By MELODY JAMESON
SUN CITY CENTER – As residents here continue to debate the upgrading advantages and debt-generated disadvantages of a proposed $3 million building program, other authoritative views are surfacing.
Documents obtained by The Observer reveal the findings by a local attorney concerning resident responsibilities if prospective financing of the project is undertaken with a bank loan as well as the details of an agreement that would add about five acres to the building site in exchange for concessions by the community. And, local Realtors are offering their perspectives from the front lines of home sales. These considered viewpoints cast fresh light on critical aspects of the potential capital improvements.
In a nutshell, the retirement center’s Community Association directors have proposed construction of two new buildings on its Central – and original- Campus. They state the new structures would add needed meeting and entertainment space, expand crowded community service business offices, provide a café with wine and sports bars, plus bring a fresh look to the aging campus.
With an estimated construction cost of $3 million in today’s dollars, the expansion project is to be financed with a 5 percent, $2.4 million bank loan repaid over 10 years from the transfer fee/capital improvement fund which collects $1,500 on each home sold to a first time, incoming buyer. CA directors have stated the fund balance now exceeds $1 million of which $600,000 would be applied to the construction project.
Using conservative home sales figures, the directors have calculated that annual sales would generate a minimum of $360,000 per year or more than enough revenue to handle a debt service of about $306,000 (principal payment and interest) on the loan each year. The total interest amount paid over the decade would be about $650,000. In other words, the renewed campus ultimately would cost the CA a total of $3.65 million.
It is on this basis that James P. Hines, Jr., a partner in the Tampa and SCC law firm of Hines Norman Hines, P.L., examined the financing from the resident’s vantage point. In a letter to the CA, Hines pointed out that “The Association and its members are legally not the same.” Even though the CA imposes membership dues and can obtain liens if those dues are not paid, it still is and remains a separate legal entity, Hines emphasized. And payment of member dues, required regardless of any building program, does not mean members legally own the association nor does voting input mean members are personally liable for a CA loan.
Consequently, the attorney continued, CA members would not be responsible for any loan taken by the association. For a CA member to incur any personal liability for a CA debt such as the building loan, the member would have to agree in writing by signing a promissory note or personal guaranty, he added. A lender involved in an arrangement such as the proposed loan is not going to seek or require any such commitment from members, Hines said.
Similarly, the loan would have no legal impact on CA members’ homes such as clouding their titles if it were not repaid, he noted. Members’ homes are not pledged as collateral and could not be seized, then sold to satisfy the debt because the lender would have no such authority.
Hines also asserted that, under Florida law, CA member homeowners would not be obligated to disclose the CA loan when selling their homes. After all, he said,” (A) the seller is not personally responsible for the repayment of the loan and (B) … the lender will not hold a mortgage on the seller’s home.”
As an analogy, Hines cited the common situation involving a church and its membership. When a church obtains a loan, its members are not personally liable for the debt, he said. CA members will not be co-signers if the CA obtains a construction loan and, he summed up, “Association members will not incur any potential liability to the lender, to the Internal Revenue Service, or to any other entity, as a result of the Association obtaining a loan.”
Most local Realtors contacted by The Observer also see the proposed financing as more advantageous than not. Jay Sparkman, of Sparkman Marshall Realty Inc., noted “it’s the way things get done,” adding the financing plan “ would not mortgage the future.” Richard Cohen, managing broker at Prudential Florida Realty, termed the loan financing “the best way.” And, Gary Kaukonen, broker in the Keller Williams Realty Sun City Center office, called the financing plan a result of “good business sense” promising community assets that “are needed now.”
On the other hand, Marge Connolly, broker at A1 Connection Realty, admitted she had concerns about creating the indebtedness and would have preferred a plan that called for building in increments as monies accumulating in the capital improvement fund became available. She allowed, however, that she did not see the $300 added to the first-time buyer “transfer fee” as any drag on home sales. “It’s all in how it’s presented,” the veteran Realtor noted.
Her business partner, Marion Von Bargen, was the only Realtor contacted who foresees the fee increase potentially driving away buyers. The one-time $1500 fee for the first time buyer, coupled with two CA dues payments topping $500 and the $100 estoppel fee adds more than $2,100 to the cost of a home now, exceeding the $1,800 due at closing in 2011, she asserted. It’s a situation that especially hurts older residents anxious to sell in order to relocate to assisted living or move closer to family as stamina diminishes and health fails, she added. Von Bargen, who described herself as “very conservative,” wondered aloud what would happen if calamity struck and “there were no sales.”
The others, though, echoed Nancy Stanton, Realtor associated with Century 21 Beggins Enterprises, who pointed out that in order to attract 50 and 60-year-olds – the baby boomers – to 50-year-old SCC to purchase homes already well established, some polishing is required. “Sun City Center has so much to offer,” she said, “but it’s looking a little tired. We need to update in order to compete with others (communities).” In the long run, she added, the proposed building program is likely to enhance property values.
Cohen agreed that SCC is looking “ a little dated” and that the new buildings will lend an air of modernization to the community. He specifically noted the proposed café with wine and sports bar on the Atrium plaza and likened it to the “very popular” facility at Kings Point’s South Clubhouse. “Younger and younger people are buying and they want such amenities,” he asserted. Stanton, too, predicted the café would become “a gathering place” particularly attractive to baby boomers sizing up the community as their retirement home. These potential homebuyers, she suggested, do not have the interest in golf that the previous generation of retirees did.
Connolly, too, called the proposed café “a good idea” providing “a place to congregate’ that has been lacking on the north side of the community. She questioned, however, the perception that the new buildings would update or modernize the Central Campus appearance. They don’t “quite have a 2000 look; more like the ‘60s,” she said.
Kaukonen emphasized the importance of first impressions. This year, 2012, already is promising to be a very good sales year, he said. But, “Valencia Lakes, SouthShore Falls, The Villages all have wonderful visitor centers,” he asserted, suggesting that to be in the resale game, SCC now needs something of the same caliber.
Asked for his view of the “pay-as-you-go” approach to eventually acquiring more campus assets and more community use space, Ed Barnes, CA president, said “it’s entirely possible, too possible, that stringing the building program out for 10 years would cost more.” As the recession lifts and business is stimulated, construction costs are going to rise, he noted, and “then what was saved in interest will be eaten up or exceeded by the price of the delayed construction. The time to undertake this project is now when market conditions favor both low cost construction and low cost lending. Quite possibly, it’s the only best time we’ll have.”
Barnes also pointed to another aspect. If the capital improvements are done in a piece meal fashion, different future CA boards will have to contend with the planning, permitting, construction, oversight, payment arrangements, temporary relocations, furnishings and all the other related functions each time a piece of the building program is undertaken, he emphasized. “I think it’s far better to handle the project as a whole now rather than burden future volunteer boards with the not-yet-fulfilled expectations.”
And if a major catastrophe should occur – of Japanese Tsunami proportions – and no one moved to Florida and the market collapsed and the capital improvement fund depleted,” Barnes concluded, “we’d have problems much worse and concerns much greater than the bank loan.”
Copyright 2012 Melody Jameson