Joe's Gypity Do Dah Song to
Deer Ridge Owners
Update: We now have a copy of
Joe's actual Gypity Do Dah offer. Click
Gyp to see Acrobat version.
All owners have now received their copy
of Vic the DICtator's information gathering memo (please never confuse
his communications with anything implying that you actually have a right
to vote on issues involving your property at Deer Ridge!) You also got
Joe's self-serving, biased, feel-good analysis of his own deal!
If you want to see a REAL analysis of
this low ball potential sale that is attempting to gyp the HOA out of
hundreds of thousands of dollars, please read the following email that
was sent to all Board members, reminding them of their fiduciary
responsibilities to ALL owners!
(Want to see what some of your fellow
owners are saying in response to the following letter?
Click Owners' View!
)
Email / Letter To Board
With Analysis of Joe's Offer to Buy RML
Date: Sun, 29 Oct 2006
To: board@deerridge.com
From: Robert <robert@deerridgeowners.com>
Subject: Sale of Deer Ridge Management Company - Issues and Concerns
Cc: "V.C. Uhlman" <vicscondostuff@yahoo.com>, Margie Duncan <mickmargie@cs.com>,
Michael Lee <runcpa@aol.com>, dcoogle123@hotmail.com, tomtrip@earthlink.net,
"Deer Ridge Mountain Resort" <manager@deerridge.com>, "NEIL BLAIR"
<openroad12@hotmail.com>,
To All Owners and the Board of Deer
Ridge:
I've reviewed the scant information that
was forwarded to owners with regard to the potential sale of Ridge
Management, Ltd. (RML) to Joe Thomas, our current general manager. While
I agree that the sale of RML is desirable and, in general, makes sense
for the owners...and Joe is probably as good a buyer as any, I have
MAJOR issues and concerns over the current deal and how it is valued and
structured.
- Firstly, I see Vic is taking
his normal approach of "informing" the owners but not letting them
vote on crucial issues. This is a major sale of HOA assets and ALL
owners should have a direct vote...not just a quick chance to voice
an opinion!
- Vic's letter is dated October
9th. I received my copy in the mail 2 days ago on October 27th. The
letter states that the Board will discuss and vote the issue on
November 16th. This gives all owners a little over two weeks to
review the information, ask questions, and respond to Vic's, "We
Would Like Your Input" form that is carefully crafted to only ask
three generic questions. As an owner, I demand that ALL owners
actually get to VOTE on this issue before any binding agreement is
made.
- Vic's and Joe's letters make
note of the fact that the Board "WILL" draft a letter to ALL local
management companies in the Gatlinburg and Pigeon Forge market
soliciting offers "that meet the same specifications as Joe's
offer..." If this was just sent, how will other companies
realistically have time to review the opportunity, complete any
inspections, perform proper due diligence and make a competitive
offer BEFORE your November 16th meeting? This strikes me as specious
and a sham and as an owner, I demand that you provide me a copy of
this letter that WAS already sent.
- Also, why constrain other
management companies to match the offer made by Joe when there are
near infinite ways to structure a deal?
- The ONLY documents sent to
all owners was a one page cover letter by Vic and a self-serving,
biased, feel-good summary and analysis by the same person who is the
buyer! Where is a copy of the actual offer? Where is an analysis,
review and recommendation by ANY one on the Board??? As an owner, I
demand to see the actual offer documents submitted that contain all
terms and conditions since the devil IS in the details.
- Based on my background of
having been in real estate investments and property management of
$100 million of income property, I may very well be the ONLY current
owner who has ever actually sold a property management company of
size. As such, it seems that the Board would have consulted with me
with regard to the terms, condition and valuation of RML in their
attempt to price and sell the management company. Since it is still
not to late, please send ALL information regarding the sale to me
and I will be glad to, once again, contribute my extensive,
applicable experience for the benefit of all owners.
