net return. Unless your manager has gotten for his space what it is worth, your net return will not be satisfactory, and getting what space is worth seems to me the very essence of salesmanship. While I feel that there are many other things of tremendous importance, I hardly would consider that salesmanship was negligible.
Mr. Douglas (Seattle, Wash.) : I think our good friend Strong has been trying to convince us that the real estate business should be separated from building management, and I think that is all very well, in its way and I am not going to argue against that proposition or feature. I think what he should have told us a little more about than he has in his paper, was what we had to be in order to be good property managers. For instance, he might have told us we had to have a certain amount of intelligence and that we had to do a certain amount of studying, and we had to do this and that and prepare ourselves for the work. I think a good deal could be said upon that subject of just what is necessary to make a good building property manager. I am not going to deliver any talk on Mr. Strong’s paper, but I do think we are rapidly getting to the time when the business of building management will be a profession and the men who engage in that occupation will be turned to just as a doctor, a lawyer, a dentist or a mechanical or civil engineer, or any other man.36
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He will be trained in all departments of his business and he will have to know his subject. He will not have to be a good guesser but will have to know whereof he speaks and because he knows, he will be a good property-manager. In other words, he will have a proper training and that training, followed with the proper experience, will qualify him to be a good property manager. He will have to be adapted to the business and will have to have training and experience. I just mention this as an outline so we will feel and get thinking along the lines that there is a road to good building management.
Mr. Holbrook (Portland, Ore.) : I cannot let that statement that salesmanship is negligible go by without saying just a word. To my mind, and according to my experience, salesmanship is one of the most important elements in building management. The old idea that an office building had so many square feet to rent at so much per square foot, is a fallacy. The square foot basis is, of course, fundamental in figuring out your rental schedule, but it takes the skilled salesman or specialist in this line of business as in any other line of business, to know that that corner room, or that room opposite the elevator, or that room where the light is advantageous, or for any other reason has peculiar values, and taking the square foot basis as his initial starting point, puts a price on that room. So I want to go on record as emphasizing the importance of salesmanship as against an impression that might be given by that statement.
Mr. McLouth (Los Angeles, Cal.) : I think we are looking upon Mr. Strong’s suggestions from a wrong point of view. I believe it is very clear that his intention is that the profession of management should be dignified by maintaining the business separately from real estate operations generally. I believe that his contention is that the management profession should be brought to a position where it will be looked upon as a separate profession and one of sufficient dignity and importance to stand by itself. I think he stated very clearly that in his judgment the position should be one between the trust company and the realtor. I think he is entirely right. I think possibly he might have used the word “negligible” in connection with salesmanship as incidental to it, but not of first importance. I cannot believe he had in mind for a moment that salesmanship was not necessary in management, because I think it is generally observed that that is of greatest importance. I think that our conclusions or our discussions are taken from a wrong point of view as regards the requirement of salesmanship in management. I don’t think Mr. Strong intended that to be inferred.
Mr. Holbrook : I don’t think he intended that a wrong impression should go out, and that is the reason I tried to make that point.
Chairman : Gentlemen, this is your specialty; I know you all have ideas upon it. I would like to hear from anyone else who has views to express.
Mr. Cantrell (San Francisco, Cal.) : Mr. Chairman, these gentlemen have expressed just what I wanted to say. I think Mr. Strong’s idea was a very broad, general statement as to what a manager should be. That he should be the man who plans the general scheme of what he intends to do with reference to his property and when he gets thatOFFICE BUILDING PROBLEMS
37
scheme laid out and determines what he is going to do, I think his paper inferred that he would then utilize a real estate man, or a broker, or someone, as his agent, to take care of the selling end and take care of that feature of the business to carry out the general scheme that he had in mind. That is the idea that I would take from his paper.
Chairman: If there is no further discussion, I suppose adjournment is in order for luncheon and a motion to adjourn will be entertained now.
Adjournment was thereupon taken until 2 :30 P. M.AFTERNOON SESSION—FEBRUARY 23, 1923, 2:30 P. M.
Chairman : The conference will please come to order. The first thing on our program this afternoon is a paper on “GOOD BUSINESS METHODS,” by Mr. Dean Vincent of Portland, Oregon. I have the pleasure of introducing Mr. Vincent.
GOOD BUSINESS METHODS
By Mr. Dean Vincent Portland, Oregon
Mr. Chairman and fellow members: In presenting this paper this afternoon I do so with apologies to those members who were present at Tacoma Conference, because I shall probably repeat a good many of the things I said there, but it may not do any harm to have some of the things said there repeated here.
It is with some trepidation that I attempt to offer to the men assembled at this conference a few suggestions on “Good Business Methods.” If I appear to offer advice it is not on account of the slightest claim to superior ability upon my part but rather because of a desire to pass on to you some of the thoughts and ideas I have gathered from others at meetings similar to this one and found, either by practice or observation, to be both valuable and practical.
There are a great many good business methods which have a direct bearing on every department of building management. I shall confine my address, however, to those more particularly applicable to the personal activities of the building owner or manager. In doing this I do not mean to minimize the importance of those details of management pertaining directly to the physical care and operation of an office building such as elevator service, janitor service, heating, repairs, alterations, painting, etc., as they are all most vital to the successful operation of any building, but, inasmuch as those duties more directly rest on the shoulders of the building superintendent, I feel that my remarks should relate to the problems affecting policies and activities that can only be developed and executed by the owner or manager. Strange as it may seem, this is apparently the most neglected field in building management. In other words, there are many more efficient building superintendents in the United States than there are efficient owners or managers. There are more men who know how to establish and maintain good elevator service, more men who know how to hire and fire janitors, buy fuel oil and cleaning powders than there are men who know how to create and put into effect those broader policies of building management which bring reasonable net returns on investments and operate for the conservation of values. I wish you would tell me why a supposedly good business man will invest a million dollars in a mercantile or banking business and then scour theOFFICE BUILDING PROBLEMS
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country for the best man he can find, paying him fifteen, twenty or twenty-five thousand dollars a year to manage it. Now that same supposedly good business man will invest two million dollars (twice as much) in an office building and expect a two or three thousand dollar man to manage it. I have never been able to understand it, but that is exactly what has been done in the past, time after time, and is being done now every day.
There can be no reason for such a policy and the only excuse I can suggest is that the average owner considers an office building as an investment and not as a business. As a matter of fact, managing an office building is a business and very much of a business. Building managers are confronted with the same general problems that confront the manager of any business and probably with just as many special ones. He is an employer of labor and labor of a kind and character most difficult to handle. His customers are men of affairs who require salesmanship to sell and service and tactful handling to hold. He has credit troubles— perhaps in both directions. He deals directly with civic authorities almost daily on questions of taxation, traffic regulation, sidewalk congestion, sign restriction, health inspection, fire prevention and many other “tions” too numerous to mention. In fact there are few enterprises that offer the opportunity for real business acumen and good business methods that building management offers, and to consider the ownership of an office building simply in the light of an investment and not as a business is an error that, to say the least, cannot bring a very pleasing result to the owner.
Fortunately for the owners themselves, but decidedly unfortunately for the business as a whole, many owners have been financially able to foot the bills and a net return of from four per cent down to an actual deficit has been met by income from other sources, but the day is fast coming when there will be more brains and fewer dollars invested in building ownership.
First then let me say, require and acquire real ability in the management of your building. Don’t leave the management of a million dollar or a many million dollar property to your head janitor. Get the same class of man you would get to manage any other business of equal magnitude. Pay for it. It’ll bring you the best return of any salary you ever paid. A real high grade manager will save you his salary on any one of several different items during the year.
Second, don’t practice cut-throat competition. In other words, don’t solicit satisfied tenants from your competitors’ buildings. For example: Suppose that tomorrow in New York, Mr. Smith of the Sinclair Oil Building either telephones or goes over to the Trinity Building and solicits one of their tenants who, previous to this interview, had been perfectly satisfied with the space he was occupying in the Trinity Building. Mr. Smith, being a good salesman, convinces him he should have offices in the Sinclair Oil Building. He moves. Mr. Smith, in order that his new tenant may be pleased and duly impressed when he moves in, re-calcimines the walls, re-paints the floors, goes over the woodwork and furnishes the extra janitor and elevator service always necessary when taking care of either an incoming or outgoing tenant. Now Mr. Scott, Manager of the Trinity Building, having lost a good tenant, and such conduct being40
OFFICE BUILDING PROBLEMS
considered perfectly proper in New York, goes over to Mr. Daily’s building, the Equitable Building, and solicits one of Mr. Daily’s tenants. He advances somewhat the same line of argument that Mr. Smith used on his tenant, or perhaps he has a brand new one all his own, and he succeeds in getting one of Mr. Daily’s tenants. Then follows the same calcimining, painting, extra expense, etc., that took place in the Sinclair Oil Building.
Now assuming that Mr. Daily possesses the same amount of energy, ambition and perhaps venom that Mr. Smith and Mr. Scott had, he goes over into the Sinclair Oil Building where he happens to have an acquaintance or two and secures a tenant to move from the Sinclair Oil Building to the Equitable Building.
What is the net result? Three moves. Three tenants upset in their regular business routine and disturbed in what was a perfectly satisfactory condition. Three suites of offices needlessly repainted and redecorated. Three buildings with an enlarged expense account but whose incomes (gross, not net) are exactly the same as they were in the first place. Now I have used for the purposes of illustration three buildings to complete the circle. It might be four, it might be six, or it might be ten. The larger the circle, the greater the net loss. If you could get away with the soliciting method and no one ever return the compliment, there might be, from a purely monetary viewpoint, some argument in its favor, but surely none of you are so foolish as to believe that he can put that over with any regularity, without having some one else do exactly the same thing. How much better it would be to fill your building under legitimate conditions, as you can if your city is not over-built. If it is over-built, remember this: indiscriminate and promiscuous solicitation will not manufacture new tenants. It merely causes a continual moving among old ones with a net profit to no one but a net loss to all.
Third, don’t offer reduced rent, free rent, or moving expenses to prospective new tenants. The same argument applies here that applies to indiscriminate solicitation. Such practices do not produce new tenants. They merely cause old ones to move. Again, you are in a vicious circle playing a game that all can play, but a game where all who play must pay.
If you have a tenant paying fifty dollars a month for a single office he doesn’t rent two offices just because you cut the rent to forty dollars. He rents, or at least he should rent, the minimum amount of space wherein he can advantageously conduct his business. If you offer a cut rate to get a new tenant into your building, other managers will do the same thing and you will end up with exactly the same number of tenants but with a very much reduced rent roll, and rent cuts come out of your profits —your expenses will have been increased. Remember this (and this simple fact, for some reason or other, is very hard to get into the heads of some owners), your building will be very much more profitable with a twenty per cent vacancy under a par rental schedule than it will be if filled to capacity under a twenty per cent cut in schedule. You will not only have less operating expense but you will be able to take care of a new tenant or an expanding one when the occasion requires. It is the net income and not the percentage of vacancies that is indicative of good management.OFFICE BUILDING PROBLEMS
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Fourth, don’t make alterations except at the expense of the tenant. Indiscriminate alterations at the expense of the owner is one of the most extravagant and wasteful abuses in the operation of an office building. You all know hundreds of examples of this. If you will pardon a personal reference I will tell you a little experience I had a few years ago. Tenant “A,” who by the way is a national institution and no doubt the tenant of a number of these delegates here, rented a suite in our building. In going over the space with me he suggested several changes in partitions, etc., which he thought would be desirable and stated were very necessary for his business. I advised him we would be very glad to make the changes for him but would, of course, have to bill him for the expense which I estimated at about $750.00. He seemed surprised, as a year previous to that we were in the habit of making alterations to suit tenants where they took three-year leases. I told him we had discontinued that practice and to the best of my knowledge no building in the city made alterations any more except at the expense of the tenant. What was the result? After further study of the situation he decided he could eliminate one of the changes, then a little later another, and another, and finally ended up by taking the space just as it was. He occupied that space for over two years and then moved to another floor, doubling his former space and spending several hundred dollars of his own money in alterations without even asking us if we would do it. I have no criticism of this gentleman. He is one of my best tenants. He is just the product of a stupid system put in vogue many years ago by stupid building owners and managers. It was easier, and cheaper for him to move a partition at the owner’s expense than to rearrange and perhaps change his own desks and equipment.
Now this practice of wasteful alterations is not only bad business, it is bad morals. It means that you must charge an unjust rental to the tenant requiring inexpensive changes or none at all, in order to pay for the unnecessary changes demanded by the unreasonable or unthinking tenant. However, if some do it, others are forced to for self-protection.
I wonder if you have observed that my recommendations have all been in the negative. In other words, basing my opinions on practices notoriously in vogue I have suggested what not to do rather than what to do. Perhaps from this you will gather some justification for my earlier statement that the executive end of building management has been sadly neglected.
My fifth, last, and most important recommendation as a good business method, is cooperation. Cooperation with your fellow owner and fellow manager. He’s very much the same kind of fellow you are—perhaps a little better. Through cooperation, ninety per cent of your problems can be solved but it must be genuine cooperation, not the kind that expects to absorb all and give nothing. It was cooperation that brought me to this meeting. You may have thought it was because I wanted to make a speech. I assure you it wasn’t. I dislike making speeches and never do it except under protest. I’m here because I believe in cooperation.
Colonel Gordon Strong, owner of the Republic Building in Chicago, and one of the best known building operators in America, says, “I don’t establish the rents in my building. My competitors establish them.”42
OFFICE BUILDING PROBLEMS
Think that over. Perhaps it has never occurred to you but if your competitors do establish your rents, why not sit in with them while they’re doing it. The only way you can do that is by cooperation and the soundest method of cooperation is through a regularly organized association. Any other method is bound to be more or less of a hit or miss policy and not regular enough in its operation to be practical. By a regularly organized association I do not mean a combination, dictatorial, extortionate or selfish in its actions. Nor do I mean a sort of trust or combination formed for the purpose of raising rents. Such an organization would be doomed in its inception. I am a member of the Portland Association of Building Owners and Managers. As far as I know, no two buildings in the City of Portland charge the same rent. Three times since I have been a member of our association I have raised the rents in our building and only one of those times did any of the other buildings raise. You do learn, however, from contact with your fellow members at association meetings the true value of space in a building such as yours and if an increase in rentals is necessary to obtain that value you bring it about with a consciousness of the justice of your position together with the ability to defend it and not merely as an arbitrary act.
In closing let me commend to you the Foreword of the Code of Ethics adopted• by the National Association of Building Owners and Managers:
“One of the first duties of Building Owners and Managers toward each other and to the community is to be associated together in a local association, this in turn to become a member of the National Association. Such organization indicates, primarily, recognition of mutual interests. Holding frequent meetings soon demonstrates that the welfare of the individual member is greatly enhanced through discussion and cooperation. It is also found that by this personal contact, distrust, jealousy and antagonism melt away and are replaced by mutual respect, confidence and good-fellowship.”
'1'	3$C	4'
Chairman : Gentlemen, you have heard this most interesting paper. I would like to hear from you on the subject, if there is anyone who has any views that he would like to give us. Does anyone wish to be heard? If not, we will then proceed to the next subject on our program, which is a paper by Mr. J. F. Douglas, of Seattle, on “'General Rental Conditions in Office Buildings on the Pacific Coast.” Gentlemen, I take pleasure in introducing Mr. Douglas.GENERAL RENTAL CONDITIONS IN OFFICE BUILDINGS ON THE PACIFIC COAST
By Mr. J. F. Douglas Seattle, Washington
History :
The development of the office building business on the Pacific Coast was somewhat similar to the development in other sections of the world, with this exception, that the period of development is confined to about fifty years. For thousands of years office space has rented in different sections of the world.
Until very recent times, business buildings were low and the office portion of the buildings occupied at the most a very few stories in a building structure. For thirty or forty years we have had good-sized masonry-type buildings on the Pacific Coast. These structures rarely reached a height of more than seven or eight stories. For about twenty-five years we have had steel frame buildings on the Pacific Coast, one of which buildings has reached the height of forty-two stories. The tendency nowadays is to limit the height of office buildings with some relation to the width of the street and the opportunity for light and air to get into the building. The new restrictions on height would limit buildings approximately from eleven to fifteen stories.
An office building divides naturally into two classes of space; the ground floor and basement space, usually rented out to banks and trust companies or for mercantile purposes; and the space above the ground floor, divided into convenient office spaces and lighted by good-sized courts.
Recently there has been quite a strong tendency to extend the space used for banking and commercial purposes to the upper floors of the building. This type of development is known as the upstairs shop. In quite a number of buildings a considerable amount of space on the second floor is used for this purpose and there is a strong tendency to go as high as the third floor with this type of development. In some isolated cases the upstairs shops will be found even to the highest floor of an office building.
Development of Service Feature:
On the Pacific Coast, just as is the case in other sections of the world, the space in the earlier office buildings rented without service of any kind. Gradually the owner began to furnish heat, janitor service, elevator service, care of corridors, public toilets, and other public spaces. Repair and maintenance service and various other types of service now are well established in all office buildings.
There has been some diversity in the development in some of the services commonly rendered by building owners. In about three-fourths44
OFFICE BUILDING PROBLEMS
of the cities in the country the owner does not furnish light globes or electric light. This service is paid for by the tenant. In most cities in the country no towel service is furnished in lavatories. In a few cities towel service is furnished. In a great many cities of the country heat is not furnished to the ground floor tenant. In some cities heat is furnished. In other words, while a uniform program has grown up with reference to the furnishing of many kinds of service, the program with reference to furnishing other kinds of service is not yet uniform. There is, however, a strong tendency to uniformity in the furnishing of service. The evolution in the office building business has brought us to the point where the owner now furnishes practically every service in connection with the use of the building. Most of these kinds of service are included in the rental, but a few types of service are charged to and borne by the tenant. Increasing Service:
In the earlier days of the building business, building organizations were confined to very small proportions. Even in a good-sized operation, the manager not only looked after the maintenance of the property, but he rented the space, collected the rents and was a general all-around handy man. There are many types of this old-time manager in smaller operations.
The larger building properties now maintain good-sized organizations where they can give the tenant increased service in a minimum of time. Formerly, for instance, if plumbing repairs were required in an office, the tenant would notify the owner, the owner would in turn notify his plumber and in the due course of time the work would be done. Large building organizations today have a maintenance force that responds almost immediately to every request of the tenant for repairs and maintenance. The type of service that formerly satisfied the tenant no longer meets with his ideas and an increasing number of employees is necessary to operate a building up to the present standards of service. Increased service has meant increased cost. This cost, of course, has to be borne either by the owner or by the tenant in increased rentals.
No effort should be spared to furnish the tenant with good service. No building can be successfully operated for a long period that does not furnish a high standard of service. It is the poorest kind of economy to render poor service with the idea of cutting expense.
Design and Construction:
The design of a building is a very important factor. Better rentals can be obtained in a building with an exterior of good design. The layout of the interior also has a very important bearing upon the rentals that can be obtained. In considering our subject we are assuming that the buildings with which we have to deal have been properly designed and constructed. Hit and Miss Method of Fixing Rentals:
Prior to the time when the National Association of Building Owners and Managers was organized, there were very few scientific building operators in the United States. There were very few buildings that had a proper system of accounting. There was practically no interchange of experience as to costs between the different owners.OFFICE BUILDING PROBLEMS
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With the organization of the National Association and the local associations and the consequent interchange of ideas between the different managers, more scientific plans of operation have been developed.
Until the past ten or twelve years, practically all rentals in office buildings were fixed by the hit or miss method. A new building was usually operated on a schedule that was worked up by the architect or the promoter of the enterprise. If the results at the end of the year were satisfactory, the owner continued to operate on these rentals. If the results were disappointing, an effort was made to increase the rentals. No amounts were set up for depreciation, obsolescence, and other factors that are now known to be important in the business. It is undoubtedly true that under the hit and miss method the owner got very much the worst of the bargain and the tenant got very much the best of it. It is now a well-known fact that the earlier buildings on the Pacific Coast, as measured by any proper system of accounting, were nearly all unprofitable.
Renting on the Market:
In a few cities in the country, there is a disposition to rent offices on the market. In other words, office rentals are fixed according to the scarcity of space and the demand. Where offices are rented on the market, when there is a surplus of space, rentals go down, and when there is a scarcity of space, rentals go sharply upward. The fixing of rentals on the market in my opinion, so far as offices are concerned, will gradually give way to rentals based on cost.
In my opinion, store rentals will continue to be fixed on the market. Store rentals have such a close relation to the volume of business transacted that the merchant cannot afford to pay any more than a low percentage on his volume of sales. A store tenant that can get a large volume of sales cheerfully pays a rental in proportion to the volume.
Rentals Based on Cost:
Where rentals are based on cost it is first necessary to determine what items should be included in the cost. There are certain features in rental costs about which there is very little difference of opinion. Every building manager figures that janitor service, elevator service, heat and other similar items are part of the operating cost. There are many managers, however, who are very hazy on some of the items that go to make up the cost of a building business.
Depreciation and Obsolescence:
Only a very few managers on the Pacific Coast have set up a large enough item for depreciation and obsolescence. A still smaller number of managers have not figured in their accounts any items for contingencies. In my opinion, the safe way to figure a building proposition is to figure at least 3% on the original cost of the structure for depreciation and obsolescence. The item of depreciation and obsolescence is so well understood that there is only a matter of about 1% on the cost of the structure difference in the standards of the managers who take account of this item.46
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Contingencies :
A contingency item should be set up to take care of the unusual things that cannot be figured. The San Francisco fire, for instance, was a contingency item. If one building had been burned, it could have been rebuilt quickly, but where the whole business district was destroyed it took a long time to get the city straightened out so that rebuilding could go ahead. I could multiply at great length the list of unusual things that happen to office building properties for which no provision has been made in the accounts of the owners. I suggest that at least 2% of the gross rental of a building should be set aside to take care of contingencies. Vacancies :
In figuring the costs of a structure, full allowance should be made for vacancies. It is true that some buildings run for a considerable period with a very high percentage of occupancy. Over a long period of years, however, buildings will average in the neighborhood of 10% of vacancies. The only building in Seattle of which we have a record for thirty years had an average of 11% of vacancies. This building was well located and well managed. A schedule of rates, therefore, should be adopted that will provide a suitable return for the owner with the building 90% occupied.
Interest and Methods of Computing Profits:
There should be included in the cost, interest at the current rate on the reproduction cost of the building. A manager who is only earning current interest in operating a property is not making a success of a building business any more than a merchant would who borrowed money from a bank at six per cent to operate and actually earned six per cent. The only profit there is in the building business is the amount of net earnings above current interest on the value of the property. No business tenant will dispute the fact that we are entitled to some return for the operation and management of the business.
Assuming, therefore, that we have arrived at the proper costs of operating an office building, the question is what relation has this cost to the amount of rental to be charged to or asked of the tenant. Until some better suggestion can be made, I suggest that the building owner charge an amount approximating 7% of the operating cost for profit and for management service. In other words, assuming that a space cost $2.00 per square foot, on this basis the owner would charge $2.14 per square foot. This charge of 7% on the gross rental generally averages about 2% on the cost of the building and its site.
I feel that this figure is a very inadequate one for the service the building owner renders and that this figure should be much higher, but until both the owner and the tenants of business properties are educated to some more favorable standard, I suggest that some such rule be adopted. In other words, I suggest that so far as the office rentals themselves are concerned, there should be a fixed relation between costs and rentals just as the merchant has a fixed rule for adding a margin to his merchandise cost. I believe that when the tenant comes to understand that there is aOFFICE BUILDING PROBLEMS
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good fair rule for fixing rentals and understands that rentals are not fixed by the hit and miss method, there will be very little complaint about rental schedules. It is impossible to move rentals up and down like the mercury in a thermometer, and cost sheets can probably only be made up once a year.
If there is any material drop in operating costs so that the owner gets more than a fair return for management and operation, the rents must be lower. If, on the other hand, the cost sheets show that the owner is getting too small an amount for management and operation, then the rents must be increased.
Present Rental Schedules :
There has been a gradual increase in the rental schedules in all the cities on the Pacific Coast. I have asked one of the principal managers in several of the principal cities on the Pacific Coast to write me a little brief on the history of rentals in their respective cities for the past five years. The information given in this paragraph is based on these reports, which I must necessarily assume to be accurate.
Vancouver, B. C.:
Starting in with Vancouver, B. C., on the north, I find that prior to 1914 office rentals in some cases reached as high a point as $2.00 per square foot, which in those days was considered a pretty fair rate. It is estimated that the average rate in Vancouver buildings for a few years prior to 1914 was $1.60 per square foot. During the war period it developed that there was a very great deal of surplus space and a large amount of space was rented under $1.00 per square foot. This situation continued until the early part of 1919, when increased schedules were put in force, bringing the average rate up to about $1.25. In May, 1920, new rental schedules were put in force that brought the rate up to about $1.40 and in May, 1921, another schedule was put in force that brought the rate up to $1.50, which rates have been continued up to the present time.
Without any hesitation I can say that these rentals are not profitable; that figured on any proper system of accounting, these rentals do not bring a current rate of interest and, of course, incidentally, do not bring anything to the owner for management. In other words, the Vancouver building owner is in a position where he is selling his space on an unprofitable basis.
Seattle:
Prior to 1917 the prevailing office rate in the Class A buildings in Seattle was approximately $1.50 per square foot. At that time managers were just beginning to make some study of the costs of building operation, but as far as I know, no manager gave the proper place to depreciation, obsolescence, and none of them included a contingency or vacancy item. The managers well knew that they were operating below an interest rate on their properties but there was more or less aggressive competition and they did not see any way out of their difficulties. Rents have increased in Seattle, until there is quite a large amount of space rented for $3.0048
OFFICE BUILDING PROBLEMS
per square foot. One of the new buildings now in the course of construction will rent space for $2.75 per square foot. Two additions that have been built to other buildings are renting for $2.50 per square foot. These new additions are rented for the same rates as the older buildings on account of the fact that they are utilizing the service facilities in the older buildings. New, complete structures could not be rented at this figure and earn interest.
It would naturally look to the tenant that on account of this very great increase in rates that the building owner is reaping a very large return on his investment. This would be true if the building owner had been established on a profitable basis prior to the time the rental schedules were increased. In other words, there has not been a corresponding increase in operating costs as compared with the increase in rentals. The facts today are, however, that in Seattle the average returns on building properties are less than a current rate of interest. There are very few properties, and those only properties that are fortunately situated, that are getting any return for business risk and management.
Portland :
The city of Portland has had about the same history as the city of Seattle, with this exception, that there are fewer buildings, proportionately, in Portland where the rentals have been put on anything like a paying basis. I am perfectly willing to stand on the statement that the average building property in Portland does not pay any returns as a business investment. There are very few properties—a good deal less than half a dozen—that are earning anything above interest.
San Francisco:
From the standpoint of returns, the ownership of buildings in San Francisco for the past ten years has been nothing less than a nightmare. Rental schedules were advanced very slowly in San Francisco and it is only in very recent years that any rental schedules that are at all fair to the building owner have been put in force. There are quite a number of buildings in San Francisco in which a rate is charged in excess of $3.00 per square foot.
Without knowing the inside history of these properties, I venture the assertion that these buildings are earning current interest and a little more. I have seen the inside facts with reference to a number of the better San Francisco buildings, but I have never yet seen a statement that indicated that the owner is getting any reasonable amount for building risk and management. All of this in spite of the fact that rental schedules in San Francisco have been sharply increased in the past three years. It is perhaps fair to say that the average Class A building in San Francisco is now securing a rate something better than $2.50 per square foot.
I have asked Secretary Applegarth to give me a history of a typical office building in San Francisco, showing the net returns made by such a building. I am assuming that this is a fair example of returns fromOFFICE BUILDING PROBLEMS	49
the average office building in San Francisco. The results on this building are as follows:
1914	Net	Income.........................5.4%
1915	Net	Income.........................3.2%
1916	Net	Income.........................1.8%
1917	Net	Income.........................2.2%
1918	Net	Income.........................2.4%
1919	Net	Income.........................2.5%
1920	Net	Income.........................4.4%
1921	Net	Income.........................5.0%
We haven’t the return on this building for 1922, but as there has been very little change in rental schedules for the past year in San Francisco, it is safe to say that the net income from this building is under 6%. Los Angeles :
Ten years ago office building rentals in Los Angeles were on a very unsatisfactory basis. There were no established schedules. In 1917 the prevailing average rental in the best buildings was $1.35 per square foot. Today the older Class A buildings in Los Angeles average about $2.75 per square foot, while its buildings of recent construction are averaging about $3.25 per square foot. Class C. buildings in Los Angeles in 1917 rented for an average of about 85c per square foot, and now they rent at an average of $1.50 per square foot.
I am of the opinion that, on account of the high cost of land and the high cost of recent construction in Los Angeles, the new buildings are bringing very low returns to the owners. I doubt if these buildings, properly analyzed and with the proper allowance made for depreciation, obsolescence, contingencies and vacancies, will show any margin for business risk and management. There is, however, a wonderful improvement in the Los Angeles situation and there is great hope that in the future rental schedules can be made in Los Angeles that will give the building owner some returns over and above the interest on his investment. Summary of Pacific Coast Cities :
This is a brief summary of the situation ״so far as some of the larger cities are concerned. The results from operating buildings in the smaller cities are much worse than have been the case in the larger cities. There is hardly a large office property in any small city that is earning an interest return on anything like half its cost I know that there are quite a few managers who are fooling themselves into thinking that they are doing better than this, but I have yet to see a statement on any good-sized office building in any of the smaller cities that looks anything like a fair interest return on the investment, to say nothing of the investment as a business proposition.
Effect of the Better Education of Managers :
On the Pacific Coast, just as is the case in every part of the United States, many properties are operated by building agents or real estate firms. Where properties are so operated, it is very seldom that the owner50	OFFICE BUILDING PROBLEMS
adopts any proper system of accounting showing the unseen items in the business. In many cases he is drifting along entirely unaware of the fact that he will wake up some day with a great loss of principal. In my opinion, if the owner is to be educated up to any proper standard in the rental business, this education will have to be carried on by the building managers who operate the property direct for the owner. Many managers have been anxious to make as good a showing as possible and consequently they have been very loath to include the proper items for depreciation, obsolescence and other unseen items. The effect of the organization of the National Association of Building Owners and Managers has been to educate the managers up to a better method of accounting. Many managers have now reached the point in their education where they find it is best to put squarely before the owner the results from the operation of his property rather than to make a favorable showing with the unseen items omitted. I believe that a manager will secure and maintain the confidence of his employer to the greatest extent if he adopts a system of accounting that accurately reflects the earnings of his building and gives the owner accurate information as to the situation with reference to his property. The more enlightened managers have now arrived at the point where they are unwilling to stay in the rental business for the sole business of trading dollars; they have arrived at the point where they feel that their initiative and ability and attention to business are entitled to some fair recognition and this recognition can only be obtained by a rental schedule that pays some margin above the current rate of interest.
Store Rentals :
The office rentals for the average office building are greater comparatively than the ground floor space, and I have taken very little time in this paper to discuss the matter of store rentals. Stores, as I have set out before, should be rented on the market. Store rentals in a retail business district at least will have a pretty close relation to the volume of sales. In fact, a larger and larger number of stores are being rented on a percentage basis. In other words, the merchant knows the percentage on his gross sales that he can afford to pay for rent and as a rule he pays this amount cheerfully.
In a general paper there is nothing that can be said about store rentals that would have any particular application except to say that a store should bring a rental that it is worth for some legitimate line of business. In this connection I might say that I am opposed to asking the merchant the price that certain cigar companies are willing to offer for the cream portion of a ground floor of an office building. The average merchant cannot compete with the rates that are being offered by these companies. In our experience, merchants are usually willing to pay, and in fact are glad to pay, what a space is worth in their line of business.
