Mediterra Advisory Board Letter 8-22-2009

The Advisory Board for the Members of the Club at Mediterra
Mediterra Recommended Solution
Executive Summary
August 2009
The destiny of the Community and the Club at Mediterra is squarely in the hands of the residents and members. We have an excellent opportunity to restore our community and our Club to its status as a premier private Club community with recreational amenities second to none.
All we have to do is stand together and seize the moment. This can be a win / win opportunity with little or no risk to any of us, unless we fail to stay united.
The solution crafted by the Advisory Board is simple in concept, but a bit more complicated in the detail. But it is eminently doable and at a cost that we believe you will find to be lower than your expectations, with an upside that is better than your expectations.
Of the many components of the recommended solution, we are certain that virtually everyone will find at least one aspect that discomforts them. But we urge you to consider the impact of the strategy in the aggregate. We hope that you will find that the overall balance of the strategy truly maximizes value for everyone. It must balance the importance to the community of an attractive, premier, and financially viable Club, the costs to the community to preserve that amenity, the cost to members who join the New Club, the attractiveness of the Club and the Community to future buyers, and an overarching sense of fairness to all.
End Objectives
Restore the very special experience of being a resident in Mediterra and a member of The Club at Mediterra that so many of us have enjoyed.
Stabilize and drive up real estate values for all Mediterra residents
Restore liquidity for resales and new sales of Mediterra properties for all Mediterra residents.
Ensure the availability of a financially sound, premium Golf, Sports, and Beach Club in order to ensure the long term liquidity and value of our real estate investments in the Mediterra Community.
Major Principles of the Plan
Participation by all residents, members and non-members alike in our community, to ensure the availability of an attractive Club offering, that in turn supports real estate values and active buyer interest in our community.
Bank Financing for the Club on attractive terms sufficient to make the Plan affordable for everyone.
An opportunity for all residents in Mediterra to join the New Club on terms far more attractive than any competitive alternative.
BBG has offered to sell all of the club assets including the Beach Club for $6.8 million in cash or $8 financed and the assumption of $15 million of CDD debt. This is essentially the same as the original term sheet. The only difference is that we believe we are now able to arrange relatively robust financing with Key Bank because of the strategy we will describe below. Early in our discussion with BBG, it became evident that the opportunity to achieve a significant reduction in purchase price was unlikely. Other BBG Clubs had a similar experience. We then turned our attention to developing a resolution that could work for the entire community.
The New Club at Mediterra would be simply unable to achieve financial viability without a strategy to deal with the CDD debt burden that falls on the Club. We have developed a platform that enables the Club to deal with that burden, provides a basis for affordable financing, and allows us to present a competitive Club amenities program in the marketplace for new buyers in the Mediterra community.
We have crafted a strategy that ensures the long term viability of the Club in our community and creates the opportunity for bank financing on terms not otherwise available.
Involvement of All the Residents and Members in Mediterra
We are asking all the Residents of Mediterra, club members and non-members alike, to share the responsibility for preserving the availability of a premier Club amenity offering to all prospective buyers. We want to do this by offering to everyone a new category membership called Social Membership. This is a voluntary decision on everyone’s part, not a mandatory assessment as would be the case if this were done simply through an HOA authority. We hope that each person will evaluate the merits of this plan and see the benefits both to themselves and to the community.
We ask each Social Member to pay an annual Amenity Preservation Fee (APF). The amount would be $1900 for coach homes, $2400 for villa homes, and $2900 for single family homes. The amounts are in proportion to property value because the basic purpose of the APF is to preserve the value of our investments in Mediterra. Simply put, this is what it will cost us to have a community that can offer a premier Club amenity. Without this, the cost in lost real estate value and liquidity is far higher.
The decision to participate as a Social Member is an individual choice that we must each make. In addition to supporting our individual and collective real estate holdings, a Social Membership provides the following tangible benefits:
· Year round privileges in the Mediterra Clubhouse and restaurant and off-season Beach Club access and dining privileges.
· The ability to purchase a Golf or Sports membership including the Beach Club
· For current resident non-members, incentive prices that are available for a limited time and make the cost of membership more affordable than at any time in Mediterra’s history.
