A Rock for the Table

In a previous article I wrote about a possible outcome if the resort became insolvent.  I was optimistic that Glenn would maintain the resort until he could find a buyer, but as I learn more I'm starting to think it's more likely that he'll shut the golf course down and let the grass grow.  This isn't an arbitrary change, but I'll save the details for a later discussion.

I am criticized by some members in the community because I'm not offering any solutions.  The reason I haven't is because there aren't any good ones.  Every proposal can easily be argued against and discounted.

Despite the fact that I'm not in favor of subsidizing the resort, I'll offer some ideas along this line for discussion and debate.  By having a concrete proposal to debate, we can focus our discussion on specific issues, allowing us to gauge owner sentiment toward each of those issues.  I am not endorsing these ideas as a solution, my support would require almost every owner to support it.

Sort Of Subsidizing the Resort

Assumptions

My base assumption is that our real choices will come down to having an operational golf course, or not.  I don't subscribe to the hope that a rich golf-course company is going to invest millions of dollars in KG and turn the resort into our wildest dreams in the near future.  Why?  Because we're too far away from the local tourist destination, Leavenworth, we have competition that offers a better golfing experience at that destination, the total number of golfers has been declining across the nation for 10 years,  golf courses are failing at the rate of 150sh per year and are struggling almost everywhere, and of course, the economy is a total wild card.

It's easy to think of ideas for how the LLC can increase revenue--in discussions with various owners about different ideas, either they aren't as lucrative as they appear at first thought, or unexpected constraints reduce their potential or feasibility.  After 6 years of managing the resort with no obvious improvement in revenue, it's seems fair to assume that the LLC will not be able to operate in the black.

As painful as it will be for many owners to admit, every property owner benefits from the golf course's existence and operation.  That said, it's important to note that all owners do not benefit equally, because we have differing values, interests and recreational preferences.

I still contend that the loss of the golf course is not catastrophic to property values in the long term, but the course certainly makes the resort a more attractive location and thus helps to preserve our investments by offering a contrasting environment to other local neighborhoods.  Unfortunately, no one knows anything for certain.

Benefits of this Proposal -- Some Positive Thoughts

Before we get into details, let's review the benefits if implemented successfully.

1. The golf course will be able to operate at break-even. 
2. The major conflicts between the CA and LLC will be resolved in totality, so we will have a better basis for working cooperatively.  If not resolved, these issues will bog us down for an undefined period of time; will continue our ongoing legal expenses, and the struggle will likely result in a lawsuit.  Of course, if unresolved these issues will continue to divide the community and cause stress.
3. It distributes the costs in a way that reflect owner commitments to the golf course, and the cost commitment to owners is fixed.
4. The commitment by investors will vary according to financial performance, creating an incentive for the resort to operate efficiently.
5. It helps to preserve all of our property values, and allows all of us to continue enjoying our amenities
6. It doesn't require a lump sum capital expense from anyone.

Details

The stakeholders affected by whatever deal is made, if any, include all CA members, the LLC, Glenn, and owner/investors.  This proposal results in an equal distribution of heartache and benefit.  i.e. no one will like it, though I think it fairly distributes the pain.

The goal is to fund the LLC's loss so it can operate at at-least break-even.  I'm assuming the operational loss is roughly $8,000/month, so that's the target number.

1. Each KG family pays approx. $45/mo., providing about $5,625/mo toward the $8k
2. Investors pay the remaining loss (approx. $2,375) so the resort breaks even.  This would be a cash call on a per share basis.
3. The resort will work with its debt holder, and resolve the major conflicts between the CA and LLC in favor of the CA.  This will include:
• Proportional voting powers
• Water rights
• The water distribution system
• The septic system, including the conflict related to fees collected for which no services are provided
4. One seat on the LLC Board will be appointed by the CA Board
5. The LLC and debt holder will agree to an easement guarantee to use the golf course for X-C skiing

Drawbacks

This proposal is like paying the minimum payment on a max'd out credit card--it does not address the LLC's principle with its debt holder, and hopes that a future pay raise will pay for yesterdays purchases.


I could only support this proposition if the debt holder agrees to extend the principle payoff until 2020.  That buys enough time to see if the economy recovers, allowing the LLC to convert some of its assets into cash so it can pay down the debt.  Of course, this extension also gives us a "breather" so we don't have to keep worrying about principle for the next two years.  Despite required concessions, this secures a very good deal for the debt holder.  He is financially benefiting from his current interest gains, and could not come close to the resulting income if he had to sell the golf course at a discount, or worse, couldn't sell it at all.

Supporting Notes

I'm proposing this as an assessment for each family.  It could be an assessment for each lot, but for the sake of argument let's start with a per family charge to reflect the fact that we're all in this together, and none of us should be over-burdened just because we own more than one property.  (I own one property).

The major conflicts between the CA and LLC are serious and have the potential to become expensive.  They aren't likely to be any easier to resolve if the LLC becomes insolvent and Glenn gets control again.  Resolving these issues has tangible value to the CA.  The LLC managers will probably have to negotiate with their debt holder, but truth be told, it is in both of their interests to keep the resort solvent, and without owner support they don't have a plan to maintain status quo indefinitely.

Because Investors are responsible for losses beyond the CA contribution, there is a strong incentive for the resort to minimize losses.  Investors like me could be paying $60-90/month in order to give our primary amenity a little more life--it's fair for investors to pay more because their investments are being preserved by the willingness of others in the community to subsidize the resort.  Non-investors would pay about $45/month in order to:

• preserve their property values, 
• create a more independent CA, and 
• put an end to the serious conflicts that could get expensive and ugly
• guarantee X-C skiing 
• improve transparency regarding resort activities

To me, one of the most important considerations is that it doesn't require a lump sum payment.  For example, I'm not likely to vote in favor of any solution that involves an upfront payment of $1k or more.

Far From Par
Because of its nature, my support of this proposal would depend on affirmative support from almost every other owner.

I know that individuals will jump in and demand any number of obvious tweaks based on maximizing value or reducing costs for owners like them.  Off the top of my head some of these include:

• Renegotiating the loan terms with the debt holder
• Free or discounted golf
• Major adjustments to the distribution of costs between homeowners and investors
• Basing owner costs on number of dues, instead of per family

But every change to benefit one stakeholder, has a cost on another and makes it less attractive.  Everyone must understand that every action has an equal an opposite reaction.

For example, discounting golf could change the revenue equation and result in greater losses, which would then change the revenue need.  Renegotiating terms with the debt holder could reduce his willingness to support a reduction of his rights and powers.  The list goes on because it's complicated. 

The problems with this solution include, but are not limited to:

• the issues I listed in the preceding bullet list all have merit, and any of them could make this proposal a non-starter with another stakeholder.
• the root problem is not addressed:  it does nothing to increase revenue or pay down the loan principle;  it subsidizes ineffectiveness and inhibits entrepreneurial creativity; it relies on the hope that the core issues will be solvable over the next 10 years.  It sucks, but...it buys time.

Ok, so here are some ideas to discuss.  It's a rock.  Before getting caught up in too many details, we can learn which of, and how many of these ideas are non-starters or winners, and why.  So speak your peace and let's have fun!