Pasadera sign of times...from press release

[Wayne_Freedman]

PASADERA COUNTRY CLUB FILES FOR REORGANIZATION UNDER CHAPTER ELEVEN

 

MONTEREY, Calif. - February 5, 2009 - Pasadera Country Club, LLC announced to its membership at a meeting held Wednesday, February 4th its intention to file for reorganization under Chapter 11 of the US Bankruptcy Code. The filing affects only the Golf Course and Club facilities.

 

The club features the only Jack Nicklaus Signature golf course on California's central coast, and represents the exclusive design effort by Mr. Nicklaus on the Monterey Peninsula, universally acclaimed as the golf capital of the world.

 

Club facilities designed for family use include an expansive 38,000 square foot Spanish-style clubhouse as well as first-class dining, lounge and locker room areas, a fitness center with an adult lap pool and outdoor spa, a state-of-the-art aquatic center and tennis complex with three distinct aquatic areas and five tennis courts.

 

The Club offers a variety of memberships including a "Golf Membership providing full access to all Club facilities and amenities, a "Corporate Membership" for commercial enterprises, an "Associate Membership" aimed at younger members, a "Social Membership" providing access to the tennis and swim facilities, fitness center, dining, clubhouse and all social related events and activities, and a "National Membership" for those not living in the area. The Club has approximately 276 active members in the various membership categories. Since October 2006, 98 new members have joined or upgraded their memberships.

 

Pasadera Country Club, LLC. invested approximately $40 million in the development of Pasadera Country Club. "Our commitment to our members is first and foremost", said Tom deRegt, a Pasadera Country Club, LLC. founding partner.

 

Pasadera Country Club will continue providing the highest level of quality service for its members and guests. "We are hoping

[Tom_Doak]

Just curious ... how does Chapter 11 work at a private golf club?

If someone else takes it over do they have to honor previously sold memberships?  (I'm sure they would want to keep most of the existing members for cash flow reasons ... but if they don't charge them another joining fee to stay, where do they recoup their capital?)

[Tim Leahy]

I thought that Trump was buying the place because it was so close the airport. Maybe they need to open to the public a couple of days of the week. Tie into the NCGA.

[jeffwarne]

I'm just shocked that with such words describing the amenities as  "expansive"
"first class".and "state-of-the art" -that they couldn't make it

at least the course was an "exclusive design effort"

I'm guess I'm going to bill my clubhouse as "tiny", "second class" (maybe "coach" sounds better) and "simple" (or antiquated)?

methinks some brochure writers are going to be looking for work soon

[Joel_Stewart]

Just curious ... how does Chapter 11 work at a private golf club?

I'm wondering that as well.   Chapter 11, I believe is a reorganization of debt unless the lenders (probably banks) don't want to reorganize and take control of the property??? 

The article only says what they invested ($40 million) and doesn't say what the current balance is?  There are not to many people buying these types of properties, unless they can buy it for cents on the dollars.

[Peter Wagner]

Just curious ... how does Chapter 11 work at a private golf club?

If someone else takes it over do they have to honor previously sold memberships?  (I'm sure they would want to keep most of the existing members for cash flow reasons ... but if they don't charge them another joining fee to stay, where do they recoup their capital?)

Tom,
A lot would depend on how the memberships were sold and what kind of contract was signed.  If it was the somewhat standard 80% equity type then those memberships are probably unaltered with Chap 11.  I have always looked at this type of membership as a contingent liability and as such it's just another form of zero interest debt but I don't think a Chap 11 judge would view it the same way.

Chapter 7 would wipe all memberships out and the new owner would start with a clean slate and some pissed off former members.

The problem with Chapter 11 in a case like this is convincing the members that the new plan will somehow make a profit when the old one cratered.  The members are most likely inclined to say, uh no, and put their names on the sell list which creates an even bigger financial burden.

For Chapter 11 to work it would require either:

A.) Selling enough new memberships to wipe out the sell list PLUS maybe 50-100 more or;
B.) Convincing existing members that a new class of lower priced memberships is in their best interest or;
C.) Convincing existing members that going to semi-private is in their best interest.

A,B, & C are all pretty daunting tasks. 

The larger problem is that it's really really tough to make a profit when you've spent $40M on a course and clubhouse.  How many swimming pools?

Just my 2 cents.

