ACHOA Responds to Resident’s FAQ Questions posted on January 24, 2015 on ACHOA Associa website as Member_Letters_and_HOA_Responses

The questions are restated with the response below.

Sent: Wednesday, January 14, 2015 9:23 AM
Subject: Re: ArrowCreek HOA FAQs about the HOA Purchase of the Club at ArrowCreek

ACHOA board:

I have questions and cons to be added to the FAQs.

Why does the Board believe 2 golf courses can be profitable at ArrowCreek? What research was done to show 2 courses will be profitable? Why was closing one course not an option? Assuming 2 courses are purchased, what will be the liability and cost to homeowners, if 3 to 5 years from now, one of the courses has to be closed? Prior owners never made a profit with 2 courses in 15 years. Golf is a declining activity. More golf courses are closing than opening in the US. Younger generations do not have time for or interest in golf because it takes too much time away from their lifestyles.

The golf courses purchase effort by FOA and ACHOA has focused on a narrow, very limited solution considering only the present dilemma. It seems to be an effort to draw in all AC homeowners now to spread the liability for potential problems later.

Longer term risks and possible costs of ownership should be considered and explained fully to the homeowners. Play the “What if” game; what if 2 courses are not profitable? What if a fire sweeps over facilities? What if an earthquake causes substantial damage to a course? What if water costs skyrocket? What if Arnold Palmer bails out or demands renegotiation?

Best solution today while avoiding risk to the homeowners is to let FOA own and operate 2 courses for 3 to 5 years and see how things play out. If all goes as FOA says, everyone will be happy. If not, in 3 to 5 years, AC homeowners will have a great deal more information on which to base actions.

Response from HOA on 1/20/15:

The ACHOA Board of Directors appreciates the time and thoughtfulness of your questions. We are anxious to answer all of your questions. Indeed, we are asking ourselves many of the same questions you pose. However, some of your questions cannot be completely answered at this time because the ACHOA Board and ArrowCreek Community Club Committee (ACCC) have not completed their negotiations and due diligence. The ACHOA Board and ACCC want to provide to all ACHOA members complete information for the ballot proposition concerning the proposed acquisition and operation of “The Club At ArrowCreek.”

1. Why does the Board believe 2 golf courses can be profitable at ArrowCreek? Why was closing one course not an option?

The ACHOA Board and ACCC as part of their fiduciary due diligence are examining the optimum operational size for the golf courses. The cost to operate 18 Hole, 27 Hole and 36 Hole Community Club course are being examined at this time. Numerous Pro Forma Budgets are being developed for each of these scenarios. Included in this analysis is the potential impact of certain golf course areas being returned to native areas (brown or green) and/or allowed to be dormant for subsequent refurbishing and use. Included in that analysis is the impact to home values created by such closures or dormancy. Please note that the most expensive proposition is the 36 Hole scenario but anything less may create a larger potential liability for the community since several ACHOA members lots may no longer have a view of the golf course and their home value may be impacted. These ACHOA members will want a strong say in what goes dormant or brown and if not allowed to participate in that decision, lawsuits could occur.

Remember that all ACHOA members purchased homes in a golf community and they expect to sell their homes in the future with the golf course still in existence. That is a dilemma the community must face. Does the ACHOA community want to control the destiny and decisions concerning the use of the 544.6 acres or does the ACHOA community want others to control the community’s destiny.

2. What research was done to show 2 courses will be profitable?

Research is ongoing at this time. Actual costs for running Community Club operations are being developed from other operating 18 Hole, 27 Hole and 36 Hole Golf courses in the United States. This information is coming from Arnold Palmer Golf Management and other Golf service providers that manage golf courses. The key driving elements for profitability of any golf course operation have been the Member Dues (Golf and Social), the non-membership play, cart fees, driving range, merchandise sales, and banquets. That is being analyzed at this time.

