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KINGS POINT - At a crossroads of historic proportions, this condominium community of some 9,000 residents is keeping all its purchase options open.
Before the year is over, however, leaders hope a resident majority will have set a clear course to acquisition of its multi-million dollar recreational amenities.
In the meantime, the community’s principal governing authority, the KP Federation’s board of directors, has voted to pursue simultaneously two general approaches to the objective, in the process mining information necessary for weighty decision making.
Basically, one path leads to creation of a non-profit KP recreation district able to issue bonds, thereby raising monies to pay for and maintain facilities including two large, luxurious clubhouses and five swimming pools. This concept was outlined for residents last week by Jerry Starkey, CEO of the current community developer, WCI Communities, Inc.
The other takes them to one or more lenders for a conventional loan to buy out interests of the developer that built, owns and leases those recreational features to them. This approach was touched on by the community’s lead litigation attorney during an open federation board meeting on Friday.
Either way, in terms of costs to the community, hard dollar figures are far from pinned down. But, a ceiling of sorts - $50 million - may have been tossed out by Starkey in connection with the recreation district discussions. Similarly, a floor may have been established by Gary Poliakoff, one attorney pressing the community’s case against the developer concerning recreation lease purchase rights. The appropriate purchase price, he maintains, is the same $20 million price tag residents were denied a chance to accept or reject when the developer allegedly transferred amenities ownership illegally several years ago.
What is the true market value of all of the elaborate facilities - excluding golf courses – the land, structures, equipment, furnishings? What is the real cost of maintaining, refurbishing, insuring, managing them? This is part of the great unknown; such computations are yet to be calculated.
On the other hand, weighing into the considerations are certainties such as the monthly fees residents pay for use of the amenities that increase with regularity and the sure departure of the developer in the foreseeable future, whether due to build-out or to financial strains stemming in part from slowed sales. The one area of agreement for both the potential buyers and the poised seller is that acquisition by the residents is key to controlling costs in the years ahead.
Starkey emphasized the point in his presentation to residents on recreation district formation. The current lease, effective through 2072, allows increases in the fees paid by residents of 10 percent annually, he noted. But, with establishment of the district, property owners’ payments in the future would “be reduced significantly,” he said.
In support of this position, the corporation executive offered financial snapshots based on five, 10 and 30-year outlooks. The projections also are based on several assumptions, including issue of bonds raising a total of $57 million - $50 million to buy the facilities and another $7 million to cover a variety of associated costs and expenses.
Another basis of the projections is pay off of resident’s share of the bonds through either of two options: a one-time capital payment of $10,000, leaving only an estimated $579 owed annually for operating expenses and reserves or an annual payment totaling an estimated $1,304. It includes $725 applied to the capital plus the $579 for operations and reserves. The latter annual amount - $1,304.00 – is a few dollars less than the accumulated or annualized monthly recreation use fee of about
$110 that residents currently pay under terms of the lease agreement.
Using the estimated annual payment of $1,304 as a baseline beginning in 2007, Starkey projected that this figure would increase by just four percent in five years – to $1,355 in 2012. However, the same baseline figure over the same period of time morphs into $2,100 – a 61 percent jump over the five years – when the annual 10 percent allowed under the lease agreement is applied.
Similarly, over the 30-year life of the bonds, the $1,304 baseline amount increases to $1,872 or by 34 percent after three decades. Comparatively, the annual baseline amount increased by 10 percent each year as permitted under the lease becomes a projected $22,751 per year after 30 years.
What’s more, upon maturity of the bonds, residents would be obligated only for operating and maintenance costs. And, Starkey pointed out, the obligation runs with the unit, with either the lesser cost incurred under the first payment option or the greater cost under the second option assumed by successive owners.
In response to questions following his presentation, the WCI executive suggested that if residents do not acquire the amenities, the facilities could become the property of an unknown third party. Additionally, he asserted that while creation of the recreation district would give residents control of their amenities, it would not force opening them to public use. In short, Starkey called formation of the district a “compelling alternative.”
Poliakoff, though, didn’t portray the recreation district in the same terms when he spoke during the federation board meeting. The attorney, a partner in the Ft. Lauderdale-based law firm of Becker & Poliakoff which specializes in condominium law, told the group he has assisted literally hundreds of condo communities with purchase of their recreation facilities and “maybe four of them were recreation districts.”
He emphasized again the basic premise of the year-old litigation that the developer ignored a clear obligation to the KP community under Florida’s well-settled condominium law. WCI should have given residents first shot at any purchase opportunity when it purportedly transferred the KP amenities to a subsidiary corporation in 1999. The developer failed to meet that obligation, violated state law and is accountable to the community for that violation, he reiterated.
The attorney acknowledged that there may be some changes in the intervening seven years that affect dollar amounts and that pertinent figures are not yet known, but added that a reasonable price today “is significantly lower than the $57 million” proposed by Starkey.
He also pointed to the value of the on-going litigation, saying “it takes two to tango” and after nearly two years “WCI has come to the dance.”
A logical move toward arranging a conventional purchase by residents through a lender - and one Poliakoff made clear could be most useful in court – is commitment to do so by two thirds of the community’s unit owners.
The next step toward formation of the recreation district is drafting a signature petition calling for its establishment by 50 percent plus one of the estimated 6,000 registered voters owning units in KP.
The board voted unanimously to proceed along the dual tracks, agreeing to begin planning a broad-spectrum information campaign advising residents of details involved in the different approaches and using the full range of communications tools available.
Even as the community’s lawsuit proceeds slowly and explorations related to a conventional loan are ongoing, the board continues to keep open lines of communication with the developer, said Wayne Musholt, retiring president of the current federation board. Board members also met this week with one of the county’s budget and management analysts to learn about a possible variation of the recreational district. The aim, he added, is acquisition through the most advantageous means by the end of 2007.
Poliakoff told The Observer early this week he’s working on documents concerning outright purchase he hopes to present to the community in the next few weeks. The community’s cohesive move to acquire its amenities, he added, probably is historic in view of the large number of residents involved.
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