Court Receiver’s Letter Highlights Challenges at Reynolds Plantation

Highly amenitized golf communities face cash flow difficulties as long as the second home and luxury retirement home markets flounder.

Palm Coast, FL – June 16, 2011 – has obtained a copy of a letter sent yesterday to Reynolds Plantation property owners and club members by the court appointed Receiver for Linger Longer Development Company (LLDC), Andrew Bolnick. In communicating the "Status of Receivership/Operational Changes," Bolnick addresses many issues shared by dozens of master planned communities built around lavish amenities during the 1990s and early 2000s. Their business model is unsustainable in a poor real estate market.
Bolnick was appointed in May after LLDC’s attempt to sell its amenities to club members was soundly rebuffed. The Receiver’s challenge is to recover the highest amount possible (for the lenders to whom LLDC is in default) through the sale of liened assets. The assets include the Reynolds Plantation amenities, building lots, and developable land. Understanding the key role of the golf courses to the community, Bolnick pledges to exhaust other opportunities for cost reduction before affecting golf maintenance.
Regarding cash flow and operations, the letter states (emphasis added):
"The general corporate overhead expenses have been reviewed in detail and reduced substantially.    These reductions in reoccurring monthly expenses far exceed any reductions which have been made to club amenities.  This process will continue as we identify further savings in general overhead expenses which will not impact the quality of the Linger Longer product nor result in a material impact on the amenities provided to members and owners."
"Receiver’s budgets have been prepared for both lender groups (the Bank of America group and the Empire Financial group) so that arrangements can be made for the timely funding of the substantial operating deficits which still exist and which must be funded during the Receivership.  This process will allow me to maintain adequate cash flow during the Receivership to pay the post-Receivership expenses on a timely basis, and to maintain normal operations for LLDC."
Regarding membership initiation deposits:
"First, all initiation deposits paid for a new membership will be placed in a segregated account, and will not be commingled with operating funds nor used for operating expenses of LLDC.  These funds will be used to refund membership deposits according to the membership plan. As Receiver, I do not have possession of any of the prior initiation deposits paid by existing members to LLDC, nor am I responsible under my Court Order for them.  However, moving forward under my Receivership and pending the potential sale of the property to a new entity, I will segregate all such new initiation deposits."
"Finally, while I understand the members’ concerns over their prior initiation deposits that were paid to LLDC, I point out that historically all initiation deposit refunds have been made by LLDC when and as due under the existing membership plan.  Since new membership initiation deposits are utilized under the membership plan to pay such refunds when they are due, the existing membership plan essentially is a self-funding mechanism."
While accurate, the above statement is misleading. The existing plan pays resigning members from the proceeds of new membership deposits. If there is a net imbalance, with more members resigning than new memberships sold, refunds can be tied up for an indefinite period. It is only self-funding in the sense that the Receiver/lender (or the developer before) does not have to pay the refunded amount from their funds. It is not clear whether the new non-comingled deposit monies will be used to refund already waiting, previously resigned members or only newly-resigned members. Total membership deposits previously paid are estimated to be about $100 million. These funds were comingled by Reynolds and no longer exist.
Regarding the ability of interested property owners and club members to interact with the Receiver:
"Finally, I would like to resolve any questions about my communications with RIPOC (Reynolds Independent Property Owners Coalition) or other owner groups that express concerns or wish to involve themselves in the Receivership process.  As a Court-Appointed Receiver, I have sole responsibility for the management and disposition of the assets under my Receivership, subject only to lender approval where required in the Order.  I cannot and will not empower or delegate authority to any such volunteer groups.  I will continue to recognize and work with the pre-existing Board of Governors, and its various committees, which are part of the existing membership structure at Reynolds Plantation, as the official advisory Board to LLDC.  I have advised RIPOC and any other new volunteer group that they must submit their issues/concerns/recommendations to the BOG on any matter that is within the existing scope of the BOG.  If any such volunteer group has questions about other areas of my Receivership that are outside the existing scope of the BOG, then those matters can be directed to me and I will address them in my capacity as Receiver, in my sole discretion. "
Regarding marketing the encumbered assets:
"With respect to my future course of action at Reynolds Plantation, my attention now will turn to the organization and marketing of the sales effort for the lenders’ collateral.  On this point, my preferred path is to seek consent of all lender groups to offer the collateral for sale as a package.  It is my current belief that a consolidated marketing package is likely to produce the highest value for the collateral, and also the best quality purchaser for the assets.  However, I do not control the decision of the lenders and I cannot guarantee such result.   I am presently organizing the schedule of assets and preparing to list all of them in a consolidated offering, and I hope that the purchaser candidates will  include the premier luxury golf resort owners and developers in the world, but only time will tell as to our success in that regard.  If this initial effort is not successful, then of course various groupings of the assets for disposition must be considered down the road."

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