Please allow me to join the ongoing website discussion about the proposed purchase of the AC Country Club (ACCC) from the Friends of ArrowCreek (FOA), by going into a Joint Venture (JV) with the Arnold Palmer Managing Group (APMG). I would like to put together some of the major facts as I know them from HOA meetings, briefings, and reading pertinent literature so far. I freely disclose that I have made use of and copied documentation available to me. Some of it has been said before, but I feel it cannot be said often enough.
Concerns about the Process:
Early in 2014, the HOA created an advisory committee to study the pending bankruptcy of the ACCC and to make recommendations to the HOA board. Tom Gurney and Gary Pestello were charter members of this committee. In the ensuing months, Mr. Gurney and Mr. Pestello would form the FOA and would become managing partners of the FOA LLC. In August of 2014, the HOA Board unanimously agreed to pursue the purchase of the Golf Club, go into a joint venture with APMG, and revise necessary governing documents. During the Aug. 26 meeting of the HOA Board, the advisory committee’s research results were presented as the “green,” “brown” and “Community Club” options.
The FOA, a group of private investors, was able to buy the ACCC at the bankruptcy court hearing on 09/24/2014. Sam Fox, President of the HOA Board, declared in a written legal brief submitted to that court, that the HOA Board supported the FOA as a bidder. One of the reasons given was that the FOA had a strong long-term financial outlook. This brief also stated that the FOA gave the HOA the option to purchase the Country Club within 9 months after the effective date. Other than the previous owner, Charlie Leider, there were no other interested buyers.
As this time line shows, the HOA Board worked together with the advisory committee and then unanimously supported the FOA and their efforts based on recommendations made by the advisory committee that included future FOA members.
As to the FOA’s business plan that Sam Fox attested to in the bankruptcy court brief: in the AC Frequently asked Questions (FAQ’s) recently posted on the
arrowcreek411.wordpress.com website, it is stated that the HOA Board even at this time (January 2015) is still in the process of determining the final itemized purchase price of the golf club property and assets, negotiate the details of the transaction and business plan with the FOA and APGM. The deadline for the JV vote as stipulated by the FOA is in April/May of 2015. However, the FOA is on record, per its spokesperson Gary Pestello, that they have plans to run the Golf Course on their own should the HOA members decide against the purchase of the ACCC from them.
As of December 2014, the HOA Board includes a Golf Club member, owning a home on the golf course. That new member admitted to potential conflict of interest on her application. Another newly elected board member did not disclose that he lives on the golf course. None of the HOA applicants that expressed concerns about the JV during their campaign were elected. One of them was verbally attacked by a HOA board member during the Meet & Greet the Candidates meeting.
Some of the current Golf Club members and members of the FOA are individuals who involved the ACCC in repeated litigation which was in part responsible for Club Corps withdrawing their offer to buy the ACCC about 6 years ago. Senior managers of Club Corps are now working for Arnold Palmer. The FOA has declined any requests to reveal the names of their investors. It is not known whether APMG is aware that former litigants are currently members of Golf Club and FOA.
The AC CC&Rs and Articles of Incorporation (AOI) define the ACHOA as a nonprofit community. The purchase of the Golf Club from the FOA and operating the golf course with the APMG would require changing the ACHOA to a “for profit” community. Our AOI stipulate a requirement of a two thirds majority for any change to the AOI. The vote for the purchase of the club, approval of the Joint Venture and revision of ACHOA governing documents to reflect AC as a “for profit” organization is at this time set up by the HOA Board as an all in one vote requiring only a simple majority vote (50 % plus one) to approve.
If the HOA members vote for the purchase of the ACCC, they will be buying or paying for:
- the Golf Course and Club House
- all current debts and future operational deficits (average of $600 – $800 K/year)
- Arnold Palmer Golf’s management fee (accrued fee until JV vote, then waived for 2 years, then starting at $150K/yr beginning year 3
- all needed capital investments, legal administration and liability, bank loan interest rate, all expenditures, fees, miscellaneous costs incurred by the FOA since Sept. 24, 2014, plus 12% interest rate
With the 12% interest rate added to the purchase price and all expenditures of the FOA, the FOA will profit without any risk since the HOA Board agreed the FOA will “be made whole” for all expenses. The current loan interest for property is between 3% – 5%.
The proposed increase in HOA fees currently is $99 a month. In the bankruptcy hearing HOA brief, Sam Fox quoted a monthly HOA dues increase of $ 75-80. There currently is no cap on the monthly HOA fee, special assessments, and capital calls. The HOA board can increase the monthly fee without a vote of the HOA membership. As stated in the FAQs: about $30,000 were already spent on this endeavor, and about $60,000 more have been budgeted in the 2015 HOA budget for further expenses associated with the JV initiative, above and beyond capital investments needed.
During their presentation on 12/09/2014, APMG did not reveal any details about their contribution to the financial burden and legal liability in a Joint Venture. They admitted that there was no concrete short-term nor long-term business plan at the time and that they do not anticipate finalizing plans before 3 or 4 months. The JV vote is scheduled for April/May 2015. They stated they were not involved in the calculation of the proposed $99 increase in HOA fees.
In the Skyline Golf Community in AZ, APMG’s managing fee is scheduled to increase from about $165K to about $600K in year three. In the Skyline community this increase of $435K in management fees of the Skyline Club required homeowners’ annual fees to be increased by 20% each year for three years and remain at the heightened level for the following 22 years. Applied to our situation that would mean that our $317 monthly fee would increase to about $547 a month by year three.