Vic's letter states in one place that this is a purchase of the
ASSETS of RML. Another place, in Joe's letter, states that it is a
purchase of the company. Which is it? There is a HUGE difference
between the two!!! Either way, what happens to the current assets
and cash in the company, which at the end of last year equaled
$56,000? What happens to the liabilities if Joe only buys the assets
of the company? Do the homeowners get stuck with the $187,000 in RML
liabilities that were on the books as of 12/31/05?
- One of the biggest issues is
Joe's offered purchase price of $100,000:
- Many companies including
property management companies are often valued at 10-12 times
forward-looking Net Operating Income. My intuition is that a
management company with an on site, captive audience like Deer
Ridge, that is already generating nearly $900,000 in annual
revenues, should be valued at an even higher multiple.
- According to Joe's own
budget that was handed out at the Annual Homeowner's Meeting,
the projected Net Operating Income (NOI) for 2006 is $33,000.
- This means that a
generally considered FAIR valuation of RML even using this
year's numbers would be $330,000 on the low end and $396,000 on
the upper end....not the $100,000 that Joe offered!!!
- With the cabin rentals
that are now being managed, this NOI, especially on a
forward-looking basis, should be even higher for next
year....thereby, probably raising the real value of RML to more
than $500,000 instead of the $100,000 being offered.
- I understand Joe has a
major conflict of interest here. Naturally, any time that I am a
buyer, I want to get the very best deal possible. But his
valuation is only ONE THIRD or ONE FIFTH the REAL value of RML!
I know he wants a steal...but this is a rip off of ALL owners!
- I, for one, would rather
that the HOA receive the extra $230,000 to $400,000 for
reserves....but, hey, what's a quarter of a million dollars, or
more, among friends, right?
- The RIGHT answer here is
not to take my word for it...or to accept Joe's figure. The
RIGHT answer is that the Board retain the services of a
certified business appraiser. The Institute of Business
Appraisers is the oldest professional society devoted solely to
the appraisal of closely-held businesses. Their web site is
www.go-iba.org/who.asp and they have two certified business
appraisers in the Knoxville area. It's probably worth a few
thousand dollars in fees to make sure that the HOA doesn't lose
$250,000 - $400,000 in purchase price!
- In my opinion, the Board
is blatantly violating its fiduciary responsibility to all
owners if it does not hire a certified business appraiser prior
to entering any binding contract with Joe.
- There is a statement in Joe's
letter that he is purchasing ALL assets, equipment, fixtures,
inventory, etc. Where is the list of assets being conveyed? Is the
contract so vague and open-ended that it include ALL assets that may
be related in ANY way to the operation of RML? Is it the $7,896
property, marked to cost, on the audited financials for last year
for RML? Does it also include any or all of the $81,600 equipment,
marked to cost, on the GGRC audited financials for last year, too?
EXACTLY what IS included in the purchase price?
- With regard to the terms, Joe
wants us to finance his purchase for him with a trivial down payment
of $10,000 which he may be able to pay for out of our OWN cash on
hand in the acquired company! I don't object to offering him some
level of seller financing on the deal, but this trivial amount is
nonsensical. Also, is Joe personally liable on this loan? What other
security or collateral is offered in addition to his personal
liability? This loan should not even be considered if Joe is NOT
personally liable AND we have sufficient, additional collateral. If
not, he could grab all the assets of RML for a measly $10,000 (paid
for out of OUR own money in the account)....operate the company for
a while....sell off the assets...and close down RML and walk
away....and then start another management company. Does the Board
plan on filing UCCs on all the furniture, fixtures and equipment to
secure repayment?
- With regard to the rent for
the office and the laundry, I see NO reason to offer free or reduced
rent for any period of time. This business is not in ramp up mode
but already generating nearly $900,000 in annual revenues. As to the
amount of rent, the amount offered of $1,075 per month in Years 3-5
seems somewhat low. How does that compare in rent per square foot
for comparable finished out space in the Gatlinburg area?
- Joe wants a management
agreement with the HOA for FIVE years for $84,000 each year for a
total obligation by the owners equal to $420,000:
- Five years is way too
long to be a benefit to the HOA. What are the provisions for
terminating the contract with or without cause? How is it tied
to him continuing to offer rental pool services?