The ACHOA Board has also been contacting other Arnold Palmer run Community Clubs to complete its due diligence. The ACHOA Board has contacted the President at Skyline Country Club in Tucson, Arizona and Prescott Lakes in Prescott, Arizona to determine current community results. Both organizations have provided positive feedback about the relationship with Arnold Palmer Golf and discussed their profitability status. Further due diligence will be conducted.

3. Assuming 2 courses are purchased, what will be the liability and cost to homeowners, if 3 to 5 years from now, one of the courses has to be closed?

This is a very good question. The ACHOA Board and ACCC are examining the multiple scenarios that could occur over a five year period of time. The ACHOA Board and ACCC believe that a five year window of time should provide an excellent window to determine profitability of such an operation.

The closing or dormancy of one golf course will still carry with it operating expenses. The sprinklers system maintenance, cart path maintenance, weed and grass control, water costs, employment costs, and Reserve Fund assessments must be evaluated and those related costs assessed in the ACHOA Member Monthly Assessments. This is just not a simple closure process.

The ACHOA members along the course that is closed or dormant may have significant issues concerning the impact on their home values. A very precise voting and approval process will need to be established within the operating agreements and governing documents of the ACHOA to address this issue of dormancy and closure.

The ACHOA Board and ACCC are developing contingency plans to deal with the varying operating profit and loss scenarios facing the Community Club operation. These contingency plans will be presented to the community before any ballot initiative will occur.

4. Prior owners never made a profit with 2 courses in 15 years. Golf is a declining activity. More golf courses are closing than opening in the US. Younger generations do not have time for or interest in golf because it takes too much time away from their lifestyles.

The ACHOA and ACCC are very familiar with your statements and similar statements concerning a golf course operation. The ACHOA and ACCC however, are examining the possibility of creating a Community Club that operates and provides multiple experiences within the community. If other, less financed golf courses in the Reno area should close, as your comment about decline in U.S. golf activities implies, that would make the surviving “Club At ArrowCreek” a more attractive golf property and ACHOA members home values would increase.

The ACHOA Board and ACCC are examining other communities that have made the conversion to a Community Club operations that included golf as one of the activities. The collection of this information has not been completed and will be an important element of the due diligence reports provided to the ACHOA members for their consideration.

The ACHOA members will need to decide who should control the destiny of the 544.6 acres in the middle of the ACHOA community. Do the ACHOA members want to make the decisions on how to operate and control the use of the land or do we want to let other entities to control the community’s destiny. That will be an individual decision for each ACHOA lot owner.

5. The golf courses purchase effort by FOA and ACHOA has focused on a narrow, very limited solution considering only the present dilemma. It seems to be an effort to draw in all AC homeowners now to spread the liability for potential problems later.

The ACHOA and ACCC appreciate your comments concerning a broader vision of the impact of 544.6 acres sitting in the middle of the ACHOA community. The ACHOA Board and ACCC are examining numerous expansions of services and associated costs if the Residents Center becomes a component of the Community Club Concept. The ACHOA and ACCC are examining the best methods of providing access to the 544.6 acres with recreational trails, snow shoe areas, cross country ski areas, sled areas, picnic areas, food service at residents center, potential cover for swimming pool area, etc. The ACHOA and ACCC hope that the independent survey that will be soon conducted within the community will shed further light on the broader approach for a Community Club.

The effort is not to spread the debts and operating losses of the Golf Course operation among the ACHOA members. The effort by the ACHOA Board and the ACCC is to determine the viability of enhancing the ACHOA Community Experience while maintaining or improving homeowner values. In addition, the ACHOA Board and ACCC believes it is better that current and future ACHOA members pay for the acquisition over time through a loan in lieu of a one-time special assessment paid by current ACHOA members.

6. Longer term risks and possible costs of ownership should be considered and explained fully to the homeowners. Play the “What if” game; what if 2 courses are not profitable?

The ACHOA and ACCC agree 100% with your comments. This group of volunteers is examining many possibilities and probabilities of the business risk associated with owning and operating “The Club At ArrowCreek.” The ACHOA Board and ACCC knows that all of that information will need to be provided to the ACHOA members prior to receiving their ballot on this important vision of the ACHOA.

