For the last several months, the Board has reviewed a number of things relative to the upcoming remodeling of the South Beach and a potential expansion to the Community Center. Monies for these projects will come chiefly from the Capital Fund, which will pay for most of the buildings and any new aspects of the projects, and the Replacement Reserve Fund that will fund the replacement of assets that we already have.
The principal funding source for the Capital Fund is resale fees so those have been discussed. The scale of both projects means that we may need to tap funding sources other than the Capital Fund so bank debt has been reviewed as well – including some of the applicable language in our Documents.
Both topics are important enough that they were referred to a sub-committee of the Audit and Budget Committee for their review. They were then recommended by the sub-committee as well as the full A&B Committee and were moved forward by the Board.
Let me provide some background. Everyone who buys a property within Pelican Bay pays a resale fee – which some consider to be a real estate transfer fee – to the Foundation. These monies go into the Capital Fund. There is one exception to this rule – current Pelican Bay owners who sell their first property and buy a second in the community.
The resale fee was established in 1998 and was re-set most recently in 2014 at $6,000. It has been loosely tied to the overall value of Foundation assets as someone buying a property in Pelican Bay is also buying into the Foundation. Based on the recent investments in the Commons and Marker 36 parking lots and the Commons building, and the upcoming investment in the South Beach, it was recommended that we increase the resale fee to $7,500 as soon as is practical.
A review of our documents found one paragraph that seemed to include overly strict language covering the assumption of debt that was larger than 50% of the annual operating and replacement reserve assessment total. That language also seemed to restrict the repayment of debt even when additional monies were available.
Based on a review of the above it is suggested that the following changes be made in one section of our controlling documents:
4.03 (c) Except in an Emergency, or with the approval of a majority of the voting interests present in person or by proxy and voting at a duly called meeting of the Members, any authorization by the Board of the incurrence of indebtedness by the Foundation that is expected to remain outstanding for more than one (1) year and that is in excess of fifty percent (50%) of the Annual Assessment for the fiscal year in which the indebtedness is incurred (the “Limitation Amount”), shall not be effective unless:
1. it has been approved by the Board by a Supermajority Vote, and
2. the Board determines in the resolution authorizing the Foundation to incur the indebtedness that the indebtedness in question, together with all other indebtedness of the Foundation that is not intended to be repaid within one year,
can and will be serviced (principal and interest) each year the indebtedness is outstanding by application of fifty seventy-five percent ( 50%75%) or less of the Resale Capital Assessments the Board expects to receive in such year.
An increased resale fee would result in $2,000,000 being collected each year. Setting debt service, the payment of interest and the repayment of principal, at 50% of this amount seems restrictive – hence the recommendation to increase this control feature to 75%. The deletion of the words “will be” leaves it clearer that the Foundation may apply any monies that would be available to repay outstanding debt and not build unnecessary cash balances.
It is important to remind everyone that the Board’s decision to move forward with construction documents for the one-story solution for South Beach means that we do not currently anticipate that there will be any debt incurred to complete that project. But, these wording changes may be important relative to any decisions that the Board may make in the future with regard to the remodeling and expansion of the Community Center as well as any other projects that develop in the coming years.
Our documents lay out a clear process that the Board voted to initiate at our February meeting. This will include publicizing the resale fee increase as well as the wording changes which we are doing with this article in the Post. We will then vote on the appropriate motion at our March and April meetings – as two readings are necessary for important changes such as these. A super-majority of the Board must also vote to approve these changes.
It is anticipated that the new resale fee would become effective on July 1, 2018. This should give local realtors sufficient time to accurately represent them in future listing and closing documents.
Should you have any questions with regard to either topic, please feel free to email me at email@example.com.