Don’t Let This Happen to Your Club & HOA – Get Control of the Club

Just last night I received an email from Colleen Malany, Secretary of the HOA Board of the Silverstone Community in Las Vegas, NV.   As this article shows, they’ve got a real problem.  They’re now in arbitration with the former owner of the club who ceased operations 4 years ago.

Two years and millions of dollars in legal fees later, not only do they not own the property but the (now fallow) golf course is an eyesore, would cost millions to rebuild and the homeowners are at considerable risk from declining property values.  What to do?

We’ve observed several HOA’s of late that find themselves in a tough situation.  The club amenity, often owned by a third party is struggling financially, the owner cuts maintenance budgets or delays improvements or (like Silverstone) threatens to (or actually does) close the golf course, allow it to go fallow and attempt to redevelop the land, leaving the community without the amenity.

HOA’s and POA’s need a plan.  If possible, the HOA or POA should be proactive and negotiate a purchase or contractual right to purchase the club.  The homeowners have too much at stake.  The potential loss in value to homes is likely to far exceed the potential assessment to each homeowner necessary to acquire the club.

First, the HOA must take an active interest in the club.  Retain a consultant to provide an objective analysis of the club.  Can the HOA get access to club operating statements?  If so, have them reviewed by a club industry professional who can evaluate the operation and develop an estimate of value.  Next, make detailed observations of the physical property.  Is there deferred maintenance?  Is the golf course in good playing condition?  Is the golf course infrastructure in good shape?  How old are the components of the club?  Depending on these observations, the HOA may want to consider pursuing an acquisition of the club.

The math behind a potential acquisition is often pretty simple.  How many homes are there in the community?  If the club fails and no longer amenitizes the community, how much real estate value will be lost?  If there are 400 homes and each loses just $25,000 in value ($10 million), it may well be worth each homeowner (or the HOA) coming up with some amount (probably less than that) to protect and preserve their property value.  Of course, every community is different, but the numbers usually support community acquisition of the club, sometimes even if the price exceeds the market value of the club.

Unfortunately, there are many communities where third-party club ownership of the club isn’t maintaining to the level consistent with homeowners’ expectations.  The focus of the homeowners and HOA shouldn’t be on battling with the club owner, it should be focused on gaining control (purchasing, if necessary) the club.

Given the considerable negative publicity about golf courses and clubs, many HOA’s resist club ownership with many residents simply complaining that they don’t play golf.  The majority of homeowners typically do NOT play golf.  However, they benefit from the added value the club imputes to their homes and thus should be willing to support the club.  If they’re not, what happened at Silverstone could happen anywhere.  Don’t wait until it’s too late!