Future of the Business:
There is no better calling 01־ occupation or one of any greater interest to any individual adapted to the business than the management of a fine business property. The day of the “handy man” in the building businessOFFICE BUILDING PROBLEMS
51
has disappeared and the present up-to-date manager is in many cases as thoroughly prepared to handle his job as the man in any profession is equipped to handle his job. There are a great many men and women in the building business who have not only had a college education but have had thorough preparation in addition.
The new type of manager that is coming into the business is thoroughly prepared to make a scientific study of the building business and to apply the best management methods. Many of the managers who have not had the same preparation as some of the new men in the business have been quick to see that only by a thorough study of the business could they make the most of their opportunity. Some of these men have pushed themselves into the first grade of building management. In other words, there are in the business a large number of men thoroughly prepared and who are the real hope for leading the business into better ways. The old hit and miss methods have been abandoned and we are gradually approaching the point of scientific operation and management.
While it can safely be said that, taken as a whole, building properties on the Pacific Coast are not earning anything like the amount that they should earn, we have gone a long way toward the solution of our difficulties when we are educated to the point where we know the condition our properties are in. Knowing how we stand; knowing that there is no way out for us but through good service, satisfied tenants and proper rental schedules; we believe that we have enough intelligence to solve our problems.
Rental schedules on the Pacific Coast cannot be revised downward unless the business is to continue always in a demoralized condition. Rental schedules will be revised upward and the building manager on the Pacific Coast will be considered in the same category with the merchant— a real, honest-to-goodness business man.
* * * *
Chairman : Gentlemen, you have all listened to this wonderful paper. It is a most vital thing that concerns us all. I know you are all full of ideas on the subject.
Mr. Kent (Los Angeles, Cal.) : Mr. Chairman, I would like to ask Mr. Douglas if he makes any particular effort to stop renting space when he has a 97% or 98% occupancy in the building? I would like to bring that point up. Would you advise any of the buildings to consider stopping renting space when they reach say a 98% occupancy.
Mr. Douglas : A rule which we adopted when people were fighting for their space a few years ago, was to try and keep close to the 95% line. If you get your building 100% occupied you are going to wake up some morning with a tenant who has got to have more space and if you cannot take care of him and his needs you are apt to lose him. I think it is better to work along with that three or five per cent, whatever you think is right—and you can keep that down by weeding out your poor tenants, if you have any poor ones.
Mr. Holbrook (Portland, Ore.) : In answer to Mr. Kent’s question as to refusing to rent further space when your building is 97% or 98% occupied—if you are 100% rented it would indicate, to my mind, that that52
OFFICE BUILDING PROBLEMS
would be your opportunity to raise your rents, provided you are not getting a fair return on your investment.
Mr. Vincent (Portland, Ore.) : If you are renting to tenants oi your own building you can explain the situation, but you could tell to inquiring outsiders that you have no space.
Mr. Douglas: Keeping that last little remnant of space for your own people. I think that is the ideal situation.
Chairman: Gentlemen, what do you think of that 7% basis as an adequate return, considering all the risks in the business?
Mr. Douglas: The return is not'7%, Mr. Ward, but I am adding 7% to the gross, which will make more than 7% on the property.
Chairman: What do you mean by the “gross,” Mr. Douglas?
Mr. Douglas : I mean, we will say for the sake of argument, $100,000.00 after everything was figured. Ten per cent for vacancy reserve, and then I would add $7,000 for profit.
Chairman: You figure that 7% is upon the gross return?
Mr. Douglas: Yes, gross income. If it is not enough, then add 10%. But some fixed amount should be added after you have got everything in.
Question: Supposing a building and the ground cost a quarter of a million dollars and the taxes amount to 3%. What would the gentleman figure the proper amount in the way of total investment in order to net say 7%.
Mr. Douglas: I would figure 7% in figuring my costs. I would figure 7% on my money. That is the first place I would start, and after that I would figure taxes, cost, and everything I could think of, including vacancies, contingencies—all those items; but if it was going to cost $100,000 to operate that building, then I would add at least 7% on the $100,000 for profit.
The Chairman: Seven per cent on your gross income.
Mr. Douglas: Yes. I would fix the rental just as a merchant fixes his rental: 7% of the gross income.
Question: In other words, it would be the cost plus?
Mr. Douglas : Yes. I think that Dean Vincent has stated it in probably a little better way, that you add to your actual cost 7% of that amount to give your cost to the customer.
Chairman : Mr. Douglas, assuming that your ground has increased several fold in value since the date of construction of your building, and building construction has also increased 50%. Would you still make your calculation on the original value?
Mr. Douglas : No; on the present value of the property. At least its reproduction cost, less depreciation. I would take into account the increased value of the land and the building.
Chairman: And what is your initial return on a 7% basis there, how is it measured?
Mr. Douglas: Well, when I build a building for our company we don’t increase our capital. They loan us the money at 7%, or, if money was 8% they would loan it to us at 8%. Now we have to earn that 7% and pay back a part of the principal every year, and I don’t see why a competent manager should not do the same thing. He should earn 7%OFFICE BUILDING PROBLEMS
S3
on his property and set aside an amount for depreciation which will take care of the principal. I think we have gotten away temporarily from the 6% basis; money generally is worth about 7%.
Question: Mr. Douglas, then you stabilize your investment on the 7% basis regardless of your changes in money rates. Seven per cent two years ago was a very high return. You could get lots of very fine bonds on a 7% basis. Now your bonds are all down and your interest returns are much lower, and a 7% gilt edge property is a very good investment. Do you mean to say you would stabilize that regardless of the changes in money rates ?
Mr. Douglas : In my experience, building is a very rigid commodity, and it is quite different than, say, shoes or some other article. My experience over a period of twenty years in the building business is that money is worth about 7% in that business. I know that money on building has !not been worth more than 7% in the last 20 years. I am not talking about earning 7% with the building property. You are not doing anything for the owner when you give him that 7%. It is whatever you earn legitimately for the owner over and above that.
Mr. Clarke: Isn’t it true, Mr. Douglas, that your rents are regulated a good deal by the law of supply and demand, and while we set out figures to guide ourselves by, there is a depreciation you have always to look forward to whether or not those offices are to be rented at that price.
Mr. Douglas : There was a time when a man got a few vacancies in his building he would immediately reduce his rents, but in Cleveland last year there were 750,000 feet of vacant space and there wasn’t a particle of fluctuation downward; in fact, it went upward.
Mr. Clarke : We have a number of Class A buildings and building properties on 60-foot lots. We try to keep ours within a sort of shooting distance of the highest priced offices in town. We believe that under ordinary conditions we should get $3.00. My building cost about the same as other buildings that were built at the same time but much less than the new buildings. In order for a man with the new building to make 8% he has to keep his prices up to $4.00.
Mr. Douglas : I don’t know how you work it here. I am perfectly willing to state that you are not making too much.
Delegate : Mr. Chairman, Mr. Clarke has asked a question in regard to supply and demand. The supply and demand, or the market, no doubt is a factor, but the great mistake, I think, is that we look upon all office space as just a commodity. For instance, you get higher prices for California fruit, or certain grades or fruit, or for finer furniture or poorer furniture. If you have an office building that is particularly well located, has good light, has a reputation for high-grade service and has many features peculiar to that building, would your manager be controlled solely by the current rate ? This square foot rate is a basis to figure your rentals ; but if a man has the courage and initiative and salesmanship, if you please, to utilize the advantages of his particular building, he can get higher rents and he can get it easily by a little patience and enterprise.
Chairman : Gentlemen, is there anyone else who would like to be heard on this subject? It lies at the base of the whole structure.OFFICE BUILDING PROBLEMS
Delegate: Mr. Chairman, I don’t see why supply and demand has anything to do with it at all. If you have a condition in a city where you have a 20% vacancy, if you cut your rents 20% you are not going to get any more tenants. If you have your costs fixed and you have a 10% vacancy reserve, hold to it. If 10% is not enough, fix it so it is enough. I don’t see where supply and demand enters into office space at all. You don’t make any more business by cutting rents.
Delegate: Mr. Chairman, I want to support that last statement. Supply and demand should not affect office space.
Delegate : The point I am trying to put over is this: The office building business is a business. We are accustomed to get 1%%, as we see it on the screen, 4 and 5 per cent. I don’t think those figures actually relate to the net income on the replacement value. Therefore, the rate based on that would be much less. How could we interest capital in putting up office buildings, which we have to have, if in the ordinary course of events we cannot promise even 6% to the men who put their money into the buildings? It cannot be done. When we go out and ask for capital and say we can promise you 6% for the next ten years, it seems to me we are barking up the wrong tree. We ought to be able, at least, to show 7% or perhaps 8%. That is what I would call a business venture. When you are offering the public 6% on the money invested you are not going to get many people to put their money into office buildings.
Delegate: I think the gentleman’s remarks are very well taken, considering the part of the owner endeavoring to finance his building. He owns the property and has some money in the bank to go ahead and build, but, as a rule, it is necessary to borrow a certain percentage of the cost of the building, and invariably, when one figures on putting up a building he allows, we will say, three or four hundred thousand dollars. By the time he gets through with the architect and contractor it has gone up a hundred thousand dollars, and we find from a financial standpoint it becomes necessary to amortize the loan over a certain period of years; if you are working on a 7% basis you are not going to be able to do it. Consequently, it should pay in order for the average man building a building, or running through a period of life—he is 40 years of age before he is in a financial position to build a building—he owns the property, but it is quite a risk to> him and it is a venture as to whether he will be able to go through with it, and if he could only see 7% it wouldn’t be good business for him to go through with it because it would mean he would never be able to pay off the building during his lifetime. But if he could figure a basis of 12% he could pay that off and long before he dies he would have a chance of having his building paid for. He would never do it on a 7% basis.
Chairman : Gentlemen, I cannot see how when gilt-edge liquid securities can be found a means of investment to bring 7%, I don’t see how we can expect people to go into the office building business with all its hazards. The fact is, it is a frozen asset in the eyes of the financial world. There is no ready market for it and it does not respond in any change of values to changing values of money. You get your building up and you have to see it through and if you have made a lease, a bad lease,OFFICE BUILDING PROBLEMS
55
it is made for the term of that lease. You fix your values. Take the ground floor, you lease your ground floor for five or ten years and there is a great increase in valuation in your city and you have gotten a return upon value at the time you make your lease. If your property generally is going up in value and the assessor knows how fast it is going up, he keeps his assessment climbing as fast as the values climb, and the one tieup on the lease may be some years prior on the lower values. Now unless you can offer to the investor on these properties some inducement to put his money in these, rather than liquid, securities, how do you expect to get the money. Money is going into it now because of the lack of knowledge of what the investment pays. I think the chief thing is to keep intending investors advised of the hazards they have to expect. You take our illustration this morning of the investment that was supposed to be a 9% investment. It turned out to be only a 3% investment. Now, had those people had the advantage of such information as this association can give, based upon experience, that investment would never have been made. If we can give the information necessary to keep the people from being misled in the first place and, afterwards, we can give those investors who are already in, sufficient information as to the current and growing side of a commercial market to keep them from cutting prices during periods of stagnation; in doing this we have accomplished a wonderful thing. I believe we have got to get on a higher return basis in our figuring in order to come out even with the game. My impression—I have not gone into it deeply—but I cannot understand why these large sums of money will go into these investments unless the investors are misled into believing they are going to get a great deal more than they do. If this paper is circulated throughout the community and keeps the local would-be investor in touch, you would see fewer investments in building for which there is no demand.
Mr. Holmes (San Francisco) : Mr. Chairman, I think the papers we have had today have indicated the crying need of an active organizer; tion. That is, that we must not simply be satisfied with going over some interesting criticisms. We have analyzed the situation. Are we going to remain simply as analysts ? I have a penchant for anything that is constructive. I think that there is an opportunity through this association, to establish or start a big constructive phase of our association work. The thought of the delegate from San Diego, at whose table I sat at lunch today, touched on that very theme. He says—carrying out the remarks of our worthy President, Mr. Schultz, speaking of a committee of the National Association convening for the purpose of checking building plans—why cannot we here on this Pacific Coast, maybe do it locally, or take some one bunch for the whole coast, establish a department whose purpose shall be to act in an advisory way to all those three classes of owners that I talked about this morning: The fellow who is thinking of making what we think has been a mistake, the fellow who has decided to do it, and the fellow who is in it. We have a service that we can render to each and every one of those three groups, but we cannot do it by simply reciting experiences. We have got to contribute something to those fellows; we have got to analyze their particular problem. It is interesting for him to know that he may make a mistake, but it would56	OFFICE BUILDING PROBLEMS
be more interesting to tell him “if you put your problem up to this department we have created we will show you and prevent your making the mistake.” That seems to me a constructive step that we should work toward. I would like to hear some talk and discussion on it, and I would particularly like to see some step taken toward bringing that sort of enterprise about. It is a new subject; I don’t know as to the matter of cost, whether it could be financed, but if we could have some properly headed department, headed by a man with experience in the business and with certain executive ability who could work up such a department to which owners, architects and anybody who has any relation to the building business could go for technical advice, I would like to hear some discussion on it.
Chairman: Gentlemen, this is a very difficult problem. We have architects all over the country seeking to interest people in building buildings which they are to be the beneficiaries of; more vitally interested in that than they are in finding a venture that would be profitable for their client, and there should be a volume of data that is convincing to people who are in this situation and state of mind, contemplating investments. I don’t know how we can furnish it, but we should, and that it is up to us to furnish it seems to me evident. It is these experiences that we are gathering through these exchange tables and through reports of our association here that are very illuminating and tell us where we are at, and in these days of depreciation to keep us from getting deeper into the hole through reduced rental methods. I have not a constructive suggestion, but I think Mr. Holmes hit the nail on the head. We should make some progress along that line that is more convincing than what we are able to produce now.
Mr. Brown : I don’t believe that we are taking the renting public into our confidence as we should. Now Mr. Douglas has had considerable experience in the methods which have been employed in Seattle and cities he has visited, and I think it would be enlightening to us here for him to tell us how best that might be done. The average renter, as we all know, thinks that the landlord is growing richer and richer and that there is no necessity for any increase in rentals. I think there should be something devised in some way for enlightening the renting public. If Mr. Douglas could just state what he knows along that line.
Mr. Douglas : Well, it was perhaps three or four years ago that we began to find out that whether we wanted to or not, we had to take the tenant into our confidence. I have in mind tenants that were renting three floors in our building, and they wrote and asked us what our schedule was, of expenses. That was a new one to us, but we finally wound up by giving them the exact cost per foot in the building, janitor service and everything else. That may be more than three or four years, maybe six or seven years, ago. But gradually we found that quite a number of tenants wanted our schedule and that schedule has got to be fair or we cannot do any business with them. To show what is done in some other places I will mention this one instance. I went into the National City Building in Omaha, an eighteen-story building, managed by Mr. Jewell, a good manager. I said to him, “Can I see your schedule,” so he handed me right away his schedule of costs—janitor serviceOFFICE BUILDING PROBLEMS
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so much, interest and everything—and in order to get 7% he had to have $2.82. I said, “Did any of your tenants ever ask for this ?” and he said, “I don’t wait for them to ask any more. When a man comes up and asks for space I hand him this schedule right along with the space because he is entitled to know, and he looks that over and feels pretty well satisfied.” I just mention that to show that building owners are generally taking the tenant more into their confidence. We have shown at least 100 tenants of our properties the rental schedules, how the schedule was made up; shown it to them sometimes just because we wanted to and sometimes because they had inquired.
Delegate: Mr. Douglas’ explanation is something like what we found in our little experience on a comparatively small building to be not only proper but very good. I had an experience about a year or a year and a half ago. We made an increase in rents and the tenants got together, discussing this increase in rents, and they said that the building was profiteering. They appointed a committee of three, one attorney, one doctor and one dentist. The dentist, or the doctor, said that he had written to San Francisco for rent schedules. They went to the president of the bank and said, “We are a committee to wait on you to get our rents reduced; we have had them increased and we can’t stand it.” The president said, “I have nothing to do with that. The directors didn’t give that building into our hands. You go right over to the building manager and make your complaints to him.” He telephoned me what was coming, said “I have shoved them on to you, so go to it,” and I said, “Let them come.” The next day they rang up and made an appointment and I said I had been directed to hear their complaints and if there was any mistake that had been made we would be glad to rectify it. Among other things they told me was that our rents were higher than San Francisco rents and the doctor said he had written to some doctor in some physicians’ building, and that he said the rents there were much cheaper, and the dentist had a similar argument and the attorney simply said that the rents were too high. I listened to them and then I finally said, “I can’t tell you the rents in San Francisco—I don’t know—but if anybody is renting office space in San Francisco cheaper than this building, they are fools, because this building doesn’t pay.” Then a thought struck me. We make annually a schedule of our last year’s costs, something along the line of the National Association, but not as complete, but we have a monthly cost, light, heat, water and janitor service, elevator service, etc. I had it with me, and I said, “While in reply to your argument, I cannot tell about what other buildings have done, the directors of the bank have authorized me to say to you that you, as a committee, can handle the rents and fix the rents at anything you please as long as you pay 6%, and,” I said, “here is the schedule.” And they took it and looked at it and read it over and then they commenced to look at each other, and finally they said, “We didn’t know it cost so much for janitor service, and we didn’t know taxes were so high,” and something else, and we have it figured down to what it is costing per square foot. And after they looked at each other and talked a little more they said, “Well, we guess we are satisfied.” As a matter of fact that schedule showed, without giving any increase for added value of property or for increased cost of building, without giving effect to that increase and without making a depreciation58
OFFICE BUILDING PROBLEMS
charge—we didn’t dare to do it in order to make any showing to the directors—we showed 4% ; they hadn’t thought of depreciation. We have since made another increase in the rents and I am sorry we made it before I came here, from what I hear and from these papers. If I had to make that increase again, I would just double the increase. We figured our last schedule at $2.25 a year, which is getting it up a little, but it should be $2.50 at least. In going back to Mr. Douglas’ thought of adding that 7%, I really believe that is the proper way to do it. You are then getting down to the real scientific basis of the cost plus, as your basis for renting. I believe it has been said here that simply cutting the rents doesn’t make more tenants, and while in a way you might temporarily get more tenants, in the general net result over years, it won’t make more tenants. I think the thought was given that, to have a building 80% full with a reasonable rental is better than 100% full at a low rental.
A Delegate asked one question: I doubt whether some got it right, or if I got it right, that is, what Mr. Douglas meant to express when he said add 7% to the income. Possibly they figure you just charge 7% interest. What I thought you meant to convey is, in fixing your cost charge, you take your 7% or 8% and your taxes and depreciation—
Mr. Douglas: I would use as your interest rate 7% instead of 6% in making up your cost.
A Delegate : But on top, if all your cost equalled a hundred or two hundred thousand dollars, you would still add 7% for your cost plus.
Mr. Douglas: Yes.
Chairman : Seven per cent on the total income ?
Mr. Douglas: Yes.
Delegate: Mr. Chairman, a gentleman back here raises the point of some system of advising a prospective builder as to the experience builders already have had in building, or are having. I wonder if your association here in Los Angeles—I assume that thought is applied more generally to Los Angeles—I don’t believe you have had a very strong association here. We do in Seattle. It is a very common thing at a board meeting of the association in Seattle that some member of the board will have heard that the owner of a certain corner was thinking about building an office building—or that somebody was going to buy a certain corner and build a building. Just the moment that information comes in, the secretary is instructed to write a letter to this man, placing all the statistics that the association has in its office at his disposal, and if that is not enough, if there is some member of the association that knows the man pretty well, they go and tell him about it. It is not done with the idea of retarding building, or cutting out competition. We have a fair amount of new office building under way in Seattle, but we do enlighten a lot of misinformed men who think they can stick up an office building and then come down here and live off the income.
Mr. Holbrook (Portland, Ore.) : That is one of the things I think the association can do. About two weeks ago, representing our association, I had the plans submitted to me of a building of a very elaborate nature, and to the best of my ability, prompted simply by unselfish motives, I made suggestions and criticisms, and they have now been sub-OFFICE BUILDING PROBLEMS
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mitted to their board of directors and I understand that they are now redrawing their plans.
Delegate: There have been several references made to supply and demand. I would just like to have the members keepin mind that they make the prices when they quote what they want for the vacant office.
Chairman : Adjournment will be taken until 10 A. M., Saturday, February 24th.MORNING SESSION—FEBRUARY 24, 1923, 9:30 A. M.
Chairman: Gentlemen of the conference, the meeting will now come to order.
The first question before us this morning is the subject of “Service,” by Mr. Charles Holbrook of Portland, Oregon. Gentlemen, I present Mr. Holbrook.
SERVICE
By Mr. Charles Holbrook Portland, Oregon
In recent years and more particularly since the world war those who own or operate large buildings as an investment are realizing the importance and necessity of trained specialists in building management. The old idea of the real estate general practitioner being all-sufficient is rapidly disappearing as well as the idea that two, three or four per cent is all that can be expected from this class of investment. It is no longer the common thing to hear of a successful man, stirred partly by civic pride but mostly by the desire for a personal, monument, engaging an architect also eager for laurels, who plans a building with all the practical beauty of a church, featuring light-destroying classical columns and statues of the twelve apostles grouped around the second floor in various hypnotic poses.
This practice was usually accompanied by the employment of some energetic real estate broker on a commission basis who filled the building with a variety of tenants without any conscientious regard as to their effect on the future welfare of the investment. And when the building was complete and rented the owner would then put one of his wife’s relatives in charge whose duties were to collect the rents and look after things in general, engaging an engineer to operate the plant, and a head janitor to look after the service. If things did not go just right, or the tenants did not receive the attention promised them in the prospectus, which usually included valet service and medical treatment along with light and other gratuities, they went over the head of the building agent and called on the owner who, in order to be a good fellow, or to meet competition would usually grant the request or demand, making the building agent practically of little consequence.
The organization of building owners’ and managers’ associations in various cities throughout the country in cooperation with the National Association has demonstrated that the operation of a large office building as an investment calls for as much business acumen and sound judgment in its management as any other business or profession and that the only hope of realizing a fair return on the investment lies in the selection of men fitted by ability and experience to cope with its problems.
When the owner of a large building, representing an investment ofOFFICE BUILDING PROBLEMS
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many thousands of dollars, has become tired of the management described above, he will finally engage a man competent and skilled in building management, but confronted with such a set of conditions and mistakes due to the architect or former management that his task is often a hopeless one, and yet he has to shoulder all the blame for not making the building pay.
The activities of the building manager should begin with those of the architect. Together, in friendly cooperation, each specialist so vital to the success of the investment should work out the problems. This relation of the architect and the building manager is being more and more appreciated by the owner or investor in large buildings and is doing much to make this form of investment more attractive.
Let us assume, now, that a large office building has been constructed under these conditions, is ninety per cent occupied by tenants and is open for business. What is meant by service? What have the tenants a right to expect? What constitutes reasonable service in an office building? Right here the building manager is confronted by two big responsibilities—one to the tenant who depends upon him for comfort and the facilities for the satisfactory operation of his business or profession, and the other to the owner of the property who expects economy in management and a fair return on the investment. I will approach this question of service under three general heads:
First—Elevator Service.
Second—Janitor Service.
Third—Miscellaneous.
That which makes the first impression on a tenant in an office building is the elevator service. He enters the building in the morning and wants to be delivered to the floor of his office promptly. He is impatient of any delay and a few seconds seem like minutes to him. He is entitled to this consideration and if the building has been inadequately equipped with elevators, woe to that building’s future. He steps into the car and possibly says “Good morning” to the operator, especially if the operator happens to be a snappy looking girl. She has a right to return the greeting but this should close the conversation. Courtesy, patience and silence are essential to a good operator. With proper training it is not necessary to decorate the car with signs reading “Do not talk to the Operator.” In fact there should be no signs or mirrors in the car other than perhaps one small sign calling attention to a barber shop, public stenographer, office of the building and the like. There should be nothing in the car to distract the passenger’s attention, the sole purpose of the elevator being to transport the occupant as comfortably and quickly as possible to his floor.
The proper speed of the elevator is an important matter. For local stops approximately 400 feet per minute is fast enough. A greater speed gives a jerky sensation and the advantage is lost in stopping and starting at every floor. For express elevators a greater speed is desirable, but it should be borne in mind that a passenger in transit from the twentieth floor to the street wants to remain conscious and to have his stomach in its normal position when he steps out on the main floor.62
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There is much discussion as to the character of the elevator door. Considering the millions of passengers carried in this kind of conveyance, the accidents are surprisingly small, and the fatalities almost negligible in number. But serious accidents and fatalities do occur, and every reasonable precaution should be taken to prevent them. No one is more vitally interested in this matter than the owner of the building and the casualty insurance companies. Occasionally a man falls through a coal hole, or an accident happens through the gross carelessness of the elevator operator in a poorly managed building, without proper inspection, and immediately there is an agitation to force all buildings indiscriminately to equip the elevators with automatic doors, or interlocking devices preventing the car from starting until the door is closed.
There is a difference of opinion as to the wisdom of this procedure. If there is any reasonable degree of safety gained by the great expense of such equipment, the expense of course should be a secondary consideration, but it has been the writer’s observation that in the last analysis the degree of safety lies in the alertness and efficiency of the operator. Candidly, I believe the power-operated door is a mistake. I have many times seen the operator, where this type of door is used, stand carelessly leaning against the side of the car, indifferently pulling the lever at each floor, which shoots the door open unexpectedly and closes it, thus contributing to a possible accident. In the hand-operated door the operator follows his extended arm with his eye, which in a glance sees any impulse on the part of a passenger to dart forth, and he can instantly stop the door and the car.
As to the interlocking device which is being adopted in many buildings, there is something to be said of commendation. It of course slows up the service, is expensive to install and there is the further cost of upkeep. In large elevators where many passengers are carried it perhaps gives an added degree of safety, as does the inner collapsible gate which the operator swings to as he leaves each floor, but in the smaller or average size elevator I question any real gain in safety as against the efficient and wide-awake operator as employed in a first-class building.
The world war introduced us to the female elevator operator which we accepted with many misgivings. Where heavy doors are operated she has been largely supplanted again by the male operator, but where the car can be easily handled I believe she is more satisfactory than the male. The psychological effect upon the morning grouch who steps into the car is often very picturesque. And if she doesn’t happen to make the floor landing the very first time she is apt to receive a sympathetic look that is almost a beatitude, while a male operator would read only hate in the passenger’s face.
The elevator starter is vital to good service in any first-class office building. His or her duties are many—answering questions, directing people, helping the old or crippled, keeping out solicitors, dogs, and baby carriages, regulating freight and dispatching the cars according to the demand. The courteous and efficient starter does much to form a favorable impression of the building and care should be taken in his selection. It is also a great boon to elevator service to keep efficient operators in continuous employment. It is remarkable how they remember the facesOFFICE BUILDING PROBLEMS
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of the tenants and stop at their floors unerringly without their calling the number.
What constitutes efficient janitor service?
After the tenant has enjoyed his brief ride in the elevator he steps into his office eager to approach his morning’s mail or his stenographer, as the case may be, and it is a distinct pleasure to find a carefully swept room, the chairs and furniture in place, dust eliminated, windows clean and shades regulated. He is entitled to this, his rent assures him of this comfort and convenience, and proper inspection by the building superintendent should see that this service is uninterrupted. Any failure in this service should be brought immediately to the attention of the manager of the building. Prompt response to any complaint is the first test of good service. If a room or suite has been neglected, if something is broken, or if there is anything wrong, whether the complaint is reasonable or unreasonable, an immediate investigation should be made and every effort put forth to remedy the situation. If a complaint is ignored or forgotten, or if there is delay in giving it attention, a bad impression is made, and if this neglect is repeated or is characteristic of the service, it will be only a matter of time before you will lose that tenant. If a request is unreasonable, give a definite and courteous refusal. Your decision may be resented, but it will be respected, whereas, neglect or carelessness will not be forgiven.
Good janitor service does not include the handling of pictures, arranging books, furniture, valet service, or that of a maid, although common sense always plays a part. Unusual service should be given whenever practical, such as securing a carpenter or special workman at the tenant’s expense.
The tenant is entitled to furnish his suite according to his liking to a reasonable degree. He should be limited, however, to one or two standard colors for wall paint, except in large suites under lease, and then any different treatment of walls or woodwork should be at his expense. Wall paper should not be allowed. The temperamental party who places flower pots on the window-sill should of course undergo a brain test. Window-shades should be standard and all awnings should be of one type and color and installed and maintained at the expense of the tenant. Door-mats if possible should be eliminated from the corridors. Cuspidors in front of elevators, except on the main floor, are not necessary and merely serve as targets to throw things at.
In older buildings where soap and towels have been furnished in the toilets, I question the wisdom of their elimination if the privilege is not abused, but if I were building a new office building today, I would eliminate this service. Every room or suite is usually equipped with at least one basin, and towels and soap should be furnished by the tenant. In many instances this is preferred for sanitary reasons.
The idea of the average architect in equipping every office with a beautifully enclosed closet with basin and shelves is a mistake and an unnecessary expense. They remind us of those wonderfully equipped shaving sets that devoted wives inflict upon their husbands at Christmas time. A tenant occupying more than one room usually wants basins and closets eliminated from all rooms but one or two. The closets are rarely64
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needed and can be installed under special conditions at the tenant’s expense, but a coat-tree and the safe cabinet will usually serve the purpose. If the exposed basin offends the eye, a small folding screen will conceal it.
All signs should be strictly regulated and reduced to a minimum. Nothing will destroy the prestige of an office building quicker than the abuse of the sign privilege. No signs should be allowed on the transoms and side-lights, and brass signs should be eliminated except under rare conditions. All door-lettering should be of a certain size and the work done, if possible, by one sign-painter to insure uniformity. Gold lettering on windows is of little value above the sixth floor and should be discouraged. The second floor sometimes offers special inducements to the tenant, especially if the windows are large, but this should be carefully regulated as to size and type of letters. Trademarks absolutely should not be allowed on corridor doors, and should be reduced to a minimum on second-floor windows. Abuse of the sign privilege can readily turn a beautiful building into a circus wagon, which would be all right if your tenants were limited to advertising dentists or monkey specialists. The piers dividing the ground-floor stores should be kept clear of all signs and fixtures. This is very important as affecting the general impression of the building. Electric signs on high-class office buildings should be forbidden. Every tenant insists his case is exceptional and often taxes the courage of the building manager.
Light and heat are usually expected by the tenant above the ground floor and are furnished as gratuitous service in most buildings. The abuse of the light service has prompted many buildings to meter every room or suite and charge the tenant for this service. It has resulted in every instance in a marked economy in the use of light by the tenant. In the construction of modern buildings of great size I believe this to be a wise procedure, but in the smaller new buildings, or in older buildings accustomed to light service, I question the advisability of the change to a meter basis, preferring to figure the cost in the rent schedule and controlling the abuse of this service as far as possible by personal contact with the tenant.
Practically all office buildings furnish heat as part of the service due the tenant, but an office building differs from a hotel or an apartment house. It is not reasonable for a tenant to expect heat at night except perhaps in a specialized building, and here on the Pacific Coast heat should not be furnished after five or six o’clock. Comparatively few tenants work at night with any regularity and those that do usually do so through habit. There is also no reason why heat should be furnished in an office building on Sunday unless it be for an hour or two in the morning on a very cold day to accommodate those few lost souls who have special work to do, or who have no home.
All radiators in vacant rooms should be kept closed and a skilful engineer can save many dollars in heat if he studies weather conditions and knows when to shut off the heat for an hour or so, or for even half a day. But there should be no penny-wise policy in the matter of heat. Nothing makes a tenant madder than a cold room and if his complaint is ignored he will forget all other qualities in the building service and nurse a secret hatred for the manager.
