by Robb Smith
I’ve probably been one of the more moderate voices in this conversation, and after we were informed that the board had dropped the discussion I assumed that it was a dead issue (and if it were to be resurrected we’d be informed that discussions had recommenced, which I had not heard).
Upon reading the LOI, my judgment is that this seems like a fairly terrible deal for ACHOA. I hope that I am missing some details or color in some way that will make me wrong, and if so please advise. Here is my take:
As proposed, the agreement seems to return all of FOA’s capital, plus what looks to be a 50% gain (though I recall the basis might be higher than the $2.2 million purchase price because of taxes?), without securing the essential benefit that was proposed the entire time: complete and unmitigated control of our community’s destiny. Rather it creates a hybrid structure whereby our ownership of the golf course land is divorced from ownership of the “intelligent” assets in the club and community parcels, and compounds that by providing for a very long-term land lease that essentially keeps us in the golf course business (all the risk) without retaining any control of being in the golf course business (and none of the upside).
It’s debatable as to whether we should be in the golf business, but if we’re going to be at the very least we need to have complete control over all the assets that can influence that destiny.
As structured, this is simply a recapitalization where we (ACHOA) act as the underwriter; FOA has retained not only the capital gain upside on critical assets essential to the whole operation of the deal, they have also retained effective control over the entire asset base in all forms of its highest and best uses. This was a very smart deal for them to strike, but I’m not sure how they got it done. Whoever negotiated on behalf of ACHOA got rolled.
To make matters worse, FOA can still decide that a portion of the course is not economically viable and let it go brown. Not only was avoiding this boogey man the entire basis of ACHOA doing the deal to begin with, ACHOA has to help pay for such a shutdown.
Then there are details that are left uncertain in the LOI: for example, once I have signed up for $3.3 million of debt service as a member of ACHOA, do I have complete access to all golf and social club amenities? The LOI explicitly allows for current golf club members having access to the club, but it does not say the inverse, whether the new land owners will have access to the club.
For what it’s worth, if I was negotiating on behalf of FOA, I’d call a spade a spade on this point: “of course you’re not allowed access to the golf club, you’re simply a bank who has underwritten a large piece of land on our overall balance sheet.” And that’s the crux of the matter by my reading: as this deal is proposed, not a single objective that was outlined as a theoretical basis for doing a deal like does this structure achieve. We’re simply a bank that is financing one of the many assets of FOA’s business, and it is the largest and “dumbest” of the assets at that.
Either sell the course and all assets in total to FOA, or don’t.
Again, I do hope that I’m reading this wrong or that there are details that advocate for a better interpretation. If so, please let me know.