Information Presentation Recap.

SGCC Lease Agreement Modification

At the Homeowner Information Presentation held Tuesday May 28 at the Town Center, the SOA Board of Directors (Fakonas, Kirby, Lee) presented a concept whereby the current Country Club (SGCC) Lease & Management Agreement would be scrapped and replaced by a long term agreement that would result in SOA ownership of 5.5 acres of SGCC land.  The land in question being the site of the existing Parking Lot, Pro Shop, Sunsett Grille, Golf Cart Garage , Bocce Ball Courts and the yet to be constructed hard surface Sport Court and 9 Hole Putting Course .  This in exchange for $15/month/unit (up to a maximum of 3000 units) of homeowner assessments being tendered to the SGCC for an 8.5 year period.  After which the land in question would be deeded over to the SOA, representing a price tag of $4.0 – 4.5 million.

The stated benefit being that the SOA would then own the Bocce Ball Courts, Putting Course and Sports Court that were constructed with SOA funds, which is not the case under the current agreement, wherein the SGCC would retain ownership of these facilities.  Also, the SOA would have additional property on which to construct future amenities, an indoor year around swimming pool was mentioned as a possibility.

The BOD emphasized that these were preliminary discussions; no agreements have been reached, and acknowledged there are many details yet to be addressed.  Three of which are 1) restrictions regarding sale of the club to protect SOA interests, 2) negotiations with the Somersett Development Company (SDC) for modification of the current SGCC land deed wherein if the SGCC fails to operate as a golf course for 24 months, all water rights and ownership of SGCC land revert back to the SDC, and 3) what terms of the existing agreement may or may not be retained it its replacement.

Many homeowners were in attendance and numerous concerns, comments and questions were raised during the open discussion period, which are too numerous to repeat here.  Suffice it to say that most questioned the wisdom of the presented long term concept. The session was recorded and an audio transcript will be made available on the SOA website.  The SOA Board has solicited input from all homeowners who wish to contribute their opinions and/or ideas.  You may do so by writing a letter to the Board or sending an email to soa@mysomersett.com.

Readers are also encouraged to share your comments with others on this Blog site.

SGCC Lease Agreement Benefit Cost Analysis

Submitted by Steven Kanyr

At a 2012 Finance Committee meeting I asked if the Board had conducted a financial analysis of the SOA SGCC Lease Contract (“the Lease Contract”) before it was signed.  The reply was that the SOA Board had not conducted a financial analysis but was tracking monthly usage statistics to evaluate the success of the Contract.

The Lease Contract was analyzed from two perspectives. A Straightforward Analysis measured the value proposition by treating each access to an amenity equally. The Cost Benefit analysis estimated the convenience value of each amenity. That is, how much time and money was saved by having the amenity within Somersett rather than driving outside the community to use the amenity. Complete details supporting the analysis may be accessed via the following link: SOA SGCC Benefit Cost Analysis

1. Straightforward Analysis:

In 2012 SOA paid SGCC $430,605 for the amenities in the contract.

SOA members accessed the amenities 4,039, or $107 per access.

Each bag of golf balls hit or restaurant bill paid cost SOA members $107 on top of any user fees charged. The $40 round of golf actually cost $147 per round. On this basis the Contract has been a financial disaster for SOA members.

2. Benefit Cost Analysis

The main benefit is the value of convenience. Having access to a driving range within Somersett is more convenient than driving to another area to use a range. Convenience can be valued by estimating the cost savings from travel, i.e. the cost of car operations, and the value of travel time.

The value of the convenience to SOA members in 2012 was $68,431 versus a cost of $430,605. SOA members received only $16 of benefits for every $100 paid to SGCC.  The value proposition in the Lease contract was decidedly one-sided. SOA effectively overpaid about $360,000 for the benefits delivered.  The attached link provides a more detailed explanation of the calculations.

In addition SGCC did not deliver:

  • One of the three bocce ball courts;
  • The 18 hole putting green  (not started);
  • A mystery $5,000 amenity.

The value proposition of the Lease Contract has been a financial disaster for SOA members. This is not surprising.  SOA members did not solicit the amenity package and members were not surveyed as to what amenities they wanted.  SGCC has no particular expertise or insights in defining what amenities SOA members want. No competitive bids were solicited.  Low utilization could have been anticipated.

Recently the SOA Board negotiated an amended Contract with SGCC even though the Strategic Planning Committee is working on defining a long term plan for amenities. The Board accepted SGCC proposed changes to the Lease Contract despite the failure of SGCC to perform under the original contract. Apparently no attempt was made by the SOA Board to bring the existing $15 monthly assessment in line with the value proposition of the Contract.

SGCC Informational Presentation Notice

Following is a copy of the Informational Presentation Notice sent by the SOA Community Manager to association members with email addresses on record.  We are publishing it here for those readers who may not have seen it.

“Dear (Resident),

When the new Homeowner controlled Board took office January 1, 2013, one of the items they tasked themselves with is the review of the Somersett Golf & Country Club Lease Agreement. Several of the Board members were specifically tasked with serving as liaisons with the Country Club. Discussions initially focused on improving the amenities to be built in 2013 have evolved to where the SOA may gain significant long term benefits.

