X-Message-Number: 6070
Date: 13 Apr 96 18:40:07 EDT
From: Carlos Mondragon <>
Subject: Reply

In reply to:

>Message #6065
>From: "Perry E. Metzger" <>
>I would not normally note any of this -- I'm not an Alcor member any
>longer so what happens to your patients isn't my business. However,
>what you've done really does smell *bad*.

Actually, if you plan on cryonics for yourself, it *is* your business what
organizations other than your own are doing, at least to some extent.  For
as long as we are as small as we are, any blunder big enough to get public
attention will have detrimental effects on all of us.  (For instance, 
losing patients' funds to poor investments would be, in my opinion, less of 
a detriment to other organizations than losing patients themselves to legal 
autopsy: a risk that *Alcor* doesn't take.)

>> From: dave <>
>> Subject: Alcor's building
>> I want to clear up a small error in Brian's posting where he said Alcor 
>> has a large mortgage on our building.  The amount is large about $500,000, 
>> but the relationship to value is no longer as large and we don't owe money 
>> to an outside company anymore.
>> Since the building is now worth about twice what we paid for it
>Thats of necessity misleading. Real estate is so illiquid and volatile
>that it is almost always impossible to assess its value
>accurately. The worth of any object is how much someone is willing to
>pay for it, not how much someone claims it is worth, so you can never
>really know the value of a piece of real estate until you've sold it,

Yes, Dave's message was misleading, but only because it was a little un-
clear. And yes, real estate is illiquid. So here's some clarification:
Alcor and its Patient Care Fund own stock in the the corporation that owns 
the building we occupy. The funds to buy that stock were purhcased, for
the most part, with money donated for that purpose. This investment is 
indeed illiquid.

The mortgage on the property was bought by Alcor's Patients Care Fund late
last year, using about half of its investment capital. Alcor does not make
the payments.  The company that owns the property and which derives most of
its income from tenants other than Alcor makes monthly payments via an
independent escrow company which also is responsible for assuring that
insurance requirements are met. 

>at which point you only know what it *was* worth. I've had people very
>close to me skirt bankruptcy when they held lots of real estate that
>was putatively worth far more than their debt. We all know of plenty
>of large lending institutions that got into trouble in similar ways a
>few years ago, and those folks were reputedly experts.

The large lending institution that I work for ($40+ billion in assets) 
makes real estate loans at 80% loan to value ratio for 25% less interest
than our Patient Care Fund is collecting on this 50% ltv mortgage, and
our rates aren't even very competive in the current market. And mortgage
loans are quite liquid.  They are routinely sold on the secondary market
on very short notice.  So while the underlying security may be illiquid,
the "paper" is very liquid.  Further, our PCF can call in the note with
90 days notice, thus forcing a refinincg with another lender, should we
decide that we can get more than 10% in a safer investment eslewhere.

>It is also far from clear, given national demographics, that real
>estate will continue to rise in value at a particularly steady
>rate, if necessarily at all.

Which is why conservative real estate lenders pay close attention to
loan to value ratios.

>It is also far from clear that investing so large a fraction of your
>patient care in a single "investment" is safe. The patient care money
>is now heavily invested in a single illiquid investment.

I am a bit unhappy myself at having so many of our eggs in one basket,
but with recent increases in PCF capital, the percentage of assets in
this particular investment is down to about 36%.  As the principal
balance of the mortgage is amortized and reinvested elsewhere and more
capital is being added, this percentage is rapidly declining.  And again,
as explained above this investment is as liquid as any we make.
>It is also far from clear that this sort of self dealing can ever be
>done objectively, which is a reason that most organizations that have
>fiduciary responsibilities prohibit it outright.

"Self dealing" by non-profits is illegal.  We consulted both our CPAs
and attorneys to ensure that this transaction was not self dealing. And
none of the directors that own stock in the company that owns the
property participated in the vote to purchase this mortgage.

>> and the mortgage has stayed about the same amount, I feel the
>> mortgage is now only about 1/3 the present value of the building.
>> And, we no longer owe the money to an outside company, we only owe 
>> money to Alcor.  Alcor now holds the mortgage.
>This is also misleading. Your patient care trust now has bought a
>mortgage as an investment (not the same as prepaying a mortgage by a
>longshot especially since the price of the note is usually different
>from the outstanding principal balance -- the future value of money,

When Dave used the word "we" he was refering to the company that owns
the property, not Alcor.

>you know). If Alcor's current income fails to be enough to pay off the
>interest owed, then presumably the patient care trust (which
>unfortunately for Alcor's patients isn't really a trust) loses the
>interest and any premium that was paid for the mortage. Every time
>that the board decides not to pay back the patient care funds because
>'they only owe the money to themselves' more real money has been
>robbed from the fund, but of course now the temptation to do this is

Alcor doesn't owe the mortgage or make the payments, so our current 
income is irrelevant.  The board does have responsibility for *collecting*
the payments on behalf of the PCF, though we do this indirectly through
an escrow company.  If Alcor's income should ever be insufficient to pay
our rent, our landlord still gets enough rent from other tenants to meet 
debt payments.

>Now, I'm not saying outright that this sort of thing is going to of
>necessity hurt the long term welfare of your patients. However, you
>guys should be extremely ashamed of having done this, not proud of
>your fiscal acumen.

Sorry, I can't bring myself to regret trading mutual funds and other
securities that were yeilding *less*, for a safer investment that 
yeilds *more*.

>I must say that all this makes me glad not to be with Alcor.

Sorry you feel that way.


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