Palm Coast, Florida – July 30, 2008 – Amid a two-front war battling credit issues and lawsuits, Bobby Ginn, chairman and CEO of Ginn Clubs and Resorts, went on a member relations offensive when he hosted a Wednesday conference call with members of his Palm Coast, Florida Hammock Beach Club. The call, lasting nearly two hours, was intended to provide a status report on the company and to answer members' questions. If graded by the participating members, the call was successful. Ginn plans to repeat this process in each of his communities and resorts.
After introductory remarks, Bobby took questions from about a dozen members. Bobby acknowledged his recent lack of communication with property owners and club members. Things were just happening too fast, he said. Bobby's focus was less on the company than on the Hammock Beach Club. Hammock Beach represented a unique opportunity for a large family resort on the east coast combining a private club with a hospitality operation. The strategy, as in other Ginn projects, was to sell lots first, using the proceeds to develop the property, thus reducing the amount of leverage required. His is a phased development model, undertaking each phase only when the success of previous phases supports it.
Bobby stressed that, as a company, they assemble large tracts of land, envision a trophy property on that land, obtain necessary permits, develop the property, then operate the finished project. This can take as many as ten to twenty years. Real estate cycles are bound to interfere with plans. Present delays and lessened property values are the result of the current downturn, which Bobby says is perhaps the worst he's ever seen. Ginn takes a long view, beyond individual cycles; saying that holding highly amenitized trophy properties always rewards you.
He also discussed the company's financial difficulties. Each Ginn property is separately financed to protect each community from a failure in any other. Hammock Beach and other Palm Coast area properties owned by Ginn are not affected by the recently publicized failure to make principal and interest payments on two Credit Suisse debts. "We are holding our own," he said when referring to Hammock Beach. Buyers walked away from about 70 of the million dollars plus Ocean Tower condos. The company had counted on that revenue so they are adjusting the business model. Twenty-five of the first and second floor units were recently sold at half price.
Another problem is that some members, particularly in The Conservatory, are not paying their dues. The introduction of the One Club, where membership in Ginn communities becomes reciprocal giving members a much broader range of resort opportunities, is aimed at increasing membership participation and adding value to existing and future memberships. "Don't react hastily to the market," he urged. He believes that they have the plan to climb out of this in about 18 months.
Member concerns were concentrated on a few issues; lack of communications, frustration with Ginn's sales staff's efforts to sell resale properties, and concern about maintaining the exclusive nature of the Hammock Beach lifestyle.
One member told of listing one of his properties with the Ginn sales staff. Once the listing agreement was signed, he heard nothing about potential buyer activity from the salesperson. In fact, he was not even contacted when the listing expired. The fact that the member repeated this same process two more times, apparently expecting a different result, speaks volumes about the Ginn mystique, the property owner, or both.
One caller pointed out the conflict of interest between the sale of developer owned property and member resale property. Ginn acknowledged the conflict but rebutted that the launch of a new phase would tend to raise the value of existing property.
Other callers suggested that Ginn leave resale activity to outside real estate companies. "Get out of the way to allow other companies to come in," said one. Ginn agreed that many of his development properties were sold with the help of outside brokers, but he disparaged them with regards to the resale market. He suggested that outside brokers "generally come in to sell against us," telling their clients that Ginn prices, club dues, and association fees were too high. They would then show a "Centex lot that was the same size." He also commented that selling his types of properties was a different kind of selling. He said that "general real estate brokers do not have those clients. They're not walking around in a Century 21 or a Remax for the most part."
Ginn also explained that he had joined MLS (multiple listing service) by forming Ginn MLS to allow him to expose Ginn resale listings to outside brokers. A check of the local MLS records shows that Ginn MLS is in fact a member, but with only a broker name attached to the membership. No sales staff is listed, something more typical of a member desiring only access to MLS data. 6,150 properties of various types are currently listed with the Flagler Association of Realtors MLS. None are listed by Ginn, making his remarks appear disingenuous.
From the members' viewpoint, Ginn Hospitality drew good marks. They were pleased with the rental program as well as the food and beverage operation. The condition of the Ocean Course, however, drew complaints. Bobby admitted the sorry conditions, saying that the course was not constructed according to the plans. While quick fixes would help some, the final solution would require closing the course for months. Ginn plans to do this in conjunction with an overhaul of the clubhouse, but not this year.
Members expressed concern that the strategy of reducing prices on remaining developer inventory reduced the value of their property. They also were strongly against the concept of a recallable membership being considered by Ginn. They felt that outside members would diminish the exclusive nature of their current lifestyle. In fact, recallable memberships are common in most clubs. They supplement club revenue (while the project is being built out) until the desired membership level of property owners is reached. Bobby agreed only to work out a compromise with members, implying that some form of recallable membership was definitely in the cards.
Interestingly, nobody complained about the presence of members from Centex's Tidelands Condominiums. Centex had acquired several Ginn memberships as part of the sale of the Ocean Course to Ginn. These were used as incentives to sell Centex's remaining Palm Coast condominiums.
The conspicuous absence of any member questions regarding current lawsuits, whether by accident or design, was surprising. One property owner, however, dispelled the Ginn assertion that they did not try to sell to speculators or investors; that their goal was to sell to people who will build. This caller said he made it clear to the Ginn salesperson that he had no intention to build. He said the Ginn sales team pitched it as speculative.
Another property owner asked Ginn to disclose the number of Conservatory lots in foreclosure and the number of those delinquent on association dues. Bobby, politician like, managed to answer a different question than the one asked, thus avoiding the original question. Public records show that 13 Conservatory lots have been taken back by lenders through foreclosure. Two have since sold, one for $85,000, the other for $92,500. An action to foreclose has been brought against an additional 60 lots. All foreclosure filings do not end up with the lender taking possession. Some owners are able refinance or renegotiate the terms of their loan.
If Bobby Ginn wants the support of his property owners and members as he works his way through troubled times, he is going to have to do a better job of communicating honestly with them. Yesterday's conference call was a good start.