Tuesday, August 20, 2019

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Oakmont Golf Club: What is the Appropriate risk for OVA?

Any real estate or business sale is always open for negotiations and changes, but there must be some basic parameters for a buyer to follow.  Primarily, if the OGC sales contract does not require a continuation of golf for a specified duration, control of the land would then be the only reason to vote YES or NO. Since the OVA BOD can formulate a financial plan that meets a land purchase option without raising dues beyond the statutory 20% limit, the VOTE has no effect. The liability for the maintenance of the property would be turned over to the OVA ad a temporary continuation of the golf program could be continued until the next BOD or (boards) make a decision. 

However, we had previously been told that the seller (OGC) would require a debt payment of $3.2MM plus a $1.5MM investment for upgrades to golf and Quail facilities for a minimum bid of $4.8MM. That information may have changed to something less, but whatever financials were required, it would seem to indicate that a golf program will be continued. 

Although price may be negotiated, and the other requirements are true, we have to believe that no offer will be accepted by the OGC without the debt and upgrade conditions.  We also assume (always a bad term to use in real estate) that a continuation of the golf enterprise must also be part of the offer.  Why upgrade a golf course if no golf is required?  Question: Is the continuation of golf a mandatory requirement – YES or NO?  If the answer is YES, the following questions should be considered and answers made available to the OVA membership. If the answer to that question is NO, “all bets are off” and the following questions are not pertinent to a deal.

  1. “What is the appropriate and proportionate risk for the OVA to take in order for the golf course and/or Quail to be successful?”  The $1MM upfront offer from AGP vs the OVA  $10.9MM ($5.9MM for OGC purchase and another $5MM liability for operations support) over 10 years does not seem to be a favorable risk/reward ratio for the OVA.  That 11 to 1 ratio is a very generous one for AGP. 
  2. “Have members of the OVA BOD, OGC, and YES group agreed to consider a plan (a modified version of #s 2 or 3) that would keep some golf in Oakmont but with a smaller footprint – for ex. close or shorten the east to 9 and shorten the west for a future new or larger Berger?”  That alternative would seem to be in line with most “published” articles on the future of golf in the US but disclaimed by many of the YES group spokespersons.     
  3. “Under the sales agreement, is there a requirement for the Quail to continue to be combined with the golf course operation ?” The continuation of a restaurant and banquet facility would seem appropriate, but it would not necessarily need to be part of the golf program. Would that separation be acceptable to the seller or a golf operator? If NO, why not?
  4. “Would the OVA purchase OGC, then form a more equitable 50% 50%  partnership for golf cap ex with a shorter (5-10 year) operating agreement ?” An extension option (or even a buy/sell options) for either member could be included if the enterprise meets (or does not meet) some financial threshold? That would at least shorten the liability curve, retain land control, and maybe create some cash flow for the next sequence of Oakmont’s future.

There are no right or wrong answers to the above questions. But the fact that few answers have been provided by the OVA to the many other questions says volumes. The lack of clarity in the vote ballot language as well as the  methods used to shepherd the purchase, indicates to many OVA members, that there is some doubt about the real intentions of the current BOD. No matter what the result of the vote is, YES or NO, the current BOD’s legacy will become part of an unsettling approach to community governing that has evolved in Oakmont over the past several years. That governing approach has fostered a real concern about the future viability of  Oakmont as a long term residence much more than Oakmont with or without golf or a new Berger.     

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