Deer Ridge Mountain Resort
An Economic Prediction For 2008-2010

Luther's Answers / My Responses

Robert,

I received your email regarding the Economic Predictions for 2008-2010.  I admit that I share some of your concerns regarding various aspects of the economy and the possible outcomes.  Since "crystal ball gazing" is not an exact science, I am not so certain as to what the results will be for our economy.  Owners of condos at Deer Ridge appear to be among those not so adversely effected by the current conditions.  As you know, Deer Ridge is considered a condotel..  This classification makes the acquisition of mortgage loans for potential buyers to be a real test of their financial strength.  Countrywide Mortgage was the one national company making loans under very strict guidelines to applicants for mortgage loans in this category.  The buyers were required to present strong financial statements in order to secure a mortgage.  I currently have three mortgages with Countrywide and know first hand that this is the case.  Just recently, I was involved in the sale of C205.  It sold at full price to an individual with excellent financial resources.  Owners of Deer Ridge condos as a group seem to be very secure.  As the real estate market drops, these owners will simply hold on to their investments.  Most owners have no desire or financial need to dispose of their condo.  As Deer Ridge is concerned, I see no need to panic.

Robert, I read your recommendations.  It was to sell RML.  As you stated, over a year ago you as well as other owners were on a committee to consider this question.  The committee concluded not to recommend the sale of RML.  As a result of this recommendation, the Board closed the case.  I see this as the current position of the Board until a majority of the owners express a desire to do otherwise.

I am always happy to communicate with owners regarding any and all aspects of GGRC and RML; however, I often must refer the owner to a Board member or manager.  To answer one of your questions, I do know that we have the same number of units in the rental program as we had under the old agreement.  My last information was that two units in the old program did not sign the new agreement and two units not on the old program did sign the new agreement.  For you to have up-to-date information and more direct answers to your questions, I encourage you to speak with Joe Thomas, Manager and/or Larry Ohm, Treasurer.  I will advise Joe and Larry to be of assistance in getting you the appropriate information.

Robert, I wish that you and Janet could be at our annual owners' meeting on April 26.  I do understand your need to be at your daughter's graduation.  This is a real honor for her.

Finally, Robert, I invite you to be a part of RML.  The program is better than ever.  The individual accounting, the owners' upgrades to units, the new reservation system, the new website and best of all the excitement of the owners in beginning the 2008 season contribute to a very positive atmosphere.  I see good things happening at Deer Ridge.

Best Regards,

Luther

Luther,

I have not received any answers to my questions from you or your team - the same ones emailed to you and also posted at http://DeerRidgeOwners.com/prediction.htm. 

Since these questions need to be answered this coming weekend at the HOA meeting, I would have expected answers by now.  Please arrange to have someone email me those answers in the next couple of days so that I can post them at my website, along with my comments, in time for the annual HOA meeting.

Also, your email did not address that RML only showed a positive $2,000 cash flow with it marked to a 45% management fee...and that the calculation now shows that RML will have a negative cash flow for 2008 of $50,000 at the now charged 40%.   

Your email said that we had the same number of units under management, but you didn't say how many.  What is that number?  Assuming the budget that Joe did was based on that number of units under management, and the budget was based on a 45% management fee as written on the budget...and all the agreements are now at 40%.....the $50,000 NEGATIVE CASH FLOW seems to be a foregone conclusion.

Even ignoring the rest of my predictions, how is this $50,000 NEGATIVE CASH FLOW going to be funded???

Since this issue is so critical and can cost all owners so much money, it seems that one of the Board's TOP PRIORITIES should be a break-even analysis of RML...and a detailed, updated budget on  RML that reflects today's reality for number of units under contract and the best realistic guess for what will happen to that number by the end of 2008.

What discussions have already been held - and what plans have been made - with regard to ANY assessments against owners at Deer Ridge for calendar years 2008 and 2009? 

This is a simple question that deserves a totally candid answer.

Again, in my opinion, your answers to my predictions are grossly optimistic.  Just because someone was able to afford a loan in the good times when they bought at Deer Ridge several years ago is statistically insignificant as to that owner's financial situation today and their willingness and ability to continue to pay for a vacation home in the really bad times that are forecasted for the next two years. 

