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August 6, 2001
To: The Boys
Subject: End Game
It was on
December 9, 1999 that I sat at the annual meeting of Lakeview
Development Corporation (LVDC) and began to ponder this analysis. It was during the course of the meeting that LVDC
Board Member Jim Carr made an informal presentation regarding the
sale of the golf course from LVDC to Lake View Country Club
(LVCC). The main crux
of this exercise was the sale of the golf course, clubhouse, cart
barn, half way house and a 30 yard buffer for $3,225,000 to LVCC
with 10% cash down and a note to be carried by LVDC.
The
two BODS’ have done some major league footwork trying to cook
this deal. There have
been a few stumbles but the process seems to be near completion.
The 10% cash down payment was modified for several reasons.
First LVDC was faced with some serious capital gain issues
that magnified their potential tax liability.
In addition, the LVCC BOD looking into the crystal ball,
felt it would be a good thing to have some extra jingola in order
to begin some much needed improvements to clubhouse, golf course
etc.
So
the initial assessment is $50 per month for 36 months times
roughly 360 members equals roughly $650,000.00.
I am making an assumption that there are less than 400
memberships now and that total will decrease due to some members
who may not want to pay additional money to purchase the golf
course.
After
paying LVDC their down payment, the balance ($2,902,500) would
then be financed. I
am rounding this number to $3,000,000.
My projected lending rate will be 8 % when the mortgage is
finalized
The
LVDC board is proposing an adjustable mortgage with recalculations
every three years. We
know that the current yearly lease amount is $305,000.
We also know that the CPI has increased 12% since 10/1/96
when the initial lease was drawn up.
Based solely on those numbers an appropriate new lease
amount would have been
$340,000. That figures to about $28,000 per month. Assuming an 8% rate with a 30-year payback, a 3,000,000
mortgage results in a mortgage payment of $22,000 per month. This equates to a potential $72,000 per year expense
reduction by reclassifying rent expense to mortgage expense
Assessments
are a given in an adventure such as what we have at LVCC.
During 1996, members paid in an additional $48,000.
In 1997 it was increased to $67,000.
I do not know what the assessment amount was for 1998 or
1999. But, for 2001
we have a pegged figure of $125,000. ($50 x
7 months x 360 members). Similar
to other clubs, we can anticipate additional assessments.
Another
factor to consider with this End Game is the motives of The Long
Range Planning Committee (LRPC).
Since the August 1998 unveiling of LRPC's preliminary
priorities we can expand upon their mission statement.
The
most illuminating statement LRPC makes is "Design and build
the best private country club in NWPA that is exclusive to only
it's members and guests. Develop
a membership that is willing to support a private clubhouse and
golf course that is distinguished, privileged and exclusive."
The LRPC also states the following objectives:
* Premier Golf Course - keep it the best of the best!
* Maintain superior food and outstanding service
* Increase social participation
* Increase outside social events
* Decrease outside golf events
While I have not
seen the plans, my discussions with people who have, suggest that
a redesign of holes 2, 16, 17, 18 and 4, 5 and 6 are contemplated.
So lets assume that the cost will be $150,000 per hole or
$1,000,000. In
addition, we might as well add a chipping facility, improve the
clubhouse and make other improvements and modifications for an
additional 1,000,000.
With
2 million dollars in improvements to be implemented starting in
2002 (the sooner the better) our club will surely be on the path
to becoming “the
best of the best.” So
lets call our local bank and get the money, and set up another
mortgage. With luck
we can get a handsome interest rate, say 8.5%.
Monthly payments will be about $20,000 per month over 15
years. Based on my hypothetical financial statements monthly
assessment #2, starting in 2002 will be about
$75.00 per month. Unfortunately
membership could drop to a few as 325 members.
Why?
More assessments will weed out the older members who won’t wish
to subsidize improvements they can’t enjoy.
Higher membership fees in the form of real estate taxes,
interest and depreciation lead to less members.
Less members lead to less revenue.
Other members may decide to relocate due to
"competition" from Lawrence Park, Harbor Ridge (John
Schaffer's development) and Whispering Woods (Steve Rapp's
development).
RAPTOR
NOTE: HERE IS THE REFERENCE TO WHISPERING WOODS WHICH HAS NOW COME
TO REALITY AND WILL HAVE A MEANINGFUL EFFECT ON THE CONTINUED
EXISTANCE OF CLUBS LIKE LAKEVIEW
Lawrence
Park has undergone a tremendous transformation, turning their golf
facility completely around. The
two new courses are only in design as of this writing and they may
never even open in our lifetime.