The decision to participate in the Social Membership / Amenities Preservation Program must be made now. It is irrevocable and applies to all future owners of the property. A decision to forgo a Social membership now means that the current and all future owners of the property will not be eligible for any membership. This restriction will be included in the by-laws of the new club.
Current club members who become Social Members will be required to sign a Liability Waiver releasing both the New Club and BBG of liability of claims for initiation deposits paid to BBG or any other claims. We believe the vast majority of such members will choose to sign the Liability Waiver once they understand all the implications.
(See “Liability Waivers” on the website for details.)
(See “Social Membership” on the website for benefits, rationale, why it works for everyone, and the three unique strategic elements that make it a powerful solution component.)
Remaining Unsold Lots in Mediterra
Given the critical importance of getting new members to join the New Club at Mediterra to ensure long term viability, we had to find a way to ensure that we would have many opportunities to convert new home buyers into Club members.
It is likely that BBG will continue to own those lots after we take over the Club, though a prominent builder / developer continues in negotiation with BBG to buy those lots. We have asked for and received agreement from both BBG and the builder / developer to pay the APF regardless of who ends up with that ownership. The builder / developer has already agreed to pay the APF on the lots they already own in Mediterra. Once sold, the new owners take on the APF responsibility for any of these lots.. Their agreement to pay the APF is crucial to making the whole deal work. It ensures that the APF is attached to all of the unsold lots in Mediterra.
The other important by-product of our partnership with them is that BBG has agreed to turn over the HOA to the residents even though they may still own property in Mediterra.
Control of the HOA, in turn, is critical to our strategy, not just because it gives the residents control of our own community. It also enables another component of our strategy that makes the APF “run with the land”. This means that all future homeowners will pay the APF as well. (See “Social Membership” on the website to understand more.) It is precisely because so many future homeowners in Mediterra will share the burden of the APF and enjoy the benefits of the community that the APF preserves, that the cost to us, the current homeowners, is as low as it is.
Club Membership
Once the availability of the Club amenities in our community are assured on the basis of Social memberships and the Amenities Preservation Fee, we can now deal with the recapitalization, startup, and operation of a viable, financially sustainable Club offering to all.
Charter Members
Recapitalization Costs for current club members who join the New Club (i.e. Charter Members) are set out below.
Recap fee for Golf, including the Beach Club, is $19,000 refundable.
Recap fee for Sport, including the Beach Club, is $9,000 refundable.
Annual dues for golf will be $13,000 at 300 golf members or more in the New Club. If we get significantly fewer members, dues would have to go higher. We currently have about 360 golf members, including some on the resignation list
Annual dues for sports will be $5,900 if we get 90 sport members in the New Club. If we get significantly fewer members, dues would have to go higher. We currently have about 117 sport members, including some on the resignation list.
We have tried to keep dues close to where they have been but with inflation adjustment.
Social Membership is a prerequisite for any of the above categories.
Any member wishing to join the New Club in any category must pay to the New Club any dues in arrears and must pay up to $500 in support of the Advisory Board’s past expenses for legal and other fees if not already paid.
Current Non-Member Residents Who Become Social Members
(available for 30 days)
Fee Initiation Annual Dues
Golf $50,000 non-refundable same as Charter Members
Sport $20,000 non-refundable same as Charter Members
Dues will be same as for Charter Members above.
Social Membership is a prerequisite for any of the above categories
This 30 day offer is significantly less than the new joiner fees.
New Joiner Price Schedule (for 6 months)
Initiation Dues
· Refundable Golf Membership $110,000 $13,000
· Non-Refundable Golf Membership $70,000 $13,000
· Non-Refundable Sports Membership $30,000 $5,900
(Beach membership is included in both Golf and Sports Membership)
New Joiner Price Schedule after 6 months
Initiation Dues
· Refundable Golf Membership $135,000 $13,000
· Non-Refundable Golf Membership $85,000 $13,000
· Non-Refundable Sports Membership $40,000 $5,900
(Beach membership is included in both Golf and Sports Membership)
Refundability for New Joiners Paying Refundable Initiation Deposits
New joiners paying refundable initiation deposits will have a $20,000 capital contribution deducted from their initiation deposit. 70 % of the remaining balance will be refundable on a 3 in 1 out basis of future new joiners paying refundable initiation deposits.
