What we do know and don’t know about the option of defaulting?
Hindsight about buying this for-profit company is a lot clearer than foresight, in this situation.
If we look at Shelter Bay Company, it has annual income of approximately $409K from subleases and $285K from marina income. On the other side of the books it owes $6.2 million in back rent and $1,358,000 in rent each year for the next 5 years. So in the next 5 years it needs to pay out approximately 13 million dollars and has an estimated income of around $3,470,000 for a shortage of $9,520,000, minus reserves on hand of approximately $900,000. At the 2013, 2023 and 2033 master lease adjustments it will become even further in the red. To sum that up its income is about a quarter of what it owes. Any prudent owner of a company in this position would be looking at filing bankruptcy.
Who owes the money? A recent document from the Board of Director’s states “Shelter Bay Company owes the master rent, Shelter Bay Community, Inc. our homeowners’ association, is not a party to the master lease. The community is the sole shareholder (owner) of the Company. Individual members of the Community, whether leaseholders or fee simple owners, are not shareholders of the Company and also are not parties to the master lease.” It would seem that as sub-lease holders you do not owe the debts of the Shelter Bay Company.
If Shelter Bay Company defaults
1. We know that the marina will be managed by the Tribe. We know that the marina docks are getting to the end of their useful life and major expenses in maintenance are necessary soon. We know that dredging is needed soon and it could cost in the area of 4 million dollars. We don’t know if the Tribe would operate the marina in the same rent structure as it is now, but what else would they do with a marina?
2. We know that our subleases are protected and have been approved by the Bureau of Indian Affairs and that the Tribe would become our direct landlords. According to Judge Jordan “ I do agree that if there is a default under the Lease that the subleases would not be canceled and that the Tribe as lessor would not retake possession of the subleased land. The Tribe would become the landlord under the subleases and it appears would be only entitled to the sublease payments from its new tenants. This result was clearly contemplated under the lease and protects both the lessor and sublesses if there is a default by the lessee.”
3. We know what each of us would owe for our sublease up until 2044. We would each owe our lease amount plus an increase every 10 years based upon the Seattle CPI (it was 34% last time).
The average annual lease amount is now $472 Using the 34% increase described above, from 2003 until 2044 the average total cost is approximately $34,447. (compare this number to item 1 below)
4. We don’t know if our current no-cost sublease for the common community property would continue under a bankruptcy of Shelter Bay Company? If not, it would take some negotiations to establish a new value for the common land that we would all pay as part of our assessments.
5. We do not know if the Tribe would push the Company into bankruptcy or would be willing to negotiate some other settlement, perhaps one that would give them a reliable stream of money and the opportunity for sublease extensions purchased as a group for those who wish to purchase them. A bankruptcy judge might try to break the normal “corporate veil” protecting the assets of the Shelter Bay Community. We do not know enough to speculate on this at this time.
6. We do not know what the Tribe would charge to transfer your lease to a new owner. Shelter Bay Co. now charges $250.
7. We suspect that lease extensions after 2044 would be available similar to how they are in Pull and Be Dammed, available on an individual basis. In reality, this is what will likely happen if we don’t default.
8. We do not know if defaulting will have any effect on your ability to sell or the value of your home. Some feel that the value may increase with such a favorable sublease, others feel that the neighborhood would go completely to hell, lowering your value. It seems likely that continued litigation and an “unclear 10 year renewal Lease condition” would not be good, so a final new long term settlement might be desirable.
If we voluntarily gift the money owed from the Shelter Bay Community to the Shelter Bay Company to pay its dept.
1. We know the master rent for 2003 to 2013 has been determined to be $1,358,000. On the average the 870 sublesses would each pay $1,561 per year for that ten-year period. Over the total amount of your sublease (2003 to 2044), a conservative estimate of the total cost to each sublessee, based upon a 3% land value increase per year, would be $128,038. A more realistic estimate, based upon land values doubling every 10 years, might result in each sublessee paying approximately $284,102 in rent by 2044.
2. We know we will be protected from the possible risks in items 4, 5 and 6 above. Therefore, by paying Shelter Bay Company’s debt we are buying PROTECTION for Shelter Bay Community at a considerable cost to all members.
3. We know that the “Tribal Boats” will not be allowed to moor in the Marina, and that we will continue to own and manage it. Again, PROTECTION is what you are buying.
The 1st question to each of you: Is it worth the additional costs to you to buy the protection of the Master Lease and for Shelter Bay Co. to continue to own the Marina? Second, do you want to gain more information and perhaps some independent legal advice before voting on this issue?
Please comment and add your thoughts on this topic.