Reasonable service like everything else depends upon circumstances.OFFICE BUILDING PROBLEMS	65
Certain things are expected in a hotel and apartment house or a private home. Each serves a distinct purpose. Service that may be reasonable in one place may not be in another. In illustration of this point I am reminded of a recent experience in Chicago. According to my schedule I was due to arrive early in the morning, which would allow me about three hours to enjoy a fine breakfast at a hotel and transact certain business. It happened that my train was late, which necessitated my getting a hurried breakfast at the depot restaurant counter in order to conserve my time. What you would call good service at the Blackstone is a very different thing from good service at a counter. I sensed this fact and ordered something appropriate. The place was crowded and everybody in a hurry, when a fussy looking man came in and sat on the stool next to me. He ordered eggs to be boiled for exactly two and a half minutes, fresh buttered toast cut very thin, and a cup of coffee to be one-third hot water. The waitress took the order patiently. At this point another man came in who looked like a woodsman, a virile and practical man. The waitress courteously looked his way. “Pie and coffee,” he almost shouted. “What kind of pie?” “Any kind of pie,” and he grinned. I was much impressed by the incident and exchanged a saucy wink with the waitress.
In conclusion it impresses me that the two qualities essential in the operation of an office building as affecting reasonable service are courtesy and backbone. Listen to every request or complaint with a willing ear but decide promptly and intelligently and firmly. To ignore or delay is fatal to good service and will soon empty a building of desirable tenants. That little things are noticed is evidenced by the following letter which I received some time ago and which I 'am prompted to read to you.
Dear Sir:
This morning I had occasion to call on X & Son, located in the Wilcox Building, and, not knowing their room number,
I stepped up to the directory to get this information. I was immediately confronted by the lady elevator starter who asked pleasantly, “May I help you?” I was told which floor I wanted and when I arrived there the operator said, “Second door to your right.”
To some this may seem a trivial matter, but such courtesy in business is so seldom met with that I think it well worth the time and effort in writing a letter to call attention to the parties who are deserving of the credit. I never saw either of these ladies before, and may never again, and have absolutely no object in writing such a letter further than I feel that it is the least thanks I could offer for the PERFECT SERVICE received.
* * *
Mr. Christenson (San Francisco, Cal.) : There is a matter I would like to speak about. Our building is a comparatively new one and I have been asked several times if we are going to install express service. So you will understand—it is a 16-story building of about 400 rooms with six elevators. Would you install express service and if so, approximately above what floor?66
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Mr. Holbrook : I have always thought that express service, unless your building has a wide floor area, if it is above 12 stories high, I think one or two cars, according to the size of the building. I think in your instance if you have express service it should be above the twelfth floor. In small buildings express service is often confusing; people get into the wrong elevator and have to get out. I have experimented in one or two buildings and have abandoned express service in them. In one or two larger buildings it is very desirable. That is a matter of experience, principally.
Mr. Dean Vincent (Portland, Ore.) : We have a 15-story building with about 500 offices, and we established express service from the tenth floor up; during the early rush hours we run locals all the way through. I believe that local elevators will furnish more frequent service. We took off the express service but there was so much complaint that we put it back on again, and the tenants were very appreciative of it. Where you have six elevators you have a fine opportunity for express service, and you will find that the tenants are very appreciative of that class of service.
Mr. Bewley (Lodi, Cal.) : I would like to inquire if you would run an automatic elevator in a small building?
Mr. Holbrook : I haven’t seen one in an office building. I question the wisdom of them. There is so much danger, and when you realize the number of women who don’t know what an ordinary elevator is.
Mr. Smith (San Francisco, Cal.) : I think you miss the contact in any building by not having operators. Many people would be absolutely lost in some buildings if there were automatic elevators.
Mr. Douglas (Seattle, Wash.) : I would like to tell the delegates here something about our experience in trying to develop a good elevator service. We followed the practice of every building in the country for more than ten years. When a vacancy occurred the starter or some girl working on one of the elevators would have some friend who wanted a job and that girl would get the job. We found after awhile that that didn’t work for good service . We got a poor selection in that way. Then we let the foreman select the elevator operators and we found that didn’t give just exactly the result, so we decided to hire our elevator operators from the central office. It is not unusual for us to talk to 15 or 20 young ladies who want that job and of course we pick out the most attractive and most intelligent girl. We find in most cases we can get high-school graduates on our elevators. They are all hired through the central office. After we try that girl out for two or three weeks, if we think she will make a satisfactory operator, we send her to a doctor for a medical examination, because we find that a certain type of people, particularly if they have certain things wrong with them, even if it should never develop into a permanent trouble, that they are of a type that do not respond under certain emergencies. We find that we eliminate quite a lot of girls under medical examination. We also go out into the girls’ homes and size up the situation there and if we find that there is no discipline displayed there we know we cannot make a good elevator operator out of such a girl. At times it is an effort to get good girls to start with, and when we do get them we require them to take an examination once a month on the rules, courtesy and all the other rules established inOFFICE BUILDING PROBLEMS
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connection with the business; and we require them to take this kind of an examination: We write 100 names on a piece of paper and ask the girl to put the office numbers after them, and then we read a hundred numbers, or write them down and ask the girl to put the names of the tenants after them. As soon as a girl takes a job she starts working up for this first examination and she will probably land in the neighborhood of 40%. After a course of study of say three months if she doesn’t reach an average of 95% we eliminate her. We have all our girls take this examination and give them a general examination once a month and we go over their problems with them and suggest ways for improving the service. We make a very big effort to get good girls in the first place and after we get them up to a certain standard we try to keep them up to it. I agree with Mr. Holbrook that there is nothing more important than first class elevator service, and there is no such thing as getting good elevator service by haphazard methods. You couldn’t do this in a small unit, but I give you all this red tape to show that we think it is very important to give great care in selecting operators and great care in following them up. As has been said here, there is nothing that impresses a visitor to the building better than to be handled courteously and promptly. It is one of the best mediums of advertising that we have.
Mr. Brennan (Salt Lake City, Utah) : I would like to give Mr. Christenson a little advice. I would not advertise any express service to those upper tenants and then not give it to them afterwards. I think the best way would be to put in the six elevators and then experiment above the twelfth floor, and then he is not depriving them of it if he doesn’t give it. He may find out that it would work out better locally with six elevators.
Mr. Holbrook : I would like to say another word in regard to what Mr. Douglas brought out about examination of the girl operators. It is a common thing in large buildings for the elevator operators to learn your directory board by heart. It is a good idea to have them go over it and question them in regard to certain tenants, number of floors, etc. And if your building is equipped with boys it is very essential to my mind that they be properly uniformed and trained to stand correctly; and I am in favor of having a seat, particularly for girl operators, during lax moments. It rests them and they don’t become fagged. You can uniform the boys, but it is quite a difficult proposition to uniform the girl operator. You run up against a lot of temperament and if you fire a girl you must fire the uniform, and if they don’t like it they won’t wear it anyway. If they wear neat clothes it is far more effective anyway than in a brown wrapper—all uniformed. It is important that you do eliminate the toothpick and the chewing gum and such similar details.
Mr. Dean Vincent: Mr. Chairman, just for the purpose of giving a few different ideas, Mr. Douglas’ plan is, of course, based on large operations; it has to be large enough to have a personal service department. I don’t believe it would be practical in smaller buildings. Personally, I am in favor of the department idea. I look to my head elevator or traffic manager for the elevator service. If anything goes wrong, or I see a boy do something wrong, I never say a word to the boy; I go to the starter. It is up to him to hire and fire all the operators.68	OFFICE BUILDING PROBLEMS
And, just as a suggestion—and contrary to another suggestion made here —we do not permit our elevator boys to give out information regarding office numbers, etc. We have a very busy building and we only have five elevators and we handle between fourteen and fifteen thousand people a day and we don’t want the operators to talk to passengers. We have a sign up in each elevator “Do not talk to the operator; get the information from the starter.” I offer that as a suggestion.
Mr. Holbrook: The only reply I would make to that is that it is true you don’t want your operator to talk and you don’t want to encourage the passenger to use the operator as an information bureau, but if you are half way up the elevator shaft and there is a nervous woman who doesn’t know what floor she wants to get off at, it saves time if the operator can give her information that will assist her.
Mr. Heywood (Los Angeles, Cal.) : Mr. Vincent’s policy in regard to the elevator starter was similar to one we used in our Pittsburg, Columbus and St. Louis buildings. We held the starter responsible for everything. I have always hired men—never hired women; I don’t know just why, but we were not using them. At Pittsburg we had a class of men who made their life’s work that of running an elevator, and they were married men; I don’t have a single man on my crew. I had 10 passenger and 2 freight elevators in the Union Arcade, 8 in the Frick Building, and 6 in the Frick Annex, and at Pittsburg I had 6 in the First National Bank Building of Pittsburg. There it depended on how they arranged their department. Everybody was referred to the starter for information concerning tenants. We encouraged our operators to learn the location of tenants but we did not depend upon their doing that. We insisted upon courtesy. We uniformed them well; we treated them well. We let them know that their progress in the line of work they were doing depended upon how well they did it. On the subject of express elevators, in the First National Bank Building at Pittsburg, £ 26-story building, I have six elevators. At one time, because of its height, I ran two of those express. I got down to one, using that only partly because the Union Club occupied the 25th and 26th floors. Others rode upon it as well. I had no trouble whatever. I got better service than I did with two express elevators. In the Union Arcade, a building only eleven stories high, but with nearly a thousand rooms in it, I ran all elevators local. In the beginning I had expected to use express service, but we were carrying from 25,000 to 32,000 passengers a day and we found that the local service for a building under 12 stories was better. In the St. Louis Arcade, which had 10 elevators, 1 ran 4 express; that was 18 stories high.
Mr. Cantrell (San Francisco, Cal.) : I would like to ask Mr. Heywood one question, and that is this, in regard to controlling the public coming into a building as to their talking to the operators or asking questions; what do you do with a man when he gets into an elevator and when he is part way up he asks where a certain tenant is in the building.
Mr. Heywood : The operator answers him to the best of his ability. The dispatcher is watching every man that gets on a car; the dispatcher knows the tenants and he knows which tenants ought to have just a little better service than some other tenants. That doesn’t seem quite fair, but we do it. Nobody, of course, ever knew it but the fellow that got theOFFICE BUILDING PROBLEMS
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service and he appreciated it. But we had directories on each floor. Of course we insisted on our operators knowing the building and the tenants, but we did not depend upon that; we tried to handle it from the first floor.
Mr. John H. Woods (San Francisco, Cal.) : I would like to ask the speaker if he has ever given any attention or thought to the matter of installing interlocks with reference to the class of tenants who use the building. In order to explain, I will say that the Mechanic’s Institute Building in San Francisco operates a large private library; I should imagine we have 5,000 memberships out and I should say perhaps 20,000 people use it. Possibly 25% of those users are women. Now we found in the operation of our elevators that the women were slow, slow in getting in and slow in getting out and also liable to become confused and on two or three occasions had near accidents by rushing out of the car. The library functions on two floors and quite frequently a woman would want to go to the second floor and would forget where she was and just as the door was about to close she would rush out. I remember one particular occasion of a woman who got her dress caught in the door and the only thing that saved her from a serious accident was the fact that the dress gave way. She was lifted from the floor to the top of the cage and it hit her and the only thing that saved her was the tearing of her dress. In order to get the best service and the best protection we installed a full set of interlocks. I find that it slows up our service but right away found it was better for that particular class of tenants, that is, women and children and young ladies going to the library. I don’t believe it is necessary on our office floors, but we did install them there, and I would like to ask the speaker if he ever gave thought to installing that service with reference to the class of tenants.
Mr. Holbrook: Yes, sir, as I said in the paper, in case of a specialized building, I would certainly put in an interlock.
Mr. Luchsinger (San Francisco, Cal.) : We anticipated that the Industrial Accident Commission of California would put through an order that would compel the use of interlocks on all office buildings and it would probably be retroactive. However, they haven’t put through the order as yet, but I believe there is a possibility of putting it through. San Francisco started out with the idea of buying interlocks and we took it up with several of the manufacturers and tested out several buildings, and finally our building was selected. We put on one of the mechanical interlock controls. The interlock we had first I found unsatisfactory; it gave a lot of trouble, and I was on the point of giving it up and then they made a different lock which was thoroughly satisfactory and which I tried out for several months and found that it was very good and so we installed it on the four elevators. I haven’t found that it slowed our elevator service in the least. We have a good class of operators, but I find, as far as I am personally concerned, that there is a feeling of safety in the operation of your doors. I think probably 90% of the accidents happen in elevators right at the doors, and your operators are men who are more liable to jump the gun; they will be several feet above the floor before the door is closed, and you may try to prevent it, but you can’t always help it, and I have found that it did not slow our service materially. We are handling our building just as well as we did before and I think with70
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a great deal more safety. It occasionally happens, where there are old locks, before the interlocks were put on, the doors would be left open, not very far, but far enough that if any inquisitive youngster tried to find out what was at the bottom of the shaft or on top of the cage, he was liable to fall down. I am a firm advocate of interlocks and I wouldn’t put up a building without one, of course you can’t in California now, but even without an order, I wouldn’t put up a building without an interlock. I like the mechanical interlock.
Chairman : Could you give us some idea of the cost ?
Delegate: It cost us $40 a door. We installed the Randall lock. It is not a strictly mechanical lock—it also works on the door—but the operation is mechanical. The first lock they put out was strictly mechanical and it was not satisfactory.
Mr. Brown (Los Angeles, Cal.) : I am glad of this opportunity to ask our San Francisco brethren a question and it pertains to this interlock matter. The Public Safety Commission has had the matter of the advisability of installing interlocks on elevators under consideration for the past year. Several hearings have been held in San Francisco and Los Angeles, also. At the time they were held in San Francisco the recommendation was made or action was taken there that interlocks be installed on all elevators, electric as well as hydraulic. In Los Angeles we fought against the installation of the control on hydraulic elevators. We felt in taking that action that we had good reasons. As you all know, a hydraulic elevator creeps; it is impossible to keep a hydraulic elevator stationary. You can pack the elevator but it still will creep and get out of control. I am sorry that Mr. Hilton is not here.
Chairman: Mr. Hilton is present.
Mr. Brown : Well, I will not go into it at all. Mr. Hilton was the chairman of the meeting at that time. I would like to hear from Mr. Hilton and these San Francisco members and their arguments as to why they took action requesting that a device be installed on hydraulic elevators.
Mr. Hilton (Los Angeles, Cal.) : Gentlemen, the subject of interlocks is one which has been gone into thoroughly by the Los Angeles committee and also by the San Francisco committee. There is no question in my mind but what the interlock is a good thing in some cases and a poor thing in other cases. I made the statement that there is not an interlock on the market which will prevent accidents. I make a further statement that any interlock that is on the market today, were it put on either a hydraulic or an electric car, cannot sometimes control that car by obeying the regulations of the Industrial Accident Commission of the State of California. I will explain that to you. In the first place, an interlock only prevents the operation of the car due to the checking power on the car, and on an electrical car, the interlock does not lock the machinery of the elevator, it just prevents the current from going through the elevator. You all know that the hydraulic elevator is held stationary when it is stopped at the floor, by a brake. I want to cite a couple of instances that I personally saw, and they must happen right along. I was in a department store and waiting to go up in the elevator. When the elevator came down, which I will say was overcrowded—it had a bigOFFICE BUILDING PROBLEMS	71
crowd in it—the elevator man threw the control in the center and opened the door but the car didn’t stop and went right on; he threw the lever on the up and gave it the juice and brought it back up again and tried to make another landing, but it didn’t stop, and he asked two men on the front to jump off the next time, which they did, and the load being taken off at that floor he made the landing. Now then, I couldn’t say what actually happened, but one of two things happened, either the brake slipped, or the cable slipped over the drum. Supposing that car has an interlock on it. An interlock is a device which locks the lever of the car when the door is open. Why if an interlock had been on that car and a person started to get out of the elevator—he couldn’t have put the juice on, he would have had to go to the basement, and anybody getting out would have been killed, because he could not have closed the door.
Delegate: Isn’t there an emergency switch?
Mr. Hilton : We will grant that, there is an emergency switch, but when a thing like that happens the elevator boy usually gets excited and the emergency switch might as well be on the moon. (Further discussion.)
Now here is the point. If the interlock is on you cannot give your car the juice while the door is open. An interlock doesn’t prevent the machine or the cable from slipping. Until we get an interlock that will absolutely hold the cage in the shaft we won’t get an interlock that will prevent accidents. With regard to the interlock on the hydraulic car, we opposed that strenuously here because of the fact that so many things can happen to a hydraulic car almost instantly. A car might be running perfectly and the operator might on the instant stop with a heavy load and pull the packing out. A car, any hydraulic car, if you pull the packing out, as long as you have the lever in your hand you can operate the car. You can prevent an accident. But where your lever is locked you are through. That is the reason our committee down here voted so strenuously against the interlock. We thought it was all right if used in the right direction, but we opposed putting them on the hydraulic car. I believe every electric car will be required to put on interlocks, but my last advice and information was that unless they were convinced more than they were today, they would not give orders to install them on hydraulic cars. I will state for the benefit of the delegates here that there are two types of interlocks being very extensively used in the East. Neither of those interlocks have had the approval of the Commission of the State of California. If they change them and bring them up to the specifications then we will be allowed to use them, but here they will not pass inspection.
Mr. Woods (San Francisco, Cal.) : We have been using interlocks on our doors for a number of years and our experience has been that in the matter of upkeep it is practically nothing, because the company that installed them agreed to keep them in shape. But if you have an engineer who can watch them, there is practically no upkeep. The Otis Elevator company installed ours.
Mr. Dean Vincent (Portland, Ore.) : We felt that the thing was perhaps coming anyway, so we finally installed interlocks on our doors, and we don’t find that it slows up our service a particle and we find it very satisfactory. Of course I don’t know about this condition in the depart-72	OFFICE BUILDING PROBLEMS

ment store, but if they have a condition there where they have to have somebody jump off the elevator in order to slow it up, somebody ought to be arrested for that. Either the cages there are too big, carrying too big a load, or the power is wrong. It should be corrected.
Mr. Hilton : Well, now, on the condition of the elevator, anybody that operates a modern electric elevator knows that the thing hasn’t changed a great deal from what it used to be. That the factor that controls the car is the load in it and the boy is always there to judge hitting the floor by the load he has in the car. The old way, the operator had to judge the slip on his brake; today he has to judge the lag in the brake, and it is absolutely impossible—there isn’t a machine ever invented that you can call mechanically perfect. The boy has to use his judgment according to the load in the car. Unless a boy uses good judgment he won’t always stop right at the floor. Now on the point of letting cars crawl: if you will take the statistics of the Bureau of Standards at Washington, you will find that cars crawl; after a hydraulic car has been operated for a certain length of time it will creep. The Industrial Accident Commission went over every hydraulic elevator in San Francisco and Los Angeles, testing the creep per minute and I was personally there on all the elevators in Los Angeles, and I think we went over something like 80 or 100 cars and tested every one of them; some did and some didn’t crawl. Some crawled 3 or 4 or 6 inches in a minute, others would crawl if you let then go 10 feet. Now in the movement of a car 3 or 4 or 6 inches per minute, there is nothing dangerous about it at all. It is very seldom a car will stop over 20 or 25 seconds on a floor—that is, in giving any service at all—and if it is going to crawl only 6 inches in a minute it isn’t going to crawl 2 inches in that time, and an adjustment of the lever will bring it down. The movement of the car on the floor doesn’t amount to anything. The San Francisco Committee at the hearings voted to allow the micro-elevating car to move through a distance of 18 inches, but the Los Angeles Committee cut it down to 6 inches. I am not talking against interlocks, understand. Absolutely not. I don’t want you to be under a misapprehension. I am in favor of an interlock, absolutely. But I am waiting for somebody to devise a lock which will hold the car on the floor, not the elevator or machinery, but hold the car on the floor. When you get something that will hold the car on the floor, then you will have something that is all right.
Chairman: Gentlemen, is there anything further? If not, I will close the discussion on this subject and we will proceed to our next paper. Our next paper is on the subject of “Financing Office Building Construction in Los Angeles, by Mr. George R. Martin, Vice President of the Security Company. I take pleasure in introducing Mr. Martin.
iFINANCING OFFICE BUILDING CONSTRUCTION IN LOS ANGELES
By Mr. George R. Martin Vice President Security Company
Mr. Chairman, and members of the Pacific Coast Conference of Office Building Owners and Managers Association:
The subject that I am going to try to discuss with you is “Financing Office Building Construction in Los Angeles,” and, first, a word about the city itself.
To the uninitiated, Los Angeles is the puzzle city of America. Outside of California, the causes of her tremendous growth and prosperity since the war are an unsolved riddle. In California and to those who come within her gates for any length of time, her incomparable success is no riddle and holds no mysteries. There is but one answer and it is as old as industrial life in America, namely—cheap power, free labor market, climate, adequate water supply, accessibility to the most basic resources, superior rail and water transportation, and available capital for investment. These in different combinations have been the contributing factors to the population and industrial growth of our eastern cities, but never before have they been so favorably and opportunely assembled to the resulting benefit of one locality as in Los Angeles.
Steadily, constantly, irresistibly, for one or more or all of these reasons, the tide of population—a population with cash in pocket—is moving, pushing, from the most prosperous population and industrial centers of the East and South and Middle West to Southern California, and as steadily, constantly, and irresistibly is the tide of industry pushing in the same direction. Either the eastern manufacturer must become likewise a western manufacturer or he must compete in the West in the future with the western manufacturer.
Increasing freight rates, the insufferable problems of distribution due more particularly to the uncertainties of prompt and efficient transportation, are each accelerating this remarkable shift of industry to the Pacific Coast.
With this brief word of summary of the cause of Los Angeles’ development for a background, let us turn to one of the outstanding phases of that development, one in which you as building owners and building managers are more deeply interested—the growth of the city’s business area, its office building construction and how it has been financed.
It is a long distance back to 1800—but since time is not the essence of our contract today, and Egyptian Kings, of thirty-five hundred years ago can reign once more in the columns of our newspapers, we can go back to that date long enough to find that the first business life of this community centered around the Plaza. This was about six blocks north of the present corner of Spring and First Streets and Los Angeles then was only a74
OFFICE BUILDING PROBLEMS
typical old Mexican town. Even in those early days Los Angeles merchants showed tendencies of moving southward and the Baker Block on North Main and Arcadia became the business hub.
The first four-story building in Los Angeles was the Nadeau Hotel at First and Spring Streets and while the central business district continued to move southward it took nearly a century to reach what is now Fourth Street.
In 1900 Seventh Street was still in the country and when eight years later Hamburgers built their huge building on Eighth Street, covering the block between Broadway and Hill Street, the store was labeled and libeled “Hamburger’s Folly.” As late even as 1916 when Robinson’s moved from North Broadway to Seventh and Grand, doubting business men still were in evidence and were not brave enough to believe the store could succeed in its new location.
As the new Chamber of Commerce Building to be erected still further south on Twelfth Street between Broadway and Hill Streets will be, when completed, the farthest southern outpost of our present office building development, so fifteen years ago and seven years ago Hamburger’s and Robinson’s stores were the most southern outposts of our retail mercantile development.
The shift of the principal retail business district from north of Fourth Street to the Broadway and Seventh Street district within a period of ten years, followed by an amazing construction program of office buildings which followed closely in its wake is but the fulfilling of the prophecy which hovers over every American City, that the mercantile store will move in the direction of the best resident sections.
Ninety per cent of Los Angeles’ high class retail buyers live in westerly Los Angeles. Probably ninety per cent of the city’s wealth is situated in that locality.
The retail store of Los Angeles while located north of Fourth Street could not reach the northwest by either First, Second, Third, Fourth or Fifth Streets because of Bunker Hill and the broken country lying between the two districts. Sixth Street was a narrow street and was not a through street. Seventh Street was the one through street to Los Angeles’ fast growing section of wealthy residents and had width as well.
In less than ten years the best mercantile establishments, with one or two exceptions, had moved to the section between Fifth and Eighth streets and up Seventh. Within the same period over $14,000,000, in assessed valuation, was lopped off the business section north of Fourth Street and between Figueroa and Alameda Streets and was added to the assessment rolls of the new section immediately south.
In 1912 when this expansion of the business district was at its height the number of business building permits for the year was sixty-nine. Three years later it dropped to thirteen and in 1918, the war year, a new low point was reached—only nine business buildings being constructed during that year.
Beginning in 1919 a new building program began, fifteen permits being applied for during the year valued at $3,551,080. In 1920 thirty permits valued at $10,257,105 and in 1921, thirty-two permits valued at $6,591,635 were issued, while last year forty-eight permits valued at $14,־OFFICE BUILDING PROBLEMS	75
468,940 were issued. In a decade of time this city constructed three hundred and twenty-two business buildings, valued at $59,898,288, or an average per year of twenty-nine buildings valued at $5,445,293.
Some idea of the enhancement in business realty values during this period is reflected in the records in the office of the County Assessor, which place the value of the land and buildings in the business district in Los Angeles in excess of $600,000,000. The valuation of Los Angeles’ business district has doubled itself within ten years.
This increase in realty values of downtown business property may be further illustrated with two conspicuous examples. The Southwest corner of Seventh and Broadway was bought for $18,000 in 1890—thirty-three years ago. This property with the lot adjoining was recently leased for $125,000 a year, or a total for the ninety-nine year lease of $12,-375,000. The block of land bounded on the North by Sixth Street, South by Seventh Street, running from Broadway to Hill, belonging to St. Vincent College, was sold to a local syndicate for $100,000. Today it is the most valuable block in the entire city and the ground without improvements is worth more than $10,000,000.
One of the things which has contributed most to the growth of the downtown section is the ordinance which was early adopted, limiting the height of Los Angeles’ office buildings to 150 feet. Los Angeles was the pioneer in this movement which is spreading to other municipalities throughout the country, Milwaukee even having a 125 foot skyline. Personally I am in favor of tall buildings but according to our City Planning Commission three direct benefits have been obtained by limiting their height; first, the exceedingly high cost of engineering and related expense of skyscrapers was obviated; secondly, the disproportionate overhead cost in rendering such service as elevator operation to excessive heights was eliminated; and thirdly and most important of all, the lower floors of buildings in the Los Angeles business district cannot be rendered wholly valueless by obstructions of light and air as in the case of many of the structures in such eastern cities as New York. The ordinance has proved beneficial in still another way in the more even distribution of traffic congestion during the morning, noon and evening hours than could have resulted if the city had permitted the construction of extremely high buildings.
Moreover, the concentration of business in a comparatively small center, bound with an iron ring of limited development, as far as ground area is concerned, leads to formidable ground rentals, whereas the broadening out of the City’s business district has resulted in a more equitable distribution of the rent load.
The first fine group of office buildings to be erected in Los Angeles was at the corner of Fifth and Spring Streets, the Security Bank Building, the Title Insurance Building, the Alexandria Hotel and the Citizens’ National Bank Building. To the east at Fifth and Main the Rossyln Hotel was constructed, to the south at Spring and Sixth the Merchants’ National Bank Building and the Trust and Savings Bank Building, and to the west at Fifth and Broadway, the Metropolitan Building and the Title Guarantee Building. All of these buildings were put up during the years 1909 to
Since the war there has been constructed on Fifth, Sixth, Seventh76	OFFICE BUILDING PROBLEMS
and Eighth Streets such splendid business and office buildings as the Fifth Street Store and the Pacific Mutual Life, the Pacific Finance, the Sun Drug Company, the Pantages, the Junior Orpheum, the Hill Street Theatre, the Loew State and the Grauman’s Metropolitan Theatre Buildings.
All the buildings mentioned are on corners. The corners in the enlarged business area were the first to be improved. When the extension of Fifth Street has been made through Normal Hill, the Southwest corner of Bunker Hill, giving the business district another through street besides Seventh Street to Northwest Los Angeles, a number of undesirable buildings between the corners of Seventh, Sixth, Fifth and Fourth Streets, will be required to give way to more substantial buildings. The Fifth Street improvement is expected also to back up the business district again to Fourth and possibly to Third, especially on Broadway and Hill Streets. The increasing commercial importance of both Fifth and Sixth Streets is being reflected today in increasing rentals for new leases that are being made in this district.
The Biltmore Hotel, now nearing completion on Pershing Square, adds greatly to the city skyline, and when completed will be one of the few very finest hotels in America, certainly none to compare with it in the West. The Biltmore Hotel is the embodiment of the spirit of cooperation which has manifested itself during various periods of the city’s history—that same public spirit which has been responsible for the creation of a metropolitan city out of a desert waste.
Forty-five men met and formed a committee a year and a half ago to finance the project. When completed it will have cost in land and building $7,000,000. The financing was quickly consummated to the resultant cooperation of business interests. Construction started with equal speed, and it is now believed that the hotel will be completed forty-five days ahead of schedule. The hotel has been leased to John McE. Bowman, Manager of the Baltimore Hotel of New York City, at a rental of six per cent net on the cost of the ground and eight and one-half per cent net on the cost of the building. The lessee is to pay all taxes and assessments including income tax of owning corporation. Under the terms of this lease the lessee agrees to completely furnish and equip the hotel at a cost of not less than $1,000,000 and to secure the lease by lien on this equipment and furnishings.
A similar public spirit was evidenced in the financing of the new coliseum at Exposition Park, which will seat 75,000 people. Fifteen private citizens underwrote the million dollars it took to finance the project that Los Angeles citizens might quickly obtain a coliseum which the city so greatly needs. It will be a monument to the unselfish public spirit of our citizens.
How have these office buildings, hotels and various other business properties of Los Angeles been financed ? Almost in every case they have been financed by Los Angeles financial institutions—such as the banks, the banks with bond departments, the bond houses and the insurance companies. The exceptions have been very largely those office buildings and hotels which have been built by the old families of the city and which bear their names, some of them being the Bradbury, J, W. Heilman, H.OFFICE BUILDING PROBLEMS	77
W. Heilman, I. N. Van Nuys, A. G. Bartlett, W. P. Storey, W. I. Hollingsworth and Brockman Buildings, and the Lankershim Hotel.
There are two types of office buildings financed in Los Angeles. First, buildings erected on leaseholds. These are usually long-term ground rents, where the term of the lease greatly exceeds the term of the bonds. The building to be erected is additional security for the rentals. The building when erected becomes part of the freehold and passes to the owner of the ground, subject to the lease. This means that the security behind bonds issued on such a building may be lost, in the event that the lease is terminated through failure to pay rental, maintain insurance or meet other requirements. The major part of the money secured for the erection of buildings on leasehold interests is from the sale of bonds. The bond issue is fully created and completed and the lien protected before any contracts are let for the erection of the building. The proceeds of the sale of the bonds are impounded with the trustee and by it disbursed on architects’ certificates for the construction of the building. In every case such bonds should be amortized out of the rents from the building on a carefully regulated plan.
Several such recent bond issues provide that the trustee shall collect the rentals, pay the ground rentals, maintain taxes, necessary insurance, deduct required amounts for interest and sinking fund payments, and turn over the balance, if any, to the lessees. The trustee is particularly empowered to see that no forfeiture occurs under the lease, otherwise the entire security for the bonds may be entirely swept away.
Secondly, bond issues created upon a fee in real estate, which are much more secure, in these cases, likewise, all the bonds, must be issued and sold and the trust deed recorded before any contract is let for the erection of the building. In these cases, the proceeds of the sale of the bonds are deposited with the trustee and by it disbursed on progress payments under architects’ certificates. Otherwise mechanics’ liens may fasten on the property ahead of the lien of the bonds. Usually a strong indemnity bond is also furnished the trustee, providing for the deposit of additional money or guaranteeing the completion of the building in the event that the money received from the sale of bonds is not sufficient for that purpose. The trustee also must see that the taxes are paid and proper insurance maintained during the course of construction. A recent superintendent of banks has initiated the policy of requiring that such bonds should be serial and would not permit their maturity in a lump sum. This plan is now usually followed, necessarily calling for annual sinking fund payments in agreed amounts. It is highly important that proper fire, earthquake liability, and other types of insurance be always maintained with proper riders attached.