- The management of the HOA and
common grounds is not THAT complicated for an 84 unit property
like Deer Ridge. Many properties have a $30k to $35k property
manager as its sole employee and contract out the maintenance
and yard work and accounting.
- Have we put THIS job out for
bid and completed budget estimates for this approach to know if
Joe's offer of $84,000 a year even makes sense?
- How much less than $84,000 a
year might it cost us to use this approach?
- How is this payment to Joe of
$7,000 per month tied to any default by him of his debt service
payment, and the rent payment, to the HOA?
- Doesn't it make MUCH more sense
to have an unrelated party as our manager who, without any
vested rental interest, can oversee the company providing
property rental services for those units that are in the rental
pool? This is especially true since we already have so many
units that are NOT in the rental pool. Many of the issues of
importance are different between those in the rental pool and
those who are not. By having a separate, independent manager who
is focus on OWNERS and not on rentals, both kinds of owners are
best served.
- One of the key disputes that
I have with Joe's focus is that he approaches Deer Ridge foremost as
a rental property. It is not. This is reflected in his statement
that, "It is difficult to STOP owners from removing their units from
our rental program." Apparently, given his choice, he would FORCE
all owners to participate in the rental pool. Even his statement
implies that those of us who do not participate are violating some
sacred litany. This rental focus attitude has been pervasive and
with any sale of the RML will hopefully cease to be an overriding
focal point for Deer Ridge. It has had the effect of suppressing
property value increases for Deer Ridge for way too long.
- Additionally, I am VERY
concerned over what Joe has already blatantly included in his cabin
rental web page,
www.deerridgecabinrentals.com. The site contains photos of Deer
Ridge Resort's common area pool, tennis courts, etc. and has the
following text, "When you rent your cabin from us, you can join us
at nearby Deer Ridge Mountain Resort and enjoy the swirl of the
Jacuzzi or the heat of the sauna & steam room. The entire family
will enjoy taking a dip in our refreshing indoor pool. You can also
stretch to your limits on our lighted tennis court..." What right
does Joe have to offer these renters of off-property cabins the use
of Deer Ridge facilities, thereby increasing wear and tear which
will require ALL homeowners to have to pay more for maintenance,
repair and replacement??? During our just-completed three week trip
to the property during October of this year, we shared the pool and
the other facilities with several who said they were staying in
those off-property cabins. Irrespective of any sale of RML, as an
owner, I demand that the web page be immediately modified to remove
any and all references to the use of Deer Ridge facilities and steps
be taken to, in fact, make SURE that our facilities are NOT used by
cabin rental tenants.
I have other issues with the sale but
the above should give the Board SEVERAL major, pivotal issues to address
BEFORE any binding agreement is reached with regard to the sale of RML.
Why hasn't our Earless Leader Vic considered any of these issues and
addressed them in his cover letter to the owners? Could it be that there
are undisclosed business reasons for him not already performing even the
above modicum of due diligence?
Both Vic and Joe's letters stress that
they have contacted ALL the other property management companies in the
area with the goal of generating competing offers (just how much Joe
will push for other companies to compete directly with his own offer is
pretty evident to the most casual reader!!!) However, I can almost
guarantee that if the same one page summary of Joe's offer we received
was sent to all of the other property management companies with a cover
letter soliciting a better bid than the one currently offered, we would
have ourselves a bidding war once they all saw we would even consider
such a low ball offer and such give away, easy terms.
If the Board chooses to ignore the above
issues, all members of the Board may be held accountable for their lack
of fiduciary management. The issues I have discussed are for the benefit
of ALL owners...and I hope that EACH member of the Board will
immediately take individual action to ensure ALL owners' interests are
protected with the sale of RML.
I also encourage all other owners who
are BCCed on this email to voice your own opinions on these issues to
the Board and any other owners you know.
Robert
A-202
cc: www.DeerRidgeOwners.com
Want to see what some of
your fellow owners are saying in response to this letter?
Click Owners' View!
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