Notes from Monday (7/11)’s Capital Expenditure Informational Meeting
Summary: The POA’s bylaws require community approval to borrow $2.75 million to purchase 385 acres of property within Fairfield Harbour presently owned by MidSouth. All the pertinent information, including the budget. is on the POA website and is available in print at the POA office. Hope Carmichael was at the meeting, POA President Ann Simpson reminded us, to answer community questions.
Present: Wayne Strausbaugh, Paul Hill, Ann Simpson, Dan Engelhaupt, Jim Cline, Hope Carmichael, Dan Argentieri
Documents containing information are on POA website – summaries of purchase, and a 5 year projection budget (also available at the POA office) This document shows how this purchase will impact the budget for next 5 years.
How did we get here? The amenity property. A plan has always existed for the POA to own the property interspersed through FH. Shoreline closed in 2008; buildings are now derelict. Harbour Pointe GC is managed by Billy Casper Golf contracted through MidSouth.
Amenity fees – court decisions have taken care of that. Without amenity fee, MidSouth could not operate the courses at a profit. The property has been covered by Covenants – Exhibit E (to expire in 2023). MidSouth did not comply. The $1.45M judgment the POA had against MidSouth was expert testimony attested it would cost to bring Shoreline back to operation. POA tried to foreclose; MidSouth declared bankruptcy in 2013. In March, Judge Humrickhouse removed the covenants; MidSouth can now sell to whomever they want without restrictions.
Ms Carmichael filed an appeal, then she reached out to MidSouth attorney, who really wanted to settle. They worked together to extend the appeal deadline, which is why this is happening so quickly. If for some reason the purchase is NOT approved, then the appeal stands and money that would be used for purchase will be used for appeal.
What are we purchasing? Entire 385 acres. No plan right now to bring back the clubhouse and fix everything. POA is purchasing an opportunity to bring back the property values. Once we control the property, then we can decide what to do with it. Harbour Pointe golf will be kept open because we need the revenue from that to help repay the loan. The two Marinas- Birdland and Shoreline – also will bring in money. Fairfield Harbour has nice waterfront property. Although MidSouth did want to keep the 10 acres of waterfront for commercial development we refused. POA also gets the property without covenants, but then it can write new covenants to protect the property. Once MidSouth is gone, POA can protect the property.
Question: What does NOT come with the property? Answer: It does NOT provide free golf to ANY POA member.
Question: What are other benefits? To make the budget work, we need to spend less money on legal fees. Fairfield Harbour has a state-wide problematic reputation. We need to remove that cloud to protect our property values.
Question: If we don’t get the property, what will we do about the storm water issues? Answer: We need the 385 acres to be integrated into the rest of the property – so that the storm water will work.
Purchase price is $2.75M; if we don’t get the bank’s commitment by July 27, the meeting will be canceled. The POA does not have $2.75M.
The Drez vs Fairfield Harbour decision aka the “Wainwright Decision” in 2012 said the POA cannot use dues to acquire property. We will repay the loan by non-dues revenue from the operation of the golf course, marinas and other non-dues income such as storage fees, sales of foreclosures, lot mowing, etc. Once the POA owns the property, it CAN use dues to operate and maintain. We anticipate about $700K income, with about $386K of that for repayment. The remainder is to be rolled into the main budget. Court of Appeals gave us a road map, and we are following that road map.
Question: If the POA defaults on the loan, can the bank put a lien on individual homes? Answer: NO! The loan is to the POA; the bank can NOT go through the POA to individual homes.
Question: What happened to the $1.45M we won? Answer: It was rendered meaningless – it was unsecured, so the POA can’t foreclose on the property. That money was nothing the POA ever spent; It was a projection to restore Shoreline.
Question: Why no appraisal? Answer: We (the POA) assumes the covenants are legal, so that makes us the only buyer. If the property goes to bankruptcy sale, Jack Shaw will put in a bid for $3M, and no one will outbid him. Therefore, anything less than $3M, is a good deal. The POA will then control its use, and the covenants put on it.
We will control, because we elect the BOD, so we need to be very careful about who is elected in the future.
If we control the property, we end the uncertainty and remove the cloud over it.
Question: – Is the bank just looking at the golf course income? Or is it looking at dues as well? Answer:
NO. That is prohibited by Drez vs Fairfield Harbour and the Court of Appeals
Question: What is the collateral going to be for this loan? What will the dues be for the second 5 years? Answer: Collateral is going to be the 385 acres – nothing else. It is reasonable to do the 5 year projection; we are not going to be speculative about the next 5 years. The interest rate is fixed for term of the loan.
Question: What about the $3M mortgage that Wells Fargo has? Answer: Jack Shaw paid Wells Fargo. Wells Fargo is no longer in the mix; Jack Shaw repaid that loan.