PS.  Don't forget that under Chap 11 the existing owners retain their ownership - the club isn't turned over to a new buyer.  Chap 7 wipes all ownership out and a court tries to sell what's left to the highest bidder.

[Kevin_Reilly]

The fact that the entity that filed for Ch 11 is an LLC makes me believe that this isn't an equity membership club.  It was an LLC that developed and financed the club, and the members of the club are non-equity.  Given that the LLC is insolvent, it must have a large debtholder that now wants out.

To emerge from Ch 11, they need to find a replacement source of financing for the original debtholder.  In today's market, that will be VERY difficult.  Many companies have failed to emerge from Ch 11 because DIP and permanent financing is hard to find.  I can only imagine that finding a permanent capital source for this club will be particularly difficult.

[Kevin_Reilly]

PS.  Don't forget that under Chap 11 the existing owners retain their ownership - the club isn't turned over to a new buyer.

In a Ch 11, the existing equity holders (in this case the members of the LLC) have their interests wiped out.  It is the secured creditors who own the business now.

[SB]

Unless the filing is associated with other development financing, golf courses generally don't have complicated debt financing, limiting the usefulness of ch 11.  As Kevin points out, it just means they need to find new financing, which will be difficult, even more so while in bk. 

There is often confusion over what an "equity" membership is.  There is true equity, where the members own the club in some structure.  There are "refundable" or "transferable" clubs, often incorrectly called equity because the member gets something back, but they don't have an ownership stake in the club.  Then there is non-refundable memberships where the member gets nothing back and has no ownership. 

Regardless, foreclosure wipes out members' rights in most cases because, 1) in true equity, they are owners who lose ownership to the lender.  2) In the case of transferable or refundable memberships, they are unsecured creditors who must convince a judge why their rights should supercede the secured lender.  3) Non-refundable members have almost no standing whatsoever. 

In any event, the details of the loan documents and possibly other documents are critical.  For example, if the development rights limit the operation to a private golf club, the lender has very few options other than to keep it a private club which means they need to work with the existing members.  This is why lawyers get paid the big bucks.

[Tom_Doak]

I know that the late Jack May, founder of Stonewall, told me that every time he heard of a club claiming it was a "true equity club" he requested the documents to see ... and they never really were!

Stonewall was set up as a Limited Partnership, so that young potential members could invest IRA money to buy their membership if they wanted to.  In doing so, their membership sales are regulated by the SEC ... they could not refuse to sell a membership to anyone, until the club was full ... that's why most don't go in this direction.  The paperwork is a hassle, too, but that was Mr. May's day job so he didn't mind.

[Peter Wagner]

If you look up Pasadera CC on Google Earth you will see that it's right next to Laguna Seca Raceway.  I wonder if there might be some sort of potential synergy with a race track as a neighbor?

[Kevin_Reilly]

Stonewall was set up as a Limited Partnership, so that young potential members could invest IRA money to buy their membership if they wanted to. 

So the club membership is an investment of their IRA?  I hope anyone who did that doesn't need to be vetted for a Cabinet position -- I don't think that approach won't work under IRA self-dealing/prohibited transaction rules etc. 

But, I could be wrong and my crappy Schwab IRA could be getting better use owning an interest in a club than staying invested in the market.   

[Joel_Stewart]

They filed officially today.  Only the CC is effected which is amazing since they have sold 276 active memberships and are losing $1 million per year.




Monterey's Pasadera Country Club files for bankruptcy protection, citing $1 million in annual losses
By Marie Vasari


Monterey Herald

Posted: 02/06/2009 07:52:55 AM PST


Citing annual losses of more than $1 million in recent years, the owners of Pasadera Country Club plan to file for bankruptcy reorganization today.

Monterey-based Pasadera Country Club, LLC, had been in discussions with the Trump Organization last year about a potential sale, but the deal fell through in December over loan conditions and the threat of lawsuits.

Several other buyers expressed interest in the operation, but declined because of the risks of litigation, said David Armanasco, whose Monterey firm, Armanasco Public Relations, Inc., was handing inquiries.

Since opening the private golf course and country club in 2000 at Pasadera, a 375-acre luxury community along Monterey-Salinas Highway, its owners have invested more than $40 million in the venture, he said.

