Renovation Update

May 13, 2017 – Q & A Round #2

Q. What is the exact amount of money that has already been spent and what was it for? How do we have $500K in obligations if we don’t go forward?

A. To be clear, the $500k is an estimate and includes items previously paid for dating back to 2013, obligations already incurred, and estimate of future costs. The breakdown of these items is below:

Previously paid – sunk costs

– Architect, Consultant, Engineering, Surveying, and Zoning/Permitting Fees: $130k
– Demolition: $32k
– Metal Building: $4k

Specific obligations incurred whether project proceeds or not (not yet paid)-sunk costs

– Demolition: 18k
– Metal Building: $111k
– Appraisal fee: $5k

Estimates of additional obligations/costs if project does not proceed

– Payments to iON for time spent over approximately 2 years: $125k
– Costs to restore property to pre-demolition state: $75k (this a rough estimate; could be significantly higher)

Q. What obligations, commitments or contracts is the club currently a party to, i.e., do we have a signed contract with the architect, contractor or other vendor related to this project? Do we have a signed loan?

A. We have a signed contract with the architect. We have a signed demolition contract with the construction company. We also have signed contracts with other vendors such as engineering firms and appraisers for the property. The loan appraisal was expected to arrive on May 11th. The loan cannot close prior to the appraisal so we do not have a signed loan agreement. However, we do have new information that declares the loan package will expire on May 26th.

Q. If we pull out of the project, the Board’s letter mentioned potential legal fees. To whom does the Board anticipate paying legal fees and why?

A. The Board does not foresee being hit with legal feels however legal fees could arise. In the scenario of not moving forward, the contractor’s attorneys would certainly advise their client to recover losses that were incurred on the job. Up to this point, iON Constructors has not been paid for any of their time for the last two years outside of the demolition contract. If the Board does not prepare for the possibility of legal review or potential legal fees, we are doing the club a huge disservice. This is absolutely not a scare tactic. It is an informed realization of all the potential scenarios that could be on the table.

Q. Have the architect’s rendering and specifications been looked at by any other architect or contractor to verify design and cost?

A. We are working with a very reputable architectural firm and contractor. The architect, Michael Antenora, is a member of the club and is looking out for the interests of the club. iON Constructors credibility has never been in question by the Board. The Building Committee has worked closely with the architect and the contractor, and is comfortable with the design and costs. Two previous members of the Building Committee, Chip McCormick and Michael Parker, have experience in the commercial construction area and have had a good working relationship with iON Constructors. We have worked with both the architect and the contractor for four years in getting the project to the finish line.

Q. Why did we only get one 1 bid for construction?

A. Our architect recommended that for commercial projects of this size we should go with a negotiated bid instead of multiple bids. In a multiple bid scenario, clients will often choose the lowest or middle bidder. However, once the job is underway, the lowest or middle bidder has often overlooked important details. Doing a negotiated bid allows the contractor to become familiar with the details the job, enabling them to build an accurate fixed price for the job and avoid lengthy and costly change orders in the actual construction process.

Also, going the multiple bid route was not recommended because of the Austin market and the relatively small size of the construction project. Invariably, any low bids will then rise through change orders as the project progresses and any high bid makes you question the others bids received. It’s questionable that any good Austin area commercial contractors would agree to the multiple bid process at all. Most Austin contractors are so busy they wouldn’t bother with a project of this scale and would simply pass on the job. You would also question any contractor that isn’t busy in this current climate.

Q. Why were fences erected and demolition initiated when no loan was in place, construction documents not completed and permits not finalized? Why did we spend $110K for the metal building and do the $40K demo before we had a bid and committed to plan?

A. At the time demolition was beginning, the Board believed the permit from the city was right around the corner. We did not know the city would delay the project yet again. The demolition contract was started and initiated so that the project would be as far underway as possible to avoid disturbances at the club during the spring and summer months. The board decided to enact and approve a separate demolition contract to meet those goals. Also at that time the metal building manufacturer, Ceco, notified us of a 9% price increase on materials. The Board felt it was worth the risk to take advantage of lower prices and order the building before the final contract was in place and signed. Steel prices have continued to rise and our contractor informed us this week that Ceco just put in place another 10% price increase as steel prices continue to rise.