Question: Has the POA negotiated a contract with Billy Casper? Answer: The POA has been in negotiations with BC, and there will be a contract if all works out. Dan A. says BC is willing to continue.
Question: MidSouth used to charge amenity fees of $750/year – what are we doing better? Answer:
POA is non-profit. It doesn’t have to pay corporate salaries and overhead. We have to pay the debt
service to the loan, and operating POA common areas and shoreline and marinas under a single management will be more efficient.
Question: So for 80% less, we are going to get the same thing? Answer: NO, we will still have only one golf course,
Question: The taxes and insurance on the property – would they be paid out of dues? Answer: Yes, because the POA would own the property. Approximately $14,000 taxes. $18,000 insurance,
Question: The property should be given to the POA free and clear. The deal was fraud. Covenants cannot be taken off property. Answer: Judge Humerickhouse did NOT affirm that she wanted to reconsider. This is a separate issue.
Question: $707K is the 2017 projected revenue from golf course and marina; $368K is the repayment on the loan. Is that difference enough to operate the golf course and marina? Answer: Based on BC’s projected numbers, it would not be enough. It will take $100 extra dues for maintenance to make it all work.
Question: The budget shows HP golf course would continue to operate; nothing planned on Shoreline side; without some improvement, the bleeding would continue and not help our property values for awhile. Answer: The assumption that nothing is planned for Shoreline is false. The mowing will continue. The Board is going to accumulate a contingency of non-dues income. Demolition of existing clubhouse is on the plate. Fund for infrastructure repair is on the list. Board needs to get to the point where they have the opportunity to make decisions about Shoreline.
Jim Cline – Board will be looking and asking the property owners what they would like the Board to do. Clubhouse will come down and Pool will be closed. Once the deal is done, Board will be asking people what they would like done.
Question: Net Revenue is on the sheet for non-Dues Income. That is the money the POA will have based on the budget they have developed.
Question: looking at budget, all the red lines are blank. Answer: The POA has to determine what will be done when they have money to do it.
Dan Engelhaupt : the bank is looking at hard numbers; the budget in place is what they have. BOD is looking at economies of scale. BOD has reduced maintenance $300K from last year. The purchase will enable us to have one set of maintenance crew for POA and Billy Casper. Budget for security will be reduced; it is a moving target to reduce moneys.
Question: If covenants were removed, anyone could do whatever. Water and sewer are at max. How will anyone be able to come in? Answer: The 385 acres has a lot of room to build a sewer treatment plant.
Question: What is the assessment regarding outcome of the appeal? Ms Carmichael declined to answer because that would waive attorney client privilege. Has MidSouth agreed to deal? Answer: Yes.
Question: $707K income; was that a profit of $60K? If you are looking at BC taking $707K and ONLY deducting expenses of HP and marinas. Has anyone looked at P&L and BS from MidSouth? Answer: Yes, but they are very broad. Ms Carmichael insisted they open their books to her, (they get their numbers from BC) and MidSouth sat down and explained the numbers from 2013 on.
Question: What do we do if BB&T denies the loan? Answer: If BB&T denies the loan, there will be no need for July 27 meeting. POA will continue to look for money. We would have the right of appeal, but that would continue the cloud over our properties.
Question: What improvements are on the list?
Because the clubhouse has asbestos it cannot be renovated; it must be torn down. It may take a bit more money to demolish, but not that much.
We have 4000 feet of shoreline. What is the condition of the bulkheads? Answer: There have been some improvements. We have to work with the funds that we have; but slowly we will bring it back to what it was.
Question: What about other golf course closures? Answer: In the two years Dan has been here, HP has seen steadily increasing rounds. With current trends, revenue is increasing 6% per year and expenses are staying steady.
Question: Would there be any FREE golf for POA owners? Answer: There is NO way to offer free golf to POA owners. With the $100 dues increase, the cost of golf will remain the same. The membership should be around $150/month and non-members pay $40 per round.
Question: $707K non dues – where is it? Answer: The Reserve fund is not a non-dues income fund. Non-dues income sheet for 2017 – $668K across 5 years. BC numbers are higher; Paul Hill (Treasurer) took more conservative numbers.
Dan Argenteiri – the budget shows revenue staying flat for next couple of years. $668 and multiplied by 6% growth rate gets the number to $707. Dan prepares budget for BC. Paul prepares budget for POA – Paul is staying conservative so he doesn’t have to come back for more money
Question: The proxy sent out said Ann Simpson was the proxy holder. There’s no space on proxy to vote yes or no; Henry Jones set out a design for it to agree or disagree. If we want to be fair, we need something on the proxy to have people say yes or no. This room cannot hold everyone in the Harbour; to be fair, everyone should be able to vote. Answer: Ms Carmichael – proxy gives the right for everyone to vote. Rich is describing absentee ballot; these are NOT absentee ballots, they are proxies. On the proxy, the property owner can designate anyone, but the default is to Ann.
