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SGCC Lease Analysis

The following analyses pertain to the amenities as described in the SOA/SGCC Lease Agreement.  Article Numbers point directly to the Sections of the Lease Agreement wherein these amenities are described.  Descriptions are consistent with the amenity descriptions contained in the Agreement. That is, no details have been edited out and what you see is what it is.

These amenities represent what the SOA Board has obligated Somersett homeowners to pay to the SGCC at the rate of $15/mo/unit.  This equates to approximately $1,350,000 of homeowner assessments over the initial three year term, or $5,500,000 over ten years taking into consideration the optional three and four year renewal periods (assumes moderate community growth).

III.3.1   19th Hole at the Clubhouse Dining.  Available during the same times and hours as that for SGCC Club Members and may change from time to time at the discretion of the SGCC.

Description:

Allows access to dining, bar and lounge areas for eating, drinking, internet access, TV game tables and undefined “activities”.

Benefit Assessment:

  1. Given the limited SGCC operating hours and substandard SGCC restaurant ambience.  Predict little use by Somersett residents following an initial “curiosity” period.
  2. The SGCC will be spending SOA assessment funds (estimated at $80,000) to upgrade their restaurant facilities to make it more attractive.  Given comment 1 above, Ii is contended that any upgrade of restaurant facilities will be of primary benefit to SGCC members and outside golf play users (i.e., SGCC promotional events, casino play and outside tournaments).  No discounts are available to residents for their patronage.  That is, residents pay the same price as SGCC members and public players.
  3. The internet and game table access is of little benefit as these are already available at TCTC in a much more refined setting.

Conclusion:

Little benefit to residents, large benefit to SGCC members who will now have enhanced dining facilities at Somersett homeowner expense.

III.3.2   Non-Golf Social Activities

Description:

Allows access to SGCC happy hours, social gatherings, shopping trips, entertainment events and Holiday parties.

Benefit Assessment:

  1. The SGCC currently offers social memberships to all Reno Residents (at $25/month), which includes four rounds of golf per year at member guest rates.  Prior to the Lease Agreement, all Somersett residents had access to this same social membership.

Conclusion:

Of no real benefit to the Somersett Community, as those interested in a social membership were already participating.

III.3.3   Golf Activities

Description:

Permits resident and guest play twice a year at a $40 rate for 2012 and at standard SGCC member guest rates (to be set by the SGCC) thereafter, allows purchase of golf merchandize in pro shop, allows access to SGCC golf staff for lessons and clinics.

Benefit Assessment:

  1. SGCC frequently offers promotional play at discounted rates, not only to residents, but to the general public as well. Resident opportunities in 2011 included a $45 rate (including guests). Non-resident opportunities were made available at a $60 rate. Both of which are below the standard member guest rate. Currently, resident reservations can only be made three days in advance, very inconvenient.
  2. Most Somersett golfers who are not members of the SGCC know SGCC members who can sponsor them at SGCC member quest rates up to four times a year.
  3. SGCC golf staff lessons are already open to the public.  Non-members have taken lessons on the past without any qualifications.
  4. Do not know of any case where a Somersett resident (or non-resident) has been denied a purchase in the golf shop. The SGCC has had past sales wherein they solicited resident buyers.   Additionally, for the serious non-member buyer, SGCC merchandize prices are generally higher than Reno Golf retailers.

Conclusion:

No real benefit over what was made available to resident golfers in prior years.

III.3.4   Undefined Amenity

Description:

Provides for some undefined amenity the SGCC will provide as determined by the SOA, which will not cost the SGCC more than $5K.

Benefit Assessment:

Can’t imagine what the SGCC will propose for $5K that amounts to anything worthwhile.  Undefined elements should not be part of any agreement.

III.3.5   18 Hole putting course and dedicated section of the driving range

Description

SGCC will provide a putting course and driving range expansion (paid for by SOA funds) for resident use at individual usage fees to be determined by the SGCC.

Benefit Assessment:

  1. This article establishes SGCC real estate improvements paid for by the SOA and then leased back to the SOA for an individual usage fee, which is open ended. That is, no initial or future fee requirements/caps.
  2. There are no requirements in the agreement regarding operating hours, equipment, location and size of the putting course and the driving range being built with SOA funds (e.g., putting hole length, grass type, number of driving range pads, range ball bucket size, golf stands, rest room access, etc.). This is all at the discretion of the SGCC.
  3. SOA assessment funds will be used to pay driving range and putting course construction costs (per the agreement, the SGCC can access $100,000 upfront in each of 2012 and 2013 to support these costs).  Resident usage of the driving range and putting course will generate income for the SGCC without any revenue sharing with the SOA.
  4. In an update to item 2, the driving range was built at the upper end of the SGCC member driving range so as to keep them separate.  The resident driving range utilizes a synthetic pad, whereas the member range is on grass.  Range ball bucket prices are currently at $3/small and $5/large. As a comparison, Lakeridge prices are $3 and $6 for comparable sizes.
  5. The putting course location, size, usage fees, etc., have yet to be established and are not addressed in the agreement.
  6. The putting course does not have to be built until June of 2013.  Assume delay is so the SGCC can utilize the $100,000 of advanced 2013 assessments to pay for construction costs.
  7. There are no limitations placed on the SGCC with regard to SGCC use of the leased real estate.  Without restrictions the SGCC can also use this real estate for member use and or outside play (e.g., tournaments, casino groups, public promotions, etc.).
  8. Upon termination of the agreement, the SGCC will own both the driving range and putting course with no investment recovery by the SOA.