Many ACHOA members agree that if two courses are not profitable, it is better for the ACHOA to own the 544.6 acres and control its destiny. At that time, the ACHOA members can determine what should be done with the un-profitable courses which reverts back to the brown and green options previously discussed by the ACCC.

7. What if a fire sweeps over facilities? What if an earthquake causes substantial damage to a course?

The ACHOA Board and ACCC do not disagree that catastrophic perils can impact “The Club At ArrowCreek.” The catastrophic perils above will be transferred to an insurance company through the purchase of golf course insurance procured by the operating entity. The insurance will be an operating expense of the operating entity and it will be primary and seek no contribution from the ACHOA insurance program. The ACHOA insurance would only be excess coverage at best.

The fuels mitigation program planned for ACHOA common areas will extend to the golf courses as well to limit the threat of wildfire sweeping though ACHOA. The ongoing maintenance of the fuels mitigation will be an ongoing expense of the operating entity.

8. What if water costs skyrocket?

The ACHOA Board of Directors and ACCC understand your concern over water usage. However, please remember that the ACHOA common landscape areas and “The Club At ArrowCreek” golf course areas are connected to a separate watering system. They are connected to grey water pumped up from the Washoe County Waste Treatment facility. There is an entirely different billing system and water system then the water that ACHOA members have connected to their homes.

The ACHOA Board and ACCC have plans to re-negotiate the water billing system with the county since the ACHOA and golf club are approximately 80% of the billing for this water. This negotiation will include long term grey water access contracts if possible.

9. What if Arnold Palmer Golf (APG) bails out or demands renegotiation?

The ACHOA Board and ACCC recognize this possibility and are addressing these issues in current negotiations. The terms and conditions of the operating agreement and joint venture agreement have not be finalized but termination and renegotiation clauses will be included in these documents like any business deal would include.

However, APG is willing to sign long term contracts with the operating entity and with the ACHOA in the joint venture arrangement. Currently 20 to 30 years are being discussed as the term or the relationship.

10. Best solution today while avoiding risk to the homeowners is to let FOA own and operate 2 courses for 3 to 5 years and see how things play out. If all goes as FOA says, everyone will be happy. If not, in 3 to 5 years, AC homeowners will have a great deal more information on which to base actions.

The ACHOA Board and the ACCC appreciate and understand your recommendation. The ACHOA Board under its fiduciary duty cannot do nothing as you suggest, The ACHOA Board and ACCC are obligated to conduct a full due diligence analysis and vetting of the business deal and present the results to the ACHOA members for their determination. Failing in this fiduciary duty can create significant liability for the ACHOA Board and the ACHOA Community.

The ACHOA Board and the ACCC has a duty to act and provide information to the ACHOA members on matters that impact the home values in the community and operational costs that impact monthly assessments. The ACHOA members purchased their homes in a gated golf course community with an expectation that their home values would remain stable or increase over time. The ACHOA members also expect that when they sell their homes a gated golf course community will still exist and it will improve their selling price.

It is not riskless to wait 3 to 5 years and see how “things play out”, as your question implies.
However, additional considerations must be presented to the ACHOA members if the community choses to not purchase the 544.6 acres. (1) Years from now, the cost of purchasing a thriving “Club at ArrowCreek” could be much higher. (2) The cost of financing future golf course purchase may be higher than today’s low loan rates. (3) If “The Club At ArrowCreek” failed to thrive, a land speculator might buy the golf course form the FOA investors in the expectation that the developer would be allowed to build hundreds of additional homes in and around our existing homes.

Lastly, the ACHOA Board and ACCC, from preliminary due diligence investigations, believe that the ACHOA community is better served to own the 544.6 acres within the center of the community. The ACHOA Board and ACCC believe that the acquisition and operation are the best option to examine at this time in lieu of waiting for a potential repeat of the 2014 Aspen Sierra bankruptcy.