It is important that buildings covered by long term bond issues be erected under a corporate form, rather than by individual owners. One of the largest office buildings of the city may be cited as an illustration of what may happen in the latter case. The building was owned by an individual who created a personal bond issue. He recently died. It now becomes necessary for the trustee to file a contingent liability claim against his estate, which will prevent the closing of his estate until the last bonds are finally paid, which will be ten or fifteen years, unless the estate calls the old bonds, pays the required premium to the holders for so doing, and78
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either retires the bonds out of estate funds or refunds the issue. Moreover the State Inheritance and Federal Estate taxes are public liens against the property ahead of the bonds, similar to tax liens until paid. If not paid the bondholders will have to make immediate provision for them. Otherwise, the property would be sold to pay these taxes and the security lost to the bondholders. This could not occur when a corporation creates a bond issue. The loans that have been made on office buildings in Los Angeles have been in the form of serial bond issues almost entirely—a definite amount of the bonds falling due from one to ten,or from one to fifteen, or from one to twenty years—an amount sufficient to cover depreciation of the building and to minimize the risks; first, from mistakes of judgment in appraising the property; secondly, from loss of value that may occur during the life of the loan because of any shift in the business area to another part of the city; and thirdly, because of possible loss in value from general business or financial depression, and other closely related causes.
Amortization of building loans by serial annual bond payments, however, has not always proven adequate in this respect in other large cities of the country. And loaning agencies in Los Angeles with increasing demands being made upon them because of the enormous amount of development work now going on in all our productive and business pursuits are already beginning to make more exacting requirements. Some of these, doubtless, your Association gladly encourages—higher standards of design and construction, more efficiency in planning and sounder methods in financing.
Too often property has been appraised in a general sort of way, the word of the individual desiring to construct the building being taken for fact that the proposed new building will meet a real need in the community, and that the design worked out for the building is a suitable one.
Bankers have learned, bond men have learned, you have learned from your own experience as builders and managers that any injury to the business community affects us all. It is not sound business in these days of economic and political uncertainties, in these days of increased costs of construction, of operation, and maintenance, to leave anything to chance—to take snap judgment or to place all the risk at the door of the builder. All three elements of the transaction, the builder, the financier and the investor who finally puts his savings and surplus funds in the bonds to be secured by the property, are mutually interested in the sucess-ful construction and operation of the building and both the financier and the builder must cooperate, not only for their mutual benefit, but to protect the investors’ interests as well.
Therefore, you are going to find in this community on the part of loaning companies, stricter supervision on the part of plans and specifications, greater stress laid on the need for the proposed building or buildings and the suitability of the designs submitted. You are going to find more attention paid to the character of the builders and the building management, more attention paid to the type of tenant that will be sought by the managers of the building—in short, you are going to find more care * taken by those who are to supply the funds, both in the set up of the
loan and the influences surrounding it from every angle.OFFICE BUILDING PROBLEMS	79
In Los Angeles you building owners and managers have already demonstrated that a well constructed office building of pleasing design, efficiently managed with the most desirable tenants, creates its own environment and acts as a magnet in drawing business to it and its locality. So excellent has been your work in this regard that more and more you are being called upon by financial institutions as consultants that they may obtain, along with the judgment of their own architects and engineers, your practical grasp of office building construction and operation.
The modern office building is the chief contribution of this commercial age to architecture and nowhere in America can finer types of these buildings be found than in Los Angeles. This is true both in point of beauty and point of utility. In a community where the civic consciousness, due largely to the constant influx of new people, is not yet robust and coherent, you members of the local branch of your association can be congratulated on the way you have assumed your responsibilities and have directed your building operations which are of architectural credit to this city.
Los Angeles doubtless will be the fourth—it will likely be the third-largest city in America. A greater civic consciousness would make of it the most beautiful city in America. May your spirit of city planning and city building, your spirit of enterprise, reach the very soul of this community and during the next few years there will be added to our fine groups of office buildings and hotels and our library and our coliseum now in the building a new auditorium, a new city hall, a new city jail and museum of art and a solution for our rapid transit problems. May we grow big, not only in numbers, but mentally, culturally and spiritually as well.
* * * *
Chairman : Gentlemen, you have heard this very delightful talk. It is very informing indeed, and especially so to the outsiders who are not so conversant with what we have been doing. Are there any views to be expressed on the subject? We would like to hear from anyone.
Mr. Douglas (Seattle, Wash.) : Well, it is a little off our own subject, I think, but it would be very informing if we could find out how they financed this coliseum.
Mr. Martin (Los Angeles, Cal.) : There were fifteen men who put up the money, a million dollars, to finance the coliseum. That is my understanding.
Mr. Douglas: Did they donate it?
Mr. Martin : They pledged their names to obtain the money from financial institutions practically on their own signatures, and they expect to get this back as the coliseum is completed and it becomes an earning proposition. If not, they stand to lose the money, but of course they don’t expect to do that. I am not familiar with all the details of it.
Mr. Douglas : After the money is returned, does the coliseum then go to the city?
Mr. Martin : I am not acquainted with this particular subject. I understand these fifteen men raised the money, they have title to the real estate and I think they are sufficiently well protected, while the holding will increase as other real estate has in Los Angeles and it will be worth80	OFFICE BUILDING PROBLEMS
considerably more. A bond issue of the city will be made and it will be deeded later on to the city, when they get their money back.
Chairman: Mr. Douglas, I think, so far as this particular project is concerned, the promoters have no fears at all as to the outcome. This is the outcome of what we call the Community Development Association here, a volunteer organization gotten together a year or so ago for the purpose of promoting matters of large public advantage, and when our bond issue for the building of the stadium failed, they saw the only way to get it within a reasonable time was to build it themselves, and they think they will be able to demonstrate to the voters that they are fully justified in voting a bond issue, as the returns will take care of the bond issue.
Mr. Heywood: It might be interesting to some of our friends here to know something about the way we financed the Chamber of Commerce Building. I am passing from the past grip of Pittsburg to the real grip of Los Angeles and I am sort of taking my hat off to the fellows out here. I thought Pittsburg was the center of the universe; I used to say I could prove it because we could see the horizon at an equal distance around us, but they have no horizon here. Light fails to travel the distance to which these men carry their vision. A few men got it into their heads that we needed a Chamber of Commerce Building, but we didn’t have the means, so a few of the men looked about and said “We will sell a few gold notes,” and they sold only $600,000 worth of 5% gold notes, without any security back of it except the Chamber of Commerce, and they did it in three days; and then they needed some second mortgage bonds and they sold the $500,000 worth of second mortgage bonds at 7% ; they got it by noon of the second day they offered it. The people here pull together and they pull together mightily. They all cooperate. They are all wonders,—well, I had better stop, because I am hopeless.
Mr. Bewley (Lodi, Cal.) : I want to ask a few questions. What rate of interest did your obligation bear?
Mr. Martin : I think in most every case the bonds bore 6% interest. I know of none—on the Security Building those bonds verified at 5%% interest. All the newer buildings in the last five years have brought 6%.
Mr. Bewley: You sold them to the local banks?
Mr. Martin : No; they have been underwritten by the banks with bond houses and then sold to the public.
Chairman : Regarding a loan being impounded, does the total loan begin to bear interest immediately and regardless of when the money is paid out?
Mr. Martin : Yes, it begins to draw immediately, and you will naturally say, well then the builder has his money and is paying interest on it and doesn’t need it, and what do you do then. Well, usually the trustee pays a nominal interest of 3% or 3% on the amount impounded, so he is out the difference.
Chairman : For instance, if the cost of a building and the lot would be a quarter of a million dollars, what percentage of that amount would be loaned?
Mr. Martin : Well, Mr. Chairman, I wouldn’t like to call that a hypothetical question, but as I said before, an application for a piece of property comes before you, the set-up on the loan in nearly every case
OFFICE BUILDING PROBLEMS	81
is different, there are so many angles to it, but I would say, as a rule, the loan is about 50% and it has been as high as 60%, but usually 50% of both the land and the building.
Mr. Bewley : It depends upon the attractiveness of each individual investment. You may get a low ground rent and large equity has been obtained by this time in the increased value of the property. You may have made your lease very recently and a very small equity has been acquired—and then you may be able to show a tremendous earning power of your building—getting a favorable location and ground-floor leases and upstairs tenancies already acquired. It depends altogether on the strength of that showing as to the proportion of the cost of your building that you can obtain on a bond issue usually. Where this is very uncertain and your locality has to be developed, and so forth, it is exceedingly difficult to get a very large proportion of the cost of the building. In many instances you can get as much on a leasehold as on the fee, where the difference between the ground rent you are paying or the ground rent you would have to pay if you took the property now, is so great that it passes as if it were a loan on the fee title.
Mr. Dean Vincent (Portland, Ore.) : Are the bonds sold at 6% ?
Mr. Martin : I don’t think I would say an average case would be five points. Every case is different. I know of one which is just now in the process of being worked out. The land and the building will cost $1,200,000 and the loan will be $525,000, being paid in serial amounts, one to fifteen years, the last year $250,000, and the bonds will bear 6% interest and will be paid at ninety-four; while with some other proposition, the location of the building may be such and all the elements in it are so good that they may be able to get the money at three points off of 6%. It depends on the market.
Mr. Vincent: One thing is the specific difference between your leasehold and your fee.
Mr. Martin: Yes, there is, as far as market is concerned, but as far as the profit to the underwriter is concerned, I would say not. I would say at the present time the market for first class building bonds, secured by mortgage on land and building, is 6%, while on leasehold it is anywhere from 6.40% to 6.80%.
Mr. Vincent: If you put your mortgage on record the labor lien does not apply.
Mr. Martin : That is true, but the bonds must be actually issued and paid for. The money must be paid over before you can actually construct your building; then the liens that are slapped on afterwards do not come ahead of the bonds. It is true both of mortgage and leaseholds. The bonds must actually be issued and the mortgagor must have his money. He impounds that with the trustee, as a rule, and then the money is paid over on architects’ certificates.
Mr. Vincent: That does not apply on a strictly building market loan—if he only advances as the occasion demands—
Mr. Martin : I don’t know of a single instance where a loaning company is willing to pay over the money without having a grip on it in some way before the building is finally built and you know everything is all right. In almost every case that money is impounded.82
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Mr. Kent: In a building loan, it is usually paid out in installments. I know on residences it is paid out in three installments, the last installment 60 days after the building is completed.
Mr. James Martin: I would like to state for the benefit of the members present that your Chairman, Mr. Ward, can probably answer many of these questions better than anybody in this city and probably knows more about it from the experience he has had. He can tell you about leasehold lands and fee lands, and is probably more experienced in the business district and the building up of it than any other man in this business. So shoot your questions directly at Mr. Ward, as he knows exactly what he is talking about.
Chairman : I would like to return about three-fourths of that compliment to Mr. Martin, as all I know of this business was learned from Mr. Martin, and he is simply bragging about his pupil now.
I might say with reference to our California laws, our statute permits either the owner or the mortgagee to protect himself in a satisfactory way, by posting a notice upon the property, that he will not be responsible for any expenditures of time or money put upon the property, and to file a notice of that kind in the Recorder’s office; so that every man who expends money, either in labor or in material, must find out where the sinews of war are coming from and know upon what he is relying.
This is a wonderfully interesting theme and it has so many variations that we could spend several days upon it. I think we should have a session devoted exclusively to this financing of buildings; its ramifications are so great that you must know them in order to know whether you are safe in proceeding or not.
Delegate: I think Mr. Martin referred to a recent ruling of the State Bank Commissioner regarding the maturity of these issues. Can we get a copy of that by addressing the Controller?
Mr. Martin : I haven’t actually seen a copy of it. But I feel safe in making the statement that he has limited building loans from 1 to 15 years; that is true of a recent Superintendent of Banks and it was followed by his successors. Whether the new Superintendent of Banks may rule entirely different, I don’t know. There has been no ruling made by the present Superintendent.
Chairman : That applies solely to fee simple bonds. It does not apply to leasehold bonds.
Mr. Martin : No, he will not apply it to leasehold bonds.
(At this time an adjournment was taken until 2 o’clock P. M., Feb.
24, 1923.)AFTERNOON SESSION—FEBRUARY 24, 1923, 2 P. M.
Mr. Shirley C. Ward, Presiding
Chairman : Gentlemen of the Conference, the first topic on our program this afternoon is “The Power Plant and Its Problems,” by Mr. H. L. Hilton of Los Angeles. I now introduce Mr. Hilton.
THE POWER PLANT AND ITS PROBLEMS
By Mr. H. L. Hilton Los Angeles, Cal.
Gentlemen, and Mr. Chairman: They have given me a subject under which the sub-heads alone would be subjects themselves, but I have treated them shortly so they won’t bore you.
The power plant is recognized as the heart of the office building, As it functions—good, bad or indifferent—so is the structure a success or a failure. Great changes have taken place during the last decade and it is a matter of immediate moment as to what size structure will warrant the installation of a power plant. There are conditions, mostly local, that enter into the matter before a final analysis can be made and a decision arrived at. Reliability of service is the principal matter to take into consideration, because no matter how low the cost, if the service is being continually interrupted it will prove very expensive. The cost of steam for heating purposes will vary according to the type of plant you buy it from, also the location of your building with relation to the producing plant. If the seller has an abundance of water for condensing purposes he would not create a back pressure on the machinery he is operating, as his loss in efficiency would be very great. If he did it—so as to supply the steam market—he would have to charge more than it was worth to offset his loss in efficiency. On the other hand, if condensing water was scarce, he could afford to create a back pressure of from one to three pounds and sell steam at a good profit owing to his small loss in the efficiency of his operating machinery.
Owing to the extensive development in electrical energy, coupled with the increasing efficiency of the different prime movers that generate it, we can purchase electric power at a reasonable cost in nearly every part of the United States. Therefore, there has been a tendency to shut down the generating sets in many office buildings, especially in the cities of San Francisco and Los Angeles, and purchase power from the Public Utilities Corporations. This has caused a change in the steam pressures from high—or, let us say, one hundred fifty pounds—to low, at five pounds, which is the average pressure that is carried for purely heating purposes. This is reflected in new buildings and has resulted in the development and installation of low pressure cast iron sectional boilers, which generally operate at a pressure not to exceed five pounds. This change that has84
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taken place is the direct result of the development of the electric elevator, which is now conceded to be the only type of machine to install in a modern structure.
In the heating of office buildings, there are two generally accepted methods, the direct and the indirect. The direct is the one generally used and it comprises at the present time the two-pipe system. Steam entering the radiator at one end under pressure and the condensation and air leaving the radiator at its opposite end through an automatic thermostatic trap whose return side is kept under a vacuum produced by a pump. The indirect method is in fact two systems in one, i.e., heating and ventilating. The building is equipped with air ducts to every room. These lead from one or more main lines which have their inception in plenum chamber in the boiler room. This chamber is large enough to contain the total amount of radiation for the whole building and consists of a number of banks of pipe coils, so set and connected that one or more may be set to circulate steam according to the outside temperature. A pressure fan is set in a duct that connects from the outside building wall to the plenum chamber and its duty is to draw the air from the outside and blow it through the banks of hot steam pipes and on up through the ducts to the several rooms. With this installation there is generally a discharge opening in the room to a duct that leads to the outside.
Steam pressure for heating purposes should be low, in order that the temperature of the heated surface may be kept at such a degree as not to abstract too much moisture from the air. Steam can be circulated at, or even under the pressure of the atmosphere; the temperature of all the radiators is under control and the fact that the circulation is quite independent of the pressure of the steam makes exhaust or waste steam from the engines equally as efficient for heating purposes as live steam. When exhaust steam is employed as the heating medium it is necessary to extract the grease by means of a separator so placed as to intercept the grease before the steam enters the heating main, also, to have an outlet to the atmosphere which should be closed by a back pressure valve.
A low pressure can, however, only be used for circulation when a vacuum return line is maintained, for unless the air is first exhausted from the apparatus a definite pressure is required to force it out of the air valve. With a vacuum return line steam traps are required on the radiators and no foul air is discharged into the room under any circumstances.
Mr. A. R. Wolfe, of New York, introduced the heat transfusion factors for different kinds of walls, these being adapted to American units from values in use by the German Government.
Computing Radiation
The common sense basis for computing radiation appears to be to determine the loss of heat per hour through walls and glass and that by leakage, making a certain allowance for reheating and dividing the total loss of heat by the amount emitted by one square foot of radiating surface per hour. . The loss of heat through brick walls of from thirteen to eighteen inches thick is generally taken as equivalent to about one-quarter thatOFFICE BUILDING PROBLEMS
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through a square foot of glass. Knowing the total exposure and the glass surface, the latter is subtracted from the former, giving the net wall which, divided by four, gives the equivalent glass surface represented by the letters E.G.S. The equivalent glass surface of the wall plus the actual glass surface gives the total E.G.H., which should be multiplied by the number of heat units transmitted per square foot per hour by one square foot of glass with 70° difference in temperature taken as 85. This product in turn is to be multiplied by a factor based on the exposure. These factors are commonly 1.25 for an exposure to the north or west, and 1.15 for an exposure to the east. No factor is used for a southerly exposure.
The total product of the equivalent glass surface times 85 times 1.25, for example, gives the total transmission of heat per hour.
In order to allow for reheating, that is to say, warming a room that has been allowed to cool over night, it is convenient to add a number of heat units, represented by the cubic contents divided by 3 for a room with two exposures, and by a number represented by the cubic contents times 2-3 for rooms that have one exposure.
In regard to allowance for leakage, the accidental leakage at windows is, as a rule, sufficiently covered by the factor 85 for heat loss through glass, as the actual loss is probably less than 85. Some authorities use a factor of 70.
Now take this example in which we assume a corner office 16x16x10 equals 2,560 cubic feet. The exposure will be 320 square feet. We will assume a quarter or 80 feet to be glass, leaving a net wall surface of 240 square feet, divided by 4, gives 60 square feet E.G.S. This added to 80 square feet of actual glass, gives a total of 140 square feet E.G.S. 140x 85x1.25 equals 14,900. To this a number of heat units equal to the cubic contents divided by 3, equals 855, which added, makes a total of 15,755 heat units, which divided by 250 (the heat given off per square foot of direct radiating surface per hour when placed in rooms at 70° temperature) gives 63 square feet of direct radiating surface, or 1 square foot to approximately 41 cubic feet of space.
Types of Steam Traps Used on Radiators
When the two-pipe return system of steam heating came into general use, it was quite a problem as to what type of discharge trap to use on the radiator. The majority of traps were of the float type, but they did not last very long. They were discarded in favor of the valve whose action was controlled by a volatile liquid in a hermetically sealed chamber. Some of the valves have the steam pressure upon the volatile chamber, while others depend upon the radiation of the heat through the valve proper to the volatile chamber on the vacuum side of the valve. There are several different designs of the valve proper. Some have flat valve and seat, others have conical valve and seat, while again some have razor-edge valve and flat seat. Some are set horizontal, others vertical, and all claim to have special features and to function perfectly.
Various designs of the volatile chamber are offered to overcome the fatigue of the metal due to, ifs «constant bending.86
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Design of Radiators
The design of the radiator has changed and we now have a unit that is very efficient. It was found that when air circulated upwards around the radiator that it absorbed all the heat possible after ascending approximately twenty inches. Therefore, we seldom see the old thirty-six inch radiator except in hallways where there is a direct breeze upon it. It was found that to hang a radiator on a wall made the cleaning of the floor of the room much easier and also saved valuable space.
Plumbing Installation
In the matter of drinking water service for the office building, some have advocated the installation of ice-water systems somewhat the same as that generally installed in the modern hotel. There is, however, a distinct difference between the permanent tenant in the office building and the transient guest of the average hotel. The tenant has his likes and dislikes and by the number of brands of bottled water which are delivered to office buildings, it is doubtful if an iced system of water would pay dividends. There is no question, however, but that it would be a good talking point in selling space.
The question of the plumbing installation in an office building is one of the most serious problems that confronts the building manager and owner. If this question were taken up in an intelligent manner and one could get the cooperation of the plumbing contractor, and assuming that the manager had the implicit confidence of the owners, there would be no doubt about the installation of plumbing that would be a credit to the structure and one which would have a minimum of repairs and replacements. We are all familiar with the damage that occurs due to stopped-up drains, over-flowing toilet tanks and leaks that develop in the piping system. It is never entirely possible to circumvent all trouble, but a careful supervision and a thorough inspection during the entire course of construction will eliminate most causes of upkeep-expense and trouble. For instance, the expansion joint on hot water risers is one that gives endless trouble. This joint is usually a swing joint put together with street ells and it is only a matter of time until the threaded part of the ell breaks off. This will usually happen in the night when the contraction takes place; then before the leak is discovered, and it is possible to shut the water off, considerable damage has been done. It is my opinion that a copper U-bend is the best expansion joint possible to install.
We have all had our troubles with the drains from urinals. Did yon ever stop to consider what caused them? As a rule, all pipe fittings are tapped out what we call square, and, as a rule, the waste nipple from the urinal to the waste pipe will be level. In some cases this pipe is two feet long and the slow movement along it causes it to scale up solid and in consequence you have water damage and plumbing bills to pay. This could be eliminated if we could induce the plumbers to install the waste pipe on an angle of forty-five degrees.
Another serious defect in plumbing installation is the fitting and the nipples used in making the connections for wash-hand basins. If the plumbing contractor has not the right size fittings, he will invariably use a cast-iron bushing to reduce the fitting to the size of pipe he is going toOFFICE BUILDING PROBLEMS	87
use. This is usually three-eighths of an inch. From the bushing to the wall is ordinarily a short distance and after the plastering is done the pipe is, of course, solid in the wall. When the expansion starts, due to the circulation of hot water through the pipe, the riser starts to elongate, and as a connection that is plastered solid in the wall cannot move, a strain immediately takes place and it invariably starts to give in the weakest place which in this case is the bushing. After a certain period this continual working on the weak bushing causes a break. Never allow a plumbing contractor to install a system with a bushing in it. If he cannot get the right fittings insist on his using a nipple and a reducer.
Endless trouble is caused by the installation of a cheap brand of faucets. Owners very seldom see the difference between cheap and expensive faucets. All that is apparent to them is that they are both nickel-plated and look alike. They see no reason why the less expensive one should not be used. The building manager is wise if he will insist on the best faucet on the market, and he is lucky if the owners coincide with his views.
Never allow a connection that is foreign to the fire protection service to be made on fire lines. If the valves are to remain tight the pressure must be steady. A flow of water through the pipes coming to a sudden stop will make a nice set of leaky valves.
Where water is cheap the automatic flush will give the best service on urinals, but a master valve should control them so as to. shut off the service at night.
Great care should always be taken that your hot water system is properly vented at its high points. Do not take the stand that the contractor knows his business. A badly circulating hot-water system is a thorn in the side of many a building manager and owner. I again emphasize—keep very careful supervision during the construction period.
Electrical Energy
With the installation of low pressure heating systems, it is becoming the practice to purchase energy from the central station. Where this is done arrangements should always be made to install a master meter for each class of electricity used in the building. From these meters it is then possible to sub-meter all the electrical energy to the tenants, whether bank, store or office. In this manner you purchase in quantity at a low rate and sell in small lots at a higher rate. In nearly every case where this is done it has been found that a nice profit was made on the transaction. The central stations have started a campaign to eliminate as far as possible the use of direct current for lighting or power. The line losses on direct current are so great that it is quite a problem to keep the voltage up. The elimination of direct current is made possible by the advance in the design of both the alternating current motors and starting devices. The majority of the electrical equipment used in offices is so designed that it can be used on either direct or alternating current. Many office buildings that are now equipped with direct current generators are changing over to alternating current when the energy is not used for electric elevators.
The design of the power plant for an office building should be such that it will guarantee continuity of service, high efficiency, and with a88	OFFICE BUILDING PROBLEMS
minimum of operating expense. This can only be accomplished by cooperation of manager, architect and owner. This cooperation must start with the inception of the structure if the best results are expected to be attained.
Mr. Hilton : I will make a little explanation at this time. There was a little misunderstanding with regard to the matter of who was going to talk on elevators and I did not prepare a paper on that subject, but at the last minute Mr. Kent has asked me to say something, so I am going to read an excerpt from a paper by a friend of mine. That excerpt is as follows:
Elevator Equipment
If there is any one piece, part or parcel of an office building, apartment house or hotel that we owners and building managers know all about, from the day we first step into our building, until the day that we step out, that particular wild, unruly, everlasting nightmare is our elevator plant.
The steam may go off, the water pipes burst, the lights go out, or the janitor partake of our tenants’ best cigars and complaints will trickle into our waiting ear. But let the elevator stop for about 30 seconds, maybe the operator is only powdering her nose, but the roar that arises from our tenants’ throats would shame a boiler factory.
Like anything else, the elevator industry has grown from a modest beginning until today the elevators in a building properly designed, will cost from 7% to 10% of the total outlay for the structure; and we realize that if it were not for the elevators and the concentrated efforts of the manufacturers to keep abreast of the times, modern office and hotel buildings would be impossible. The development of the high speed electric elevator alone has made possible the sky line of New York today, or such buildings as the Wool worth, Singer, Equitable Life, and others would never have come into existence.
Naturally, the greatest development in any line occurs where the demand is greatest. The elevator business in New York City alone is perhaps greater for any given time than the combined business in the same industry in the balance of the United States. So there is where we find today the very latest equipment known to the elevator art. I am going to mention a few of them briefly to give you an idea of how this science has actually developed to a point undreamed of a few years ago.
You are all familiar with the modern gearless traction elevator, traveling at a speed of about 600 feet a minute, controlled by an operator in the car by means of a switch, the moving of which will send the car up or down and stop the car as desired by the operator. The entire movement of the car is dependent upon the skill of the operator and the patiently waiting passenger gets on the elevator, providing the operator sees his signal and condescends to stop for him. Now let us see the very latest method of handling the elevators in the new Standard Oil Building in New York City. We have the same machine, operator and all, but nowhere in the car do we find a car switch. So we get on the car on the ground floor, the door is closed and at once we glide upwards, the operator paying no attention to the elevator after having closed the door. All at once we slow down and stop without any movement on the part of the operator. When theOFFICE BUILDING PROBLEMS
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car is stopped, the operator opens the door and we find a waiting passenger. How did the operator know the passenger was waiting? There was nothing to indicate it in the car. The secret of all this is as follows. By-means of a cleverly designed controller the mere closing of the hatchway door starts the elevator in the direction desired, automatically accelerating to full speed. The passenger waiting at, say the tenth floor, presses an up button. This automatically stops the first elevator passing that floor in the up direction regardless of the operator in the car, and so on until the car is full of passengers, when the operator presses a button which clears his car of all call buttons, but transfers the call to the next car going in the same direction. By means of this system, the operator can devote his entire attention to the opening and closing of the doors and the waiting passenger stops the elevator himself, resulting in much quicker and safer service rendered to all. Should the passenger in the car desire to get out at any floor, the mere pressing of a stop button in the car by the operator, brings the car automatically to a stop absolutely level with the desired floor.
How many of you building managers and owners have groaned at the excessive power bills as you sign the check every month? Listen to this latest wrinkle that will make your heart glad.
Your present equipment is driven by its individual motor and with, say ten elevators in your building, you have ten large motors eating up electric current. Even the current generated by the elevators on their clown trips with full loads goes back into the power mains and does not do you any good. If you were to install new elevators today, you would be offered the same equipment as before except that the rheostatic controllers would all be done away with and in their place would be a multivoltage group control system. This consists essentially of a specially designed motor generator set, the generator side so designed that voltages of 60-120-180-240 volts can be pulled off in any combination desired. Assuming the same plant of ten elevators at, say a duty of 2500 lbs. at 600 f.p .m. each elevator having a driving motor of 32 horsepower or a total of 320 horsepower; on the old type elevator you would have 320 horsepower worked across the power line all the time and the starting current would at times jump to around 450 H.P. should all the machines happen to start up at once.
With the multi-voltage control, each elevator attains its driving current from the generator side of the compensator, drawing off 60 volts to start and picking up the various voltages as the speed increases. But with a bank of ten elevators, at least five are going down at the same time the other five are going up, and the five going in the down direction are actually generating current themselves. This current, unlike the old type elevator, does not go into the power company line, but backs up through the generator and assists in feeding some of the elevators going in the up direction. This in itself effects a great saving in current consumption, and in addition to the saving in this manner, experience has proven that a multi-voltage generator set with a capacity to handle these ten elevators with a total of 320 H. P. need only have about a 200 H. P. driving motor, thus saving a current of about 120 H. P. or in round numbers reducing your power bill about 30% with the additional advantage of quicker get90	OFFICE BUILDING PROBLEMS
away, more accurate stops and a wonderfully easy riding car. You may be interested in knowing that the new Matson Building in San Francisco and the new Oakland Bank Building will be equipped with the multi-voltage group of control and in addition have micro-drive self-leveling attachments.
For those not familiar with micro-drive self-leveling elevators, I would briefly state that it is a combination of the standard geared and gearless elevator with a self-leveling micro-drive motor which will automatically stop the car level with the floor desired, independent of the operator. Over 1000 of these elevators are in use today. The chief advantages are: increased service, through accurate stops, lessening of the accidents due to passengers tripping when platform is not level with the threshold, a saving in power consumption, controller contacts and lengthening of the life of the machine.
Selecting an Elevator for Specific Service
In determining the proper elevator for different classes of buildings, let us start with the office building, because, as a rule, elevator problems in an office building are very exacting and require a great deal of study and analysis. The average office building has three peak periods each day; one in the morning; one at lunch time and one in the evening. From different analyses which we have made of office building population, we find a variation of from 85 to 120 square feet to the occupant, especially in large cities. A fair average would be 100 square feet to the person. Observation indicates that in the usual office building one-third of the occupants enter in fifteen minutes. There are buildings where a greater number than this would enter at this time, but let us assume this figure, as it is about the average for the influx of people into an office building at the morning period.
Tests, which have been made, show that the maximum service is obtained when an elevator stops at 80 per cent of the landings on the up trip. Let us take, for example, a sixteen-story building, fifteen floors above the ground floor, with a rise from first to second floor of sixteen feet, and a rise from the second to sixteenth of 154 feet, giving a total rise of 170 feet. Let us assume a net rentable area of 8,000 square feet to each floor above the first. Fifteen floors would have a net rentable area of 120,000 square feet. With a car platform 6 ft. by 5 ft., outside measurements, twelve passengers can be carried comfortably.
With a car speed of 600 feet per minute or 10 feet per second, the up trip can be made without stops in 17 seconds. Assuming that we made 80 per cent of the full number of stops, we would stop at twelve floors on the up trip. Allowing 17 seconds for the up trip, 17 seconds for acceleration and deceleration, 17 seconds for the down trip (no stops), 10 seconds each for top and bottom slow down, one second for loading and one second for discharging each passenger, and 5 seconds for opening and closing each door, or 60 seconds, would obtain a total trip of 155 seconds.
With 120,000 square feet rentable area of 100 feet per person, the building population would be 1,200 persons. Fifteen minutes equals 900 seconds. 155 seconds per trip will allow an elevator to make 5.8 trips in 15 minutes. One-third of 1,200 equals 400 passengers to be handled inOFFICE BUILDING PROBLEMS
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15 minutes. One car, carrying 12 passengers per trip and making 5.8 trips would handle 70 passengers in 15 minutes. Seventy is contained in 400 approximately six times; therefore, this building would require six elevators to handle its peak load periods in an efficient manner.
This is only one of the ways of arriving at the number of elevators required to serve an office building in passenger service. The average busy man will wait about twenty to thirty seconds for an elevator without becoming impatient. It is, therefore, necessary to maintain a schedule in an office building somewhere within this range. In the largest buildings in our great cities a schedule of interval of departure between cars of twenty-three to twenty-seven seconds seems to work out very satisfactorily.
Passenger cars in office buildings should not be too large as a large car slows down the traffic very much on account of the time consumed in loading and unloading. A car which will carry 12 to 15 persons, without overcrowding, seems to meet office building requirements very well. A freight elevator should be installed in office buildings and arranged with a safe-lifting attachment for handling safes. This freight elevator should be large enough to handle the large desks, safes and other office building fixtures which tenants may bring in. It can also be used for an employes’ elevator if the building is not large enough to warrant the installation of a service elevator.