Although a specific agreement has not yet been reached, members of the Board feel like negotiations have progressed to where the outlines of key terms are becoming clear. Before anything is finalized, the Board wishes to seek input and hear questions from homeowners regarding the agreements to ensure the best arrangement for members of the Association.

INFORMATIONAL PRESENTATION
Tuesday, May 28, 2013
5:30-7 pm
The Club at Town Center

Members of the Board will present the terms being discussed for approximately 30 minutes. Homeowners may then ask questions or raise ideas to be considered during the last hour. To ensure adequate time and input, we ask that each owner honor the 3 minute meeting order policy of the association when speaking. This session will be strictly for the exchange of information and the Board will not take any actions at this time.”

Association members are encouraged to attend this meeting and voice your opinions

SGCC Financials and Information Presentation

According to IRS disclosure regulations, exempt organizations must make its three most recently filed annual Form 990 or 990-PF returns and all related supporting documents available for public inspection. The Somersett Country Club, Inc. (SGCC) falls under this category.  Publicly available Form 990’s for the SGCC for fiscal years 2010 and 2011 reveal the following:

                                                                                       2010                            2011

Number of Equity Owners                                        188                              152

Total Revenue                                                    $1.990.652                  $2,087,950

Total Expenses                                                    $2,550,940                 $2,715,815

Net Income Loss                                                ($560,288)                   ($627,865)

Financials for 2012 are not yet publicly available.  However, given the $435,000 the SGCC received from SOA unit owner assessments in 2012 and the projected $60,000 from resident usage of the Sunsett Grille and Driving Range, it is expected that these will significantly offset the SGCC net income losses encountered in 2010 and 2011.

With regard to SGCC operations, under the SGCC Lease & Management Agreement, the SOA has the right to observe all meetings of the SGCC Board.  At a previous SOA BOD Meeting, the Board President reported that the SGCC was apparently doing well financially, but gave no financial details citing confidentiality reasons.  This is hard to understand given the public disclosure regulations for tax exempt organizations.  As an association member amply stated in a previous letter to the SOA BOD:

What is the purpose of the observation rights clause if not to: a) monitor Country Club compliance to Agreement terms, b) evaluate resident usage of the Country Club amenities, c) assess the Country Club’s financial stability given the significant monetary investment on the part of the SOA, and d) to report such findings to association members, all of which have not been accomplished in the past?”

It appears the new SOA Board of Directors has “gotten” the message about improved communications with association members, as a Lease Agreement “Informational Presentation” meeting between the SOA Board and association members has been scheduled for Thursday May 28 from 5:30 to 7:00 PM at The Club at Town Center. Perhaps this meeting will also address the issues raised in the preceding paragraph.

Please put this meeting on your calendar and attend if at all possible.

SGCC Lease & Management Agreement Modifications

As reported in a previous article, the SOA and SCCC Boards have approved a modification to the Lease and Management Agreement wherein the originally planned for 18 hole putt-putt course will be replaced by a 9 hole putting course and a multi-purpose hard court accommodating both Pickleball and Basketball  (Reference Link: SOA Lease Modification Memo to SGCC).  This proposal raised some questions and concerns by an association member that were contained in a letter to the Board in early March. No response was received. Therefore, a summary of which was read into the record at the April BOD Meeting. (Reference Link: SGCC Lease Modification Summary).

At the April BOD Meeting , the Board president (Tony Fakonas) advised that the BOD was in preliminary discussions with the SGCC for acquisition of land on which the leased amenities are housed (i.e., to provide for permanent usage by association members), which may include construction of a building over the hard court to facilitate year around access.  These comments, coupled with rumors that the SGCC is now looking at building a permanent clubhouse, should give association members some cause for concern.  This based on the following:

  1. To date the previous and current SOA BOD has chosen to enter into negotiations with the SGCC regarding resident access amenities without full disclosure to and/or feedback from association members at large.  This raises a concern as to whether or not the BOD is acting on behalf of their own or SGCC interests, as opposed to the majority interests of association members.
  2. Where will the funding come from for land acquisition and a hard court building.  These are not currently accounted for in the SOA Budget. Perhaps via a monthly assessment increase? Also, would not NRS 116.345.3 come into play here? This provision precludes an association from constructing buildings on expanded land without written consent of residents who own property within 500 feet of the proposed building location.  .
  3. With regard to the building of a permanent SGCC clubhouse, this is addressed by the “Event Trigger” clause of the Lease Agreement, which states:

“5.0  EVENT TRIGGER. Upon the initiation of building a permanent clubhouse by the SGCC, at the SOA’s option, SGCC would undertake to redesign its master plan for its future clubhouse with adequate capacities to include additional RESIDENT amenities as designated by the SOA, included but not limited to the amenities described in Section IV.5.3 of this agreement.

5.1  This option is subject to definitive terms to include a fee structure commensurate with the amenities being offered and the future growth of the community.”

Per Section 10.2 of the Lease Agreement, a “commensurate fee structure” could result in a $15/month assessment increase. Bottom line, if enacted, the SOA would help subsidize construction of the SGCC clubhouse via homeowner assessments.

The preceding is not to say that the current SOA Board of Directors does not have the best interests of association members at large in mind.  However, given that three of the current directors are SGCC members, close scrutiny of their actions and proper two way communications are in order to insure that they do.