The Board President's January Letter

The Board met on Tuesday, January 18 and on Wednesday, January 19 the Board President sent to the Owners a communication about the actions being taken by the Board ("The Letter"). The Letter addressed a number of issues of import to the Owners:

Let's focus on the membership model issue. Like most controversial issues at Colleton River, the membership issue is pretty complicated.

The Board asserts that the 610 golfer cap is somehow unfair and presents a risk to property values, and intends to ask the Owners to remove this cap. This proposed course of action raises a number of issues.

  • Where did the 610 cap come from? 
    • In January 2019, Club Benchmarking ("CB") delivered a report to the Club. Among its findings was: "The golf experience [must be] protected to assure no more than 300 [Full Member Equivalents] per eighteen-hole equivalent." CB observed that: "For the current golf experience, 350 golf members are too many, and the golf members will have to change their current golf experience if the community sells 700 memberships with total access and usage patterns consistent with the members of today. Our recommendation is to manage the golf experience to 300 members per course, which is the optimal number of golf members for best in class experience in residential communities."
    • Simply put, in the event that golf membership exceeds 600, our golf courses will experience congestion and the membership experience will deteriorate. Many members have already observed that the courses are already becoming congested at the current level of about 565 golfers.
  • How many golf players would be permitted if the cap is removed?
    • There are currently about 565 "golf players" (540 Full Members and 25 IP participants).
      • So the current cap of 610 golf players only comes into play if and when we add another 45 "golf players."
        • Given that new "golf players" will primarily come from the sale of Club-owned Lots, it will probably take another 3-5 years to reach the 610 cap (EDC will sell about 10 houses per year and some current Lifestyle Members may sell to new Owners who want Full Memberships). 
    • Where do "golf players" come from?
      • Buyers of Club-owned Lots may become Full Members (and "golf players"). There are as many as 115 Lots (including long-term delinquent lots and lots owned by the Foreclosed Land Commission).
      • Lifestyle Members may convert to Full Members (as many as 25).
      • Additional IP participations are authorized (as many as 25).
      • If the cap is removed, we could have as many as 730 golf players.
    • Are we likely to reach 730 golf players?
      • No. The Board has pretty much shut down the sale of additional IPs and it seems likely that more than 25 Owners will opt to be Lifestyle Members. So a more realistic maximum would be 680 golf players if the cap were removed.
    • Is it likely that we'll reach 680 golf players if the cap is removed.
      • No. The Board has "levers" that it can use to control the number of potential golf players.
    • What are those levers?
      • There are three major levers available to the Board:
        • Stop selling IPs (or sell the IPs subject to the Club's right to recall the IP by repaying the initiation fee to the IP participant and terminating their privileges).
          • The Board is already doing this. But a By-Law change requiring future IPs to be sold subject to such an option would ensure that future Board's didn't reverse course.
        • Reduce the number of Club-owned Lots that many be sold.
          • Retiring some portion of the 115 lots would reduce the potential for more than 610 golf players. This may require a negotiation with EDC, which has rights to develop a significant number of those lots.
          • Just by way of example, if 50 of those 115 lots were taken off the market, the potential number of golf players would decrease from 680 to 630.
        • Increase the price discount associated with Lifestyle Memberships to induce more members to become Lifestyle Members.
          • Until we reach 590 golf players, there are limits on members switching from Full to Lifestyle memberships.
            • But once the number of Full Members reaches 590, members can choose between Lifestyle and Full Memberships. 
          • The Board has the power to discount the annual assessments (a/k/a dues) of the Lifestyle Members. Lifestyle dues are currently $15,874 versus $23,565 for full members (a discount of $7,691). But the Covenants require that Lifestyle dues be at least 50% of full dues. The 50% limit impairs the value of this tool (because it limits how much the Board can discount Lifestyle Memberships) and should be eliminated.
            • Just to be clear, a relatively small increase in dues to 600 Full Members will subsidize a significant decrease in dues from 60 Lifestyle Members (a $1,000 dues increase to the Full Members would enable a $10,000 reduction to the much smaller number of Lifestyle Members--the "discount would increase from $7,691 to $18, 691 and would likely incentivize a large number of Full Members to opt instead for Lifestyle Memberships). Of course, you only need to offer as big a discount as necessary to induce enough Owners to opt for a Lifestyle Membership to stay below the 610 golf player cap.
    • The Board apparently doesn't believe that the levers will be enough to keep the number of golfers below 610--or there would be no reason to eliminate the cap.
      • But if the levers aren't enough to limit the number of golfers to 610, why would they work to limit the number of golfers at any number?
      • My experience is that caps force Boards to act. Once the cap is removed, there is not a sense of urgency for Boards to act.
The inability to sell a Lot with a golf membership would certainly impair the market value of property within our Club. BUT, eliminating the cap could lead to congestion that would also impair the market value of property within our Club. I can only speak for myself, but my vote in favor of the new membership model two years ago was primarily driven by the 610 golfer cap. Readily available tee times is the most important part of the Colleton experience for many members. 

Furthermore, eliminating the 610 golf player cap would create a slippery slope where the number of golf memberships could increase to a level well above the point at which--per Club Benchmarking--we would no longer be able to offer a best-in-class golf experience.

I believe that if the Board responsibly uses the existing levers (subject to eliminating the requirement that Lifestyle Members pay at least 50% of what Full Members pay), the Club will rarely--if ever--hit the 610 cap. So what would you do, smart guy? Glad you asked:

  • Don't change the 610 limit (unless you want to decrease it to 575).
  • Eliminate the requirement that Lifestyle Dues be at least 50% of Full Dues. (Covenant change required.)
  • Require that all future IP licenses be granted subject to the right of the Club to repay the initiation fee and terminate the license. (By-Law change required.)
  • Reconsider the use of Club-Owned Lots and reduce the potential 115 additional memberships by 50 memberships. In particular, do we need to pursue alternative housing in today's market conditions? Alternative housing would require another 20-25 memberships.
  • Begin to discount Lifestyle Dues when the Club reaches 590 golfers to keep the Club at the low end of the 590-610 golfer range.
  • Manage the levers to keep the number of golfers at the low end of the target range of 590-610 golfers.
  • Consider further reducing the cap from 610 to 575. Many Owners may prefer to pay higher dues in exchange for greater exclusivity and potentially higher market values. This would be a good topic to ask the Owners about.
The bottom line is that taking steps to limit the number of potential "golf players" (i.e., limiting the sale of future IPs, reducing the number of developable lots and increasing the discount for being a Lifestyle Member) will yield a better outcome than simply removing a cap that protects ALL members from a deterioration of the membership experience as a result of having too many golf players on our courses. But as Dennis Miller says, "that's just my opinion, I could be wrong!"


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