The speed of office building elevators has gradually increased, and now the average speed for this service is from 550 to 600 feet per minute. Some passenger elevators in New York are running 700 feet per minute, but throughout the United States 600 feet per minute seems to be universal speed for high class office buildings. Passenger elevators are operating most efficiently when the traveling time is about equal to that required for opening and closing the doors and loading and unloading of passengers.
Many office buildings find it advantageous to run one bank of elevators local and another bank of elevators express to the limit of travel of the local elevators, and local from there to the final landing. The number of floors served by one car should not exceed fifteen or sixteen, and the schedule of the express elevators should be so arranged that the round trip time of each group will be about the same.
Chairman : Gentlemen, we would like to hear your views with reference to this subject. It is more or less technical, perhaps, in which probably a limited number can participate, but we would like to hear your views. Or perhaps some would like to ask Mr. Hilton questions.
Delegate: I was interested in Mr. Hilton’s statement that the elevator installation was about seven to ten per cent of the full value of the building. Have you ever made any estimates of what the other equipment constitutes, as to percentage of the total cost?
Mr. Hilton : No, I have not. This portion on elevators was information I got immediately prior to the meeting and I haven’t the data on it.
Delegate: You haven’t any figures available showing the rate of depreciation of the various parts. How long would you figure an elevator system should last?
Mr. Hilton : That would depend on the type of machinery put in. We have hydraulic elevators that have been running 40 years; that is more than the life of your building. The electric elevator, of course the type92	OFFICE BUILDING PROBLEMS
of machine you have today, that has been developed—there is no reason why it should not run twenty-five or thirty years.
Delegate: I think it would be very valuable if someone like Mr. Hilton would compile some figures showing the comparative proportions —setting up what would be the engineering figures on the rates of depreciation of the various parts.
Mr. Hilton: I believe that heretofore the cost of the plant—putting in a hydraulic plant, for example, the high efficiency of a pumping engine, a Corliss engine, and modern boilers and modern elevators—it will absolutely run you between 7 and 10% of your building. But with the new elevators that are to be had now—of course prices are down since the war—you can get a modern machine for $7,000.00, but if you put the migrating leverage control on, it will run you $5,000.00 more than that. If you put in a bank of five elevators you can see where your cost runs to immediately.
Chairman : I should think the chief factor in determining the value of your power plant is not so much the actual depreciation as the obsolescence of the type installed. We are advancing so fast that you have to abandon the type you have adopted and adopt a new one or new modifications.
Delegate: That is in line with the talk on depreciation now. We were trying to get our rate on depreciation on our building in San Francisco. We are to get a rate on the whole building; on the elevators they allowed us depreciation on a 20-year basis.
Chairman: A 5% depreciation, that would be?
Delegate: Yes, a 5% depreciation was allowed.
Chairman : Did you get any allowance made on the balance of your structural plant?
Delegate : On some of the mechanical equipment they allowed 10% depreciation.
Mr. Selfridge : To return to the question of plumbing installation —you spoke of the hot water lines and reducers being put in. Was that a Bell reducer you referred to?
Mr. Hilton : No, the thing I was guarding against was the bushing.
Delegate: One question I would like to ask. In San Francisco we are putting in copper extension joints in a 16-story building, and most of the steam comes from the basement up to the 12th floor and then subdivides. On the ground floor and on the 6th floor we are putting in a copper expansion joint, 22 inches in diameter. What would you think about that; would it be all right ?
Mr. Hilton : Absolutely. There is nothing better for an expansion joint than a copper pipe.
Delegate: We made a provision to take those out and renew them whenever we find it necessary.
Mr. Hilton : I have in my pocket at this time a fitting with a bushing in it. I don’t know whether you are all familiar with it; I am going to pass it around and show you the actual weakness of the bushing. It is made of cast-iron with a thread outside and inside. The strength lies in the skin of the material. When you cut the skin out you have nothing left, and you can see where the thickness will get down to about l-16th ofOFFICE BUILDING PROBLEMS
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an inch, and it is a common thing for plumbing contractors to just screw in one of these bushings and put the pipe into it. They break out every time, and I want to just pass this around and show it to you so you will actually see what I mean.
Mr. Curran (Seattle, Wash.; : In line with the question that Mr. Shultz has raised of obsolescence of equipment, I would like to state an actual experience we had in Seattle. It was at the time of what we call the big fire, occurring in 1889. At the time of that fire this building, considered a very important building at that time, a four-story office building with one elevator, electric installation—and that was the most important office building in Seattle at that time, 34 years ago. It was wrecked in 1921 to be replaced by a higher type building, and during the life of that building, which was 32 years, the elevator installation was replaced twice. That was an actual experience.
Chairman : What type of building was it originally ?
Mr. Curran : It was the most important office building in Seattle at that time. It was a four-story building, brick-masonry construction.
Mr. Hilton: What type of elevator?
Mr. Curran : Electric.
Mr. Hilton : In those days the electric elevator was a very poor type of machine and there is no question about how quickly they would depreciate, and anybody who has been in the game would know that fifteen years ago the type of elevator we had would have to be replaced.
Mr. Curran : Is there any reason to believe that some progress has not taken place?
Mr. Hilton : We have experienced a wonderful rate of progress in the last, I might say in the last ten years, with regard to the design of electric elevator equipment. Prior to that time we were practically stagnant. There hasn’t been an improvement in the hydraulic elevator for over twenty years; an improvement of any description. Since the advent of the electric machine we have been moving rapidly. I am looking to see the time arrive when we will have elevators operating that are not suspended at all. I think we will have elevators that will not have any cables on them at all.
Chairman: What sort of method of sustaining?
Mr. Hilton : Magnetic.
Chairman : Well, gentlemen, we might have a complete turn-over within a year or so. It will soon be a case of obsolescence having already happened.
Mr. Wheeler (Seattle, Wash.) : Isn’t it a short way ahead— speaking of elevators without cables—I wonder if Mr. Hilton has ever thought of the possibility of our heating systems becoming obsolete. Aren’t we going to heat with electricity?
Mr. Hilton : With regard to electric heating—there have been many attempts at heating with electricity. They have all proven very costly. There is today an attempt being made to heat by electricity and transfer the heat into water and vapor and then into the *room, but I can’t see that anything is accomplished by the transformation of heat from one substance to another for radiation. When you take a piece of iron work and pass an electric current through it and get that red hot, you areOFFICE BUILDING PROBLEMS
doing the best you can, getting the maximum amount of heat possible, and any other method of changing it into steam, or anything else, would not increase the efficiency at all. It has been said with regard to the electrical end of it that the cost will be less owing to the fact that each room will have its own self-contained equipment, and only about one-third of the rooms of the building will be heated at one time, therefore reducing the cost. I doubt it very much; that is just a talking point. I don’t believe— unless the time comes where we will be able to purchase electric energy at a little over generating costs, which is half a cent now—that we will ever get heating by electricity. If we could get the cost down around half a cent, it would be possible.
Mr. Brennan (Salt Lake City, Utah) : For a point of information from Mr. Hilton: I didn’t catch whether you had a ratio on that indirect heating. Have you a ratio ?
Mr. Hilton : No, I didn’t figure the ratio out. There are very seldom indirect systems installed in an office building for the reason the system is more expensive and so much space is taken up by ducts. The ducts are very large in a large building, and very few buildings, except auditoriums and churches and the like, put in an indirect system. It is handy in summer time for ventilating purposes, but taken as to dollars and cents, it doesn’t pay for an office building.
Mr. Brennan : I happened to have one, a combination office and banking building, and I wanted to know what to charge the bank.
Mr. Hilton : No, I have no figures on it.Chairman : Gentlemen, our next topic is “Stopping Leaks in the Expense Account, by the Financial Plumber,” by Mr. Rae T. Smith of San Francisco. Gentlemen, I take pleasure in introducing Mr. Smith.
THE FINANCIAL PLUMBER’S JOB OF STOPPING LEAKS IN THE EXPENSE ACCOUNT
By Mr. Rae T. Smith San Francisco, California
Mr. Chairman and gentlemen of the Conference: I was mighty glad Mr. Hilton came before I did on the program, because I think he can answer most all of the questions that will come up after I am through.
The San Francisco Association of Building Owners and Managers hold their annual meeting in February. At this meeting the Directors are elected and they in turn select a President. In February, 1922, this procedure was followed. The President who was elected, being a very wise and capable young man, later decided that the position of Building Manager entailed too much hard work, therefore he found something else that did not carry with it the worry and troubles that come with building management. As a result, he resigned the office of president.
The Executive Committee called a meeting of the Board of Directors. I, being unable to attend and not able to defend myself, was elected president for the unexpired term.
When the question of a Pacific Coast Conference came up, our worthy Secretary thought that the San Francisco Association should contribute at least two papers. To this I agreed and we began a canvass of our membership. After much persuasion we secured the consent of Mr. Holmes to prepare a paper giving the “Owner’s Viewpoint on the Work of a Local Association.”
At the next meeting of the Executive Committee I requested each member of the committee in turn to give the other paper, but each declined with many thanks.
A little later on when the Los Angeles Association announced that their president was preparing a paper, the Executive Committee, along with the Secretary, decided that the San Francisco Association could not be out-done, therefore, I was told that in order to uphold the honor of our association, I would have to do likewise. Not satisfied with this, however, they insisted on picking my subject.
Personally, I do not think very much of this title, for you know as well as I, that you would not call in a plumber to stop the leaks in an expense account. By calling a plumber you might stop a leak, but you would increase the expense account. I am not responsible for the title, but I will try to give you some of the experiences we and others have had in stopping leaks in the expense account.
We are at present operating approximately 242,483 square feet of rentable area in five office buildings. In addition to these we supervise96	OFFICE BUILDING PROBLEMS
the maintenance and care of 130,308 square feet of rentable area in four other buildings.
My experience in the operation of these properties and from my association with members of the San Francisco Building Owners and Managers Association is the basis of this talk. The subject “Stopping Leaks in the Expense Account” is a big one and I can only hope to cover the principal points under this topic. I believe I can best treat my subject in three divisions:
The first would be: “KNOW YOUR TRUE COST.”
The second: “OBTAIN COMPARATIVE COSTS.”
The third: “BY COMPARISON, CORRECT YOUR COSTS.”
Under the first point, I can only emphasize the great value of a Cost Accounting System. Cost accounting to the average manager is an unknown quantity. Few of us are willing to even concede that cost analysis should enter into the profession of building management.
Unbelievable as it may seem, the science of building management is only in its infancy. The operation of our buildings in the past and very largely in the present is entirely a matter of guesswork. It has been said that every profession before being placed on a scientific basis must, for a certain period, flounder around in the dark and gradually, out of the confusion, comes efficiency. The work of building management for many years has been conducted on an unprofitable and unscientific basis, but the time has come when this, like every other profession, requires intellect in addition to mechanical ability.
According to “Bradstreet’s,” “Four-fifths of the industrial failures in this country are the result of faults or incompetence of one kind or another on the part of those who fail, and ignorance of the true cost of production is, without doubt, one of the most common of the shortcomings.”
If this is the case in all other lines of business it is more true in the operation of so-called income producing property.
The only reason that the percentage of failures, due to this cause, is small is because the owner is a bank, trust, or an individual or corporation with other assets. However, can we call an office building paying only 2% anything but a failure as an investment?
If four-fifths of the failures in commercial business are due to lack of knowledge of costs, the same holds good in a larger degree in building operation. Therefore, I hope that I can show you through this paper the importance of obtaining proper knowledge of operating costs, and to prove to you that the detailed work involved brings in big results in dollars and cents.
The need of cost accounting and the value it has to the building manager should be clearly evident. Our success in the work we have undertaken depends entirely upon our ability to operate property placed in our care so as to receive the greatest possible net income. Net income can only be controlled in two ways.
First: BY INCREASING YOUR GROSS RENTALS.
Second: BY DECREASING YOUR GROSS EXPENSES.
The necessity of a profitable rent schedule is agreed on by everyone. To determine what is a profitable rent schedule you must know your cost. Therefore, the fundamental basis of efficient management is a knowledge of cost analysis.OFFICE BUILDING PROBLEMS
97
To impress upon you the importance of cost analysis, let us stop a minute and I will show you a slide showing the results of five months’ operation of a building under an experienced building manager compared with five months previous to his taking charge.
Slide No. 1:
REDUCTION IN OPERATING EXPENSE MADE BY A NEW MANAGER.
Operating expense, March to July, under old management.....$18,368.16
Operating expense, August to December, under new management 15,243.61
Reduction ................................................. 3,124.55
Equivalent to (per year)................................... 7,500.00
Cost per square foot, old management (per year)............ 1.23
Cost per square foot, new management (per year)............ 1.05
Note the saving in five months of $3,124.55, equivalent to approximately $7,500 a year, or 7% interest on $107,000.
If this condition had existed ten years longer, there would have been a loss of $75,000.
I believe the ability of a manager is largely reflected by his operating costs. I do not mean to suggest that any saving should be made by a niggardly policy in wages or in service to tenants, or at the expense of your building, but I do hold that your value is shown by whether or not you can operate on a high standard with a low cost. I know that the only way to operate efficiently is by first obtaining a true and thorough knowledge of the detailed expenses of every phase of your work.
No one can hope to improve a condition or to reduce a cost without first knowing what the cost is composed of. I have found that it is only by comparative detail figures that I have been able to determine what my true costs were and thereby detect and correct any irregularities.
I had for many years gone along satisfied with the results and the showing in the net income column. I knew in a general way our costs were no higher than the average, but I did not know, nor did I even suspect, the great number of small wastes and leakages incurred in our operations, and I dare say that of the number assembled here the majority, even today, operate in the manner we operated in in the past.
About two years ago we decided on the installation of a detailed cost system. The motive primarily was to enable us to answer questions. We, of course, little expected the surprising results we obtained from our cost analysis. It is my theory that the greater the detail in your cost records the greater the saving in your operating expenses.
Recently the interests which I represent contemplated the erection of a new building to replace a building erected in 1890. Several plans showing from 24 to 40 stories were made and in analyzing them it was necessary to estimate the operating expenses. I found that although we had accounts showing the operation of our present building for thirty years past, we did not have sufficient detailed accounts so that we could accurately prepare estimates which were not largely guesswork. We did not, however, expect any other results from this system than correct costs to use in preparatory figures for our new building. Later, we found that98	OFFICE BUILDING PROBLEMS
these figures showed us how to lower the cost of operating our present properties.
Before going further, I will outline briefly the principal points of the system under which we operate. It was decided and accepted principally because of its great flexibility and range of the accounts that can be handled, thereby accommodating every building regardless of size. We divide our expenses into five general divisions:
Slide No. 2:
1—	ADMINISTRATION.
2—	SALES EXPENSE.
3—	MAINTENANCE AND REPAIRS.
4—	EXTRAORDINARY EXPENSE.
5—	OPERATION.
To ADMINISTRATION we have assigned numbers one to five. We record separately:
Slide No. 3:
1—	Association Dues.
2—	Office Expense.
3—	Engineer’s Estimates and Plans.
4—	Miscellaneous Expenses.
Under SALES we have again alloted five numbers. We attempt under this division to keep an accurate record of all expenses necessitated by sales, treating the cost of renting space as a sale of the commodity we have to offer. We divide our sales expense into five subordinate accounts:
Slide No. 4:
6—	Advertising.
7—	Appraisals.
8—	Legal Services.
9—	Blue Prints, Floor Plans and Photographs.
10—	Miscellaneous.
Total Sales Expense..........................
MAINTENANCE and REPAIRS is, in my mind, the most important division in your operating cost. Therefore, I have divided this account into the greatest number of subordinate accounts possible. The divisions are:
Slide No. 5:
11—	Elevators.
11a—Elevator Cables.
12—	Engine Room.
13—	Electric System.
13a—Electric Light Globes.
14—	Plumbing (excluding Engine Room) and Toilets.
15—	Sidewalks.
16—	Roofs.
17—	Exterior Walls.OFFICE BUILDING PROBLEMS
99
18—	Fire Escape.
19—	Skylights.
20—	Windows ( Ventilators).
21—	Shades.
Slide No. 6:
22—	Doors (Locks, Keys and Door Checks).
23—	Stairs.
24—	Walls and Ceiling.
25—	Toilets.
26—	Floors.
27—	Cabinets and Trim and Partitions.
28—	Miscellaneous.
29—	Heating System (Including Radiators).
30—	Painting and Tinting—Offices.
31—	Painting and Tinting—Public Space.
32—	Painting Roofs and Gutters.
33—	Painting Outside Walls.
34—	Painting Floors.
35—	Painting Stores.
Total Maintenance.....................................
Under extraordinary expense we keep all big replacements or alterations. Special authorizations for these jobs are given from the general office. The job is numbered and expense is recorded according to number.
The last division—OPERATING ACCOUNTS—we generally consider almost fixed charges.
You will note that in the previous four divisions we have taken care of all expenses out of the ordinary course of cleaning and serving our building. This leaves us only such items as:
Operation of Elevators.
Cleaning.
Electric Current.
Electric Power.
Gas and Water.
Night Watchman.
Toilet Supplies, and
Heating of Our Offices.
We do not wish to take issue with the National Association in the matter of handling certain expenses, but we notice in the last bulletin that they recommend the placing of supplies, such as elevator cables and electric lamps, under the operating group of accounts. To this extent we must disagree.
First, because we feel that both of these items are properly maintenance, inasmuch, as they replace material already charged to our capital account.
Second, because the greatest value from the analysis can be obtained by a comparison of accounts.100
OFFICE BUILDING PROBLEMS
You will notice that we have eliminated from the operating group all irregular charges and placed them either under administration, sales, maintenance or extraordinary maintenance and repairs. By so doing, we have practically made fixed accounts of everything recorded in our operating division. The benefit of this is evident at a glance.
We can detect any variation from month to month in any of our operating accounts, for there should be no variation, and if by any chance there is, we immediately know something has gone wrong, and knowing something is wrong is 90% of correcting it. It is very easy to remedy a bad condition if your are positive it exists, but to try to correct or stop a leak in your expenses without having some definite base to check against is almost impossible.
We have divided our OPERATING EXPENSE into general departments with subordinate accounts under each. FIRST:
Slide No. 7:
Elevators.
41—	Labor.
42—	Power.
43—	Uniforms.
45—Miscellaneous.
Total Elevators....................................
Second, we have Cleaning segregated into:
Slide No. 8:	Cleaning.
51—	Cleaning Offices (Labor).
52—	Cleaning Corridors (Labor).
53—	Cleaning Toilets (Labor).
54—	Cleaning Sidewalks (Labor).
55—	Cleaning Skylights (Labor).
56—	Cleaning Windows (Labor).
57—	Cleaning Marble or Brass (Labor).
58—	Cleaning Elevators and Shafts (Labor).
59—	Miscellaneous Cleaning (Labor).
60—	Supplies (Mops, Brooms, Powders, Dust Cloths, etc.).
Total Cleaning.....................................
Third, we have cost of:
Slide No. 9:
Electric System.
81—Electric System Current.
Total Electric System................................
General Building Expense
65—	Extraordinary Expense, Employees.
66—	Service to Tenants (without charge).
67—	Routine Labor.
86—	Night Watchman.
87—	Toilet Supplies.OFFICE BUILDING PROBLEMS
101
88—	Gas.
89—	Water.
85—Miscellaneous General Building Expense.
Lastly, under HEATING, we separate:
Slide No. 10.
Heating System (Engine Room)
91—	Fuel Oil.
92—	Lubricating Oil.
93—	Electric Power.
94—	Miscellaneous Supplies.
95—	Labor.
96—	Miscellaneous.
97—	Wood or Coal.
98—	Steam (if purchased).
100—Tools.
Total Heating System...............................
A common definition of cost accounting is to keep a true and systematic record of expenditures. We have found the easiest method to do this is by dividing expenses in two divisions, namely—LABOR COSTS and MATERIAL COSTS.
Considering Labor Costs first, we have found it materially to our advantage to discontinue the worn out method of paying employees on the monthly basis. In justice to ourselves and to the employee, we adopted
c o r v c ■ MO/ywa cost fort
*Taxes׳OFFICE BUILDING PROBLEMS
102
a system of paying the employee the time actually worked. In other words, we have adopted payment on the daily basis. Undoubtedly the majority of building managers here are satisfied in their own minds that this is impractical and expensive, but for those who have such a conclusion I can only say that they could be no more doubtful than we were up to the time this method was put into effect.
The advantages of the daily basis are many fold. The principal among them is the increase in efficiency and the increase in effort on the part of the employee, who, realizing that his work is being checked over each day by his superior in the office, readily puts forth a greater effort. I believe it is safe to say that our experience has increased the value of the men based on what they do, 15% to 20%. I might add here that if you have, like we, many men who have been in the organization for a number of years who previously were more or less free to arrange their own daily schedule and if they accounted at all, to explain verbally what they did, you will meet with the same opposition we did. >' The minute our employees felt that they were being checked up and were being called upon to account for the number of hours they were supposed to work, there was a protest. But today, just a year after this method was adopted, I can say our employees are not only satisfied but appreciate the value to them and to us of such a system. I say to them, because it has enabled us to determine who actually does the work and who on our payroll represents true value and who deserves promotion.
Individual time cards made out daily by the employees and turned in to their superintendent each night, are the basis of our time system. The card, in addition to recording the time started, the time stopped, the number of hours worked, has attached, four or five coupons on which the employee can briefly list the various branches of work done during the day and the amount of time allotted to each. When this card reaches the person delegated to the task, the total earnings of the employee for the day are listed opposite his name, and the amount placed to his credit is distributed in proportion to the number of hours worked to the various jobs.
Form of Time Card.
NAME:.................John Brown....................
DATE.......2/1/23.....TIME STARTED.......6: AM......
...................... TIME STOPPED......9: AM......
Space for use	TIME STARTED.......5 : PM.....
TIME STOPPED......10: PM.....
.........................TOTAL HOURS..........8........
APPROVED BY...............Tom Jones, Supt...........
NAME....................John Brown..................
DATE........2/1/23......NO. HOURS..........3........
JOB ....................$50.........................
NAME....................John Brown..................
DATE........2/1/23......NO. HOURS..........5........Job No.		
Job No. A-31		
Job No. A-25	£ 3.82 5.71 5.71	£15.24
Job No. L-27	g 1.89	$ 1.89
Job No. C-19	g 1.26	g 1.26
Job No. B-27	$ 0.63	$ .63 ;
Job No. GB-27	g 1.73	$ 1.73
Job No. C-116	$ 1.26	£ 1.26
Job No. A-22	$ 2.56 .63 1.35	£ 4.54
Job No. 1-122	$ 5.71 5.71 3.15 1.46 5.71	$21.74.
Job No. A-28	$ 1.62 .63 3.10	$ 5.35
Job No. A-30	g 4.09 5.71 5.71 5.71	£21.22.
Amount	1 g 5.71 5.71 5.71 6.34 5.71 5.71 5.71 5.71 5.71 5.71 5.71 5.71 5.71	$74.86
1RS Total	9 9 9 10 9 9 9 9 9 9 9 9 9	118
. HOI O.T. I	1	1
NO S.T. I	9 9 9 9 9 9 9 9 9 9 9 9 9	117
TIME Started IStop’ed	6:30 11:00 12:00 4:30 6:30 11:00 12:00 4:30 6:30 11:00 12:00 4:30 Sunday 6:30 11:00 12:00 5:30 6:30 11:00 12:00 4:30 6:30 11:00 12:00 4:30 6:30 11:00 12:00 4:30 6:30 11:00 12:00 4:30 6:3011:00 12:00 4:30 Sunday 6:30 11:00 12:00 4:30 6:30 11:00 12:00 4:30 6:30 11:00 12:00 4:30 6:30 11:00 12:00 4:30	Total
Date	Feb. 1 Feb. 2 Feb. 3 Feb. 4 Feb. 5 Feb. 6 Feb. 7 Feb. 8 Feb. 9 Feb. 10 Feb. 11 Feb. 12 Feb. 13 Feb. 14 Feb. 15	
Approved by	Timekeeper	Signature
OFFICE BUILDING PROBLEMS
103
Slide No. 13:
NAME—A. Johnson	OCCUPATION—Utility	RATE—5.71
Payroll for above employee for 2 weeks, ending February 15, 1923104
OFFICE BUILDING PROBLEMS
Superintendent's Payroll
The work in distributing the employees’ time is done daily so that at the end of the month all we have to do is total his time, total the amount on each job, verify the sheet by cross-footing the totals and write the employee a check for his wages.
A summary of the total expenses as shown by the footings of the various columns on the employees’ time record is made, which gives us in very complete form the total labor cost of all employees distributed to each of the accounts that we have previously mentioned.
While on the subject, I might add that in arriving at a fair rate to paid employees, in changing their wages from a monthly to a daily basis, we took into consideration their monthly wage, multiplied by 12 to give us a yearly wage, and divided this by the number of days they would work under ordinary conditions. For example: An employee receiving $100 monthly would equal $1200 a year. We listed eight holidays that we recognize, in addition to the 52 Sundays, making in all a total of 60 days that the employee would not work; subtracting 60 from the total number of days in the year gave us a wage of $1200 for 305 days labor, which equals $3.93 per day. If by any chance, as is the case with our elevator men, who work one out of three of all holidays and Sundays ,we figured out that instead of having 60 days off, they would have but 40, and divided their total yearly wage by 325 days instead of 305.
The other item entering into our cost is material. This is handled entirely from our main office. We are able to direct and closely check our purchases by the use of requisitions from departments and the issuance of purchase orders on all purchases—the triplicate copy of which is used as a receipt for the material and is signed and returned to the office by the person receiving same. This gives us a complete record of all material purchased and received. The return of the material receipt, with notations as to its use by the person receiving and using material, enables us to approve and distribute all of our invoices without having them leave the office, thereby enabling us to properly distribute all items to accounts previously detailed.
At the end of each month an analysis is made of each of the five control accounts—all items being accounted for in one of the detail cost accounts previously outlined.
This system which I have attempted briefly to describe, showed us how comparatively little we knew of the fundamental requirements of good management in an office building. In order to operate economically and to know your cost, it is essential that you have a knowledge of certain facts regarding your building. Let each one decide for himself just how much he knows about his own building by asking himself the following questions. In preparing this, I have tried not to ask anything that is not essential for you to know if you wish to operate on a scientific basis. The questions are:
1.	What is the rentable area of your building above the ground floor and including ground floor?
2.	What is the area of office space and public space?
3.	What are the cubic contents of your building?
All of the above are absolutely necessary if you are to compare yourOFFICE BUILDING PROBLEMS	105
costs with any other building, for you must have a unit of measurement upon which to base your figures.
4.	Under what electric schedule does your building operate and run ?
5.	What is considered fair by auditors as a reserve for vacancies?
6.	What is the relation of surface radiation per cubic foot contents of building and relation of fuel oil consumption per square foot of radiation ?
7.	What is the cost per square foot of elevator service and area served ?
8.	What is the cost per square foot of lighting your building?
9.	What is the authorized depreciation on your particular type of building ?
10.	What amount per square foot must you obtain to cover your cost of operating, including 7% on your investment?
I might state that much to our surprise, in a questionnaire answered by twenty-three buildings in San Francisco for the year 1920, but twelve were asking enough to cover their costs and none were receiving enough to cover their costs, due, of course, to old leases. In a comparison for the following year, 1921, of twenty buildings that replied, but five asked enough to cover their costs and but three received it.
On a recent trip to the National Convention I visited several cities and in some cities, especially where there are no local associations, I talked with managers and was surprised to find that some of them did not even know the rentable area of the buildings they operate.
The comparison came to mind of a merchant operating a store without an inventory or without knowing the value of the merchandise on his shelves—for there is no denying the fact that your rentable area is the merchandise you have for sale just as much as the goods on the shelf of any retail store.
I have tried to show briefly the method we have taken in solving the first of the three divisions in my talk, “Knowing Your Cost.” The subject is technical and difficult to explain and possibly even harder to follow, but I hope to have made it as clear to you as possible, that detailed analysis, whether it be in the form we have it or in any other form, is just as essential to you as it is to us. I know what it has accomplished and if I am unable to convince you of the vital importance and the great value of detailed accounts, it is only because the subject is too technical to be discussed in the brief and general manner in which I must handle it at this time. I am convinced of its value to us and I am equally convinced that if you are desirous of increasing your personal efficiency there is no method that you can better adopt than to follow a system in some manner similar to the course we have pursued.
I might at this time answer the objection that is often raised by the building manager. That is, that this does not fit his particular case and that the expense involved is too great for him to consider the adoption of such a system. If you have this thought in mind I would like to assure you that for each dollar you invest in detailed accounting you will reap dividends in the form of savings in the operation and maintenance of your building.106
OFFICE BUILDING PROBLEMS
This work in an average office building would not take one-third of a stenographer’s time. It is not efficient for the building manager to attempt to do the detailed posting of the accounts himself. He can spend his time to better advantage.
In addition to keeping up the cost accounting system, the stenographer’s time is available to receive prospective tenants when the manager is out. Keep a correct list of all occupants of the building. Answer telephone inquiries and so forth.
Had I the time to go into detail I could prove conclusively beyond any doubt that there is no building, regardless of size, that can afford to do business without some system of cost accounting and that there is no labor entailed that is not justified in the savings you make, and further, that there is no noticeable increase in the amount of work in a system such as I have outlined as compared with the incomplete system generally in effect at present. The only difference is that in the former case you have a set of records complete and correct by which you can guide yourself and feel sure that the course you are pursuing is the best one. In the latter case you have an incomplete set of records, incorrect and misleading to the manager in every case where he attempts to guide himself by them. Therefore, in my mind there is only one conclusion—you must have some record and if your incorrect record is dangerous, the only logical thing to do is to keep a complete and correct record, which cannot help but justify the time and effort required.
Under the second division, “OBTAIN COMPARATIVE COST,” I can only remind you of the vital necessity and of the value to each of us of cooperation, and cooperation can only be obtained by association, and I mean by this, local association, state association, and national association.
It is needless for me to try to explain to anyone here the value of the local association. The fact that you are here speaks for itself, for if you did not realize its value you would not be present. I would like to tell those here who are not members of the San Francisco Association of some of the benefits we, as building managers, have obtained through the workings of our local association. I have in mind a contract recently negotiated with our scavengers covering practically all buildings of the association. By dealing collectively we were able to fix a saving to our members of approximately $6,000 a year.
We have been able through our very efficient Secretary, Mr. E. M. Applegarth, to obtain very satisfactory adjustments and a reasonable electric rate through the railroad commission from the power companies. We have also been able to keep in close touch with the various assessments and taxes on office buildings and to collectively oppose unfavorable legislation, which from time to time has seriously threatened to hamper the operation of our buildings. A most recent case of this kind was a resolution introduced in our Board of Supervisors worded so as to practically remove from us the privilege of selecting and passing upon elevator operators according to the standards we place for efficiency and safety. This we defeated.
I could go on citing cases without end on what the association hasOFFICE BUILDING PROBLEMS	107
done for us which is no more than any other local association can accomplish for your interest.
The local association also serves as a clearing ground for information that is of vital importance to every manager and gives him the means of securing comparative costs. The following slides show some of these comparisons.
Slide No. 15 :
Water Study No. 1.
Consumption of water in wash basins where only cold water is furnished :
No.	35—1.58 cu. ft per sq. ft.	R. A. 284 cu. ft. per room.
No.	36— .57 cu. ft. per sq. ft.	R. A. 94 cu. ft. per room.
No.	37— .77 cu. ft. per sq. ft.	R. A. 168 cu. ft. per room.
No.	38—7.75 cu. ft. per sq. ft.	R. A. 2067 cu ft. per room.
Note: Building No. 38, excessive use.
This slide shows the consumption of water in wash basins where only cold water is furnished. You will note building No. 38 shows excessive use. This happens to be a building operated by the company I represent and I will show you at the close of this paper the results we obtained after our attention was called to this excessive consumption. The figures per room are put in more as a matter of interest and not as a matter of comparison, as you can readily see that they vary with the size of rooms in the particular building. In fact they illustrate the fallacy of using a room basis for comparisons.
