Ann Arbor Country Club Faces Foreclosure

Citizen’s Bank is selling the Ann Arbor Country Club’s $1.7 million interest-only loan, an event triggered as the number of club members dropped below 120. In short, the loan and thus, the club, is up for sale to the highest bidder. As of now, there apparently are just three bidders in the game: one for $500,000 and two at $600,000. Both of those likely would represent a short sale, since the appraised value likely is much higher.

Another option would be to have a syndicate of members purchase the note, and an “S” Corporation has been formed to explore the possibility. That’s also one of the options the members of the Washtenaw Country Club explored before their eventual sale to the Polo Fields.

The Ann Arbor Country Club’s mortgage problems—like the Washtenaw CC—stem from clubhouse renovations.

Loyal GolfBlogger reader bkuehn1952, who alerted me to the story commented that:

Perhaps the lesson to be learned is that private clubs should raise additional capital from their operations and members rather than borrow.  If the membership can’t or won’t support the club, then the outlays are most likely a bad idea.

In hindsight, the loans were surely a bad idea. But I think the core of the problem is in the declining membership. I wonder if an effort to make the clubs much more affordable would have made a difference—a sort of “make it up in volume” strategy.

In some ways, the closure of the Ann Arbor Country Club would be much more problematic than that of Washtenaw Country Club. AACC is at the heart of a large residential development, and its fairways parallel a great many yards. Returning the course to nature would have a massive impact on the property values of the homes in the area.

That’s also why it’s likely to survive.

From the Loch Alpine Homeowners Association Website:

Dear Residents:

As many of you are aware, Ann Arbor Country Club is facing severe financial difficulties.  For the past year, AACC has operated under a forbearance agreement with Citizens Bank, which holds the mortgage on the property.  This agreement allowed AACC to pay a reduced interest rate and no principal.  Unfortunately, Citizens Bank and AACC were unable to maintain that agreement.  This means that Ann Arbor Country Club, and/or its mortgage, is essentially up for sale.  While a group of members has formed a corporation known as Mag7 to raise funds to purchase the mortgage from Citizens, several offers by outside investors have also been received.

Though its effects on lot owners would certainly vary, the sale of the club to an outside entity could have significant consequences for property values within our community.  Ann Arbor Country Club is an integral part of our community.  Its fairways wind through our community and its recreational amenities add measurably to the value of our homes.  Therefore, it is important that the residents of Loch Alpine be as informed as possible about the current situation.

And this, from the Huron Heights site:

With the down turn of our economic climate the 2008 Board had the foresight to approach the bank and work out a Forbearance Agreement.  This agreement allowed the Club to operate and pay our mortgage on a reduced, interest only payment for 2009.  As we approached 2010, the bank assured us that they were willing to continue this agreement through 2010.  This is what we reported to our Membership at the annual meting.

In late December, the Bank withdrew this agreement due to changes by the FDIC.  At that time they gave us three options:

1)    Market/sell the club
2)    Purchase the note
3)    Strike new agreement with bank for an A/B Mortgage (though they indicated this option was pretty unlikely).

The Bank contacted three golf course brokers/Realtors to get a fair market assessment of the club.  At that time, they agreed to provide the “fair market assessment” to AACC.  The Bank has never provided that number, citing that the assessments were over too wide a range – $500K to $1.2 million.

The Bank has solicited buyers and we are currently holding three bids for the Club, one at $500K and two at $600K.  The Club is owned by the Membership, and the Board does not have authority to accept any offers, and if we did, there’s no guarantee that the Bank would accept the amounts currently offered – similar to a “short sale” of a home.  I must also point out, that we have a new pool, that many in the community have enjoyed in the form of swim lessons or swim team participation due to an “unsecured” loan by one of our members.  If we sell, that member would stand to lose their investment,  as would the members lose their equity investment.

Because we have fallen below 120 dues paying members, we are now in Default of the Forbearance agreement.  Although through December we had not missed one payment.

We have another option, and that is to purchase the note from the bank.  An “S Corporation” has been formed, Mag 7 Properties for this purpose.  Bill Schnorenberg is President of this group and will provide more information under separate cover.  They need investors and now is the time to act.

Ann Arbor Country Club is a “value added” asset to all of us homeowners in Loch Alpine and the surrounding communities.  We need your help in the form of supporting the club and it’s operation.  While we understand some don’t golf or swim, we all need to eat.  This year, Don McDevitt (owner Mancino’s on Jackson Road) has accepted the role of Clubhouse Chairperson.  He has already had several committee meetings to reduce costs while improving the service and food experience at the Club.  You will see flyers at the end of every month advising our specials for the next month.  Please think about visiting your neighborhood pub next time you take your family out to eat.

And a letter reportedly from Bill Schnorenberg, who’s behind the Mag 7 initiative:

“Last November, Citizens assured AACC that they would extend the forbearance agreement for another year. After the AACC Annual Meeting, the bank met with AACC and informed the board that they could not extend the forbearance agreement and that the bank needed to exit its loan with AACC. AACC was given two options: put the club up for sale or buy out the bank loan. Citizens would engage appraisers to determine the market value of the club and provide that to AACC by the end of December. This was delayed and the appraisals came in on a widely divergent basis.

Within the past two weeks, AACC has received two offers from individuals who reportedly intend to operate the club as it currently operates. Both offers are for $500k and would involve acquiring the assets of the club. The bank believes that these offers are too low. However, Grosse Ile CC has closed its doors and Flushing CC was recently sold for $450k. The Washtenaw CC deal has not yet closed.

Over the past few weeks, a number of AACC members have had discussions regarding ways for club members to approach this situation. Two weeks ago, six members formed a Michigan Sub-chapter S Corporation (Mag7 Properties Inc) to put together funding to make an offer to buy the Citizens loan at a discount. The loan would be assigned to Mag7, which would then assume the security interest in Club property currently held by the bank. The Mag7 loan, on the other hand, will be on terms far more favorable to the Club than those contained in the Citizens loan, thereby significantly reducing the Club’s operating expenses. Mag7 is and will continue to be a separate entity from AACC, and the Club would continue to operate as it has in the past as a member-owned entity.

Mag7 has retained a real estate attorney who concluded that this is a workable plan, one that provides real advantages both to the Club and its members, and to the bank as well through a cost efficient mechanism to remove a defaulted loan from their books without having to deal with numerous contingencies and uncertainties.

Mag7 will sell shares to anyone interested in participating. Interest and principal payments on the Mag7 loan will be distributed to Mag7 shareholders as dividends on a prorata basis. It is anticipated that the loan would be for 15-20 years at an interest rate yet to be determined. The Mag7 Board has set the share price at $5,000 per share, with a two share ($10,000) minimum purchase requirement. We have already received commitments from a number of individuals who have pledged to purchase four shares. We realize that not all members have the financial resources to purchase shares, but we would like everyone to seriously consider participating.

Time is of the essence here as Citizens has recently been pushing very hard for immediate resolution. No matter what course of action that may be pursued, AACC believes that the Club will operate this year and likely beyond. It is not in the bank’s interest to close AACC down at this time.