WILMINGTON- Last week Hermitage Club President James Barnes announced a plan to raise funding for vendor debt repayment, property tax payments, and operations through what is being called a one-time membership dues adjustment.
The membership charge was imposed after an equity and convertible debt offering failed to raise the minimum of $5 million. “We believe imposing a one-time 2017 dues adjustment of $10,000 on all membership classes across the board will take care of our short-term and entire season cash needs,” Barnes told members in a conference call. “We’ve discussed this with members and have significant support.”
Barnes said the $10,000, plus tax, charge would be due immediately, and would affect about 550 of the club’s 700 members and raise an additional $5.5 million. Trial members or those in their first year of membership would be excluded.
Club officials say the one-time charge is necessary after two setbacks, including a poor 2015 winter season that suppressed membership sales and stalled real estate construction while the club sought a master plan permit from the state. They also say they’ve spent $6.9 million on capital improvements to enhance the “member experience,” including the construction of a mid-mountain cabin, renovations to the clubhouse, and expansion of the child care program. Barnes said the club sold only 100 memberships during the winter of 2015, compared to 215 the year before.
In calling the charge an “adjustment,” Hermitage Club officials point out that membership dues have been kept “artificially low” thanks to subsidy from real estate sales.
“We’ve spent a lot on improvements to members’ experience, but dues have been kept artificially low for a long time,” said club spokesperson Meridith Dennes. “Members have come to expect and enjoy a certain level of service from employees and vendors, and that kind of experience comes with a price.”
Dennes said the “break even” point, at which annual membership dues will fully fund club operations, is about 1,000 members.
Barnes told members a portion of the fee would be used to pay off dozens of liens filed on club properties by vendors and contractors, and establish a “vendor management program.” The fee would also be used to pay property taxes due in Wilmington and Dover. The Hermitage missed its August property tax payment in Wilmington, and Dover is poised to take several Hermitage Club-owned properties to tax sale.
“That will leave $2.5 million in reserve, which gives us plenty of cash to get through the season,” Barnes told members.
On Tuesday, Barnes announced that the Hermitage Club plans to open for skiing over Thanksgiving weekend. This year the club has access to 40 million gallons more snowmaking water than previous years, after a water withdrawal agreement with Mount Snow expired when their West Lake reservoir came on line. According to a Hermitage release, the club aims to get their Last Chance trail opened first, and will need at least 36 hours of temperatures below 25 degrees and 3.5 million gallons of water to pull it off.
“During each production window, about 50 snowguns will be operated to produce the required 20 acre/feet of snow,” according to Hermitage officials. “Early season snowmaking costs are about $800-$1,000 per acre/foot. This cost goes down, the colder it gets. It should cost about $25,000 to get one trail and the base area covered up, groomed out, and ready to ski.”
Barnes says the funding will also position the club to start their process of recapitalization. He says the club has a high equity to debt ratio, and plans to use that equity to raise $50 million to $60 million in funding for real estate development and operating capital.
“Real estate right now is 100% sold out,” Barnes said Tuesday. “We have the next wave of 93 units in the permit process now. That includes townhomes, single family homes, and villas.”
Despite more than doubling this year’s membership dues (dues for 2017 without the “adjustment” were $9,500), Barnes says most members have supported, or at least accepted the additional fee. “Nobody likes a price increase, but members are quite aware that dues have been subsidized for the last six years. Either it gets subsidized by real estate sales, or it needs to come out of the membership. It’s the only two places you can go with that.”
But some members may not be amenable to doubling their dues. In an email to club members on Wednesday, Barnes responded to rumors that some members were considering legal action over the developments, calling for discussion and compromise.
“Any movement toward legal action, whether litigation, receivership or otherwise, will have the effect of destroying not only the financial investments made by so many of the club’s members, but also threatens the club’s ability to operate this winter season. Already, employees, having heard rumors of legal actions, are becoming increasingly concerned, may leave the club for other employment opportunities, and thus directly imperil the club’s operational viability. In turn, the negative impact on the club’s reputation will undoubtedly depress the value of real estate, causing real harm not just to the club’s owners and investors, but to those members of the club that own real estate both on and near the club.”