Have you been watching CNBC or reading Forbes, Fortune, Business Week and the Wall St. Journal?  We are facing the worst economic times since Deer Ridge was originally built!  Wishful thinking will NOT save and protect Deer Ridge from what is coming.

I have gone on record at my web site http://DeerRidgeOwners.com/prediction.htm  with my date of the posting of my predictions.  I stand by those predictions.  We will see which of us is right by the end of 2008.  The question is:  what if I am right - what will the Board do then?  Say "Oops" and send a major assessment to all owners?

Robert A-202

cc:  http://DeerRidgeOwners.com

PS:  These are the questions I had asked before...I still have not received answers.  Please have someone provide clear, unambiguous answers in the next two days so that they can be posted on my web site and discussed by owners at the meeting on Saturday.

• My numbers are based on what was sent by you to all owners last November.  Does the Board have new numbers that more properly reflect today's reality since so much has changed in the last five months?
• Please let me know what, if any, substantive mistakes I might have in my analysis.  I am sure some of my numbers may be off to some degree - but the big picture is still going to be the same. Again, I've not had the time to get any more information than what has been provided to all owners.  If I've overlooked anything that would have a material impact on my logic or their crystal clear conclusions, please let me know so that I can update my analysis.
• How many of the 84 units at Deer Ridge are currently being managed by RML? What is Joe projecting this number to be at the end of 2008?  At the end of 2009?
• Where is the break-even point for RML with its current management fee level?  In other words, how many units must be rented at this year's expected occupancy and rental rates for all costs associated with RML to be totally covered without any support from GGRC?
• As an employee of GGRC and RML, what is Joe's total payroll cost to the owners of Deer Ridge, inclusive of all salaries, fees, bonuses and associated compensation for the year ending 2007?  W-2s and 1099s have to be issued by January 31, 2008 - so these must be known numbers. All owners deserve to know the true cost of his employment.
• For the past 12 months, how much revenue, if any, has directly resulted from The Joe Thomas Memorial Pavilion? 
• Exactly how much did the banquet hall end up costing all homeowners, inclusive of all hard and soft costs related to its design, construction, outfitting and operation? 
• How many days of paid use have been booked, so far for 2008? 
• At the current running rate for the past 10 months, how many years will it take for the owners to recoup all costs associated with the Pavilion?
• What has the Board done, anticipatorily, to prepare for the biggest real estate downturn since the 1980s?
• Does the Board plan on recommending to the owners at the meeting this month that it immediately sell RML?
  • If yes, what is the Board's detailed game plan for action and results?
  • If no, how does the Board plan on covering the expected huge negative cash flow for RML?
• What is the undefined $200,000 line item of revenue shown in the RML budget - and what is the likelihood that it will be a 2008 exact reality?
• What is the undefined $131,000 of direct costs shown in the RML budget?

Robert,

I arrived at Deer Ridge on Monday evening.  Tuesday, I began preparing for our Board meeting on Friday and the Owners' meeting on Saturday.  In regard to your email, I want you to be assured the $50,000. deficit was accounted for at our 2008 budget meeting in November.  Also you will be pleased to know a total of sixty-nine condos are currently participating in our new RML program.

Please note that I have asked Joe Thomas, our manager, and Larry Ohm, our treasurer, to provide you with whatever figures and projections for 2008 that you might request.

I regret that you will not be attending our owners' meeting.  It is an opportunity for all owners  to participate in the administration process.

Best Regards,

Luther

At 10:33 AM 4/25/2008, Robert wrote:

At 11:10 AM 5/1/2008, Larry Ohm wrote:

Dear Robert,

Since I have been on the Deerridge Board, we have always been completely transparent to all owners.  We have attempted to anticipate owner fairness and anticipate economic changes and the impact on GGRC and RML.  At the annual owners' meeting and the preceeding Board meeting we analyzed last year's financial results, the first quarter's results and reviewed the advanced bookings and were encouraged.

The Board members are all volunteer positions and I can not and will not respond to eight-fore different owners' requests for various information ( particularly intended to disparage and discredit the Board and the owners' management).  I believe that the majority of the owners are pleased with the way we are managing Deerridge and I will continue to represent the majority of the owners. 