Charter Members
We recognize that the majority of the Charter Members have paid as much as $180,000 in initiation deposits to BBG. We plan to return as much of that back to the Charter Members as possible.
Refundability occurs in two programs:
1. Refundability of Recapitalization Deposits **
All recapitalization fees for Charter Members will be refundable upon resignation, vesting in equal amounts over a 5 year period beginning after 2 years of membership.
2. Resignation Refunds **
All Charter Members who have made an initiation deposit to BBG and become at least a Social Member, will be entitled to some resignation refund, even if they resign immediately after signing up as a Social Member. See table below for refund amounts.
** Any Charter Member who paid little or no initiation deposit under a BBG “sales incentive program” will have no refundability.
It is important to understand that any and all refund payments for whatever reason are totally dependent on our ability to attract new members. It is only the initiation deposits of new joiners that will provide any funds to address the refundability program. So there are no guarantees whatsoever. It is important for you to review the “Financial Projections” document on the website to understand the assumptions underlying our expectations about future Club performance.
Charter Member Deposit Refund Resignation Program
Original Golf Deposit Original Sport Deposit
Year $180,000 140,000 120,000 35,000 25,000 20,000 15,000
2009,10 20,000 15,500 13,300 3,900 2,800 2,200 1,700
2011 23,000 17,900 15,300 4,500 3,200 2,600 1,900
2012 26,000 20,200 17,300 5,100 3,600 2,900 2,200
2013 29,000 22,600 19,300 5,600 4,000 3,200 2,400
2014 32,000 24,900 21,300 6,200 4,400 3,600 2,700
2015 35,000 27,200 23,300 6,800 4,900 3,900 2,900
2016 38,000 29,500 25,300 7,400 5,300 4,200 3,200
2017 40,000 31,000 26,500 7,800 5,500 4,500 3,500
Maximum Resignation Refund
Max 100,000 60,000 40,000 14,000 9,500 7,500 5,500
The table above works as follows:
The column headings refer to the original initiation deposit you paid to BBG.
The 2009,2010 row shows the refund amount you would be eligible for if you resign immediately after paying the APF and signing the liability waiver. Each row thereafter shows the refund amount you would be eligible for if you resign in that year.
These eligible refund amounts would be paid out 50 % within 90 days of resignation, and the other 50% would be paid at 10% a year for 5 years.
None of these intended refund payments is guaranteed in any way. It will all be dependent on the availability of capital derived primarily from the receipt of new member initiation deposits to fund the programs.
We know some of this may be difficult to follow and we plan to add a series of examples to the website in the days ahead to help you understand how refundability works.
Member to Charter Member Upgrades or Downgrades
Members who choose to downgrade from golf to sport when they rejoin the new Club as Charter Members will be asked to pay the $9,000 recapitalization fee for sport, and their refundability eligibility will be based on the $35,000 level of initial BBG deposit for Sport unless they paid less than $35,000 for a discounted golf membership.
Members who choose to upgrade from sport to golf when they rejoin the new Club as Charter Members will be asked to pay the refundable $19,000 recapitalization fee for golf and an additional $25,000 nonrefundable. Their refundability eligibility will be based on their original refundable initiation paid to BBG.
HOA
The HOA will be turned over to the residents of Mediterra.
Liability Waivers
It is a prerequisite of our deal with BBG that we get a very large % of our members to sign Liability Waivers. We have a very good plan to do exactly that.
The strategy we have put together to achieve this solves many challenges, including “Successor Liability” (see “Legal Issues” on the website). The strategy is crafted to incent a very high % of members, whether joining the New Club or not, to sign the Liability Waivers.
Those who don’t sign the Liability Waiver run the risks described on the website. (See “Liability Waiver Strategy” on the website.) We sincerely hope everyone will see that we have a great opportunity to restore every aspect of the Club life in Mediterra, and to create a unity and bond among all the residents and members in Mediterra that sets our community apart as a special place to live.
(See “Liability Waivers Strategy” on the website)
Definition of a Done Deal
In order to have this strategy become reality, we need to achieve the following:
- enough property owners committed to join as Social Members and sign up to pay the APF (Amenity Preservation Fee),
- enough people join the New Club to provide sufficient capital and cash flow to make the Club financially viable
- enough members signing the Liability Waivers to permit the deal to be done outside of bankruptcy.
