A $250k Loan won’t fix anything

On Monday Nov 11 the MCA announced a 1 hour “Workshop” prior to the 2pm Board meeting to allow residents to ask questions about the proposed $250,000 loan to TMCC. Holding this sort of meeting to allow Residents to have an open dialogue with the Board is a very positive step and we commend the Board for making it. We hope there are more of these meetings in the future on important issues the community faces. Announcing the meetings via Constant Contact and allowing participation via Zoom are also important changes. Increased transparency is welcome (albeit long overdue) and even more transparency is required.

If you are planning on attending via Zoom it is important that you register in advance. The same link works for the 2pm Board meeting. If you think you may want to speak at the Board meeting you must register to do so prior to the start of the Board meeting. You can later choose not to speak but you can’t later choose to speak (perhaps wanting to respond to something you heard during the meeting). This is the rule the Board has set and represents their minimum legal requirement. We don’t know how they will operate the workshop.

We’ve drafted this note to help you have a clearer understanding of the situation so you can ask appropriate questions and provide informed advice to the MCA Board. The need for the loan is a clear symptom of a bigger problem.

As we’ve previously noted, it is reasonable believe that TMCC cashflows in Feb/Mar/Apr will likely be sufficient to allow repayment of the loan. But there would be real risk that TMCC could choose to not repay the loan. On Monday the Board announced that the loan to TMCC would be backed by “personal guarantees” of eight TMCC members. In our opinion, this should lower the risk of non-payment by choice.

To protect the interests of MCA Homeowners, it will be important that the MCA draft the loan document in such a way that:
1) TMCC is obligated to make repayments if the cash is available. They can’t choose to not repay it even if there is a 5% penalty (which would be small potatoes if repaying the loan puts them back in financial jeopardy…..which is likely).
2) The personal guarantees of TMCC members are promptly enforceable from a practical perspective. No months or years of court cases.
(Advice to the Board from MCA Homeowners with banking experience would be useful in this area).

But it is clear that any such loan is just a temporary band-aid.
We now know that:
1) TMCC began the year knowing there was a good chance that they would have insufficient cash to operate for the year (per TMCC Treasurer comments in TMCC 2024 Annual Meeting handout). They started 2024 with NEGATIVE NET CURRENT ASSETS OF OVER $1.2 MILLION (their liabilities due within a year exceeded their available assets by that amount).
2) There were revenue shortfalls in TMCC’s key peak season (Jan-Apr 2024) per MCA Treasurer.
3) MCA advanced $46,200 to TMCC on July 30 of this year for 2 months. This was before any hurricanes and indicates the TMCC Treasurer’s predictions had come true BY MID-YEAR.
4) TMCC annual dues pre-payments this fall for 2025 memberships (which is their normal tool to cover their usual annual cash shortfall in the fall) were $100,000 below normal per MCA Treasurer.
5) TMCC now requires $250,000 to keep the business going through the soon upcoming peak of the golf season (apparently immediately to “make payroll”). Although TMCC’s problems were made worse by the 3 hurricanes, their cashflow problems were already very apparent to all who had access to TMCC’s financial details. The hurricanes have only accelerated the long downward spiral.

Here is the important thing to understand:
TMCC NOW HAS A $250,000 CASHFLOW SHORTFALL/HOLE WHICH WILL RE-APPEAR WITHIN A FEW MONTHS AFTER THEIR PEAK SEASON
(Assuming the proposed loan is repaid in Feb/Mar/Apr)

The only way out of this situation for TMCC is to make an EXTRA $250,000 of profit in 2024 and by mid-year 2025 to fill in the shortfall. Let’s assess the likelihood of that with the information we have:
* They had a $21,000 loss in 2023 which was $112,000 behind their plan (per TMCC 2024 Annual Meeting info).
* All indications are that 2024 will be at a loss, and
* Membership commitments for 2025 are DOWN by $100,000.

It is not hard to predict that
TMCC WILL NOT EARN AN EXTRA $250,000.
THEIR FINANCIAL PROBLEMS ARE ONLY GOING TO GET WORSE, AND
WILL CONTINUE TO DEGRADE THE VALUE OF
OUR SPORTS COMPLEX ASSETS AND OUR PROPERTY VALUES.

TMCC has not been viable for more than a decade. They burned through all their equity to the point of insolvency in 2018 and since have existed solely based on subsidies from MCA Homeowners. And the amount of MCA Homeowner money required to keep their private club lifestyle is GOING TO GROW AND GROW.

Only 5.6% of MCA homes have TMCC golf club members.
About 2.5% of MCA homes have tennis members and 4.3% have Social/Sport members, but we believe TMCC’s perpetual financial problems are predominantly related to use of the golf courses. That totals only 12.4% of MCA Homes.

All indications are that TMCC has hit another tipping point as they did in 2018 (when MCA stepped in to purchase the assets, then leased them back for $10), and in 2019 when they were insolvent again (and MCA invented the $600,000 Renaissance Access subsidy). THERE ARE TWO CLEAR PATHS FORWARD:

1) Continue to be TMCC’s bottomless piggy-bank (MCA’s current path which TMCC members, both residents and non-residents, enjoy.)

2) Get professional golf industry advice to figure out the best way to utilize our sports complex assets, including what to do about the clubhouse (we focus on golf as tennis is a much simpler business and appears to be profitable). There will be LOTS of challenges to choose a path in the next few months and implement a different business model by the end of 2025.

IT IS BEYOND OBVIOUS THAT PATH #2 IS BEST FOR MCA HOMEOWNERS WHO OWN AND CONTINUE TO PAY FOR THE SPORTS COMPLEX ASSETS.

Back to the proposed loan: With the peak season just a couple of months away it makes sense for MCA to keep the golf courses operating rather than become the immediate operator. If that requires a $250,000 loan so be it.

BUT THE MCA MUST COMMIT TO BEGINNING ON PATH #2 RIGHT NOW.

The Board minutes from their Aug 19 special meeting indicate that a Board member actually made a motion to form a strategic planning committee of community members to “investigate various options regarding this property” and report its findings to the entire community. None of the other eight Board members would even second the motion to let it go to a vote. This is the kind of committee MCA needs, but it would also need expert advice to understand the options and their pros/cons. They all have to know this, but only one Board member has been willing to take the first step.

IT IS UP TO MCA HOMEOWNERS TO SPEAK UP AND URGE THE MCA BOARD TO START ON PATH #2 RIGHT NOW SO A BETTER FUTURE FOR OUR SPORTS COMPLEX ASSETS CAN BEGIN.