The ACCC has never been profitable even at the peak of its membership. Some of the reasons are that the ACCC is off the beaten path, surrounded by other golf courses that are cheaper, more beginner friendly, thus more attractive to a larger population of golfers. Our course is often closed for several months during the winter, and more expensive to keep green related to soil, climate, and terrain reasons.
The golf industry remains in a recession. More golf courses have closed than have been opened during the past few years. Based on national statistics from the Professional Golf Association after an average of 15 years, major repairs are due to the turf and the
irrigation system (currently $750K for a 18-hole course in Hidden Valley). Our course is 17 years old. Rich Kenny admitted in his briefings in November and December that “major capital investments” will be needed for the roof, the kitchen, and parking lot of the Golf Course. Capital calls can be issued to pay for those expenses. Capital calls are additional costs to the ACHOA as a JV partner and will require additional funding from the ACHOA
not covered by monthly HOA assessments. These capital calls can and mostly likely will result in special assessments to be paid by the ACHOA members.
Research supports that property values beyond 100 feet of a golf club are not affected. The significant costs and liabilities associated with a golf course may negatively affect home values. (see: “The Moral Hazards of Mandatory Membership in Private Clubs”,
available on line, and
We are the community with one of the highest HOA fees in the area, even before the increase. There is no gated community in the immediate Reno area with a monthly HOA fee greater than $300 a month.
100% of all people owning property have agreed to the current state of affairs in the ArrowCreek HOA as a non-profit organization. Any person not in agreement with the Joint Venture or changes made to the governing documents may sue the HOA, i.e. ourselves. Please remember the litigation by golf club members against the previous owner Terra Brook and the ACCC about 6 years ago. Please also see the literature collected on the
arrowcreek411.wordpress.com website about HOA law suits.
If the Joint Venture goes forward, any law suit involving the Golf Club and its assets will involve all HOA members as part owners of those assets and partners in the Joint Venture. Furthermore, the HOA’s liability as a partner in the Joint Venture will expand to include any workman’s comp claims, personal injury claims, and personal property damage or theft claims. In short: any AC resident will be responsible for lawsuits against 2 entities: the HOA and the JV.
One real life example of possible litigation is the idea being promoted that in the winter, one amenity offered to ACHOA members if we owned the golf course could be the use of the fairways for sledding. The following article reflects what municipalities throughout the U.S. are facing in terms of litigation due to sledding on public property. This liability would be the same situation for ACHOA members if someone is injured on “our” golf course.
Some obvious questions are:
Have we been in control of the process when by now the only option we seem to be left with is a yes/no vote on the JV? What about exploring and voting on other options?
Why did Sam Fox in the bankruptcy hearing brief commit us to vote to support the FOA’s acquisition of the golf course before asking our opinion?
Has the JV process been unbiased and will it be unbiased?
Can we realistically meet the deadline of April/May 2015 for a vote based on real numbers and a thorough evaluation of a business plan for the JV?
If the deadline expires, will the asking price go up, or will it go down, or will the FOA just implement their “business plan”?
If it is really true that the HOA wants “to bring the community together”, why is the HOA Board satisfied with the lowest requirement of a 50% + 1 vote for the JV vote? Why are our AOI ignored, that require a two thirds majority for any change of the AOI? Will there be a separate vote to change the AOI?
How can we think of going into business with the FOA if we do not know who they are?
Are we really “taking control over our destiny” by buying a golf course or are we buying into something that will be out of our control, both financially as well as legally?
Why not let the FOA do what their spokesperson Mr. Gary Pestello said they would be ready to do: operate the Golf Club on their own?
If the AC Golf Club is certain to be profitable under Arnold Palmer Golf as the FOA and HOA claim: why does the FOA not want to keep it? Remember, at the Nov. 4 meeting of the ACHOA board, Gary Pestello made it quite clear, the investors of the FOA expected to make a profit if they invested their money. Why does the FOA not put the Golf Club on the market for sale? Why not simply recruit voluntary members for those that want to be members of a Golf Club rather than pursuing mandatory membership via an HOA vote? Have all the ArrowCreek residents that wish to be Golf Club members already joined? For those that do not want to belong to a Golf Club: going to a restaurant for dinner and happy hour would be much cheaper than paying a minimum increase of $99 a month in
APMG is in the business of acquiring and managing golf courses: why does APMG not want to buy the ArrowCreek Golf Club? Why has there been no other interested buyer?
The Joint Venture promises us life style improvements and expansion of services. We are already paying for an activities coordinator and an operations manager. Our Reserve funds are well funded. We are one of the HOAs with the highest monthly fee. Why are plans to improve the livability for all of us in a community of common interest tied to the Joint Venture proposal? Is that not extortion? What is keeping us from making such investments and improvements with the fees we are already paying?
How will our property values be affected by HOA fees potentially increasing from about $200, to $300, $400 and $500 a month and capital calls whenever needed to support the Golf Course?
Our HOA board consists of volunteers. Who will be qualified to oversee a business such as running a golf course?
Does APMG, the HOA Board, and all AC residents know, that we will be doing business with former litigants if the JV goes through?
How is the HOA Board and the JV going to protect ArrowCreek residents against litigation from former litigants or anyone else who is not in 100% agreement with the JV process, and any of the many possible reasons for law suits?
What are the “real” reasons the FOA does not publish the names of their investors?