On June 7th of this year, I wrote in this space about the need for clubs to address deferred maintenance and develop capital plans. Little did I know how prophetic that might be when on June 24th the Champlain Tower Condominium collapsed, in Surfside, FL killing nearly 100 people, injuring many others and seriously impacting the lives of surviving residents of the tower’s 136 living units. As we all now know, the HOA knew of and ignored deferred maintenance of the structural variety and the results were tragic. Time will tell if legislation is enacted to fund and make such repairs to avoid future tragedies, especially in residential living units. Many condo developers and HOA’s seek to keep monthly maintenance fees low to enhance sales and resales, often resulting in inadequate reserves.
Clubs have a similar problem. It’s not at all uncommon for member-owned golf and country clubs to balance budgets, fund pet projects or maybe add to the golf course maintenance budget while ignoring the necessity of long-term capital reserves needed to address the “less-sexy” items like replacing the roof, HVAC, repaving cart paths, rebuilding bunkers or replacing an aging irrigation system. Even structural and other infrastructure are often overlooked as club boards tend to “kick the can down the road” preferring to pass on the obligations (and cost) to the next generation of club members. While not often considered as physically dangerous as a residential building, just imagine what could happen if a structural failure occurred during a crowded club event or a storm damaged a less than sound structure. Disaster could strike.
With clubs, it’s kind of like the old “pay me now or pay me later” concept. If clubs budget and prepare for the inevitable replacement of these critical, but not “sexy” infrastructure items they’ll be prepared when it’s time to act. The club can avoid typically unpopular assessments and avoid long term deterioration of the club combined with excessively increasing costs of membership. Not a good combination.
Private clubs, like HOA’s are notorious for avoiding assessments and the capital needs suffer as a result. My dad always used to say that “the longer you let a problem go the bigger it grows.” When clubs defer funding capital needs this couldn’t be more accurate. Not only does the club lack the funding to take care of the problem, but now they have to establish a reserve fund so that the next cycle doesn’t require assessments or the need to incur debt to pay for the needed improvements as well.
As I stated in my June 7th piece referenced above, there are both mandatory and elective items. However, from a funding perspective they’re all mandatory. In the ever competitive private club environment, not only do clubs have to keep the infrastructure in good shape but from a competitive standpoint facilities often require upgrades to keep up with other clubs and maintain a stabilized membership.
While member-owned private clubs aren’t often thought of in terms of market value and sale, most of the clubs that sell, do so because they can’t afford the improvements and suitors often guarantee capital investment as part of the deal, which often results in a less than attractive (to the club) sale price. The club becomes a motivated seller and the value declines.
I suspect (and hope) that the Florida condo collapse will encourage more clubs to either “bite the bullet” and establish adequate reserve funds (with associated higher dues). They could also avoid the higher dues and potential assessments and simply throw up their hands, selling to suitors who guarantee capital investment. No longer is it only financial considerations, but also the risk of a tragic disaster like Surfside is now a consideration.
There are many clubs aware of irrigation systems that need to be replaced, kitchens that require redoing and HVAC systems that need to be upgraded. Not attending to these issues before they become problems can become disasters financially, legally and personally.