Does a NO Vote Mean No OGC Purchase? NO!!
This is for those of you who may not have decided how to vote yet, and who ask the very good question, “What is going to happen if we say NO to the large dues increase? Aren’t we giving up control of the property forever?”
Background: The Oakmont Village Association (OVA) Board of Directors wants to increase our dues starting in 2020 from $150/couple/month to $196/couple/month, in order both to acquire the OGC property and to enable execution of their planned contract with Advance Golf Partners (AGP). The vote is required because the proposed 31% increase in dues exceeds the 20% legal threshold for dues increases without a membership vote.
The printed information included in the ballot mailing includes the following statements:
The OVA Board is prepared to purchase OGC. … Member approval is not required for the purchase. However, the purchase would require a dues increase, which does require member approval.
The last of these statements is not entirely true, in that the purchase might be accomplished without a dues increase great enough to require member approval.
The purchase contract which the Board hopes to enter with OGC will include a contingency that releases OVA from the obligation to purchase if this vote fails. But let’s look more closely at the possible outcomes if the vote fails.
The Board believes that acquisition of the OGC property is essential to insuring a better future for Oakmont, and most of us would agree that acquiring the property at least reduces certain risks about its future land use. This is the core argument of the YES campaign. But a NO vote will not mean that the property immediately drops into Gallagher’s lap. In response to a question at the July 2 town hall, Steve stated that, while there is no “Plan B” for what the Board would do should the vote fail, they would put their heads together and decide what could be done. The clear implication is that the Board would try to find a way to acquire the property with “only” a 20% increase in dues ($15/member or $30/couple).
Voting NO to the dues increase does not mean losing the opportunity for OVA to gain control of the OGC property
The OGC Board will not be in a hurry to jump to the backup buyer if the OVA Board lets them know that OVA is still trying to work something out. This is especially true if there is no golf business as a backup buyer, but that will not be known unless information about offers made to OGC leaks out. They have no obligation to make such knowledge public, though they may be motivated to do so under certain circumstances, e.g. if there is no good backup buyer, making that knowledge public would certainly pressure us to vote YES. This fact means that if they don’t make the knowledge public, it probably means there is at least one backup buyer who would keep golf in Oakmont.
So how could the OVA Board stay in the game if the vote fails? Obviously they would have to “sharpen their pencils” and try to come up with a less expensive deal for Oakmont. The proposed $23/member/month dues increase is broken down, as stated in the ballot enclosure, into the following approximate amounts: $7 for loan service on an OGC purchase loan (which implies a purchase price in the neighborhood of $4.2 million), $10 “to build up a golf club reserve fund”, and $6 for “OVA operations”, i.e. which would be the dues increase without the OGC acquisition. Many OVA members believe that the proposed $17/member/month for OGC acquisition and operation is too high a price, and that subsidy of an external, for-profit company with $570k/year is unjustified and deleterious to Oakmont’s long-term health. But it isn’t really necessary to spend that much in order to gain control of the property. All three of the budgetary figures could be reduced.
The loan service can only be cut substantially either by extending the loan from 15 years to a longer term (I am not sure that is possible), or by reducing the price paid for OGC. The latter is obviously subject to negotiation with OGC, but if OGC owes $3.6 million, including their accounts payable at the time of closing, and the commission they will pay for selling is 6%, then they should be able to accept around $3.8 million without having their members put up cash. This would reduce OVA’s loan service by $0.66 – not enough, but a start.
The golf club reserve is the most expensive part of the dues increase, at $10/member/month, yielding roughly $570k/year. This amounts to a direct subsidy to AGP for as long as they need it to get to the point of making a substantial profit, and it is not something that a commercial landlord would likely consider. If the property is as attractive as claimed, and AGP found it at least attractive enough to take part in the current proposal, then perhaps the terms of the proposed 30-year lease could be changed such that OVA gets a lower percentage of the profits (if they ever materialize) and AGP commits more of their own funds to their reserve rather than getting them from OVA. In fact, if the OVA contribution to the AGP reserve was reduced from $10 to $2/member/month, then no other cost cutting would be needed in order to keep the dues increase at the 20% limit.
Finally, the Board has been speaking of the $6 increase for operations as an absolute, but it is not. It is highly likely that they could trim it by a dollar or two by economizing, perhaps delaying some expenditure that they hope to do in 2020 but which is actually discretionary.
All of the above discussion assumes keeping AGP on board and continuing the golf operation, but there are other alternatives. If AGP drops out, because they are unwilling to commit to funding their reserves themselves, or because the Board decides to give up on the idea of continuing golf in Oakmont, then according to figures that Tom Kendrick mentioned at last week’s meeting, maintenance of the property could cost between $300k and $800k per year, depending on how it is maintained. At the low end, this amounts to around $5/member/month, so a possible budget for acquiring the OGC property and minimum maintenance might require a dues increase of $15 (20%) = $6 loan service + $5 open space maintenance + $4 OVA operations. This option is preferred by many OVA members, because it would free all of the OGC land for Oakmont residents to use for recreation other than golf. Dues could be increased further in 2021, if needed to support improvements, e.g. for a larger and flatter dog park than the one which is currently pending at the west end of Oakmont, or for a higher level of open space maintenance.
One option that would come with giving up on golf would be to partition off the Quail Inn and sell it to a restaurateur. This would require a re-zoning of that parcel, either before or after the sale, but with support from OVA for the re-zoning, I don’t see any reason why it would be much of a hurdle. Sale proceeds could either be used to pay down the acquisition loan, or could be added to OVA’s Capital Improvement Fund, to be used for Berger and CAC remodels.
Finally, if a NO vote on the dues increase results in OVA falling out of escrow, and if OGC has no backup buyer and therefore defaults, causing a lender sale of the property, then there is a strong likelihood that OVA could still purchase the property from the lender, possibly at a substantial discount from the currently agreed upon price. Such a default seems highly unlikely to me, simply because OGC would like to be able to choose which buyer gets the property and so would sell to the best of whomever has made offers before allowing the lender to take over – and the best would likely be OVA.
Returning to the title question, the simple answer is NO.
Voting NO to the dues increase does not mean losing the opportunity for OVA to gain control of the OGC property (which control it has never had in all the history of Oakmont). But it does mean that the OVA Board will have to work at finding a less expensive way to gain that control. The relatively sure thing, but not necessarily the right thing, is to vote YES, thus accepting the expensive and relatively gold-plated plan proposed by the OVA Board, and accepting not only a major increase in dues but also an increase in OVA debt from $1.6M after the East Rec remodel to almost $6M. The likely results include delays of needed upgrades to Berger and CAC. The alternative extends the period of uncertainty by a few months, but the result may be better for Oakmont in the long run.