Question: Does the BOD have assessment right on the 2800 lots in the Harbour? If the loan is not approved, could the BOD assess? NO, Drez vs Fairfield Harbour decision for Court of Appeals is clear.
Question: Will the BOD vote on the foreclosed property? Ms Carmichael’s answer: The BOD has the ability to do that, but have not made the decision yet. (150 properties.) . Question: Can the proxies from the annual meeting be used for the vote? Answer: Proxies for the annual meeting CANNOT be used for this special vote.
Property Owner comment: We moved here in 2012, has gone downhill ever since. This seems to be the ONLY way we are going to get back where it used to be. (applause!)
Question: Is a quorum required for the meeting? Answer: Yes, per the bylaws, 7% of 2824 lots: Article 5, section 1 of bylaws. Capital expenditures exceeding 15% limit requires approval by the membership at a special meeting. A SIMPLE MAJORITY will determine the vote.
Clarification: Some concern has been expressed about the ability of the Community Center to accommodate the vote. It will not be a meeting; it will be a come in to vote and leave.
Question: What are the plans for the cart paths? Answer: Ms Carmichael – they are on the list; they must be prioritized and budgeted.
Question: Does the budget still have the $700K for front gates? Answer: No, that was taken out. If the deal to buy the property goes through, that goes away.
Question for Dan Argenteiri: Knowing current economic situation, can we look at the crash that happened in 2008 so we can understand what might happen today? Dan’s answer: Problems usually happen when there is a new community being built, not when a community is 65% built out and being used like this one. I do not see any new courses being built in New Bern in the future, so there shouldn’t be any failures for Harbour Pointe.
Question: is BB&T the only bank? Ms Carmichael ‘s answer: With all the legal problems we have, no one else was willing to talk without bringing dues into the mix. We cannot pledge our dues as collateral, and this is what scaring BB&T.
Question: Is the Emergency contingency fee in budget? Answer: We have NOT been charged this. This is for emergency only – such as hurricanes, etc.
Question: Assuming we get the property, could they combine it with common property? What would the taxes be, and if they did combine, could the POA later be able to sell parts, or would it be prevented? Answer: There is no present intention to classify the property as common. If it were made common, then it would be prevented from being divided.
Question: Regarding golf course participation, it requires 400 members to be successful; and would require a population of 25,000 people. Dan A.’s answer: – that is hard to determine; New Bern does have a saturated market. However, the revenues are sufficient to cover the debt service. Harbour Pointe does NOT need 400 members to survive.
Question: When would the $100 extra dues need to be paid? Could the BOD be able to ask for extra money? Answer: It would be in the dues next May, and, NO, (Court of Appeals decision)
Question: If we vote yes on 27th, would we have to renegotiate with BB&T? Answer: No, BB&T says what we will have. If no loan commitment, no vote.
Question: Property value increase is good, but will we be able to keep up the maintenance? Can we cut back extra spending somewhere else? Ms. Carmichael ‘s answer: look at the budget; and, if we want to increase the level of beautification and maintenance, then we need to lobby the BOD to increase the budget.
Question: Proxy; when vote on 27 will it be a voice vote? Answer: NO. It will be a paper vote.
Question: When will we hear from BB&T? Ms Carmichael’s answer: Soon, I hope. Regarding the loan- we do not have the terms yet from BB&T. Her assumption is 6% for 10 years.
Question: Reviewing budget; loan of $2.75M debt service alone is $134 per property. Realistically, don’t we have to be looking at something more than $100 per year to revitalize the property? Answer: BOD has committed to $100 per property for maintenance. If membership wishes more, then lobby the BOD to increase.
Question: If the POA can’t use dues to purchase property, is there any restriction on homeowners volunteering the money? Answer: No restrictions on property owners volunteering money to buy the property.
Question: If bank doesn’t come through with money, they could try to bring together private money?
Answer: Yes.
On July 27, there will be both ballots and proxies.
Question: Why is there not a projected value on property taxes? It’s not reflected in projected years. Answer from Treasurer Paul Hill: There are two different insurance lines – current – what we have now, and what BC pays. Taxes – it is not clear yet how the taxes are going to be handled. POA does not pay taxes on common property. The $1000 in taxes are on foreclosed property.
Question: Reserve – we are required to place 15% of dues into reserve. Have there been any projections for reserve for the 385 acres that we would acquire? Answer from Treasurer Paul Hill: we currently project out capital dollars. We are reducing our capital because of savings, so POA doesn’t have to put quite so much in reserve.
Question: Will that apply to new property? Answer: Yes, it applies to anything the POA owns. Your FACTS Reporters