Conclusion:

The  above items point to a very poorly written agreement.  It primarily benefits the SGCC’s facility and income statements, while providing limited benefit to Somersett homeowners.

III.3.6   Bocce Ball Courts (3) and Equipment

Description:

Section title is sole description for this amenity.

Benefit Assessment:

  1. Same comment as in Item 2 of the previous article
  2. Bocce Ball construction has been completed with provision of two courts. Agreement states three courts are required.

Conclusion:

It appears the location determined by the SGCC could only accommodate two courts. Apparently the SGCC felt this variance acceptable.  Was SOA Board approval obtained and the agreement modified. If not, where is the oversight by the SOA?

III.3.7   Fishing on Canyon Nine Lake

Description:

Permits fishing by children and ample stocking as determined by professionals. Subject to weather conditions and usage at own risk.

Benefit  Assessment:

  1. No lake clarity requirements.  Lake should be certified as being in compliance with pollution standards required for intended use. Even though a catch and release there are no quarantines against someone taking their catch home.
  2. Canyon 9 players cannot use back tee on Hole 9 when children are present due to ball striking hazard. However, not considered a significant detriment to Canyon9 golfers.

Conclusion:

Predict very little use, therefore very little benefit.

 IV.3   Optional Amenities

Description:

The SGCC is offering residents the option to select from a menu of amenities on an individual fee basis paid directly to the SGCC and subject to change.

Benefit Assessment:

  1. 1.     These optional amenities are available to the general public on the same individual fee basis. That is, no preferential treatment or discounts for Somersett residents.

Conclusion:

No benefit whatsoever to Somersett residents, these represent promotions
the SGCC is offering to anyone, regardless of where they live.

Summary Assessment

The SOA/SGCC Lease Agreement as currently structured represents a “Sweet Heart Deal’ for the SGCC and provides no real benefit to the Somersett Community. Consider it nothing more than a mechanism directed toward enhancing SGCC’s financial stability.  Do not be naïve enough to believe that the SGCC would be party to such an agreement “for the benefit of the community” if they were not in financial distress. In late 2010 the SGCC equity members voted to accept early turnover of the club from Somersett Country Club, LLC (a Blake Smith company) and assumed the financial risk associated with its operation. For the SOA Board to have entered into an agreement with the SGCC to reduce the financial burden (at homeowner expense) of the SGCC equity members is unconscionable and premature.  Such a step should be considered only after all SGCC financial stability options have been exhausted without success and clearly demonstrated to the SOA.  Any proposed solution should then be clearly communicated, of mutual benefit and subject to a majority vote of all Somersett homeowners.

Somersett United contends that the current agreement violates the intent of Article VII Section 5 (Ownership and Operation of Golf Club) and Section 6 (No Right to Use) of the Somersett CC&R’s, which states “Neither membership in the Association nor occupancy of a Unit shall confer any ownership interest in or right to use the golf club”.  In writing a legal opinion the SOA Attorney stated the following:

“Based upon NRS 116.1209(2), NRS 116.3224 as well as the CC&RS, it is my opinion that Somersett Owners Association (SOA) does not have the power to unilaterally include the community membership to the Somersett Country Club (SCC) in the assessments without a vote of the membership.  Because the community membership to the SCC is not part of the Common Elements at this time, the SOA may not unilaterally add that expense to the budget and then assess membership for it”.

However, the Attorney then went on to render a legal opinion wherein via different NRS statutes, the SOA could essentially circumvent the preceding by advising the Board that “the SOA may add to the Common Elements via lease of the SCC  …” and “….making the membership a specific term of the lease”.  It should be obvious the SOA Board chose this approach so as to preclude a homeowner vote.

Somersett United also contends that the SOA Board financed the $15/mo/unit of homeowner assessments payable to the SGCC using Surplus Funds so as not to raise current homeowner assessment levels, which would have raised serious objections  SU believes this is in violation of NRS 116.3114 which states “Unless otherwise provided in the declaration, any surplus funds of the association remaining after payment of or provision for common expenses and any prepayment of reserves must be paid to the units’ owners in proportion to their liabilities for common expenses or credited to them to reduce their future assessments for common expenses”. 

In response to this allegation, the SOA Board contended that the monies allocated to the SGCC did not originate from surplus funds.  However, it must have come from somewhere!  This is also contrary to the Board President’s (Blake Smith) interview with the Reno Gazette Journal in which he is quoted as saying that the community fee to the SGCC  “equates to just $15 per resident and is being taken out of HOA surplus funds”.  Suspect that Mr. Smith will now have a different take on this statement.

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