Q. Does the project’s cost outlined in your email take into account an anticipated increase in property taxes based upon the enhanced value of the Club’s improvements?

A Yes. The club’s annual property tax bill is approximately $16k per year. Our forecast currently assumes that this cost will increase to approximately $28k per year in 2019, and grow at approximately 3% per year thereafter. This is an estimate based on general experience with property taxes. Actual property taxes may be higher or lower than this estimate. The member focus group that has been formed will be looking at all assumptions in the model, including property taxes, to determine whether they believe the assumptions and projections are reasonable.

Q. How did we go from a $1.5M expense at the in members meeting to now a $1.76M cost especially when we were told that cutting costs was looked at in the “value engineering” proposal?

A. The $1.76 million cost referenced in the May 8th letter includes both costs spent/incurred to date and future costs. Separately there are two bids from the contractor; a “full” bid and a “value engineered” bid. The remaining costs under the “full” bid total approximately $1.6 million, while the remaining costs under the “value engineered” bid total approximately $1.5 million.

The main item that was removed from the project in the “value engineered” bid is renovating the office space and the existing bathrooms. However, the city may in fact force us to renovate those spaces, as they are not fully ADA compliant. We must be ready for anything. Additionally, the electrical in that building is not grounded and that part of the building must be brought to code as part of this project.

Other items have been shaved off the bottom line. Originally, for example, 16 skylights were planned for the gym since we have 16 non-functioning skylights right now. Our contractor devised a plan to reduce the number of skylights to 8, which shaved $30K off the bottom line. Additionally, Ipe lumber and other exotic woods were originally selected for handrails at various locations. We eliminated those high-end items and selected more affordable handrail options.

Q. The letter from the Board mentions there are “other major repairs or replacements that we now know are needed”. Are these included in the $1.76M total or are there other costs the board knows of that we need to fund?

A. No, the $1.76 million is the renovation number and does not include other major repairs or replacements. The board has included a future expenses line item in our financial forecasting for these other major repairs we can foresee. Specifically, these other items total approximately $200k and include purchases ofew pool furniture, a repair of the pool’s sinking corner, playground equipment replacement, and resurfacing of a tennis court. The timing and sequence of these items are to be determined, but we have assumed in the cash flow model that they will take place over the next 2 – 3 years. The sufficiency of this estimate and reserves for future maintenance and capital items is one of the items we have asked the member focus group to review.

Q.Why was the previous vote to increase dues done before knowing the full costs?

A. The project was expected to move along much more quickly than it has. The board, being responsible, decided to initiate a dues increase vote to ensure the project could move forward and to build a cash base to address the expected early costs. The projections, at that time, suggested the project could be completed with the dues increase, but our current model shows that this was not sufficient. We don’t wish to fault a previous Board. Clearly, they could not foresee every cost incurred, and we are not sure what was being assumed for the operating cash flow projection for the Club. Note again, that this previous Board expected the project to be completed by the spring of 2016, approximately 9 months after the vote. The Letter summarizing the last Members meeting discusses the delays that have occurred.

5/11/17 – Project Status and Membership Vote:

Q. Is the construction project underway?
A. No. The project is not underway even though there are construction fences around the property. The fencing segregates preparatory demolition and the construction site from the rest of the operational club, for safety. Note that we have a membership vote coming to determine details of how the construction and operation of the club will be financed.

Q. When will the membership vote occur?
A. The Board has formed a focus group (comprised of Board and non-Board members) to evaluate options for changes to member dues/fees to fund the project while also retaining an operational reserve for the club. A vote will occur once that group recommends, and the Board adopts, a revised fee structure to fund the project at the current estimated cost.

Q. When do you expect this to happen? How long will I have to vote?
A. The Board expects to receive the focus group recommendation next Tuesday (May 16th) and have voting period run for 7 days from May 18th to May 24th.

Q. How do I make sure that I get to vote?
A. Be on the lookout for a member vote ballot on or around May 18th. In the meantime, make sure that the designated e-mail address that you have on file with the club is current. To do this, e-mail your current and preferred e-mail address and name to [email protected]

Q. Why is there a vote now?
A. During and after our member meeting, we heard from several members about a desire for the membership to be more actively engaged in the decision to proceed with the project, given its increased cost, and the likely need for dues/fees increases in the near future. The Board’s decision to request a vote now to authorize a dues/fees increase is our response to your feedback.

