Rancho Santa Fe Golf Club loans

By Jack Queen

Rancho Santa Fe Association president

In 2006, the RSF Golf Club membership approved a Master Plan that called for the complete renovation of the clubhouse facilities, new locker rooms for the Golf Club members and a new Golf Shop. The total cost of the project was $11,833,000 and was funded through a combination of cash and debt. The debt was in the form of two loans; the first was for $6 million and the second was for $2,148,418. Both loans carry floating interest rates and are amortized over 25 years. The Golf Club members make the payments on the loans through a special debt assessment of $1,100 per year for each membership. In the last five years the Golf Club members have reduced the outstanding debt by just over $1 million.

Over the last few years the Association board has been working with the Golf Club to explore opportunities to restructure the loans that were used to fund the renovation of the club’s facilities. The goal was to be in a position to take advantage of the historically low interest rates and eliminate the variable interest rate exposure on the loans. Up until recently, the efforts to find a conventional lending source has been both an interesting and very frustrating process. I can tell you from a firsthand experience that the stories you may have heard about banks being reluctant to provide loans is very true. However, thanks to a referral from Keith Brant in the Rancho Santa Fe Merrill Lynch office, we have a very favorable response and quick service from the Bank of America and the Merrill Lynch Group, which has expressed a strong willingness to provide funding to replace the club’s existing loans. In addition to the Bank of America proposal, we are exploring one other conventional lending source that is considering providing funds to cover all or part of the outstanding loans.

Added to the list of potential options is the fact that since our Association maintains very healthy reserves to cover the replacement of assets and for contingency, and because we maintain a very conservative policy for the investment of these funds, our return on our investment of these funds is at historic lows. At our March 15 Association board meeting, the board will consider a proposal to utilize some of these free reserves, currently earning less than half of one percent, to pay off the high interest rate loan. The proposal is that the Association pay off the smaller loan of $1,650,000 that is currently subject to an interest rate of 5.75 percent. The Golf Club would then be charged 2 percent on these funds which is the current rate the Association receives on our five-year investments. The net savings to the Golf Club in the first year alone will be just over $60,000 in interest and the return on the Association’s funds will increase by over $25,000 per year.

Even though the debt service is being covered 100 percent by the golf membership, the Association board believes that it is in the best interest of the entire Association membership that all the outstanding debt be paid off as soon as possible. The proposed payoff seems to be a win-win for both the Golf Club and the entire Association and does not preclude us from working with a conventional lender on the balance of the debt.