RANCHO SANTA FE — The Association has been shopping for a loan to refinance the last of the two loans for the golf club renovation.
At the July 19 meeting, Association Manager Peter Smith announced the refinancing of the existing loan could be provided by Pacific Western Bank.
“It’s clean and not tied to any other rate,” Smith said.
After hearing the details of the proposal, the Association board agreed unanimously.
The action stems from 2006 when the golf club underwent a renovation including the players club and golf shop.
The projected cost of the project was to be about $11.83 million and be funded through a combination of the club’s free reserves and the balance of about $8.15 million was to be covered by loans from La Jolla Bank.
During the construction phase, financing was provided by a fixed interest loan. Once the construction was completed the loan was converted to two 25-year fully amortized loans.
“In 2008 the bottom fell out of the economy and the housing market which resulted in a large reduction in home sales in the Covenant and therefore a much lower number of new enrolments in our golf club,” Smith said.
“New enrollments for the 10 years prior to the economic meltdown averaged 45 per year. The last three years has averaged about 15 new memberships per year. Not only have the new memberships dropped off but our membership base is declining as well,” he said.
The current golf club membership base that is paying the debt service is 555 members, he said.
“Without a significant turn around in the economy, the golf club is going to have to deal with the renovation debt for some time to come as the loans will not be repaid as quickly as originally anticipated,” he said.
The original projections were based on the economic conditions that existed when the plan was put together using actual historical performance over the previous 10 years, Smith said.
Since 2006, the golf club and Association have remained committed to the original two loans, one of $6 million and the second smaller loan of nearly $2.15 million.
While both loans have been paid down, both still have significant balances.
To make it less painful for everyone involved, the Association agreed to replace the 5.75 percent, variable rate loan of the remaining second smaller loan of $1.65 million out of its own pocket with a fixed 2 percent loan.
Smith called that a “win/win” situation.
Then the Association began looking for a fixed rate loan to replace the current loan of about $5.4 million, the payoff the larger loan as of Aug. 1, 2012. Pacific Western Bank appears to have met the criteria of the Association.
“It would provide a 4 percent fixed-rate loan with a 10-year balloon with a built-in index rate which would allow us to reset the loan at maturity, payments based on an 18-year amortization and up to an additional 20 percent annual principal pay down without penalty,” Smith said.
He said the loan would replace the existing variable interest rate loan that is currently at 4 percent, with a new loan at 4 percent, but the new rate will be fixed until maturity.
Smith said with the new loans, the golf club could be clear in about 15 years.