Q. How many have to vote in favor of a dues/fees increase to allow the project to move forward?
A. Per Westover Bylaws, a 2/3 majority of votes cast is required to authorize a change in dues/fees.

Project Overview and Cost:

Q. What is included in the construction project?
A. The following items are included in the construction project.
Beautiful, new stone and steel building exterior and new roof for both the addition and the existing building
Better lighting, skylights and ventilation in the gym
Entrance arbor with landscaping area
Better, wider walkways around the main building and to the courts
Two poolside rinse showers
New upper level meeting room with kitchenette and family bathroom
Centrally located Men’s locker room with showers and HVAC
Centrally located Women’s locker room with showers and HVAC
Ramp connecting tennis courts to the upper level meeting room and restrooms
Full ADA accessibility
Upgraded electrical to the facility
Required infrastructure from the city
Minor renovations to the existing office and bathrooms

Q.What is the current estimated cost of the project?
A. The total cost of the project is not estimated at $1.76 million. Because some of these costs have already been incurred, the remaining cost is approximately $1.6 million. This cost is over double the initial cost estimate of $750,000 provided 18 months ago.

Q. Why did the expected cost change so much?
A. Several reasons. First, the project now includes some features that were not part of the first estimate. For example; a decision was made by the past Board that the age and condition of the existing building warranted the installation of new steel siding and a new roof. The current Board believes this was a very wise choice for preserving the existing building long term, improving it’s utility and lowering maintenance costs. In addition, a decision was made in certain cases to improve building products, where it was believed that the initial expense would be recouped by long-term savings in maintenance costs. Second, engineering constraints were discovered as the project went from draft to detailed engineering drawings. For example, this effort revealed the need to build a retaining structure, and much deeper foundation support for the new project. Third, City review added elements to the project necessary for issuance of a building permit. For example, the City required the installation of additional fire hydrant service. Finally, subcontractor wages have also continued to rise rapidly in the city since 2015.

Q. Who is to say the remaining project costs won’t exceed $1.6 million? Has the Board done anything to make sure this doesn’t happen again?
A. While there will always be some degree of uncertainty associated with cost of construction projects; particularly if unforeseeable conditions are uncovered during construction, for example, finding an unknown water source where the new foundation is intended to go. However, the Board has undertaken serious efforts to try to prevent additional cost overruns and believes that future cost creep is much less likely than when the initial estimate was received in 2015. The primary reasons for the Board’s belief is the confidence in the contractor, and the effort over the past 24 months that was put into developing the current bid. While the 2015 estimate was based on initial concepts for the project, the current bid was generated after detailed vetting of each element of the project and is based on a project scope and engineering plans that have been approved by the City. Further, the contractor has developed the bid from detailed drawings, designs, and countless site visits.

Q. How will the increase in the costs of the construction be funded? Is an increase in dues expected?
A. A detailed cash flow model has been developed that makes the Board comfortable that the project can be affordable to the members. A member focus group will be formed to quickly develop a specific fee structure increase to vote on by the members, to become effective October 2017. The fee structure may include some combination of dues, assessments or other fees increases. Details about the focus group and the member vote will forthcoming.

Q.Is the current bid final? Are there efforts being made to reduce the bill further?
A. The Board has actively engaged the contractor to find cost savings strategies. The Board and Building Committee have shaved some items off the bid to create a lower bottom line, and the Board will continue to investigate other savings strategies. Some additional reductions may be possible. All cost saving items need to be looked at closely as some reductions may save dollars but cause significant delays in the project.

Q. Who is the contractor for the construction?
A. iON Construction. More information about iON can be found here: http://ionconstructors.com/

Q. Who is the architect?
A. Antenora Architects, LLP. More information about Antenora Architects can be found here: http://www.antenoraarchitects.com/

Voting Considerations:

