Advance Golf Partners (AGP) informed the OVA Board and management that they are terminating the lease agreement signed in February. In other words, according to the language in the agreement, they defaulted on the lease agreement. They take this action just five months after the agreement was signed. Prior to signing, the agreement had to be renegotiated when AGP reneged on their original commitment to invest $1 million of their money into capital improvements for the golf courses, the two clubhouses, bar and restaurant.

In light of this shocking and unforeseen development, a bombshell dropped into the middle of our community as we deal with a worldwide pandemic and a nearby semi-permanent homeless facility, it might be a good time to revisit some of the things OVA members were told last year when the golf course purchase was still under discussion.

Ken Arimitsu, OVA’s broker for the purchase of the golf course (whose firm Madison Marquette was paid a $72,000 commission), said that AGP was asked to provide 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 $3.5 million dollars over five years (with $1.5 million in the first 18 months) “to get the golf course to the point where it was sustainable.” “The absolute net lease form basically says that you sign a lease with a tenant over, let’s say, a 30 year period whereby they are fully responsible for the golf course, upkeep, maintenance, and there is some rent due,” said Arimitsu. “And the concept we talked about is $1 million dollars upfront that they would pay to the OVA to offset the immediate deferred maintenance. And AGP committed to contributing $1 million of their own money. The remainder was to come from OVA member dues.”

This was incorrectly reported by Al Haggerty in the Oakmont News (“Lease Partner to Invest $3.5 Million If OVA Buys Golf Course”), which was mailed to every OVA member and which appeared in the Friday E-blast during the period prior to the election vote. This bit of misinformation was never retracted or corrected by either the Oakmont News, the Board of Directors or OVA management.

“The deal at the end of the day has to be economic. If it reaches a certain point of unprofitability for the community and the costs far outweigh the benefits then it breaks,” said Arimitsu at the 6/25/19 BOD meeting.

According to a letter from AGP President Larry Galloway that was read at 7/2/19 Town Hall/Workshop: “We intend to start with a million dollars in capital improvements. Each year Advance Golf intends to spend approximately $500,000 more than is currently being spent by the current owners and operators. The $500,000 a year expense breaks out approximately as follows: $60,000 more per year in equipment leases, $200,000 more on golf course maintenance, $100,000 a year in capital repair and replacement, $140,000 more per year in improved food and beverage and clubhouse staffing, hours of operation and services.”

“This is kind of a unique situation in that you have somebody willing to come in, stepping up and kind of doing a triple net lease on the property, an absolute net lease.” Ken Arimitsu, 7/2/19

In the field of commercial real estate, especially in the United States, a net lease requires the tenant to pay, in addition to rent, some or all of the property expenses that normally would be paid by the property owner (known as the “landlord” or “lessor”). These include expenses such as property taxes, insurance, maintenance, repair, and operations, utilities, and other items. These expenses are often categorized into  the “three nets”: property taxes, insurance, and maintenance. In US parlance, a lease where all three of these expenses are paid by the tenant is known as a triple net lease, NNN Lease, or triple-N for short and sometimes written NNN.” (Wikipedia)

VP Tom Kendrick said that getting a lease partner “lowers the risk, the uncertainty becomes much less, and there is some potential for net income.” “The lease partner takes most of the risk,” said Steve Spanier at the 7/2/19 Town Hall. Arimitsu said, “in creating a net lease structure you bring in a partner that is a professional operator and you shift most of the risk to that operator, I think that’s the structure that the OVA board is looking for and has kind of employed me to try to help negotiate.”

Nice sentiments and hopeful talk at the time but the risk and uncertainty have now skyrocketed.

Q. “Who pays for ongoing maintenance and upgrades? If it is OVA, where is the money coming from?” A. “Ongoing maintenance and upgrades is the responsibility of our lease partner.” (Spanier answer to member question at 7/2/19 Town Hall)

With the insight of time, we can see now that AGP reneged on the $1 million investment before ever signing the lease agreement and the question arises whether they had any intention of investing their own money in this project. Galloway’s letter (quoted above) to OVA members used the language “Each year Advance Golf intends to spend…”  Though this statement makes it appear that they were intending to spend their money, this was likely a reference to spending OVA members’ dues money.

“Termination clauses will be worked out in the contract. But generally speaking, if they don’t perform to a certain level then we can break the contract; if they decide they can’t make it work they can break the contract. In which case we will get the reserve fund as liquidated damages.” (Spanier at 7/2/19 Town Hall)

Well, as far as we can tell, there is no reserve fund since it was to be contributed to by AGP at the end of each calendar year with 3% of gross revenues. All OVA members can hope is that we get back most of the money we sent to AGP to perform capital improvements on the property.

And let’s not forget this gem: “Don’t believe anything unless it comes from us. We will give you the truth.” (Spanier at 6/18/19 BOD meeting)

In a short article titled “Golf Progress” in the current July 15 issue of the Oakmont News, Spanier says, “I’m impressed by AGP’s spirit, dedication to excellence and expertise. If we can be patient and let them do their jobs, I think that over time we’ll see very good things. They want to be more than a golf operator; they want to be valued members of the community.”