Slide No. 16:
Water Study No. 2.
Chart showing use of water in wash basins where hot and cold water is furnished:
Consumption.
Bldg. No.	Per Sq. Ft. R. A.	Per Room
24	1.69 cubic feet	352 cubic feet
25	7.12 cubic feet	2039 cubic feet
26	2.09 cubic feet	419 cubic feet
27	4.50 cubic feet	958 cubic feet
28	.87 cubic feet	168 cubic feet
29	1.07 cubic feet	240 cubic feet
30	.29 cubic feet	71 cubic feet
31	2.45 cubic feet	6275 cubic feet
32	1.92 cubic feet	469 cubic feet
33	5.33 cubic feet	1031 cubic feet
34	1.97 cubic feet	4.50 cubic feet
This slide shows the use of water in wash basins where both hot and cold water is furnished.
In this chart you will note building No. 25 has excessive consumption; also building No. 33 is rather high.08
OFFICE BUILDING PROBLEMS
Slide No. 17 :
Water Study No. 3.
Consumption of water in buildings for toilets and wash basins with only cold water in wash basins :
Consumption.
Bldg. No.	Per Sq. Ft. R. A.	Per Room
1	3.22 cubic feet	717 cubic feet
2	3.11 cubic feet	630 cubic feet
3	2.67 cubic feet	520 cubic feet
4	2.56 cubic feet	513 cubic feet
5	3.93 cubic feet	1070 cubic feet
6	1.72 cubic feet	348 cubic feet
7	5.05 cubic feet	752 cubic feet
8	9.50 cubic feet	2329 cubic feet
9	4.75 cubic feet	883 cubic feet
22	11.42 cubic feet	4845 cubic feet
Average per square foot R. A., 4.79.
In this you will note building No. 22 whereas the consumption is low in buildings
has excessive consumption Nos. 3 and 4.
Slide No. 18:
Water Study No. 4.
Consumption of water in buildings for toilets and wash basins, etc., where hot and cold water is furnished.
Consumption.
Bldg. No. 10	Per Sq. Ft. R. A. 5.45 cubic feet	Per Room 1444 cubic feet
11	6.88 cubic feet	2233 cubic feet
12	4.95 cubic feet	956 cubic feet
13	5.00 cubic feet	1164 cubic feet
14	8.50 cubic feet	1732 cubic feet
15	8.48 cubic feet	3400 cubic feet
16	4.32 cubic feet	661 cubic feet
17	4.77 cubic feet	775 cubic feet
18	2.68 cubic feet	835 cubic feet
19	9.93 cubic feet	1757 cubic feet
20	4.50 cubic feet	810 cubic feet
21	6.23 cubic feet	1359 cubic feet
23	3.31 cubic feet	830 cubic feet
In this chart you will note buildings Nos. 14 and 15 have rather high consumption.OFFICE BUILDING PROBLEMS
109
Slide No. 19:	Water Study No. 5.
Consumption of water in Medical buildings for all purposes :
Hot and Cold Water Consumption.
Bldg. No.	Per Sq. Ft. R. A.	Per Room
39	14.00 cubic feet	4650 cubic feet
40	12.30 cubic feet	4259 cubic feet
41	20.60 cubic feet	4054 cubic feet
42	14.90 cubic feet	2865 cubic feet
43	9.50 cubic feet	1933 cubic feet
Average per square foot R. A., 14.66.
It is of interest to note that the average is 14.66 cubic feet per square foot of rentable area. This is rather startling when you consider it means that the water consumed per year in a medical building, if poured into a room with a 13 foot ceiling would go 1 foot 6 inches over the top.
Slide No. 20:
Water Study No. 6.
From these figures we were able to deduce the following: Consumption of water in commercial buildings per square foot R. A. per year :
Wash Basins Use, Cold Water............1	cubic	foot
Wash Basins Use, Hot Water.............1	cubic	foot
Toilets and Building Use...............3.7	cubic	feet
Total...............................5.7	cubic	feet
A manager whose consumption is higher than the average can pick from these buildings the buildings that are comparable in character of tenancy and conditions with his and by studying these find the source of his waste.
Slide No. 21 :	Electric Costs.
	K.W.H.	Amount	Cost per K.W.H. in Cents
1	2,099	$ 68.08	3.24
2	3,077	96.38	3.02
3	3,297	102.21	3.1
4	3,398	118.46	3.47
5	4,048	122.11	3.01
6	4,383	130.99	3.
7	4,514	134.46	2.98
8	6,040	174.90	2.85
9	6,761	229.84	3.4
This chart shows the comparison in nine buildings where the consumption varies from two to six thousand K.W.H. per month. You will note the inequalities in the cost per K.W.H. These costs are shown in cents and fractions of a cent. For example: Compare building No. 4 with building No. 3; building No. 9, using 6,761 K.WH.. with building No. 7, using 4,514 K.W.H.HO
OFFICE BUILDING PROBLEMS
Slide No. 22 :			
	Electric Costs (Continued)		
			Cost per K.W.H.
	K.W.H.	Amount	in Cents
10	6,874	$184.28	2.68
11	7,408	211.15	2.85
12	7,580	215.71	2.83
13	8,969	270.20	3.02
14	10,510	275.23	2.6
15	13,138	412.01	3.12
16	14,615	414.28	2.83
17	18,490	541.28	2.93
18	18,738	512.87	2.78
This chart gives a similar comparison where the loads run between 6 and 18 thousand K.W.H. per month. Note building No. 15 as compared with building No. 14.
These comparisons were made by the association for its members about six months ago. If this had happened two years ago a great deal more money would have been saved as all rates were subject to a 14% surcharge.
Slide No. 23:
Comparison of Electric Bills of Two Buildings.
	K.W.H.	Amount	Cost per K.W.H.
A.	52,090	$1160.06	2.23c
B.	43,000	1160.00	2.71c
	9,090	.06	.48c
This slide shows electric bills for two buildings in which the amounts of money paid were practically the same, but one building got 9,090 K.W.H. more energy than the other, a difference in the cost per K.W.H. of .48 cents.
Slide No. 24:
13.138	$412.01	3.12 cents
13,450	328.18	2.43 cents
312	$ 83.83	.69 cents
69 HUNDREDTHS OF A CENT A K. W. H. MEANS THAT THE COST OF BURNING A 100 WATT LAMP 10 HOURS 300 DAYS WOULD BE REDUCED BY $2.07.
This study shows another comparison; the first building using less current by 312 K.W.H. and paying $83.83 more.OFFICE BUILDING PROBLEMS
Ill
Slide	No. 25:	Heating System No. 1.		
	Rentable Area	Barrels of	Barrels Fuel Oil	Cost per Sq. Ft.
	Above the	Fuel Oil Used	per Sq. Ft. R. A.	per Year
	First Floor	per Year	per Year	Oil at $1.20
1	40,000	741	.0186	2.23 cents
2	74,500	1459	.0195	2.35 cents
3	91,800	1500	.0164	1.97 cents
4	13,555	235	.0173	2.08 cents
5	14,593	300	.0205	2.46 cents
6	17,000	388	.0227	2.72 cents
7	49,145	1170	.0238	2.86 cents
8	36,674	565	.0154	1.87 cents
9	25,375	330	.013	1.57 cents
10	29,467	483	.0154	1.87 cents
11	30,537	497	.0163	1.95 cents
12	51,500	660	.0128	1.54 cents
14	21,106	342	.017	2.01 cents
16	59,500	930	.0158	1.9 cents
17	129,000	1625	.0127	1.52 cents
18	38,500	522	.0136	1.67 cents
19	56,000	807	.0144	1.73 cents
20	53,554	722	.0136	1.67 cents
21	29,055	502	.0173	2.04 cents
22	38,000	551	.0143	1.74 cents
Totals....898,307		14,311		
Averages 					0157 bbls.	1.91 cents
Average Barrels, per Sq. Ft. R. A........................0157
Average Cost, per Sq. Ft. R. A.......................1.91 cents
This slide shows in the first column the rentable area above the first floor. The second column shows the barrels of fuel oil used per year, and the third column shows the barrels of fuel oil per square foot of rentable area. The fourth column shows the cost in cents per square foot per year with oil at $1.20 a barrel.
You will note in here variations from 1.52 cents to 2.86 cents per square foot of rentable area. These figures are for low pressure plants. Labor for attendance, maintenance and depreciation on boilers and oil burning equipment are not included.112
OFFICE BUILDING PROBLEMS
Slide No. 26:
Heating System No. 2.
	Total R. A.	Bbls, of Oil	Bbls, of Oil per Sq. Ft.	Cost per
	Heated	per Year	R. A. Heated	Sq. Ft. Heated
1	54,000	741	.0137	1.65 cents
2	84,000	1459	.0177	2.06 cents
3	115,000	1500	.013	1.56 cents
4	15,255	235	.016	1.93 cents
5	16,593	300	.0177	2.12 cents
6	23,328	388	.0167	2.00 cents
7	68,000	1170	.0173	2.04 cents
8	36,674	565	.0154	1.87 cents
11	34,937	497	.0143	1.72 cents
12	66,000	660	.01	1.20 cents
15	41,435	780	.019	2.27 cents
16	70,500	930	.0132	1.58 cents
17	129,000	1625	.0127	1.52 cents
20	67,494	722	.0108	1.3 cents
22	45,000	551	.0122	1.47 cents
Totals.	...867,216	12,123		
Average barrels of oil per square foot of area heated.014
Average cost with oil at $1.20.................1.68	cents
This is a similar comparison, but figured on the total area heated instead of the rentable area above the first floor.
Slide No. 27:
Heating No. 3.
Comparative Costs: Buildings Purchasing Steam.
		Lbs. of Steam	Cost of Steam	Cost per
	R. A.	per Sq. Ft. R. A.	per M. Lbs.	Sq. Ft. R. A.
*30	36,400	85.	$0.89	7.57 cents
38	36,674	43.	1.16	4.96 cents
32	51,500	69.5	1.00	6.9 cents
33	50,500	60.	1.00	6. cents
34	115,000	63.5	.89	5.65 cents
35	36,084	57.	1.07	6.3 cents
36	69,000	51.3	1.03	5.23 cents
37	25.155	60.	1.16	6.93 cents
	420,313	61. Average $1.04		6.25 Average
				
* In building No. 30, steam not purchased from public service corporation.
This shows in the first column the rentable area; in the second column the pounds of steam consumed per square foot of rentable area, and in the third column the cost of steam per 1000 pounds. The last column gives the cost in cents per square foot of rentable area.OFFICE BUILDING PROBLEMS	113
Slide No. 28:	Heating No. 4.
Comparative Costs.
Building No. 8—
Cost using fuel	oil........................ 1.8Z	cents
Cost using city	steam...................... 4.96	cents
Saving................................. 3.09	cents
$0.0309 times rentable area, equals $1,130 saving—7% on $16,000.
This shows the comparative cost for building No. 8, which is building No. 38 in Chart No. 3, previous slide. This building used city steam for a year and then used its own plant. These figures show a comparison between their costs where they made their own steam and where they purchased it from a public corporation. Changing to their own plant has not in eighteen months increased their payroll or have they had any maintenance expense on boilers oil equipment.
Slide No. 29:
Per Cent of 1918 Taxes Paid By Three Buildings.
	1919	1920	1921	1922
A			117%	140%	155%	155%
B			117%	133%	147%	159%
C			117%	126%	132%	132%
These are figured in per cent, calling taxes paid in 1918, 100%.
The owners of buildings “A” and “B” should be interested in knowing why building “C” did not get the same increase in taxes that they did.
This slide shows taxes paid by an office building from 1892 to 1922. Slide No. 30:
Comparative Study Two	of the Operating Similar Buildings.	Expenses of
	Bldg. D	Bldg. E
	Cost in Cents	Cost in Cents
	per Sq. Ft. R. A.	per Sq. Ft. R. A.	
Administration 			 11.93	14.71
Labor 			 61.86	38.74
Scavenger Service 			12	.24
Light, Power 			 10.25	(3.15,5.27) 8.42
Water 			 2.36	2.06
Phone 			07	.29
Heating 			 7.80	4.36
Heating System Repairs			11	.47
Janitor Supplies 			53	1.15
General Building Supplies			 2.61	1.69
General Building Expense			1.26
Elevator Repairs 			48	.94
Plumbing Repairs 			10	.37
Painting and Tinting			14	.40
General Building Repairs			47	1.66
	98.83	76.76114
OFFICE BUILDING PROBLEMS
THESE BUILDINGS HAVE THE SAME NUMBER OF ELEVATORS AND VERY CLOSE TO THE SAME AREA.
This slide shows the cost in cents per square foot of rentable area of two similar buildings; comparing, first, the totals, you will see that building “D” cost over 22 cents more to operate than building “E.” In comparing items we find labor in building “D” much higher than “E.” Light and power are higher. Water is higher; also heating. Painting and tinting lower. You will note that the building with the lowest operating cost pays more for administration.
The manager of “D” building would have no means of measuring his laboring cost and discovering that he is paying 23.12 cents more per square foot of rentable area than his neighbor until he could obtain figures from building “E” to make comparisons. This strongly shows the main point of the second part of my paper, “COMPARING COSTS.”
This slide shows in the first column monthly consumption of electricity for ten buildings. And in the second column the yearly savings effected—assuming that the consumption would be constant for the twelve months.
Slide No. 31 :		
	K. W. H., per Month	Saving
1	13,138	$ 1,023.72
2	34,959	4,984.32
3	18,738	1,805.76
4	10,910	879.12
5	31,360	2,376.00
6	14,615	673.68
7	9,954	1,337.28
8	8,713	622.44
9	17,090	1,692.80
10	9,829	933.36
Yearly Saving.
The savings for the ten buildings, as shown on the slide, would be $16,328.48 for the year.
Under the third division, “BY COMPARISON CORRECT YOUR COSTS,” your problem resolves itself into first, increasing efficiency by the elimination of waste of material or labor; second, reducing costs by buying at a lower price.
An experience we had in one of our buildings is a good illustration of the elimination of waste.
Our water consumption, compared with similar buildings, was very much too high. Our engineers claimed, when this matter was called to their attention, that the excessive use was due to our bank tenancy on the ground floor. We metered the bank and found that this was not the cause. After much investigation we discovered that our engineers had been depending upon a small pipe that emptied into the engine-room as a tell-tale when the tank on the roof was full. After carefully checking this up, we found that in addition to the tell-tale there was a four-inch overflow pipe which was below the tell-tale and emptied into the drain.OFFICE BUILDING PROBLEMS
115
This trouble was immediately corrected and as a consequence our water bill was reduced 44%—or about $30 per month. For the probable time this waste was going on this amounted to approximately $4500, and if this trouble had not been corrected we would still be dumping $30 a month into the sewer.
After comparison we found that our electric cost per K.W.H. was higher than it should be. When this was corrected and our load put on a different schedule we reduced our electric bill the first month $110.44.
Now the point that I wish to make here before we go on with the slides under the third division is: After you have compared your costs, be sure that you correct them.
slide No. 32:
Electric Costs.
			Cost	K.W.H.
Cost per K.W.H.		K.W.H.	per Sq. Foot	per Year
1	$ .0327	2.73	$ .0891	111,132
2	.318	3.92	.1218	178,950
3	.031	4.21	.134	332,722
4	.0297	1.993	.059	71,708
5	.0334	1.667	.0559	24,482
6	.0327	2.13	.072	112,452
7	.0339	3.22	.1089	117,321
8	.03087	2.613	.0806	49,671
9	.0261	3.5-	.0905	179,170
10	.02836	2.76	.0788	142,840
11	.02945*	2.146*	.0630*	154,782*
12	.0281	1.591	.0446	203,628
13	.02976	1.6	.0471	89,755
14	.0295	1.429	.0422	76,540
15	.0311	2.98	.0922	112,650
Average...		0306	2.6	.0827	129,000
Note :	(*)No Elevator	Power.	This Building Not	Included in
Averages.				
This slide in column number one shows the price per K.W.H. paid by fifteen buildings for electric current during the year 1921. I might state this is higher than the price at present paid because of the fact that the first half of the year the surcharge was 14% and then reduced to 6%. Column number two shows the number of K. W. H. used per year per square foot of rentable area. You will note several buildings are using more than the average. Column number three shows the cost per square foot, and the last column shows the total K. W. H. used per year in order to indicate the size of the load.
By comparison of the columns for the various services, excess use, which usually comes from waste, can be readily detected. The load can also be analyzed and you can find whether it is in the light or power that the excess occurs.116
OFFICE BUILDING PROBLEMS
Slide No. 33:
Lighting Costs.
This slide shows a comparison of the consumption of electricity for
	Cost per K.W.H,
1	.0387
2	.03495
4	.029709
7	.03545
8	.03087
10	.02836
14	.029541
15	.0377
Average.		03316
K.W.H.	Cost per Sq. Ft.
.717	.0335
1.472	.0513
.571	.01727
1.91	.0579
.6215	.0192
.6215	.0192
.51	.0151
.937	.0353
.9663	.03326
You will note building No. 9 was not included here, but the price was 2.61 cents, being very much lower than any other. It was the study of conditions in this building that showed us how to reduce our electric costs.
The causes of excessive electric consumption are often due to leaving lights burning unnecessarily all night; excessive current allowed to pass through the field circuit of the elevator motors; excessive use of energy for elevators due to a faulty adjustment of the brakes, so that the starting rheostat goes in before the brake is fully released, making the motor start against the brake resistance. These matters, however, we have not yet had an opportunity to go into in detail, but we hope that the association will some day be equipped to furnish the building engineers with the proper testing devices so that such excessive uses can be found and eliminated.
Slide No. 34:
Elevator Costs.
This slide shows a similar comparison for elevators.
	Cost per K.W.H.	K.W.H.	Cost per Sq. Ft.
1	.029	1.77	.0514
2	.0289	2.46	.0705
3	.031	1.845	.0586
4	.0297	.5715	.01727
5	.0334	1.134	.0378
6	.0307	.810	.0248
7	.0316	1.32	.041
8	.03087	1.992	.0615
10	.02836	1.845	.05234
You will note No. 2 is excessive.
The question of labor efficiency offers a big field for study, and many of us may think everything is fine because we have not checked up to find out whether our labor cost is higher than it should be. We started our cost analysis in 1920.OFFICE BUILDING PROBLEMS
117
Slide No. 35 :
	Labor Costs.			
Building	1918	1919	1920	1921
A			35.2	40.1	51.	54.2
B 			38.9	41.6	50.	53.4
C			44.4	43.9	52.	48.7*
				
*ASSUMING 100,000 SQUARE FEET OF RENTABLE AREA THIS WOULD BE A SAVING OF $3,300.00.
You will note building “C” was very much higher than “A” and “B,” but in 1921 it came under the other buildings, whereas the other buildings slightly increased their labor cost.
'COMPARISON OF LABOR COSTS FOR 2 BUILDGS
This slide shows a graph of the figures in the slide just shown.
The building referred to in the first slide in this paper, which showed a saving of over $3,000 in five months, mostly by elimination of unnecessary help, serves as a very good illustration. The old management had no idea that their labor costs were high. I am going to read you a quotation from the new manager of that building as to how he found conditions :
As per your request, the following is a brief summary of conditions found upon taking over the building:
Four men in the engine room, chief engineer and three assistants.
Three elevator operators.
One night hall-man.
One day janitor.
Seven room janitors.118	OFFICE BUILDING PROBLEMS
The seven room men were each supposed to do a floor of
5,000 feet, and for a number of years they have been in poor health; not being docked for being off sick, there vras maintained a perfect system of indisposition, two men being off all the time. Their health seemed to fail in pairs, and after two or three days off they would sufficiently recover to return to duty, and two more would take a like amount of time. During the interim apparently perfect teamwork was maintained, and the fact was clearly demonstrated that most of them were capable of doing two floors, or 10,000 feet.
In order to bring the operating expense to somewhere in reason, I decided to get rid of the poorest in health, re-arranging the working schedule. Formerly, complaints of service were frequent and strange to say, upon making the change, a service complaint is very rare.
Net result, three less room janitors and one less assistant engineer. I might add that, for years, the engineering force would, upon receipt of all complaints and requests, phone either to an outside plumber, steam-fitter or electrician to give the desired service, which was carried to the extent of clearing basin stoppage, replacing faucet washers, changing location of radiators, and all electrical repairs. The books now show this cost about $600 per year. Glad to state that the present crew is showing the much needed efficiency and not a dollar has been spent during the last six months for this service.
Slide No. 37:	Operating Expense.
This slide shows a comparison of the operating expense of eight buildings for 1920 and 1921. These buildings are listed according to rentals received—that is, number one is receiving the highest rental and number two the next highest, and so on.
	Rentable Area	1920	1921
1.	81,000	$ .85	$ .95
2.	33,000	.830	.647
3.	70,000	.913	.875
4.	44,000	.89	.91
5.	34,000	.835	.825
6.	120,000	.677	.732
7.	55,000	.697	.775
8.	21,000	.97	.825
Rentable area is the rentable area of the offices excluding the first floor. It is not the rentable area including the ground floor as used by the National Association in their figures . For this reason, it will be higher than averages shown in the National Association reports but is nearer the actual area in which the service charged is given. These figures do not include taxes, insurance or depreciation, but do include administration charges. This slide and the following slide are shown to illustrate the lack of uniformity in these figures. You would expect that as they are arranged in the order of rentals, the buildings at the top of the list gettingOFFICE BUILDING PROBLEMS
119
higher rentals would have higher operating expense, and the buildings at the bottom of the list getting lower rentals would have lower operating expense. However, we find the greatest variation in operating cost per square foot of rentable area.
You will note that in 1920 the difference in operating costs between the highest and the lowest is twenty-nine and three-tenths cents, and the difference between the highest and the lowest operating costs in 1921 is thirty and three-tenths cents.
Slide No. 38:
Operating Expense (Continued).
This is a similar comparison of seven more buildings.
	Rentable Area	1920	1921
9.	177,000	$ .694	$ .77
10.	16,000	.99	.883
11.	47,000	.57	.55
12.	42,000		.80
14.	48,000	1.050	.933
15.	35,000	.90	.94
16.	33,000		.88
A few weeks ago we sent out a form to several building managers asking them to furnish us their operating costs so we could show you some data for 1922 in detail. When these blanks were returned to us, we found so much confusion that it was impossible to work out comparative figures for 1922 as there were no separate segregations. This, in itself, shows very strongly the need of a uniform method of accounting so that costs can be properly studied and analyzed.
C6/ÆÎ/A SHOWING 1NCR.LA3L //V OPLP.AT-/N.G-Z.XPZN5L. (¿LD/NG.&LAND TAXLD/NCL)120
OFFICE BUILDING PROBLEMS
CURVE SHOWING COST FOR
MATERIAL & PUBLIC UTILITIES
׳'LABOR'OFFICE BUILDING PROBLEMS
121
CURVE SHOWING COST FOR
LAbOR, MATERIAL & PUBLIC UTILITIES.
One reason that building owners and managers, in the past, have given so little attention to cost analysis has been that the aggregate expense of operation in the nineties was not a large amount and the possible savings would have been proportionately small.
In 1894 the total operating expense of this building was under 60 cents. In 1921 it went over $1.30. We started to correct our costs in 1921 and you notice a considerable drop in 1922.
In conclusion, it is my hope that this paper will make some of you dissatisfied with your present knowledge of the detailed costs of your building. In the past, we have been too satisfied, and it is discontent of our present knowledge that makes for progress.
I have tried to show you the three stages: First, “Know Your True Costs,” second, “Know Your Neighbor’s Costs,” and third, “By Comparison and Study, by a Process of Elimination, Correct Your Costs,” and the easiest and shortest road to accomplish this is through a local association and an active interest and frequent contact and discussion with your fellow members.
I thank you.
Chairman : Gentlemen, this has been a very splendid talk and when we get it printed and can study it, we ought to get a great deal out of it. There is an immense amount of data in it to be digested. Are there any questions in regard to the paper, or any criticisms to be made ?
Delegate : I would like to ask Mr. Smith whether or not he includes the ground floor in the area of his figuring basis.
Mr. Smith : We tried to avoid the ground floor in all cases.122
OFFICE BUILDING PROBLEMS
Delegate : Are any of those figures obtainable for the delegates ?
Mr. Kent : They will be included in the printed proceedings of the conference.
Delegate: Do I understand that the delegates will be given these figures ?
Mr. Kent: Mr. Applegarth and I intend to edit the proceedings and we will have them put out in printed form and sent to every member.
Mr. Holbrook (Portland, Ore.) : I would suggest that Mr. Smith state in those comparisons expressly whether they include taxes and insurance. I think that should be specified.
Chairman : Could you add to those slides, Mr. Smith, the rentable area in each instance, so as to give an idea of what bearing the larger area is having upon the cost per square foot of rentable area ?
Mr. Smith : That can be done—just those two slides that you were speaking of?
Chairman: Yes. I think that would add a great deal to the value of the slides.
Delegate : Mr. Chairman, one other question. Where there is such a great variation of 55 cents to $1.00, is the variation caused by the number of buildings being operated under one management?
Mr. Smith : No. In many cases we found it was the management of the buildings. Of course one class of tenancy will call for a much higher class of service than another. The best thing to do is to sit down with the other fellow and study your problems.
Delegate: Have you information to show the costs for the different classes?
Mr. Smith : It is hard to class them. I know some of our buildings have been referred to as second-class, and we don’t like it.
Delegate: Well, as to location?
Mr. Smith : That would be hard to show in a paper. We have compared them and we state it here without giving the names of the buildings.
Delegate : , I realize that, but it might forestall some of the pitfalls for us.
Mr. Smith : Personally, I don’t object to giving out information on our own buildings, but I have found it was objected to by some.
Mr. Applegarth : We have all of the electric comparisons and heating comparisons.
Mr. Smith : The gentleman was referring immediately and particularly to the square foot of operating expense. We can give that.
Chairman : It seems to me the value of your data depends on how old your building is and how up-to-date it is and, generally, its efficiency, and unless we have that data furnished us we couldn’t tell whether it represents a fair average of the modern building.
Mr. Smith : I think you could eliminate the very low square-foot operation and then take an average of the square footage—it is axiomatic that individuals vary, averages never. I might say that one of our buildings in San Francisco, which we operate, has a low operating cost. It is not the same sort of building that the Alexander building is, but we have a very good class of tenants, and we give good service, but it is notOFFICE BUILDING PROBLEMS
123
the service that we give in the Alexander building, and the operating cost is therefore lower. So I think, possibly, the best way would be to eliminate the very low and take the average and consider the building as first or second class. I think that is the safe way to do. If you try to describe the building that is low and tell why that is the case, it is going to take a volume to do it.
Mr. Shultz : We have found in doing this same sort of work for the National Association, that Mr. Smith has presented here, that it is extremely difficult to set two buildings alongside of each other and tell why one is high and another is low, and the nearest we got to a real guide is the comparative construction cost of the building per square foot. In other words, a building that will cost $5.00 per square foot rentable area, would be considerably less than $15.00 per square foot, and the comparisons are made on that basis.
I would like, for the benefit of the members who are not members of the National Association, to state that the National Association compiles each year a printed volume containing the figures of the buildings sending in their reports. Last year we had 155 buildings in which we gave some of the figures submitted by Mr. Smith, and many other states as well, and those reports have been found to be of great worth. I want to point out that having these reports and comparisons, the next step is to make a scientific study of your operating problems. I think, particularly, the medium sized building makes the mistake of putting in charge of their operating force a chief janitor who is simply a little better than the ordinary janitor who has no idea of turning out his work or laying out the work of those under him, and who only determines what is to be done by inquiry. I found in our building in Chicago some years ago that we were using considerably more help than we should have for our night force. We had about 115 people on our night force, mostly women, to take care of about 750,000 square feet. I got a man from some efficiency engineer’s office, at about $3,000 a year as against $125.00 a month for the head janitor, and as a result of working closely with this man and making a time study of the conditions, we were enabled to reduce our help to about 85 and got just as efficient service as we had before; and I think it is important to really study your operating problems.
Mr. Douglas (Seattle, Wash.) : Just for information, I might state that in our operating we formerly paid everybody by the month, but now we pay everybody by the hour. If the janitors work six hours in the evening, we pay them for six hours, or six and a half, and if some are away, we have a time card that is made up, and we think that is a better system than the day system. Very often you are short a few operators at night and we simply pay for the extra time.
Chairman : Is there anyone present who can throw any light on the subject of why a building consuming this large amount of K. W. H. of electricity, should not be already receiving its regular reduced ratio applicable to that larger amount? Some of the buildings are paying a larger amount for larger consumption than others are paying for a smaller consumption.
Mr. Applegarth : The reason is, Mr. Chairman, that we have had new rates issued from time to time. The Pacific Gas & Electric Company124	OFFICE BUILDING PROBLEMS
has about 400,000 consumers, and to properly analyze a load—the men do about three a day at the very best—they wouldn’t average that all the time; they then take that to the manager and tell him that he ought to change his rate schedule. In 1920 we had a new rate. It was a rate that before only applied to certain cases; for instance, supposing you were under a schedule which reads, it shall be a combination lighting and power schedule where the power rate is 25% of the connective load. That is what we had. Then we had another rate and that rate was a 7 1/4 H. P. requirement. One power company put in a demand meter and you paid on what the meter called for on demand. Both power companies estimated the demand in exactly the same way—60% of the connective load— but we discovered that in the average office building it only runs 30% of the connective load. Now one particular case—I heard one gentleman speaking of building No. 5 making a saving—this is what happened: They were estimating their maximum demand at pretty near 300 K. W. H. and on measuring it with a demand meter, it dropped as low as 89, and the highest it ever went was 108. At $1.00 per K. W. of demand that made considerable difference. Now if you should try out the same thing in Los Angeles, you would probably get a different situation. I happened to be talking to one .of your members and he said he was operating for 54 cents. I couldn’t see how it could be done, but I found he was buying his electric current for two buildings, through one service. In other words, by selling electricity he is making a profit on that and is deducting that from his operating cost; he figures his operating cost the net difference, which, of course, doesn’t give much of a comparison. So when we find those excessively low cases we usually dig around and find some reason for it. You must have a total cost analysis.
I happened to help Mr. Smith in trying to deduct something out of the twelve reports we got from different buildings, and we were trying to get a detailed analysis from that. We could have done it, but we couldn’t have come down here for another month. We found the average labor cost would run 22.2 cents a square foot. Mr. Smith’s hope was that he could get you interested in giving some real figures, and he could show the need of real analytical figuring in determining what it costs to run a building.
Mr. Smith : I would like to say that the Secretary of the San Francisco Association, Mr. Applegarth, when he started on this electric cost and the water cost, would come to our office every month or so and try to get us to check up our bills for a year back. We told him all right, tomorrow, or next week, to stall it off; not because we didn’t want to do it, but because we didn’t have time. I wasn’t the only guilty one; pretty nearly every San Francisco member here is just as guilty as I am. But I want to say if we had done it a few months sooner our company would have been saving in the neighborhood of three or four hundred dollars a month. Our savings were made, as I stated, through analyzing our labor costs and getting rid of a lot of unnecessary help. Before we started on that we considered that a man should be in the office waiting for somebody to telephone in for him to come and drive a nail or move a desk. We are now running with considerably less help and that is due to analyzing our costs. I am not trying to set up our company as an example, because perhaps many of you foresaw that before we ever started.OFFICE BUILDING PROBLEMS
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Delegate : Mr. Chairman, I might throw some light on this operating cost. The question has not been answered of why the difference between fifty cents and a dollar. That difference is caused largely by the physical condition of the building and partly by the power plant. I am familiar with the buildings that Mr. Smith speaks of; one building is a low seven-story building with a very large area, two electric elevators that operate at about 400 feet a minute. The Alexander Building has three elevators and it has about half the area of the other building. There is a difference in cost right there from the elevators, serving half the area, probably, and at probably 40% greater cost. Now we find Los Angeles is cursed with about as many hydraulic elevators as I have ever seen. The cost is considerably higher. On all the cost sheets I have looked at, the highest cost per month nearly always had a hydraulic plant with several engineers smoking pipes in the basement. Consequently, that is why you get those variations in figures.