Q. What should I consider when I vote on the dues increase to support the project?
A. Below are some considerations that we think are important to highlight and for the membership to consider while voting:
If the member vote does not pass to raise dues/fees necessary to pay for the project, the club still has obligations associated with the project, which when taken in conjunction with expenses already paid for, are estimated to be $500,000 plus potential legal fees. Under this scenario the club will have little to show for its expenditures.
During construction, unforeseeable conditions could be uncovered that result in delays and/or cost increases. As discussed above, the Board feels basing the bid on detailed designs and engineering plans has mitigated this risk.
Future operating costs and capital expenditures may exceed the costs assumed for the purpose of creating the cash flow model, resulting in the club’s inability to meet its obligations without raising dues again. The Board believes this risk has been mitigated by using reasonable estimates of cost increases and by working with Club Manager Brendan Sheehan to determine the major repairs and capital expenditures that may be required in the foreseeable future.
Proceeding with the project under the contemplated loan package will encumber the club with a loan of up to $1.5 million. This loan will utilize the club’s assets (essentially the club itself) as collateral. If the club defaults on the loan in the future, the bank may foreclose on the property of the club. The Board believes this risk is mitigated by analyzing the foreseeable future cash flows of the club and by requiring a member vote to approve dues increases and assessments before proceeding with the project. Additionally, if the club finds itself in financial distress in the future, the board and members may take action at that time to resolve any issues.
Based on the current loan terms, early projections show that changes in dues and/or fees needed to fund the project at the current cost estimate will still enable Westover’s costs to be below those of other neighborhood clubs. For example, dues at the Western Hills Athletic Club (Rollingwood) are approximately 65% more than Westover dues and dues at Courtyard are more than 150% more. The Focus Group mentioned previously will examine options for the structure of the proposed changes and make a recommendation to the Board next week for Member vote.
Proceeding with the project will add new facilities to the club and will lengthen the life of existing facilities. If the memberships elects to not move forward, there may be other maintenance repairs, such as residing and reroofing the gym that could eventually be required.

Q. How has the Board weighed these risks and considerations?
A. While each Board member’s thought process is different, the Board unanimously believes that proceeding with the project is ultimately in the best interest of the club.

Communication:

Q. How can I contact the Board of Directors?
A. The Board can be reached by e-mail at [email protected]

Q. How can I get more information about the project or the vote?
A. E-mail Brendan at [email protected] or the board at [email protected] Alternatively you can reach out to any of the nine board members individually and we’d be happy to discuss or help you find the information you are looking for.

Current State of the Club/Construction Logistics:

Q. Is the club insured for possible injury due to the temporary construction fence around the pool?
A. Per the terms of the demolition contract with iON Constructors, iON is carrying liability insurance.

Q. What is the timeline for construction?
A. Construction should begin in early June, if the membership approves the financial changes needed to proceed. The contractor is estimating that construction will be complete in 8 to 12 months from the time construction begins.

Q. Why begin construction now, just as summer approaches?
A. After four years of planning the pieces are now in place to begin construction. Any delays are likely to result in higher costs. If construction begins now then the club will be 100% ready for the start of the summer season next year. If construction is delayed then the construction project could impact next year’s summer season.

Q. Will be pool remain open during the construction period?
A. Yes, though some of the area around the pool will be under construction, a temporary fence has been built that separates the pool area from the construction site. Some patio/deck areas may not be accessible during the construction period.

Q. Where will the entrance to the pool be during the construction period?
A. A temporary entrance near the tennis courts has been built. This entrance is accessible by walking across the deck to the tennis court pro shop.

Q. Will there be any access to the existing bathrooms during the construction period?
A. Two Porta-Potties have been placed in the tennis court parking lot. The existing bathrooms will remain accessible whenever possible. But, the expectation is that there will be some times during the construction period when the bathrooms will have to be closed. Currently the bathrooms are not easily accessible from the pool are but discussions are being held with the contractor to understand if there are any viable options to increase the accessibility in the near term.

Q. Will the gym be closed during the construction period?
A. Parts of the gym will be used as a storage area for the contractor. About 2/3rds of the gym will be available, so the gym will remain open during the construction period.

Q. Will the sport camps be held during the summer?
A. Yes, the sport camps will be held. A part of the gym will be available for camp activities.

Q. Will the usual summer parties be held?
A. Yes, the expectation is that the Memorial Day, July 4th, and Labor Day parties will be held.

Q. Will swim meets be scheduled at the club during the summer?
A. Probably not. The officers of the swim team are making efforts to have Westover home meets be held at the home swim club of the opponent. If this is unsuccessful, efforts will be made to have the meets held at neutral sites, such as Courtyard Swim and Tennis Club.

