Too Many Unknowns & Why I am Voting NO

At the June 25th OVA Workshop regarding an OGC  purchase, 4 options were presented:

1. Do nothing.
2. Shut down some OGC operations
3. Operate as now, using a management firm
4. Operate similar as now, with a Net Lease Partner

Option 4 was discussed in depth with details given by Ken Arimitsu, OVA Broker. I asked the following questions about Option 4: 

Ken, you said that one million dollars will be needed for upgrades. So, OVA is responsible of bringing the buildings up to code before the lessee?

Director Kendrick: The million dollars is from the lessee, not from OVA. They are putting that up.

The lessee is putting one million for us (OVA) to do the upgrades?

Director Kendrick: Right, they are putting it up for the buildings.

Who is going to do the work?

Director Kendrick: The lessee will hire people to do the work.

What happens if the upgrades run over a million dollars?

Director Kendrick: We (OVA) are putting in money, too. But they are putting one million up front. * (Michael Connolly’s coverage revealed that OVA must put 2.5 million for upgrades)

But, before the lease begins, the buildings need to be improved?

Director Kendrick: There is no contract. You are asking questions that at this point are being discussed. We are comfortable with where the discussions are headed but we don’t have a contract. We don’t need one until October.

This information is absolutely critical before those ballots go out.

Director Kendrick: Why is it critical?

Because we need to know what we are on the hook for.

Director Kendrick: You are not on the hook for anything.

Yes, we would be if the one million doesn’t cover the cost of the upgrades.

Director Kendrick: Lynda, if you’re concerned about this and you think it’s not going to work, vote against it.

We need information to vote.

Ken Arimitsu, Broker: I can actually answer.  We asked the tenant to provide us with a five year capital plan on what it would take to get the golf course up to an acceptable standard.  They came up with a budget of about $3.5 million dollars over five years.  That ties into the discussion of the $10 that was going to come from the OVA. 

I think that, regardless of who buys it or who operates it, the golf course as a status quo entity would still run about $500,000 in the red.  I think the conversation, where it’s heading in that $3.5 million over five year is to get it to the point where the golf course is sustainable.  And one of the things that we are talking about and that the OVA Board is insisting on is that a certain number — let’s call it $5 million — right now it’s running about $4.3 million in gross (revs), which is creating a deficit of about $400,000 a year in operating loss. 

The thinking is, if you get the golf course back up to par with the appropriate maintenance standards with a good central hearth to the club, meaning the clubhouse is not just a place to go eat but it’s a place to have events, summer concerts and those nice things that kind of raise the gross level.  At a certain level the obligation from the OVA to pay into that capital maintenance fund goes away.  And that’s something that is currently being negotiated or contemplated.

How long do you estimate that to take?

Ken Arimitsu: You know, I did an analysis. You’re looking at I think on a best case 5 or 6 years. But, you know, I would say probably around 10 years.

We need information before we vote.

Director Kendrick: First we have to do the due diligence, which will happen in the next several weeks.  Then we have three months of time to go through phases of exploration and at the end of that process one of the options that I outlined will rise to the top of the pile and either be executed or not. One of the things that can happen at the end of due diligence is that you decide, for a variety of reasons, that you don’t want to go forward.

But we are expected to start voting in a week, Tom.

Director Kendrick: You are voting on authorizing the board to raise the dues, if it proves to be necessary.  That’s the vote.  If you don’t think that it ought to be necessary, don’t vote for it.

Questions I wanted to ask if time allowed:

1. If the upgrades exceed the $3.5 million estimate, who will pay for the overruns?
2. If a lessee fails, what are the costs OVA will incur?
3. What are the costs to the OVA for Options 2 & 3?
4. How many offers were on the table June 27?
5. When is the OGC vote to accept an offer?
6. Did OVA submit a Letter of Intent? If so, what was the monetary offer?
7. What are the particulars – contingencies, etc. of the LOI?

President Spanier said that the ballot will include why the board recommends a particular vote. I hope the ballot packet will include the facts for the Board recommendation as well as facts for the opposing view. But from his comments at the June 25 Town Hall, we will probably not see opposing viewpoints.

Last week the membership received some financial information from the OVA Broker for one option. The financial consequences for two other options are still unknown. 

There are too many unknowns –  I will be voting NO to a dues increase of 30%.