Futhermore, Robert, if your "crystal ball" is even close to being correct - you have an "opportunity" to cash out at a profit by selling your unit in what currently is a hot market.  Evidently the new and prospective owners are pleased at what we have to offer at Deerridge. 

Larry Ohm, Treasurer

Larry and Joe,

As directed by Luther Parker, President of GGRC and RML, please provide me, and ALL the other owners that I represent, comprehensive answers to the following questions that we've been asking for the past three weeks:

• My numbers in my analysis are based on what was sent by you to all owners last November.  Does the Board have new numbers that more properly reflect today's reality since so much has changed in the last five months?
• Please let me know what, if any, substantive mistakes I might have in my analysis.  I am sure some of my numbers may be off to some degree - but the big picture is still going to be the same. Again, I've not had the time to get any more information than what has been provided to all owners.  If I've overlooked anything that would have a material impact on my logic or their crystal clear conclusions, please let me know so that I can update my analysis.
• How many of the 84 units at Deer Ridge are currently being managed by RML? What is Joe projecting this number to be at the end of 2008?  At the end of 2009?
• Where is the break-even point for RML with its current management fee level?  In other words, how many units must be rented at this year's expected occupancy and rental rates for all costs associated with RML to be totally covered without any support from GGRC?
• As an employee of GGRC and RML, what is Joe's total payroll cost to the owners of Deer Ridge, inclusive of all salaries, fees, bonuses and associated compensation for the year ending 2007?  W-2s and 1099s have to be issued by January 31, 2008 - so these must be known numbers. All owners deserve to know the true cost of his employment.
• For the past 12 months, how much revenue, if any, has directly resulted from The Joe Thomas Memorial Pavilion? 
• Exactly how much did the banquet hall end up costing all homeowners, inclusive of all hard and soft costs related to its design, construction, outfitting and operation? 
• How many days of paid use have been booked, so far for 2008? 
• At the current running rate for the past 10 months, how many years will it take for the owners to recoup all costs associated with the Pavilion?
• What has the Board done, anticipatorily, to prepare for the biggest real estate downturn since the 1980s?
• Does the Board plan on recommending to the owners at the meeting this month that it immediately sell RML?
• If yes, what is the Board's detailed game plan for action and results?
• If no, how does the Board plan on covering the expected huge negative cash flow for RML? What is the undefined $200,000 line item of revenue shown in the RML budget - and what is the likelihood that it will be a 2008 exact reality?
• What is the undefined $131,000 of direct costs shown in the RML budget?
• I am confused by your statement that RML's "$50,000 deficit was accounted for in the November meeting."  The RML 2008 budget that was sent to all owners based on that same November meeting showed a positive cash flow for the year at about $2,000...with the note by the income that it was based on a 45% management fee.  So, if the $50,000 deficit was accounted for as you say, where is it in the budget that was sent to all owners? 
• Is there a second budget that is more accurate that was not sent to all owners? 
• You say, the Board has accounted for a $50,000 deficit.  Then, why were the owners mislead by the distribution of a RML budget that showed a positive $2,000 cash flow?
• Also,  what were the underlying assumptions for the 2008 budget?  Were the income numbers based on 2007 income?  Higher or lower? 
• I just got the monthly newsletter showing the RML results for March 2008....they show room revenue down over 20% when compared to 2007.  If room revenues were $52,502 for March, and they represent a 20.13% worse performance than 2007, the arithmetic shows that last year's collection number must have been $65,734.....which means that collections were $13,232 less this year than last.  Since RML takes 40% of this amount, this means for March alone, that RML's take was $5,292.93 less this March than it was last March.  This one month's results more than wipes out the $2,000 positive cash flow that was projected for 2008.  One month does not make a trend - but if this number is annualized for all of 2008, then this means that RML's collections will be $63,515 LESS than it was in 2007....with an implied annual negative cash flow for RML of $61,000. Hence, the question:  was RML's income for 2008 based on the same level of income from room revenues as seen in 2007? 
• If not, then what were the underlying assumptions? 
• If RML did base their projections on 2007 parity, how is the $50,000 deficit you acknowledge going to be funded?