We expect that something over 80% of current members rejoining will be enough to do the deal, but we will run the financial model to determine if we have enough to avoid a capital shortfall in the future.
We expect that we will need over 95 % of the Liability Waivers to be signed to do the deal pre-bankruptcy, rather than in bankruptcy.
We will notify everyone as soon as we have sufficient deal acceptance to get us across the goal line.
If we don’t get there, everyone who sent in their checks for whatever reason, APF or membership category, will get their money back from the lawyer’s escrow account.
Bank Financing
Because of the strategy described above, we are better able to negotiate bank financing. The banks believe that our strategy has in fact created a higher quality credit for them than a simple mortgage loan, which they would not be willing to do.
We are targeting a 6% loan with a 20 year amortization schedule and a 5 year balloon. We have negotiated with them using a promise that we will use that bank to hold our operating capital and accounts if we can obtain the loan on favorable terms
Although we believe that our efforts to secure debt financing from a bank are progressing well and likely to conclude positively in the next few weeks, this is not yet a done deal. So the possibility remains that we might come back to the members to determine who would be interested in providing a share of debt financing to the Club, secured by the Beach Club, at above market rates, for a defined term and in defined minimum principal amounts.
We don’t expect that but it is always good to have contingency plans.
Financial Projections
(See “Mediterra Model Key Assumptions” on the website)
Based on the key assumptions in the model, and the targeted recap fees, dues, and new joiner costs, we would expect the following:
· Our capital base would reach its low point of $3 million in 2011. This is an important parameter for the bank financing eligibility.
· Operational Income including new initiation fees goes positive in year 2.
These estimations could change depending on the final terms of debt financing.
Other Subjects of Importance
There are a number of other important subjects for you to understand in order to make an informed judgment as to joining the New Club at Mediterra. They are documented on the following website locations:
“Mediterra in Bankruptcy”
“Tax Issues”
“RCS” Resource Conservations Systems
“HOA”
“Legal Issues” including
- “Litigation Alternatives”
- “Spreader Lien”
- “Successor Liability”
- “Preference Risk”
- “Ponzi Scheme Outcome”
Other Solution Components Considered
We considered a number of other solution components.
(See “Other Solution Components Considered” on the website)
“Beach Club in the HOA”
“Negotiations with CDD Bondholders”
“Equity Financing”
“Other Member Proposals”
“Other Developer Ownership”
Voting
Voting “yes” to join the New Club at Mediterra will mean that a current member who wishes to become a Social, Sports, or Golf member does so by writing a check for the appropriate amount and signing the appropriate documents.
The check will include either $1900 for coach homes, $2400 for villas, or $2900 for single family homes as the first annual payment of the Amenities Preservation Fee (APF) and the associated document describing that ongoing agreement.
Those who wish to become Golf or Sport members must include the appropriate recapitalization fee for that category in the amount of the check.
For resident non-members it will mean either $1900 for coach homes, $2400 for villas, or $2900 for single family homes, as the first annual payment of the Amenities Preservation Fee (APF) and the associated document describing that ongoing agreement, plus the initiation fee for any category of membership in the Club available to them in the special 30 day window.
For members of the current Club at Mediterra, it will also mean signing the Liability Waiver. This is not required for non-member residents.
To close the deal, we will need the checks and the documents. Votes without these components won’t be enough to let us close the transaction or secure the Bank financing.
If you send in your check, and we do not get the deal done, your checks will have been deposited in an escrow account managed by the law firm, and will be returned to you in full.
Retrospective on The Advisory Board Guidelines
When the Advisory Board first took up the challenge of trying to restore our community to its rightful standing as a premier living experience in Florida, we asked many members for their thoughts on guidelines we should rely on as we tackled the problem. Here is what we heard:
* Resolve it quickly
* Preserve our lifestyle
* Include everyone, be fair
* Restore real estate values
* Trade off short term financial success for longer term financial stability (charge more recap or dues if necessary to get us going)
* Protect resident non member interests also
We hope we have been true to these guidelines.