The bankruptcy filing won't affect operations for club members, said Armanasco, and staffing levels will remain intact.

Golf and club operations include the 18-hole Jack Nicklaus Signature golf course, a fitness center, a pool and spa, tennis courts, a restaurant and club facilities. The residences are not affected by the filing.

Pasadera Country Club's primary creditor is Rabobank, which is owed approximately $8 million, said Armanasco, but he said the group is current on its loan payments.

The goal, he said, is to allow membership operations to continue normally while the partners work to find an investor or buyer to take over operations.



The owners met with club members late Wednesday to inform them of their plans.

"The primary issue here is that the founding partners that make up the ownership group want to do everything that they can to preserve the membership position at Pasadera.

"Our commitment to our members is first and foremost," said Tom deRegt, a Pasadera Country Club founding partner, in a prepared statement. "We are hoping the reorganization will enable us to find an investor or buyer for the property who will serve as a steward to complete the dream we have started."

The golf club has 276 active members in various membership categories, Armanasco said.

Golf clubs aren't immune to the flailing economy. Since the fall, several members ceased paying monthly dues.

"It's really a result of the economy," Armanasco said.

The club's owners raised monthly dues last year, he said, but decided to roll back the increases because of the tough economy.

[Neal_Meagher]

If you look up Pasadera CC on Google Earth you will see that it's right next to Laguna Seca Raceway.  I wonder if there might be some sort of potential synergy with a race track as a neighbor?

Actually that was planned at the very beginning, sort of.  As a condition of approval by Monterey County due to traffic and other issues, the plan was to use the practice range as overflow parking for the race track.  In our preliminary studies we had to make estimates of how many cars could be parked on as much of the available land as possible since the range abutted the Monterey-Salinas Hwy for ease of access.

I recall that we were able to exempt the target greens from being parked on by placing temporary fencing around them.  I also seem to recall that this would not occur more than about 4-6 times per year, still a great inconvenience.  As our firm was dismissed by the current owners in 1996 (I had worked on the project since its inception in 1989) I can't say for sure if or how this condition was removed.

So, in general terms, that was a form of synergy, although politically/governmentally dictated rather than truly business related.

[Tom_Doak]

Kevin:

Trust me, the Stonewall membership is a legal investment that qualified for an IRA ... Mr. May was a very good lawyer and did whatever he had to do so it would qualify.  It may be the only club in America that would qualify, though. 

I doubt that more than a few of the members joined under that rule, but the idea was that it would make joining more doable for young couples who stashed away all they could in their retirement plans and didn't have so much free cash.

[SB]

Tom,

The membership structure at Stonewall is very unique and the only other club that I have heard of that used something similar was Lookaway, also in the Philly area, although I don't know that for a fact.  You are also correct that in most "member owned" clubs, the members do not hold a direct financial interest.  That could create some accounting and legal nightmares.

[Kevin_Reilly]

Just looking at the SEC filings for Stonewall (a Reg D filing)

http://idea.sec.gov/Archives/edgar/vprr/03/9999999997-03-023618

and Lookaway - which had over 100 LP's and had to file with the SEC

http://idea.sec.gov/Archives/edgar/data/1009378/0000950116-98-000756.txt

makes me think it was a lot of work just to allow for someone to use their IRA as the source of an membership fee.  Probably why there are very few examples of this.

To add to this, the membership interests held in the IRA would need to be valued each year/every year...something that would make it hard to get a trustee for the IRA (unless they have substantial other assets managed by the trustee that makes it worth the trustee's time to do the IRA, but that conflicts with the notion that the buyers need to tap their IRA's for the membership fee). 

I'm probably missing something, but anyway, with above public filing attachment of the prospectus for Lookaway, at least you can see what the financial arrangement was with architect Rees Jones and the club's pro Sandra Palmer (among other things).  Interesting reading, though dated now.

[Steve_ Shaffer]

Aren't  Applebrook and Fieldstone also  limited partnerships?



http://www.applebrookgolfclub.com/history.shtml


http://www.fieldstonegolf.com/About-Us_59fab98c36fd83e0eac3c87.html

[Tom_Doak]

Steve:

I don't know anything about Applebrook or Fieldstone.

Kevin:

If I remember right, Lookaway was founded by a guy who was a partner in Mr. May's law firm, so it's not surprising they had a similar set of documents.