The recent President’s Message informed us that over the next 60 days the Board intends to negotiate a new lease agreement with another operator. Wouldn’t it be best to pause and get community input prior to heading down the same path that led to the current situation? The Board’s track record on this matter is not one that inspires confidence.

It is in the interest of every OVA member to attend the virtual board meeting on Tuesday July 21, ask questions and demand answers.  Below are the links for this coming Tuesday’s meeting:

Click on this link at (or just before) 1:00 pm on Tuesday: https://www.OakmontVillage.Com/Live

Ask questions or make comments at Open Forum by sending an email to: AskOva@OakmontVillage.com

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8 Comments

  1. Don McPherson on July 19, 2020 at 11:12 am

    Thanks Michael for recapping the analysis of OVA’s chosen golf expert, Arimitsu. His recommendation of AGP as a specialized “lease partner” was grounded in their troubled-course turn-around expertise.

    OGC had professional golf course management companies running the courses and restaurant for years as it spiraled down.

    Do any/either of the golf management companies designated in the President’s Report for negotiating a new long term arrangement in the next 30-60 days have a track record of that expertise and a record of successfully running a top quality revenue-generating “destination” food and beverage business?

    For the sake of argument, the specialized AGP lease arrangement and vision may have been the sine qua non for achieving success with the dues increase referendum and therefore for securing purchase of the land from OGC — which was the central objective and undoubtedly the reason for overwhelming membership support.

    But now the AGP deal, even with its substantially changed economics, is dead. And the land with its “infinite” possibilities for use is owned.

    The case for taking time thoroughly to reassess the whole concept before entering a new long term arrangement with anyone — an opportunity both presented and necessitated by the pandemic’s enormous economic dislocations — seems compelling.

  2. Gerry Gwynn on July 20, 2020 at 6:33 am

    Michael Connolly,

    Thank you documenting and sharing the actual facts about the representations and actions of the current Spanier et al. OVA Board of Directors.

  3. Sue Aiken on July 20, 2020 at 7:21 am

    Or is it wise to build on momentum of an open golf course and summer weather? And on getting courses back on track as far as Maintainance goes? How do numbers of players compare to other years? Isn’t real issue the inability to open for events, indoor dining etc? Does golf need that in order to survive?

    • Michael Connolly on July 20, 2020 at 7:42 am

      Sue, OVA’s broker Ken Arimitsu said at a board meeting the following: “I wouldn’t really focus in on the rounds, I would focus on each member of the community spend one extra hour at the club or one extra drink, bring one extra friend. Golf is declining in the long run.” In other words, golf green fees alone will not make this enterprise a success, the whole plan depends on a successful bar and restaurant to support the golf. Is that realistic in the short term? So why the rush into a new long-term lease agreement without thinking this through just to support a limited number of golf rounds? The board already announced a 60 day arrangement with Course Co. That should take us through the summer season.

  4. Malka Osserman on July 20, 2020 at 2:58 pm

    When you have a situation that so few people make important decisions it is bound to make mistakes. Can the board create a committee of professionals, residents with buiseness savvy to consult the board on such heavy weight matter? The way it structured now that so few make all the decisions leave the residents frustrated and untrusting. There has to be a way to share those decisions with the residents who pay for all this. It is better for the board and the residents.

  5. Lyn Cramer on July 21, 2020 at 3:22 pm

    Thanks again for two important, fact-filled essays on Oakmont’s largest financial commitment in history, in two days no less. Impressive. You paint a clear picture: All is not going as planned and everything costs more than originally estimated. The downside to your good work is the lack of response from members. I hope you don’t become the fellow standing on the bow a ship, telescope in hand, warning of icebergs ahead, only to be ignored by passengers confident in the navigation skills of captain and officers.

    I just heard a board member say at today’s meeting the $100k penalty payment we paid for a delay in closing the sale was “basically a wash” because it was offset by a delay in collecting social membership fees. Not sure what school of economics supports that analysis, but my school says that $100k that could have gone to catching up on deferred maintenance projects instead ended up in the account of a bank. Some wash, as being taken to the cleaners.

  6. Ellen Dolores on July 31, 2020 at 1:51 pm

    Alas, I stopped paying attention when I thought the deal, much to my chagrin, was done. Someone please explain:
    1. Why did ADP “walk out? 2. What is their financial penalty for breach of contract? 3. Do we get back the 72K commission
    paid to Arimitsu- and if not why not? In a “real world,” commissions are refunded when the broker is paid but then does
    not deliver or complete the sale for which he/she was paid.

    • Michael Connolly on July 31, 2020 at 2:15 pm

      Ellen –
      1. The OVA Board has been asked many questions about this and their reply is that their lawyers have told them not to comment.
      2. There is no financial penalty for breach on the part of the lessee under the Lease Agreement that OVA entered into with AGP. If there had ever been any AGP contribution from revenues to what was called the Reserve Fund it would have reverted to OVA/OVPC. As far as we know there were no funds contributed to this fund in the five months of the lease. However, had OVA defaulted in the first ten years we would have been responsible for a $1.5 million penalty. Not exactly an even burden of trust.
      3. The Board was also asked whether there would be any refund of the commission or requirement that the broker assist in signing a new lease partner free of charge. They replied that the $72K commission was paid on the Purchase and Sales Agreement with OGC, not on the lease agreement with AGP. So no refund.

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