Audio may be found at: www.scshca.com/podcast275
Below is a synopsis of this episode.
The Big Secret Is No Longer a Secret
BOR - Bureau of Reclamation. This is Federal Government.
BOR owns the land alongside the canal which goes through part of the golf course driving range, hole #17, and hole #16 on the South course. So, all this land is owned by the BOR, the Federal Government.
Location map regarding the BOR License is attached. Location map of the 5 acres near phase 3 dog park is attached.
The areas marked in lighter green on the attached BOR map are the approximate boundaries of the land owned by the BOR and subject to the license agreement.
From a “high level” summary, area under license agreement is:
- About 10% of hole 16, south course
- About 80% of hole 17, south course
- About 30% of the driving range
- Portion of the storage areas next to the maintenance facilities
Pulte leased this land to develop SCSH back in 2004.
Original lease was for 25 years and a 25 year option at a cost of $80,000 per year. That price was lowered to $70,000 per year after a few years. Pulte was responsible for making all yearly payments.
Pulte’s goal was to buy the land from the BOR and give it to the HOA rather than paying yearly lease fees to the BOR.
The Big Secret was not having anyone else buy this land, so all information was kept confidential in order to protect the best interest of the HOA. If someone else were to buy this land the HOA could be held hostage for a large yearly payment or else the HOA would have to vacate the land. This would mean part of hole #16, most of hole #17 might be gone and a good portion of the driving range would be unusable. So, all past Boards would not discuss this lease publicly in order to protect the HOA interest of keeping the land within HOA control.
Over the years negotiations between Pulte and the BOR was slow at trying to buy the land from the BOR so the HOA could take permanent title. In the end the BOR said they would not sell directly to Pulte or the HOA because it did not follow their procedures. The only possible sale process was to go out to public auction. This idea had very high risk of a third party buying the land and then charging the HOA a high yearly fee to use the land. So, the HOA did not want to go through the public auction process. It was also not recommended by the BOR if we wanted to protect our interest.
Alternatives were discussed and the option of a new lease between the HOA and the BOR became the best alternative to protect the land use for the HOA and to protect the yearly lease amount. Given newer BOR descriptions of land use for this purpose, the yearly lease fee would be $2,637 per year, not $70,000. The lease would be for 25 years with a 25 year option. Payments would be made 5 years in advance. So, every 5 years we make a payment for the next 5 years.
Doing a lease would avoid a public auction where the HOA might not be the eventual owner of the land.
The negotiation on this transaction began in 2018, one year after I was elected and has been ongoing ever since. Since Pulte was responsible for making the $70,000/year payment the HOA’s concern was making sure the land was controlled by the HOA for years into the future, and at a reasonable rate. Naturally if the payment for the HOA was $70,000 per year, we would not sign a new lease but would rather have Pulte make such payments for as long as possible (25 years). Since the lease started in 2005 Pulte would have 9 more years of payments saving the HOA $630,000. As you can see it gets complicated.
Clearly Pulte wanted out of the current lease and the HOA wanted control for more than 9 years. The negotiation was to try and reach a outcome both Pulte and the HOA would like. Pulte offered money for the yearly payment for 25 years. It would be about a $50,000 to $60,000 payment and the HOA would use that over the years to make payments on the 25 year lease given the lease would start at $2,637/year. The priority for the HOA was to gain control over the land at a reasonable rate for a long period of time. We did not want to have to begin making payments of $70,000 per year starting in 10 years.
Here is where more fun comes into play with negotiations. Pulte wants out of a lease, and the Board knows about a 5 acre parcel owned by Pulte along the backside of the Phase 3 dog park and maintenance area. This is 5 acres on the corner of Madison and Avenue 38. The Board wanted to own that 5 acres more than having a $50,000 payment. Given the lease amount of $2,637/year, the Board’s position was the 5 acre parcel would have more value to the HOA for potential possible future use.
Two parts of the negotiation:
- 25 year lease at a reasonable rate. That we were going to get from the BOR.
- For Pulte to be released from the current lease agreement would they be willing to give us the 5 acre parcel.
The negotiation led to an agreement that Pulte would sign over the 5 acre parcel and the HOA would sign a new lease with the BOR. This is an example where both parties move forward to compromise on each getting something of value to benefit both sides. Pulte ended a $70,000/year lease and the HOA gained control over the BOR land for 50 years and acquired a 5 acre parcel of land in addition.
Through this process we needed to resolve some issues:
- Can the HOA go into a 25 year lease without resident approval? Example: Frontier needed a resident vote for a 5 year contract. Governing documents only allow for 1 year contracts other than a few exceptions. If we needed resident approval and the negotiation became public, it could harm the negotiation if third parties tried to bid on the proposal. HOA might have to pay more money.
- Can the HOA annex the land without HOA resident approval? Again, another element which might cause the negotiation to go public and compromise the effort to protect the interest of the HOA.
Fortunately, after legal review, our governing documents allowed for the 25 year lease with the BOR by a vote of the Board and we may also annex the 5 acres by a vote of the Board. Pulte’s legal team along with attorneys from the HOA (one being a land use attorney) collaborated to determine we were following all legal requirements to make the transaction possible.
This negotiation is now over, we closed escrow last week, so we have signed a new 25 year lease for the land at $2,637/year and we own the 5 acre parcel at the end of phase 3 by the dog park and maintenance area. It was actually 2 parcels totaling 5 acres.
Where do we go from here? What do we do with the 5 acres? Great Question.
Board will need to proceed with a process to determine what to do with the land. Currently, the Board’s intention is to form a committee to investigate all possible uses of the 5 acres to then make a recommendation to the Board. This will take time. The committee will need to reach out to residents to gather any and all ideas on what should be done with the land, what is possible, what are the possible costs of development, and then recommend to the Board a plan to move forward. These kinds of plans take time. First step will be to appoint the committee to begin the process. If you are interested on being on this committee (let’s call it the ‘5 Acre Land Committee), please fill out the application form from the HOA office to apply to be on this committee.
After the Board election, whatever Board is in place, they will be able to then proceed with the process given their priorities. I would like to think surveys will need to be done to gather resident input. It would be great to get some members on the committee that have had some development experience. I would also think Town Hall meetings will be needed to go over all the information just like we did with the Frontier plans. Please don’t think such a process happens in a short period of time. The investigation of ideas and research alone could easily take more than a year. Investigation and cost projections for design and planning for all approvals will take another year. Plans and specs will take another year and the permit process can take another year. Be aware this process takes time if done right, but the final outcome can be an improvement for the HOA which all residents will hopefully gain benefit.
So, the big secret is no longer a big secret and all the past Board members can now speak about the BOR which has been one of the closely guarded secrets of the HOA for 15 years.
If you have questions, please let me know.