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.

2 thoughts on “SGCC Lease Agreement Benefit Cost Analysis

  1. Interesting analysis, so I decided to compare the usage numbers Mr. Kanyr came up with for the SGCC Lease Agreement with those for The Club at Town Center (TCTC) and Canyon9. Results follow (data extracted from SOA 2012 financial documents):

    • Lease Agreement: Cost basis $434K ($15/mo/unit for 2415 units), Member access visits 4,039, Cost per access = $107.45

    • TCTC: Cost basis $1,172K ($75/mo/unit for 1563 units), Member access visits 54,486, Cost per access = $21.51

    • Canyon9: Cost basis $319K ($11/mo/unit for 2415 units), Member access visits 3,174, Cost per access = $100.50

    The preceding substantiates Mr. Kanyr’s assertion that the Lease Agreement did not provide an acceptable cost/benefit ratio for the benefits provided. The same can be said for the Canyon9 golf course, but we have no choice here. It is also clear where the SOA should be applying funds for future expansion. However, the Lease Agreement was never about providing new exciting amenities for the benefit of homeowners; simply put ii was a mechanism to subsidize the SGCC’s operating losses for fear of undesirable results if we did not.

  2. Dan

    Your comments

    “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.”

    hit the nail on the head.

    As I have said at the recent “future of the SOA/SGCC lease meeting”, we are distinctly overgolfed – we have a plethora of golfing activities, which no one before 2012 was told they would have to pay for (subsidise).

    Maybe, what we are getting is what we want, or maybe the 140 or so equity members want…but we are a diverse community, 55+, rentals, children, vacation homes, retirement homes…we should get to vote.

    if we are to be a true golfing community (not what we were promised in 2005 when we were buying) we should get to vote .

    if we want to invest our monies in keeping the golf course green, we should own the CGC and have it run professionally as a public golf course – after a vote

    Geoffrey Brooks

    PS: you could have added, “no surveys were conducted by the SOA, the lease was presented as a fait accomplis by the developer. A study at the time by the SOA board of the utilization rate of the homeowoner owned Canyon 9 would have confirmed these assumptions”.

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