Kahkwa and Lake Shore will no doubt be a factor.
Lake Shore in particular as undergone their own
transformation with a 5 million dollar clubhouse.
I’ve also heard that they want to dump a couple million
into the golf course. Kahkwa also has done some remodel of their course.
In addition, the Peek n' Peak upper course could become a
gem as it continues to mature in the next five years.
On
a recent Sunday, I happened to be at our driving range at the same
time as a prominent member who shall remain nameless.
Needless to say he is typical of the elite that make up a
small but influential body of the membership (remember the LRPC).
I engaged him in some banter and it was during the process
that he and I got on the subject of a caddy program.
He was all for it, but he said that the club would have to
weed out the deadbeats first.
I
was not able to get clarification on what he considered a
deadbeat, but I think an alternative phrase might be “trunk
slammer.” It’s my
belief that the club will ultimately have 325 members but, there
may be no new members to take their place when attrition hits.
The cost to join will be prohibitive.
Initiation can’t stay $7000.00 forever.
Any new members will have to take on the burden of the
assessments. So by
2002 the initiation should be about $10,000.00.
By 2005 it should be about $15,000.00 and it will no doubt
approach $20,000.00 by 2008.
That is in less than 10 years.
How
about the dues? Right
now, I’m paying $168.00 per month for dues.
That’s a little over $2,000.00 per year.
Since I am fortunate to able to do so, I play roughly
75-100 rounds per year. My
cost per round is therefore about $25.00 plus the extras (cart,
food, beverage, equipment and gratuities).
My total cost per round with extras actually is about
$60.00. However, if dues start to increase, they could skyrocket
to over $3000.00 per year. If
you consider an average Joe who plays two times per week, his
number of rounds could be a little as 30 to 40 per year.
Some individuals may only play one time per week or about
15 to 20 times per year. That
individual who plays 20 times per year would be spending $150.00
per round…Ouch!
That’s
why I believe we are involved in an End Game.
As memberships decrease and cost per member increases,
those remaining members will face an overwhelming chore of
maintaining the facility. It
may be difficult to find new members for other reasons.
How about the “Legacy” factor.
It can be a real positive in building generational
memberships. Unfortunately,
if the fathers of today can’t afford to belong, it will affect
the ability of their children to become members.
It
doesn’t have to be an End Game.
Perhaps cooler heads could prevail.
Maybe the LRPC members who cooked up this grandiose scheme
to build up a Kahkwa club at LVCC could realize it’s just
another golf course with a clubhouse.
There’s no pool, no tennis facility, no fitness center.
In
my own mind, I think the current path seems adequate.
I am pleased that the turf crew has forged ahead with the
bunker project. Now
that the 16th is in progress that leaves 1, 10, 13 and
18. Most individuals
I have spoken with think the rework of 17 was good.
I little variety gives the hole some spice.
It’s not necessarily harder.
However, to make par on 17 requires a couple of good shots.
Maybe it’s just the way I play the hole, but I didn’t
seem to land in the left bunker very often.
Should
we reroute the golf course. At
this point, I vote no. The
main argument has always been “congestion.”
Especially around 4, 5, and 6.
Yes, I’ll admit it, those holes are dangerous.
But, in golf all holes are such.
There is potential for danger on just about every hole at
Lakeview. It’s
possible that some carefully placed trees could be just as
effective as spending a million dollars rerouting the previously
mentioned holes.
Perhaps
a safer plan would be to “tweak” the course over a 5 to 10
year period. A new
tee here, a fairway bunker there, a rock wall here and chipping
facility there. To be
honest, I kind of see the chipping facility as a plus.
It probably could be constructed over time as well.
Something
else that sticks in my head is “What to do with our
clubhouse?” First
and foremost, we do not need new lockers.
Just because Kahkwa and Lake Shore have exquisite, lovely
wood lockers does that mean we need them too?
Sure, the locker room is dated and needs help.
But, the whole building is in need.
I have heard that our kitchens are woefully inadequate.
The roof is in rough shape? (Didn’t they just put a new
shingle on about 4 or 5 years ago?)
The air conditioning system is troublesome.
That ridiculous satellite TV system is…ridiculous.
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