Mr. Holbrook (Portland, Ore.) : The question has been raised as to whether these papers will be published in pamphlet form or otherwise, and yesterday at luncheon the question was mentioned regarding an official paper connected with the National Association. The thought just flashed through my mind that there may be a number here who do not take “BUILDINGS AND BUILDING MANAGEMENT.” I am not a salesman for that paper, but I believe that magazine should be in the hands of every building manager. The representative of that magazine is here and he usually attends all these conferences, and I think it is a matter of interest always to have him say a few words. I take this responsibility upon myself, thinking it might be of interest to everybody here.
Chairman : I am sure we would all like to hear from Mr. Wolsten-croft.
Mr. Wolstencroft : I might say I feel very much like the young lady, “this is so very sudden,”—it kind of takes the wind out of me. I can only speak about my own work, and the work that I have to do, mingling with men like I have met at this conference. I like to sit quietly by and listen to your discussions and I find it possible to grasp your ideas. We try in our magazine “Buildings and Building Management,” to place all that information before you so you can get out of it the best that there is. I do want to say this for our paper—it is your paper, rather, because the publishers of that journal consider they are the servants of the Building Owners and Managers associations of the United States. We do not hesitate at all to spend time and money and effort and energy to get together the very best information from every quarter of the United States and Canada and present that in readable form so that you busy men can get at the kernel without cracking the nut so very much, in the least possible time. We condense the information as much as possible, and while the papers that have been delivered here will appear in subsequent numbers of “Building and Building Management,” we shall bow to the wishes of your Secretary, Mr. Kent, and Mr. Apple-garth of San Francisco, in withholding some of the papers until they have appeared in printed form in the booklet that you are to have presented to you. The summary of these proceedings will be in our next issue. Some of the information went forward last night; the rest will126
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go forward tonight and tomorrow. I am very much interested always in these conferences, in the different phases that present themselves. There is one thing that you cannot help but look with joy upon and that is, I will say, the profession of building management is growing away from the mop-pail and scrub-brush and it is getting into the place of the larger questions—not just simply your own building—that is an individual matter; but the questions of civic improvement, or such matters as zoning, taxation, or building of your city, which is all taking the attention of building owners and managers more and more all over the country. It is my pleasure to go from Maine to California, meeting the different characters of men all over, and that is what I am finding. The rank and file are all getting to that place where they are reaching a high standard in the handling of their buildings and people. I was much pleased to hear Mr. Douglas say yesterday that they have taken their tenants into their confidence. It was my pleasure to go through that plant a short time ago and I talked with a great many of their help. It is a great, big, contented concern. That is the best way I can put it. Now if there are any here who are not subscribers to “Buildings and Building Management,” I would be very glad to have their names. I thank you.FEBRUARY 24, 1923, 7:30 P. M.
BANQUET IN HONOR OF
MR. EARLE SHULTZ, PRESIDENT NATIONAL ASSN.
MR. DEAN VINCENT, TOASTMASTER
Mr. Vincent: Mr. President, Ladies and Gentlemen: When I read that I was to be Toastmaster tonight, I was reminded of a meeting of the Portland Association which I attended where one of our members told a story. He said that a certain college had been having a great deal of hazing and it had become so serious that the authorities ordered a stop to it. However, the hazing went on just the same, only under cover, until finally one especially aggressive hazing stunned and left the victim unconscious. The boys were worried about what to do in order to keep it from being found out, and they finally took him over to one of the medical students and asked him to operate on the back of his head and bring him out of the stupor. It seems this medical student in his amateurish way, instead of drawing out whatever he should have to bring this man to consciousness, made a mistake and drew his brains out. Finally the boy seemed to come to, however, but he hadn’t any brains and these boys all had to go into classes with him and sit around with him so someone else could answer questions to the teacher, and so he managed to get along until it came time for graduation. It also seems that at this particular college they had a rule that at the graduation banquet every member was called upon to do something. This poor fellow, without any brains, was selected to deliver the valedictory address, so under these conditions the boys held a meeting and decided to make him toastmaster. Now, however unfortunate that inference might seem, I really do take a great deal of pleasure and satisfaction in introducing the speaker of the evening. I feel not only pleasure and satisfaction, but a certain responsibility, inasmuch, as I had the honor of being chairman of the nominating committee that nominated this gentleman for the office which he holds. I want to say as chairman of that committee and also in the interest of all other members of the committee, that we have never had occasion to regret that nomination—and he holds no mean office. I now take pleasure, ladies and gentlemen, in introducing the President of the National Association, Mr. Earl Shultz of Chicago. (Applause.)
Mr. Shultz : Mr. Toastmaster, Mr. President, Ladies and Gentlemen: It has been a great privilege to me to have taken part in the first meeting of your Pacific Coast Conference and I wish to congratulate those responsible for its splendid success. I also had the pleasure of attending the founding of the Southern Conference at Atlanta, Georgia, last month. There, as here, were assembled those of our profession who have a full appreciation of the importance and far-reaching influence of our work and who realize that only in union can we find the strength to meet the serious problems before us. Office building owners and managers128
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are everywhere awakening to the fact that our buildings are much more than huge expanses of floor space and that instead of being just inert monuments of steel and stone, they are the symbols and instruments of the most powerful force in modern civilization.
Elbert Hubbard once said that the first impression of a city was its lights or absence of lights. But for once that keen observer overlooked the obvious. It is not a city’s lights, but its skyline that we first see, and in America that skyline is drawn by the office building. It is the office building that determines the standing and importance of a city and indicates whether it has arrived among the first rank of cities. The office building is the most competent evidence that a city has been built on a secure, economic foundation and that its citizens possess the faith, energy and vision necessary for its continued growth. It is a safe assumption that a city in which a few tall buildings tower up over a business district of old type architecture is just emerging into the metropolitan class. By the same token a city whose business streets are canyons of modern structures is of full urban stature; while that city in which comparatively young, fire-proof buildings are being torn down to be replaced by others of greater size is of the elect and a leader of cities.
There is a direct relation between the quantity of office space required by a city and the volume of its business as measured by its bank clearings. From the statistics available it would appear that one square foot of space is needed for each $2,000.00 of the yearly bank clearings of a city. This ratio seems to prevail irrespective of the age or size of the city. The business of Detroit, with a population of 1,000,000, requires four square feet per inhabitant; that of Chicago, with 2,700,000 people, six square feet per capita; that of San Francisco, with only 500,000 people, has a volume of business requiring eight square feet per person; while New York City, with its 5,500,000 people, probably uses more than twenty square feet of office space per capita. These are important figures and we can well pursue them a little further. Assuming that there is an occupant for each 100 square feet of office space, a little calculation will show that in Detroit one out of every twenty people earns his living in an office building. In Chicago the ratio is one in every sixteen; in San Francisco one in every twelve; while in New York City more than one-fifth of the population spend a good part of their conscious lives within the walls of a skyscraper. The significance of these figures is this: As the business and importance of a city grows the demand for office space increases at a much faster rate than the growth in population. When such cities as New York and Chicago (and I might also say Los Angeles and San Francisco) reach the 10,000,000 mark, as they are destined to do, they will require office space sufficient to care for one-half their population. To provide this amount of space, 500 Equitable Buildings will be needed.
It is thus seen that the office buildings make possible the business of the present and the future. Our huge and tremendously concentrated industries could not function without them. They are the essence and symbol of our American cities. Only by the means which they afford of bringing together all the parties to modern business has our present high state of efficiency and productivity been accomplished. If New York’s almost 5,000 acres of office space were spread out in one-story buildings it would cover more than one-third of Manhattan Island. ThinkOFFICE BUILDING PROBLEMS
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of the tremendous loss of time that would be involved in carrying on transactions over that great expanse of territory. Many of the big companies would each require several blocks of buildings to house themselves alone. A concern like any of the large steel companies, for instance, would be, thereby, very seriously handicapped and as a result the price of steel would be appreciably higher and the cost of living that much increased for every inhabitant of the nation. Consider also the added cost of street railways, telephones, sewers, water supply, fire and police protection in a business district so spread out. And picture the terrific congestion on the streets, that would be inevitable, where all the communication between business concerns was forced into the streets and where all the companies in the same or associated lines of business could never hope to be reasonably close to each other. Contrary to the belief so loudly preached by zoning advocates, office buildings do not increase congestion. They actually keep it much below what it would be if they did not exist. Have you ever noticed on which streets your traffic congestion is? It is not on those streets lined with skyscrapers, but in the streets having the department and retail stores and the moving picture shows. In the first place, the transaction of office business does not require the running about that shopping does, and in the second place, the general tendency of concerns that have a lot of business with each other is to get into the same or adjoining buildings, thus confining a large percentage of their traffic to the corridors and elevators of those buildings.
It is evident that office buildings partake of the nature of public utilities as being absolutely requisite to the welfare of the country. Because of their essential character, it is vital that they be operated on a basis permitting the investors who provide these necessities to earn an adequate return. This condition as applied to electric light companies, street railways, steam railroads and other strictly public utility enterprises, is very generally recognized today, both by governmental authorities and by the public. As a result those public utilities are permitted by government regulation, based upon the approval of public opinion, to charge rates sufficient to yield a reasonable return on the capital invested. The same should be true of office buildings.
The importance of having our buildings earn a just and adequate return is great enough for us to pause a moment to urge upon all local associations the propriety and necessity of scientifically handling their rental problems. May I give you in brief the outlines of such a scientific method? The first step is the adoption by the association of a code of ethics that will place the selling of office space upon a basis of strict honesty and will eliminate unfair competition and the wasteful and extravagant practices arising out of the assumption of leases and the expenditure of large sums for alterations. The basis of any code of ethics is a realization that tenants cannot be created by cutting prices and that cut-throat competition between buildings only serves to shift tenants from one building to another with continually falling rents and increasing operating costs.
The next step in the scientific handling of an association’s rental problem is to adopt a proper method of determining rentals. This method should be based upon the principles accepted by public utility commissions everywhere in fixing utility rates and is, as applied to rentals, as follows:
The total rental income of a building must include first, all operating130
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expenses; second, insurance and taxes; third, a reserve for depreciation, obsolescence and contingencies; fourth, an allowance of 6% to 10% for vacancies and loss of rent; and, fifth, a net return on all capital invested in land and building of 6% to 8%. Rental rates determined in this manner will be adequate from the standpoint of the building, will be just to the tenants and will be approved by the public opinion if proper publicity is given to the method of their determination.
As a third step the association must at all times provide for its members complete and accurate information of their renting market as reflected by the amount of vacant space, new construction, conditions of business, etc. In the past, building managers’ lack of knowledge of rental conditions has very materially influenced rental rates and has aided tenants in their practice of shopping about from building to building constantly endeavoring to find a building with which they could drive a sharp bargain for a long term lease.
In handling its rental matters, an association should be perfectly frank and open with its tenants. They should be constantly informed as to operating costs of buildings and should be thoroughly sold upon the idea that the capital invested in our buildings is entitled to a fair return. A certain amount of publicity on this subject should also be given to the general public along with stories showing the importance of office buildings to a city. As soon as the public realizes the essential character of office buildings and knows that rents in them are determined not by the greatest amount the traffic will bear, but by methods exactly similar to those used by public utility commissions in fixing electric light and street car rates, there will be a very beneficial change in the relation between our buildings, their tenants, and the public as a whole.
As the office buildings of a city provide a characteristic skyline for that city, so they provide symbolically a skyline for our associations, or rather, I should say, they provide for our associations two distinct skylines. The first is that which we see from the sidewalk. This skyline appears as a narrow opening between the towering cornices of our buildings and our attention is only occasionally twisted upward. From this viewpoint we are concerned principally with the details of affairs going on about us and our interest is centered on our own building and its immediate competitor across the street. We notice particularly the physical structure of our building and are concerned with the repairs to it or with the city’s building regulations as they may effect it. We also watch the janitor sweeping the sidewalk or the window washer at his task—activities which typify our interest in labor matters. In like manner there passes before us, as we stand there, most of the detailed problems of renting and operation that focus upon our individual building. As these are vitally important to us it is essential that they should be recognized and handled by our local associations. They are by no means, however, the really fundamental and far-reaching functions of our local associations. This street skyline by which we are shut in confines us to our individual problems and prevents us from getting more than an occasional glimpse of the larger and more important matters that are beyond the powers of the individual to handle.
As an illustration: Across the street from our building there is being erected a new modern skyscraper. As we see it going up and appreciateOFFICE BUILDING PROBLEMS
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more and more its size and the fact that it is a newer and more modern building than our building we are very much disturbed about it. We wonder what its rental schedule will be and how many of our tenants it will be able to take from us. It being a larger building than ours, we are fearful that as soon as it is opened we are going to have great difficulty in making both ends meet in our older building. This is the narrow point of view and the point of view which prevails in every city where the local association is not functioning as it should in the larger fields of association work. If, instead of viewing our association skyline from the street, we take an elevator and go up on the roof of our building, we will behold an entirely different and broader skyline. From the roof we see spread out before us the entire city. We are able to distinguish where the business district merges into the finer residence district on one side, into the wholesale and manufacturing on the other, and possibly into the railroad freight yards, etc., on the third or fourth sides. At once we realize that our building and the new building across the street are very small units in the large amount of office space being used by the business of our city. We are rather surprised to find how small the building we feared appears in proportion to the total amount of space available. We begin to suspect that our worry of losing most of our tenants is without foundation. A little calculation shows us that the new building could be filled by taking a tenant here and there from all the present buildings without any of them realizing what has taken place. Thus we get our first lesson in the importance of our local association properly handling its rental problems and providing for its members definite and accurate information of the renting market.
From this higher skyline we also observe some of the other larger problems which an association should handle. We see very clearly marked out before us the business district as it has existed for the past ten, twenty or more years. This district is perhaps half covered with modern, tall, fire-proof buildings. The other half of its area is occupied by older buildings, still serviceable but no longer adequate improvements for the land on which they stand, the high value of which has been brought about by the erection of the larger modern structures on all sides. We have held the general belief that this increased land value was a permanent thing; that irrespective of what the city authorities or the growth of the city or the ill-advised plans of office building promoters might do, those values would still remain and continually increase.
In our survey of the city from our higher skyline, however, we become a little disturbed upon observing that several blocks away from the present site of our business district there are being erected two or three office buildings entirely comparable in every respect with the best buildings in the old district. If we think carefully upon the significance of this, we begin to realize that our present business district is becoming obsolete and that the new business district, built on cheaper land where space can be obtained at lower rates and offering all the attractions of a new country, is bound to draw tenants from the old district. The tide, once flowing out of the old district into the new, will, in the course of a few years, render the old district second-class and the increase of values in that district will not only stop entirely but there will in many cases occur actual loss in value. This loss in value applies to the land because it is no longer132
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potential office building sites, and it applies to the buildings because the district in which they are located can no longer attract the class of tenants that can afford to pay rentals adequate to the investment in those buildings.
Changes of this sort have taken place and are taking place in every city of any size in the country. Statistics collected by our taxation committee indicate that in some medium size and rapidly growing cities, like Omaha and Seattle, the business district shifts about one block in every five or ten years. (Mr. Martin, in his speech this morning, in regard to the business district, said it had moved not one block in five or ten years, but some three or four blocks.) In other cities, the movement of the business district is not a regular and steady one, but shifts are made at irregular intervals as a result of either the old business district becoming so full that it must overflow, or else because of some extraneous influence starting a new business center that soon takes the lead over the old. New York City is perhaps the most striking illustration of this condition. On the opening of the New York Central Terminal at 42nd street, there grew up around it a new office building district that is very rapidly taking away from the downtown district everything except strictly financial companies. Even the Equitable Life Assurance Company, at present housed in New York’s downtown district in the largest office building in the world, is building for itself an uptown building into which it plans to move. While this shift in the business district has taken place because of the over-saturation of the downtown district, the time and place were determined by the opening of a railroad depot that provided a source of entry into the business district for hundreds of thousands of commuters.
In Chicago, something of the same sort is taking place. We have for years believed that Chicago was the only city in the world where the business district was absolutely fixed and immutable. Our district was surrounded on four sides—on one side by the lake, on two sides by the river, and on the fourth side by railroad yards. It was supposed that these barriers were impassable. Two or three years ago, however, the city extended Michigan Boulevard across the river by means of a very fine two-level bridge, thus providing easy automobile access between the downtown district and the north side. As a result there has sprung up in the territory just north of this Michigan Boulevard bridge a new office building district. It is as yet in the formative state, but already some buildings have been built and plans are under way for several more. Without question there will develop in this region within a short time a new business district that will rival in its importance the old loop district. Only one thing is retarding the growth of this district and that is lack of transportation. That problem can and will be solved. The growth of this new district has been caused by two things: First, by changes and improvements made in the handling of the automobile traffic in the city; and, second, by politicians boosting it as a speculative territory in order to justify the municipal expenditure of millions of dollars on the boulevard bridge. As a result of the development of this new territory values in the old loop district are bound to be affected. Land in the new district is at the present time obtainable for one-half the prices prevailing in the loop. Many concerns who have felt for years that they could not do business outside of the loop are taking space in this district.
Mr. Martin, in his talk this morning, also gave some figures about LosOFFICE BUILDING PROBLEMS
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Angeles which seem to me to be extremely interesting and important. As I recall his statement, it was that prior to about ten years ago the business district of Los Angeles was largely north of Fourth street and that during the past ten years it has moved until the center is about at Seventh street. He explains the cause , of the moving as due to the fact that there was a limited area north of Fourth street and surrounding it and that it didn’t have access to the best residential part of the city and, therefore, the business district moved down into the territory where it could have access to the residential district; that as a result of this move the old business district lost $14,000,000.00, he estimated, in value. The interesting thing now is, as I understand it, that there is a plan under way to cut through the hills on Fifth street, thus providing a new access to the best residential part of the city, and as a result of this move the business district is gradually shifting back into the old territory.
The significant point, there, is that had Los Angeles had at that time, ten years ago, a progressive office building association that was considering the growth of the business district and the interest of the property in the business district, and if that association could have at that time fostered and backed the building of this tunnel to provide an outlet for the business district, they would not only have saved those properties the $14,000,000.00 loss, but would have brought about many more millions of dollars increase in the value of that property.
It thus appears that not only is the income of our property dependent upon the action of other buildings, but even the investment value of our property is dependent upon shifts in the business district, brought about either as the result of the growth of the business district of the carrying out of city plans, or of the activities of real estate promoters. It is therefore of the utmost importance that our associations should interest themselves in these larger problems that concern not only the welfare but even the existence of our properties. The progressive, wide-awake associations will realize that they are vitally concerned in the welfare and development of the city. An association’s activity in city planning should extend far beyond the mere criticism of the plans proposed by politicians. No other group is so vitally affected by city planning as are building owners, and local associations could well afford to be continually studying the city’s economic growth and development with the view of guiding it into the proper channels. The location of railway terminals is another extremely important matter and one in which the local association should take an intelligent and aggressive stand.
Of the civic forces affecting our buildings probably the most active at the present time is the tendency on the part of cities to restrict the height of office buildings as a part of their zoning regulations. In applying zoning we should bear in mind that the purposes which it is to accomplish are very different in the business district from what they are in the residential portions of the city. In the residential districts zoning should provide for the health and safety of the people and furnish them with sanitary and cheerful living environment. In the business district, however, the purposes of zoning should also be to conserve real estate values; to make easy and adequate the growth and development of the business district that it may accommodate the growth of the city; and to prevent134
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as much as possible the unwarranted obsolescence that takes place from shifts in the business district before that district has been properly filled up. As previously pointed out, the business growth of a city much exceeds its population growth. The demand for office space increases much faster than the demand for living quarters. Any undue restriction of the amount to which land in the downtown district of a city can be improved has three very bad effects upon the city.
First, it very much upsets and disturbs land values. Land, in the last analysis, is worth only what it will earn and the earning power of a lot under a skyscraper is measured by the number of square feet of rentable area that can be built on each square foot of lot. A building of twenty stories can pay a fair return on a much higher land value than can a ten-story building. Statistics compiled by the National Association for 188 buildings throughout the United States show that the net return on office buildings increases with the height.
The second bad effect of undue height limitation is an increase in the rate of obsolescence on buildings. A reduced height limit reduces the capacity of any block or district to provide housing accommodations for business. The §maller the capacity for housing business the quicker that capacity will be used up and consequently the sooner the business district must expand and flow into other locations. There is probably no one factor that so affects the useful life of an office building as the speed with which the business district of a city travels. Therefore, in accelerating this speed by an undue restriction of building heights we are not only decreasing the immediate earning power and value of the land, but are also dooming our buildings to a shorter life than they should enjoy.
In the city of Chicago, where our loop district has been fixed for the past fifty years, we have some buildings forty to fifty years old, yet in service because they are still located in the primary business district of the city. If, however, our business district had during that time shifted eight or ten blocks away from those buildings there is no possibility that they still would be earning even a fair return on the value of the property. In the city of Omaha buildings built three or four blocks ahead of the business center are now in the heart of the business district and for that reason are profitable buildings although they are thirty years old. Other buildings, however, that were in the center of the business district when they were built were left behind and have either been torn down and replaced or else abandoned by their original occupants and diverted to other and less profitable uses.
A very significant statement made by Mr. Martin here this morning was that the state banking authorities limited the length of bond issues on office buildings to 15 or 20 years, for several reasons, but one, I think, was in order to avoid the loss in value that would come to those properties through the effect of obsolescence as a result of shifting in business districts.
The third detrimental effect of undue restriction of office building heights is the restriction which it imposes upon the growth of the city’s business through restriction on the amount of office space available to house it. Even if the demand for! space is partially met by the construction of lower buildings spread out over a wider area, this spreading out ofOFFICE BUILDING PROBLEMS
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the business district adds materially to the expense of doing business and consequently of itself restricts the free development of the city’s economic life. As a direct result there will arise an overwhelming demand for changes in the limit and the city will have continually changing height limits. This unsettles values and is extremely unfair to property owners. There is certainly nothing equitable in insisting upon the owner of one lot building only a twelve-story building and then two or three years later allowing his next door neighbor to build a twenty-story building. Even more unfair is it to permit one man to build a twenty-story building and by so doing increase the value of his neighbor’s land correspondingly and then refuse to allow the neighbor to improve his land with a building adequate to pay a return on its increased value.
In studying the zoning ordinance being considered in Chicago, I prepared a chart of the amount of office space constructed each year since 1888, showing how this amount was affected by the height limitation in force at various times in that period. During these thirty-four years the Chicago height limit has been changed six times. Whenever the limit was reduced below 260 feet the amount of building construction fell off very rapidly, in one case stopping entirely. In these periods of low heights the growth of the city brought about a shortage of space, thus creating a demand for the raising of the height limit so that new buildings would be erected. As soon as the limit was raised, building again started up, even in the face of labor difficulties and high construction costs. This study proves very conclusively that there is a limit below which it is decidedly unprofitable and uneconomic to construct buildings, and that in Chicago the minimum limit is 260 feet.
Another effect of undue restriction of height is that the consequent reduction in land values reduces the amount of taxable property from which taxes can be collected for the support of the government; and this brings us to another of the major problems which a progressive local association should handle, and that is taxation. Not only are office buildings an essential factor in our city’s life, but they are also the city’s best citizens, for they pay taxes in the fullest measure and the amount of their contribution to the support of government is not small. There is probably not less than five billions of dollars invested in these buildings and the land on which they stand throughout the United States. The gross return on this mass of capital is somewhat less than 20%, of which approximately one-fifth, or $200,000,000 per annum is paid out as property taxes. Office buildings pay to the government a larger percentage of their gross incomes than any other line of business and this does not include amounts paid as income taxes. In addition to the revenue which the government obtains directly from our buildings, much additional taxable value is created by them through increasing the value of adjoining property. As soon as a skyscraper is erected in a block all the rest of that block and the adjoining blocks immediately become potential office building sites and take on additional value which the tax assessor is quick to take advantage of.
There are two distinct approaches to our tax problem. In the first place the amount of taxes paid by real estate is out of proportion and much higher than that paid by any other property or class of business. Our136
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associations therefore should actively support all movements looking toward a more equitable distribution of taxes, either through such handling of personal property assessment and taxation as will yield a much greater return from that source or through the application of some form of sales tax such as was endorsed by the National Association at its Portland Convention. You gentlemen are already familiar with the movement started on the Pacific Coast to limit the amount of taxes that can be levied on real estate. To all of these movements every local association should give the most careful and thoughtful consideration, as they will tend to relieve the burden now imposed upon real estate.
The second point of attack on the taxation question is in the expenditure of taxes by government bodies. Our most progressive associations are concerning themselves more and more with the use which pur cities make of their funds. Committees of our associations devote unlimited time and energy with the Budget Committees of the city or county to reduce the appropriations required and to increase the efficiency of their departments. Most of this work is carried on in a spirit of cooperation between interested citizens and the government officials. In some cases, however, our associations have actively fought the city authorities when it was felt that money was being spent wastefully or illegally. In cities where the local association does not itself actively get into taxation matters it can indirectly accomplish good results by supporting other civic bodies that are fighting for lower taxes or increased governmental efficiency.
In the time allotted to me it is impossible for me to discuss at further length the broad scope of the fields of work which our associations, not only local but also regional and national, can and should take up. I have endeavored in my remarks to impress upon you the tremendous importance of office buildings to the welfare of our cities and the nation and to awaken you to the vital character of the work which your associations are doing. In addition to the fields of work already discussed, there is a special form of association activity that is also of great value to our members. I refer to the regional and national conventions. These conventions take us away from the narrow point of view of our own individual problems and expand the horizon outlined by our skyline so that it includes a whole geographical section or the entire nation. They raise us to the heights from which we can clearly see and appreciate our larger problems. Through the speakers and subjects on the programs we are kept up-to-date on the latest ideas pertaining to our work and by the personal contact obtainable at the conventions we get the view-points and experience of others in the same line of business all over the country.
Permit me to devote a word or two to the forth-coming National Convention which is to be held at Atlantic City, June 18th to 23rd, 1923. Atlantic City was chosen as the convention city largely because the directors believed it would assure us the largest attendance we have had so far. Realizing that one of the major values of a convention lies in the personal contacts which it provides, the directors acted upon the thought that the larger the number of these contacts the greater the benefits to those attending. A second thought in our minds was that a large attendance would spread the spirit and appreciation of association work more widely throughout the country. At this date the program for the convention is,OFFICE BUILDING PROBLEMS
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of course, not yet in definite shape. In general, we plan to divide the work of the Atlantic City convention into four divisions. In the first division will be considered technical and operating subjects of interest to us. We have in mind the presentation of papers on boiler-room and heating economies by technical engineers of nation-wide reputation. Other papers will be presented on the efficient and economic handling of the labor in our buildings; on making time studies of our labor; and on scientifically laying out and organizing our work to its best advantage. These papers should he of great practical value not only to building owners and managers, but also to their superintendents, engineers and operating men..
The second division of our program will be devoted to the work of the Service Committees of the National Association, which means also the committee work of all our local associations. Committee work is the backbone of our association activities and I am sure that if our next convention did nothing more than stimulate and render more efficient the work of our local and national committees, this one thing would justify the holding of the convention. Local association officials are particularly urged to have the chairmen or members of their local committees attend the Atlantic City convention.
The third division of the convention program will consist of the presentation of the latest ideas and experiences of our own members. In order to bring forth these ideas and experiences, the current issue of the National Bulletin is announcing a prize contest for papers to be presented at the convention. The contest is really three contests in one, as three sets of prizes are offered. The first is for the best suggestion for a paper at the convention. The second is for the best paper on “renting.” Because of the wide-spread construction of new office buildings there is no problem of greater interest to our members than that of renting. Any contribution to this subject, therefore, should be of the greatest value and our members are assured that they can well afford to have their renting men attend the convention for the benefit they will get out of the papers resulting from this contest alone. For the third contest the writers may either take one of half a dozen subjects suggested, or else use one of their own choosing. It is our hope that by means of this contest we will afford an opportunity for our members to express themselves and to bring forward for the benefit of the whole association the lessons which they have learned through their experience in office building operation and management. The fourth division of the program will be that devoted to the apartment house conference; an entire session will be given to this, on apartment house renting, and attention will also be paid to their planning, service and operation. Messrs. Palmer & Kennedy of Omaha are this year compiling a national experience exchange, which will be presented and discussed at the convention. They are also planning to have a large exhibit of apartment house plans, showing the latest ideas. Members interested in apartment houses should find this session of extreme value to them.
It is my belief that the Atlantic City convention will be the best so I far held by the National Association and I wish to urge upon you the I desirability of not only attending yourself, but also of bringing your I superintendents, engineers and renting men. Local association officials138
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should also impress upon their committee chairmen and members the fact that they will obtain at this convention much benefit not only for themselves personally, but also for your local associations.
The work of our associations has an even deeper and higher significance than those already pointed out. I can best express this significance in the terms of an illustration made by Dr. Jacobs, President of Oglethorpe University, in welcoming the Southern Conference to Atlanta, Georgia. Dr. Jacobs pointed out that there existed in the world today three distinct types of skyline. The first skyline was that drawn by the church spire. The second, that dominated by the Capitol Dome. And the third, that of our American office building. The skyline of the church spire symbolizes the influence of religion and the church in the development and support of civilization. The skyline of the Capitol Dome stands for the power and influence of national, state and political organizations. These two forces, however, have a serious weakness in common. The church divides men into creeds and sects, thus establishing antagonisms that have in the past ages resulted in some of the most disastrous consequences. The national idea, in like manner, divides the human race into tribes and countries whose sole thoughts are political dominion at the expense of their neighbors. The Capitol Dome is supported by armies and its policies have resulted in the world war, which, with its after-effects, is actually threatening to break down and overthrow the Aryan civilization and plunge the world into a second dark age. These two skylines are the only ones existing in Europe today.
The skyline of the office building represents a most powerful world force—that of commerce. Commerce tends to draw all the world closer together. The tenants of our office buildings reach out to the farthermost parts of the earth and link up the interests of all creeds and nationalities. The fundamental purpose of commerce is to make every individual in the world a good customer. No man is a good customer who is not sufficiently successful to have money to buy not only the necessities, but also some of the luxuries of life. Business makes us take thought of the welfare of the other fellow and gives us an appreciation of his point of view. If civilization, now staggering under the effects of the world war, is to be again put on a firm foundation, it must be done by the adjustments and understandings of modern commerce.
The part which office buildings play in the workings of this great stabilizing force of business is apparent to all of us and it is evident that the work which our associations can perform is much more important than that of providing adequate incomes for our buildings or even of preserving their values. We are responsible for making possible the continued and successful functioning of the huge machinery of commerce and modern civilization upon which the future not only of this country depends, but also of the entire world. I thank you.
* * * *
Mr. Vincent: To you who have heard this splendid address tonight, I will say I agree with the judgment of the National Association, and I desire to express to Mr. Shultz our appreciation of this paper and of his presence out here at our conference. He has expended a great deal of time and money to be here and I am sure it is the desire of all ofOFFICE BUILDING PROBLEMS
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us that he should know we do appreciate it. (Loud and continued applause). Quite a number of the delegates to this conference came to me today and asked permission to speak here tonight, but I have been advised by the local committee in charge that tonight was to be reserved for one speech, and so, of course, I had to decline those offers and refuse those requests, much as I regret it. However, I do not want this meeting to pass into history without taking the opportunity, in behalf of the visiting delegates, to express our thanks to the Los Angeles Association for the wonderful entertainment we have enjoyed at its hands. When I say to you that your hospitality is on a par with your ability to boost your own country, you will know what I mean. I think at this time it would be very fitting for the visiting delegates to give a rising vote of thanks to the Los Angeles Association. (Audience rose; loud applause).
ROUND TABLE DISCUSSION, LUNCHEON, FEBRUARY 23, 1923
Mr. Charles Holbrook, Chairman Portland, Ore.
Chairman : Gentlemen, at every convention or conference that I have attended, one of the most interesting and valuable parts of the proceedings has been the practice of luncheon conference, “Live Wire Topics,” as they are usually called. These are usually also led by some one acting as chairman to suggest the subject, sometimes one that has already been planned—and any one can get up and ask questions and express opinions. Mr. Kent has not given me any specific subject, but one occurs to me which I think would be a good snappy subject, which I will start and change later if we exhaust it, and that is to what extent should buildings advertise, also something on the practice of soliciting tenants—what this should consist of and to what extent it should be allowed or not allowed. I will now declare the meeting open to anybody who can give us something on that subject. Every city has that problem to confront where the soliciting of tenants is promiscuous.
Mr. Brown (Los Angeles, Cal.) : Gentlemen, when I came here about six years ago I found that situation of soliciting tenants. Nothing was thought at all of going from one building to another and personally soliciting tenants. I believe that is a matter that will take care of itself and be almost entirely eradicated through personal touch of one with another. I know that we have done so here in Los Angeles. We started to get together at noon-time, having little luncheon crowds together, and in the beginning we found that we had to introduce the manager of a building on one side of the street to the manager of a building on the other corner; he didn’t know him at all. That was only a matter, I will say, of six or seven years ago. I don’t believe today, with the feeling that has grown up between us here in Los Angeles that the proselyting or soliciting of tenants is indulged in at all. As I say, I think that is a matter that would take care of itself just simply by getting in touch, one with another, making our interests common. That is the way I would look at the subject.
Chairman : I have always felt that one of the chief purposes of a local association was to bring together men in this common line of business to rub elbows with one another and get acquainted.
Mr. Christenson (San Francisco, Cal.) : Mr. Chairman, I represent a building which has only been completed a few months, but I had a phase of the advertising situation come up to me just before we completed our building. I had never thought of it in that light before—the possibility of spoiling a market for your office space by advertising. The way it came up to me—there was another building, the Alexander building, a few months ahead of us, and the Alexander building did a littleOFFICE BUILDING PROBLEMS	141
nice, clean advertising to a great extent in the form of announcements that they were completed and ready for occupancy and so on—all very good. We were not ready, in fact I had not moved my office into the building, but I was having a great many calls for office space. We all know that the general attitude of tenants is that if everything is pretty full and office space is scarce, they are not so fussy about the rent they pay, but if they find a lot of buildings going up, they think they can dictate their own terms. That was the way it was with this, it would come to me day after day, “Well, these rents are going to come down. There is the Alexander building over there, all finished, having a deuce of a time renting their offices, advertising it everywhere.” I thought of this and it kept coming and coming to me, day after day, and then I went around to the managers of some of the buildings there in the neighborhood, and they were hearing the same thing. Now, the attitude of the public was that they thought that building had to advertise, that they couldn’t get tenants. Now we are in a different position, advertising a building and advertising merchandise. As you sell merchandise, you re-invest your money, and the faster you sell it and turn it over the more money you make. Of course, with an office building the supply is limited. If you have 100,000 square feet, when you have rented that you are off the market. They take the attitude which they take with the merchant, they know he is constantly buying and selling and if he advertises too much they say he can’t get rid of it, and that is the same situation with a building on the advertising. I think it is proper to do a certain amount of advertising, but I think the best advertising is the advertising that has a tendency to make your building and its location known. You all know that a building has a certain value according to how well it is known. A building that every man, woman and child knows the location of, and can tell you instantly, has a better rental value than a building where only half of them can tell you. A building that has some outstanding feature, such as some special service, if you will, that will make that building known, that is better advertising than to advertise your space.
Chairman : Gentlemen, there is a man here today whom I believe to be one of the best informed building managers in the country in every form of building management. He operates properties that have a distinct reputation and he is experienced in every phase of this part of the business. I would like to call upon Mr. J. F. Douglas of Seattle, for a few remarks.
Mr. Douglas: Mr. Chairman, and gentlemen: To begin with, we started out on what might be called a cut-throat plan. We went after the other fellow’s tenants religiously and we went after them by groups. For instance, we wanted to try and get together the doctors and dentists of Seattle in one building. A man had fifty tenants, one doctor and one dentist and we didn’t want the rest of the tenants. We tried to get the doctor and the dentist out of his building. That was the policy in New York and the accepted policy in Chicago, as I think Mr. Shultz will bear me out in that, and in several other cities of the country fifteen years ago. Gradually we drifted away from that policy until now it is considered bad ethics to directly, either by letter, correspondence or personally to solicit tenants of your competitors’ buildings. Undoubtedly the new situation142
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is very much better for properties than the old plan of operation. Now with reference to building up a new building or getting new tenants, I agree with the gentleman who just spoke, Mr. Christenson of San Francisco, first, that it is a great advantage to a building to become known, and, secondly, whenever we build a building we set aside a percentage of the cost of the building, we will say, for instance, 2%%, for advertising; we do not always set aside the same percentage. I think for the two buildings we built this year we set aside about 3%, and follow pretty much the line of advertising that Mr. Christenson suggested. Not so much soliciting or stating that we have a lot of office space, but stating as clearly as we can to anyone who happens to read the advertisement that we have a building advantageously located, that it has a certain lot of advantages, whatever those are, because we feel that it is up to us when we rent the space to a tenant to put him in a building that someone has heard of before. If a man comes along and says to you that he has just rented space in the Smith building and some one asks where the Smith building is, and then in a few hours he tells somebody else that he has rented space in the Smith building, and nobody seems to know anything about the location of that building, pretty soon and before he gets into the building he is thoroughly disgusted and thinks he hasn’t landed right. I think it is up to the manager of a building to make the advantages of a building known to the general public and I believe in advertising to that effect. I see no reason why building managers should not advertise just as a merchant does, or anybody else, but I believe there is a way to do it and that is along the line indicated by Mr. Christenson. I have suggested this in two or three cities but have not met with any response. Take Cleveland, where they had three-quarters of a million feet of space available at one time. Now it wasn’t possible to go out and get tenants from the other fellow’s building to fill that space, but I believe the managers could have raised a fund of twenty-five or fifty thousand dollars, if they had chipped in for an advertising fund, and in every section of the country they could have advertised that Cleveland was the place to have an office. There are thousands of people within a radius of ten miles of San Francisco who ought to have offices in that city who have not been sold on the proposition of having an office in San Francisco. The advantages of having offices in San Francisco ought to be pointed out to them.
Chairman : It used to be the custom, I think, that when a large building had been completed or during the process of construction, to engage a very clever expert in renting office space, usually on the commission basis. He would offer all kinds of inducements, perhaps pay moving expenses for tenants, etc., competition would be so keen, and he would fill that building to the great credit of himself apparently, and then his services would cease and they would hire the poor building manager to clean out, and then another new office building across the street or a block away would be built and the owners would engage the services of this same very clever man to rent their building; he immediately takes charge and takes all the other tenants out of the first building and puts them into the new building. This is certainly very characteristic of some cities and to a certain degree all over the country, and the local association of building managers has been a very forceful factor in eliminatingOFFICE BUILDING PROBLEMS
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these conditions. I believe that where a new building goes up in a city the building owners and managers association, individually or as an office agent could help that man fill his building, if he is not an outlaw to our ethics.
Delegate : In some places when a new building has been completed and is ready for occupancy, newspaper men invariably get a photograph of the building and of all the contractors who have had anything to do with it and they advertise a double page as to what has gone into the building, and each contractor or sub-contractor has carried a card stating what he had put into the building, and that advertises the building right at the start if they advertise it thoroughly in that manner—a double or backpage advertisement.
Chairman : Is there any further discussion on this subject? If not, I might suggest another subject. Or there might be some peppy subject that someone else might have here, so don’t be influenced by any suggestion that I might make. I might suggest the subject of mutual insurance and depreciation.
Mr. Bewley (Lodi, Cal.) : I might ask about the depreciation on a Class A building, how it is figured.
Chairman : The National Association has been getting out extremely valuable data on that subject. The customary allowance has been about 2% on first-class office buildings.
Mr. Shultz : Just a word by the National Association on this depreciation. Last year we took up three cases of Chicago buildings and carried them to the Board of Review and Appeals at Washingotn, Income Tax Department, claiming a depreciation allowance of 2% per cent and based it largely upon the thought that the life of an office building did not exceed 40 years and consequently there should be that percentage of depreciation. The peculiar problem we have before us is this. The present law provides that we can take an allowance for depreciation, but the obsolescence cannot be taken until after the building has become obsolete. They only allow us to take 1%% for the deterioration of the building. In making our fight before the Board of Review and Appeals we attempted to set up the obsolescence just as depreciation should be taken, year by year, but if we couldn’t get that ruling, that they would consider 40 years as being a fair life of a building. Unfortunately the department is overwhelmed with claims preceding 1917 which they must get out of the way before March, this year, so they will not give us any decision on these cases. There is one way in which you can get a considerably larger allowance for depreciation, that is, to separate the parts of your buildings, such as elevators, etc., and take a larger amount of depreciation on this mechanical equipment. In Omaha, one of the buildings there has hired an accountant who is making a special business of finding out from the Government the rulings on various buildings, just how much they will allow and have allowed on the various mechanical parts of the buildings, and will use those as a basis, and he is making some large savings in income taxes and getting a larger depreciation. Some are getting as large as 4% and 4J^%. This means that you, either, have got to have original figures showing distribution of your costs or have an appraisal made. At the convention at Atlanta it was suggested that the National Association should handle this144
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until we could get some better way. To do that means probably the expenditure of a much greater amount of money than the National Association has available, because it means employing attorneys and accountants and gathering together a lot of information and taking a number of these cases up to the Supreme Court. We have under advisement a plan of organizing a separate bureau or department of the National Association to which we would invite all interested in this income tax matter to join and contribute on a percentage basis—on the income tax—to get together a special fund to carry on this work. We will make an announcement of this within the next month or two, of what we have decided to work upon, and I would be very glad to have all of you join in this work because I think it is desirable to accomplish it, and we would like to have suggestions from any of you in this regard.
Mr. P. R. Kent: Perhaps those present might be interested in knowing about the work the Los Angeles Association has been doing in connection with depreciation on office buildings. Over a year ago, we took up with the assessor the matter of considering a yearly depreciation on our buildings. After much discussion the assessor agreed to allow a one per cent yearly depreciation and to make this rate retroactive on all properties that have not at this time received their due allowance. Property in Los Angeles County is assessed upon a 50 per cent basis and the adjustment which will be effective in 1923 will reduce the assessed value on some of our buildings as much as $32,000.00. You can readily realize what this amounts to with the tax rate at $3.69 per hundred. If the assessors in the various counties represented by the members present have not recognized a scientific rate of depreciation on improvements, I think it would be well to start in on them now.
Delegate: I would like to ask Mr. Kent a question. We had an experience in San Francisco of our assessor’s making a value increase of 15%. How does your assessor arrive at cost value?
Mr. Kent: The assessor has taken the average cost value of the construction of this class of properties over a period of six years, which takes in the peak cost and also a figure which is somewhat below normal. In addition, he sent out questionnaires to over 200 contractors and got an estimate of what their figures were for constructing a Class A office building. With those figures he set up what seems to be a fair average construction cost.
Chairman : I hope everyone here will take this matter of depreciation seriously. It is important. I was talking not long ago with the manager of a certain building in a certain city, asking him how he was doing. He said, “Fine, fine—6% on the investment last year.” “Well,” I said, “what is your valuation?” He said, “Oh, actual cost,” and he wasn’t figuring depreciation at all and he was very much excited over that. I could cite a little instance of obsolescence. Obsolescence is quite a different thing from depreciation. Twenty years ago, or about that time, the New York Hippodrome was built, and I have recently seen in the papers that after twenty years the Hippodrome building is to be torn down and a $15,000,000.00 hotel built on the property. This is just a picturesque illustration.
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Chairman : Well, irrespective of what the government figures, I always put 2%, which is not enough, but I always figure a safe estimate. Figuring all plumbing, your elevators and boilers, I think it runs up as high as 10%, or higher. If you are clever enough to analyze your investment, or get an appraiser, it would be worth while to do so. I think one of the finest pieces of work the National Association has done has been this depreciation report. It shows one of the chief functions of the National Association, to gather this data.
Mr. Kent : I would like to cite one instance in regard to putting up a new building and tearing down an old one. The owners of the property were taking a scientific rate of depreciation of 5% and at the time the new building started on the old building site, the old building had a book value of about $45,000.00. They couldn’t get anybody to tear it down for the value of the material. When we were talking to the assessor he told us we couldn’t cite one instance of obsolescence, but we cited this building to him and told him it had a book value of about $45,000.00 and the owners couldn’t get anybody to take it away for its salvage value.
'Mr. Hilton (Los Angeles, Cal.) : I think the subject should be brought up regarding the ways and means of operation of the National body. That is, this: I consider that the National body should operate and function with a high saving efficiency, and it could only do that by having capital to function with. The problem is to get the capital and get the proper committees to function. Each association should be brought into close touch with the National body. I am a member of the American Society of Mechanical Engineers, and you are probably acquainted with the work they have done in the mechanical field in the appointment of several committees to analyze different subjects on mechanical engineering, and when these committees get out their reports on rules and regulations they are accepted by the world as being correct. The United States Government accepts them. Now the way they operate is this: There are local chapters in different sections of the United States, and they hold an annual meeting in New York every year and each local section sends a delegate. This year there were fifty-two delegates at the meeting. They are very fortunate in New York, because they have a building of their own which Mr. Andrew Carnegie built for them, and they have a special act in the State of New York whereby they are free from taxation. But they get their funds from the publishing of a mechanical paper. They publish every month the Mechanical Engineer, and all these articles are published and sent broadcast to the members, and so, advertisers rush to that paper because the people who read the paper are the purchasers of the commodities that are advertised, and that paper alone nets the American Society of Mechanical Engineers forty-five to fifty thousand dollars a year besides being the medium of distribution of these articles to its members. I cannot see why this National Association here should not get up a monthly publication, and I am sure that the manufacturers of commodities used in office buildings would rush to that publication the same as they have to the Mechanical Engineer, and I believe that this organization could function in somewhat the same manner. I believe each city that sent delegates to the national convention paid their way to New York and I think they are allowed $4.50 a day for expenses from the time they leave home146
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until they get back. I think it is only a matter of getting the organization together and getting it to function properly. Of course it means a manager and an editor for your paper. Technical articles can be gotten from the technical press to publish in the paper. All the editor would have to do would be to turn over his data to the publishers and they would contract for the paper, and I think we could get money enough in the treasury to pay the delegates’ way to the national convention, and get competent committees, pertaining to building management that would be an authority, for instance, and it would function properly because it had the money to do so. This is just an idea I am giving to you to think over and see if it is worth anything.
Chairman: I am sure Mr. Hilton’s suggestion is a very excellent one, and I may say we are still in our infancy as an organization. Your Mechanical Engineer is a recognized organization, nationally; that is what we are struggling to be with the greatest effort, and essentially must have strong local associations to bolster up the ideas you have advanced. Now there is one thing I want to mention as showing the great value of the national association. The last two or three years, accounting and exchange reports have been sent out to every member of the national association, each year they have gained in their value, depending on the number who respond. Last year’s report was especially a very valuable document. The president of our national association has been very active in that work; he has been chairman of that committee and still is. Questionnaires have been sent out recently to every member of the national association to compile information to make this year’s report even better. In view of the fact that Mr. Shultz is present, I would like to have him say a word on this subject.
Mr. Shultz : All that I would want to add to it or to say, is to urge upon you the importance of getting your reports back promptly. It is a very large task to compile all those figures and get them printed and it takes two or three months of hard work after you get the reports in. We would like very much to have the reports out for the convention, which means that we ought to have your figures turned in right away, and if you will do that I am sure we will be able to get them out and get out better reports. This year we sent out in our form a provision for you to return your figures according to your own method of accounting if they are not such that you can conform to our system. We find a good many different systems from the standard form laid down by the association and they feel they cannot adopt their form to the national form. We find in most cases if we can get their figures as they give them, it is not difficult to change them around and put them into the national form, and we don’t mind doing that.
This Society of Mechanical Engineers has an annual income of $820,-000.00. I saw its last year’s statement. Of that the $40,000 which it gets from the advertising, is a comparatively small amount. In other words, if we had a paper that was profitable, it would still only give us a small percentage of what we want. Our National Association spends $800,000.00 less than this Mechanical Society, or about $20,000. We probably represent five billions of dollars worth of property and if we would contribute one-tenth of one per cent of that we would have $500,000.00OFFICE BUILDING PROBLEMS
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a year. We should be willing to pay in proportion to the valuation of our property and the rents we are getting, and I think if every local association was organized on an assessment basis and we could distribute the cost of the association among the members, that you would get all the money you would require, and you couldn’t make an investment anywhere better than in the support of your association.
* * * *
ROUND TABLE DISCUSSION, LUNCHEON, FEBRUARY 24, 1923
Mr. Earle Schultz, National President, Chairman.
Chairman : Gentlemen, there is one subject which I would like to call attention to, and that is one work the National Association is undertaking. Messrs. Palmer & Kennedy of Omaha, are preparing for the apartment house owners, members of the National Association, an experience exchange, corresponding to that which we have been getting for a number of years for the office building. This ought to be a very valuable work, and I would like to bespeak for it the cooperation of all of you who are interested in apartment house problems. Another subject suggested for discussion is a problem, one which is a very live problem, that of fire insurance. I will ask Mr. Kent to give you an outline of the problem as you have it here.
Mr. Kent: The outline is this, and it is merely a local situation with us. Our organization has been interested in a bill which is up before the Legislature at this time, and I want to read an interpretation of that bill.
Senate Bill No. 453, introduced by Senator Inman of Sacramento, January 31, 1923, at the request of the California Policy-Holders League. Not to be confused with Assembly Bill No. 95, introduced by Mr. Lyons, January 17, 1923, and discussed at meeting of Business Property Owners and Managers Association, February 6, 1923.
Objects of Inman Bill are (1) to reduce the average rate in California by limiting the companies to the same rate of underwriting profit that they have agreed upon for the country at large; (2) to equalize rates on each class and subdivision so that all discriminations shall be removed; (3) to foster and encourage bonafide competition among insurance companies and agents.
Insurance companies may co-operate in forming and maintaining rating bureaus and may adopt universal rates, provided such rates do not, in the aggregate, produce profits in this state greater than in the entire United States and that the rates are non-discriminatory. Such bureaus must admit any company, agent or property owner to membership, and its records must be open to public inspection.
Every rating bureau must file its schedule with the Insurance Commissioner. These must be so comprehensive that anyone versed in fire insurance rating can determine the exact rate on any risk. Every rating bureau must furnish the owner of property surveyed and rated with a copy of such survey and make-up of the rate.148
OFFICE BUILDING PROBLEMS
Every company must be a member of a rating bureau or perform separately the acts required of a bureau. Companies may file a table of deviations from the rates of a bureau of which the company is a member. The individual companies must file every year a sworn statement of the premiums earned and losses incurred by them (1) on business in the United States as a whole; (2) separately in California; (3) separately in each city and town in California. These are to be totalled. If the total shows that the companies have, in the aggregate, retained more than 45 per cent for profits and expenses, the rates must be reduced to bring the margin to 45 per cent. If the margin for the United States as a whole is less than 45 per cent, California’s margin must be reduced accordingly.
The first such filing must be made September 1, 1923, covering the five-year period, 1917-1921 inclusive. The next April 1, 1924, covering the five-year period, 1918-1922 inclusive. The next April 1, 1925, covering the five-year period, 1919-1924 inclusive, et cetera.
Reductions based on such compilations take effect as follows: On filing of September 1, 1923, reductions are applicable to the unexpired portions of all policies in force. On filing of April 1, 1924, reductions take effect as of January 1, 1924, et cetera.
Assume an instance of a building insured for three years, from September 1, 1921. Premium $1,200, or $400 per year. A reduction of 30 per cent is ordered September 1, 1923. Applied pro rata for the one year the policy has to run, the owner would receive a rebate of $120.
The bill distinctly provides that each class of coverage must be treated separately. Fire rates are not to be based on the experience of automobile insurance, or vice versa. Each class of coverage must be reported separately and the rates adjusted accordingly to a basis that will not leave more than 45 per cent margin—less if the nationwide basis is less.
As the rates must be non-discriminatory within themselves, any schedule which produces inequalities as measured by the loss ratio will not stand the test of the law. If fire rates are so based as to leave, in the aggregate, only 45 per cent margin for profits and expenses, producing at the same time, say, a margin of 80 per cent on office buildings and 30 per cent on farm property, the Insurance Commissioner must order the discriminations removed.
Based on statistics furnished by the companies and on file in the Insurance Department of California, the average overcharge on fire insurance rates in California for the five years, 1917-1921, inclusive, was more than 32 per cent. For the stock companies alone this overcharge was $45,892,-269.00. All risks have not been overcharged; some are not paying their just portion. Which are which is a trade secret. One of the purposes of this bill is to compel the companies to disclose this secret.
Delegate: I would like to ask if this matter has been considered by the association?
Mr. Ward (Los Angeles, Cal.) : The matter was up before our organization and resulted in favorable action on our part and we decided to get behind this bill and try to put it over. I think it is well worth consideration and if the San Francisco Association will take the matter up and decide what it wants to do, maybe we can get started.
Chairman : I might say for those unfamiliar with the figures com-OFFICE BUILDING PROBLEMS
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piled by the National Association, that we have sent out questionnaires two or three times to our members to give us the amount of premiums paid over a number of years and the amount of losses. There is no question but that the office building should be put in a separate classification and stand on its own loss ratio and not be forced to pay the losses in other classes which are more hazardous. It is an important subject.
Chairman : Mr. Vincent, do you know how your rates, in Washington, compare with the average rates throughout the United States ?
Mr. Vincent: I really couldn’t answer it intelligently. I am sure Eastern states have their rates lower. Our rate is 44 cents for three years.
Chairman : In Chicago we work at about 10 cents on our particular building. As I understand it, the average stock company pays out 55 cents of each dollar they take in and they consider if they pay out that much they are doing a profitable business. In California they don’t pay out that much; they pay out less than that and consequently they have a better margin of profit.
Mr. Ward: As I understand it, if we paid only the same pro rata proportion, if our payments were put on the same basis as the balance of the United States, there would be a saving to the insurers of California of between eight and ten million dollars per year. That is what it would mean as a saving each year.
Delegate : Does that bill apply in different cases and different classifications ?
Mr. Kent: It is divided into classes and also classifications. If you will notice the National Board of Underwriters never includes the fire losses in San Francisco and Los Angeles. They list every other loss in California but Los Angeles and San Francisco.
Chairman : Any further discussion on this insurance matter ? Our time is practically up.
Mr. Ward : I would like very much to have the San Francisco Association give a hearing to the proper presentation of the merits of this bill. It strikes me as fundamental and that we are supporting a gross outrage as a state, and in order to get it corrected we will have to have some organized action by those who framed this bill. The San Francisco organization is such a live one, it so fully goes into everything it undertakes, that I would very much like to have the merits of this bill presented to them at some early date and see if we cannot get them lined up back of this bill if their judgment is that we are doing the right thing. Would you not appoint a time for hearing one who is an adept in presenting the merits of this bill so that your attitude may be known.
Delegate (San Francisco, Cal.) : I would say that we would be very glad to hear arguments on the bill.
Mr. Ward : There was a Mr. Lange before our association here on different occasions and we are absolutely “sold” upon him; he has convinced us that we should get behind him on this bill. We may not be able to get the powers that be to accomplish anything, with $12,000,000.00 to be had, out of the pockets of the stock companies’ representatives of this state, there is a tremendous fund back of them and we cannot make any headway without an organized effort.
Delegate : Mr. Chairman, I happen to be in the insurance business150
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in Fresno, and I happen to know something of the origin of this bill. I am not familiar with all of the features of it, but it was not originated with any idea of being of benefit to the builders and building owners of California. It started out with some people who were a little sore at some of the treatment they received from some of the companies. There is no doubt in my mind at all that this organization and like organizations can do a lot of good by looking into the basis of their rates compared with the cost of carrying it, but if these gentlemen here will look carefully into the origin of that bill and the reason for it, they will find it was not with the idea that has been presented at some meetings.
Mr. Ward: What was the purpose or origin of it?
Delegate: The origin of it was that some of the people connected with this bill were very much put out with the treatment they had had from some of the companies while in their employ—whether rightfully or wrongfully, I wouldn’t say—and you might call it a spite bill, nothing else. That was the starter of it. They may have been able to get some features in there that would be of great benefit and it should be looked into, but I wanted to mention that fact to the gentlemen here because Mr. Lange was in Fresno for some time and he had a local agency there, and when he started reduction of rates in Fresno he was quite popular. We all want our rates cut down.
Mr. Ward: Well, it was the practice to penalize the stock companies and he could penalize them by cutting down the commissions and that cut would inure to the benefit of the insurers, that spirit of revenge might inure to the advantage of the whole state. I would like to have some experts present at the time of the hearing and examine him. We can appreciate very well that the motive might have been spite or revenge, but it looks like he is on the right track and I realize the magnitude of the task, but surely California will not submit forever to such injustice as his figures show.
Delegate: The facts are, if you were to go back over quite a long period—if we had a state rating bureau in control of the companies as now—California would still be paying, I imagine, higher rates than they are now paying on account of the immense loss sustained by the San Francisco fire. We are not distributed over the whole nation, and that is why San Francisco and Los Angeles rates are not published, for the reason that California in general is still paying for the San Francisco fire.
Delegate : I don’t like to directly contradict the gentleman’s statement, but the company I was in has property in the City of Fresno. Within the last two or three months my attention was called to the fact that the Fire Prevention Bureau, the Chamber of Commerce and the merchants in the City of Fresno were taking action to have the rates reduced there. I went to the Board of Fire Underwriters in San Francisco, and I got statistics back a number of years, and I wrote to our manager in Fresno and told him I thought he had better keep out of the argument, for this reason, that I don’t think that the San Francisco conflagration has anything to do with the rates in California today. That is past history. The report I got from the Board of Fire Underwriters was this: That Fresno as a unit, San Francisco as a unit, Stockton, Los Angeles—any of those cities—are now analyzed as a unit and it is not a blanket propo-OFFICE BUILDING PROBLEMS
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sition. Now, without wishing to throw any boquets at Fresno, Fresno’s per capita fire loss is the greatest of any city in the United States, according to the figures I got.
Delegate: There is doubt about that. In connection with that, Fresno’s losses heretofore increased from eight dollars per capita in 1916, to thirty-three dollars per capita in 1921, partly on account of the lack of fire-fighting facilities, disorganized department, and various things. We were in a terrible shape and we absolutely have the worst loss ratio of any city in the United States over that number of years, and the business people finally had appointed a fire commission that has cleaned the thing out, and we already have had a 25% reduction and our loss ratio was less than that.
Delegate : I think it is a very advisable thing for the cities as units to check up their per capita losses each year. Our loss in Seattle in 1922 was $1.22 as compared to your $33.00.
Mr. Kent : This bill provides that in a loss exceeding one million dollars in any single event, that the first million dollars shall be charged to the state in which the loss occurs and the balance be distributed over the other states, so that with the San Francisco fire, the first million would have been absorbed by California and the balance by the entire United States.
Delegate: We have the solid business men of the United States in this building business and it is certainly worth careful attention before we add something that might hurt us. If it is a benefit we certainly are for it, but we should look into it carefully.
Mr. Shultz : I would just like to leave one thought. The way to accomplish what you want to work out is to get the office building in a separate classification; the thing to help to do that is to have proper information as to what our fire losses and premiums are. You now have blanks which the National Association sent out to bring this necessary information up to date. Urge filling those out and getting them back to our office, and I am sure we will be glad in your California work to supply, not only California figures, but from all over the country.
BUSINESS SESSION FEBRUARY 24, 1923, 5 P. M.
Mr. Brown : Mr. Chairman, I hesitated, because the idea did not originate with me. I think it was Mr. Holbrook, whom I was talking with this morning, who suggested the idea of naming an Executive Committee to which matters with regard to further conferences could be referred. Also other matters that would come up that would be of interest to us all on the Pacific Coast, that could be handled by this committee. As I say, I don’t want to give it out as my own idea.
Mr. Holbrook (Portland, Ore.) : I certainly didn’t have that idea. The idea was suggested to me and I simply made the observation that we want to go slowly in these matters of organization and not become encumbered with too much machinery. The general thing in my mind is152
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«

that each city should organize locally and have their problems handled directly. If any city wants to solve any local problem it could write to some other local association on the Coast. I rather felt that an Executive Committee was not necessary—quite to the contrary.
Mr. Holmes (San Francisco, Cal.) : Mr. Chairman, my idea was not for the purpose of arranging for the conference next year, but, if it was thought advisable, to look into the question and the advisability and feasibility of promoting a consultation department of the Association. I think possibly my idea is ahead of the times; I don’t want to push it. But without going any farther in suggesting a committee, I would like to have it a subject of thought during the coming year, and when we get together another time we may possibly think it appropriate to put it into some definite shape.
Chairman : Is there any thought that we should at the present time determine upon the time and place for our next conference?
Delegate: In order to get something concrete before the Association, I move that a temporary committee be formed, consisting of all the Presidents of all the Associations in the Conference, and that to such a committee be referred the matter of selecting the time and place for the next conference.
Delegate : How many Presidents are here ?
Chairman : Each of the Presidents within the Pacific Coast area.
Delegate: I second the motion.
Chairman : Gentlemen, you have heard the motion, which has been seconded. Are you ready for the question? All in favor of the motion, signify by saying “Aye.”
(No dissenting vote being cast, the Chairman declared the motion to have carried and it was so ordered).
Mr. Holmes (San Francisco, Cal.) : I want to propose a motion of expression of our appreciation and our thanks for the perfectly one hundred per cent hospitality that has been shown us here in Los Angeles, and I know it has represented lots of work on the part of your local association, but you certainly know how to do it, and you have succeeded in coming through in splendid shape. I have not seen a trick missed and I think I am expressing the sentiments of the entire group in suggesting a vote of thanks. (Applause.)
Chairman : I wish to give some evidence of the modesty of this community as we have not had much up to date. I want to show it by asking Mr. Holmes to put his own motion. My modesty forbids me.
Mr. Holmes: We will make it a rising vote.
Mr. Holbrook (Portland, Ore.) : Four years ago the Pacific Northwest Conference was born in Portland. It was a decided success, and since then we have had similar conferences at Seattle, Spokane, Vancouver, B. C., and last fall at Tacoma—the five principal cities of the Northwest have each been host to that conference. This coming October, Portland renews the schedule and will be host to the Pacific Northwest Conference. I want to take this occasion to sincerely and cordially invite every delegate here to attend that conference. We will later on send youOFFICE BUILDING PROBLEMS
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proper and formal invitation. Also, in behalf of the Portland delegation, I believe there are seven of us here, I want to say we have been amazed and hypnotized, and we have had a glorious time at this conference. We are most appreciative for what you have done for us and we will certainly carry back a fine message. (Applause.)
Mr. Douglas (Seattle, Wash.) : We were going to sit modestly by, but we don’t want these Portland fellows to put anything over on us. We have come a little farther and we have been glad to come. Nearly all of us who are here have come a good many times before because we like to come down here and get inspired and go home and tell the people what you are doing; we have enjoyed our stay here and all the hospitality that has been shown us, and we hope some day you will invite us and we will come again.
Chairman : Gentlemen, on behalf of the local association, I want to express to you our appreciation for your coming in such numbers. I think your coming, however, will put vigor and life into our local association. We sent out seven hundred and fifty invitations. We hope those who are not with us will soon wake up to what they are missing in not being active participants in our deliberations and in this conference. I believe we have done a lot of good, and I hope it will not be long before we have another opportunity to entertain you.The New Standard Oil Building
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