 

 

4/30/17 RECAP

We were so excited to see many of you at the member meeting Sunday, April 30. It was wonderful to hear from you, and we thank you for taking your time to learn more about the project. Here’s a recap of the meeting and project for the majority who could not attend.

Westover Hills Club is almost 50 years old. Four years ago, the board set forth planning a renovation that would support WHC for the next 50 years!

THE CURRENT PROJECT INCLUDES:
Beautiful, new stone and steel building exterior and new roof
Better lighting, skylights and ventilation in the gym
Entrance arbor with landscaping area
Better, wider walkways around the main building and to the courts
Two poolside rinse showers
New upper level meeting room with kitchenette and family bathroom
Centrally located Men’s locker room with showers and HVAC
Centrally located Women’s locker room with showers and HVAC
Ramp connecting tennis courts to the upper level meeting room and restrooms
Full ADA accessibility
Upgraded electrical to the facility
Required infrastructure from the city
Minor renovations to the existing office and bathrooms

IMPORTANT ACTION REQUIRED:
The project is NOT underway even though you see construction fences around the property! Demolition was halted because of city requirements.
YOUR VOTE WILL BE REQUIRED TO KEEP THIS PROJECT MOVING FORWARD.

The board is fully supportive of this building project. Please read on for in depth details.

Here’s what we know:
The city has approved a site plan exemption for WHC and granted favor to the club, allowing us to include a new entrance facility while we do the building addition. This is beyond the scope of a typical site plan exemption and the previous board chose to seize that opportunity.
The club has been offered a very attractive loan package.
To get the project to this point, WHC has incurred many expenses and obligations in support of this project. Cancellation, material change, or delay of the project is very likely to strand many, if not all, of these costs.
Loan terms can expire – we are on the cusp of losing an historic rate.
Construction bids face expiration dates.
Many members are in full support of the project, while others have reservations.
The board’s primary position is to serve the best interests of the club and members at large. While there are diverse opinions represented on the board, as a group the board feels that proceeding with project is in the best interest
of the club, given the circumstances and alternatives.
We have built a monthly cash flow model for the club, projected out five years until September 2022, the end of that fiscal year.
Our financial model demonstrates that the dues increase from September 2015 would not have fully supported the financial needs of the club based on the original $750,000 project estimate given assumptions of modest operating cost increases, and other major repairs or replacements that we now know are needed. By the year 2020, if not sooner, the club would have been forced to raise fees in order to meet financial obligations under a $750,000 project cost scenario.

Here’s what happened:
In February 2017 construction plans were finalized and a formal construction bid was received from Ion Constructors. This was a negotiated firm bid, with Ion selected as the sole bidder based on their excellent reputation. Ion is intimately familiar with the details of the project, having worked with the board and the architect for approximately two years before submitting this bid.
This construction bid was almost double the amount of the 18-month-old estimate. When taken in conjunction with other costs of the project, the overall project cost is over $1.76 million. Approximately $120,000 of this cost has already been paid, $140,000 would be paid for with the club’s cash currently on hand, and $1,500,000 would be paid for with proceeds from a loan that has been proposed by Prosperity Bank.

While initially shocking, careful review of the project and documents made it clear the cost change was not unwarranted. The project evolved over the last year and a half to include needed upgrades to our aging building, better building products for long term maintenance ease and affordability, and updated infrastructure required by the City of Austin. Subcontractor wages have also continued to rise rapidly in the city since 2015.

Cost of not doing the project now
After careful review, we believe that, between expenses and obligations already incurred and future expected expenses needed to return the club to its original condition, the project effort would cost the club roughly $500,000 plus potential legal fees. And worse, the club would have essentially NOTHING to show for these expenses.

Case for doing the project now
The remaining project cost hovers around $1.6 million and we believe this cost is warranted considering all that has been added to the project since the initial estimate. The board recommends moving forward with this project as soon as possible, because not doing so would drain the club’s financial resources and leave us with no improvement to the club’s facilities. That does not sound to us like it’s in the best interest of the club or the members.

Here’s what we believe:
The board believes the members should vote now to approve a fee structure that will allow the club to proceed with the project and remain fiscally strong for the foreseeable future. The board will form a focus group consisting of members to determine the best fee structure to vote on.

How will this be paid for?
The board has built a detailed cash flow model that makes us comfortable that this can be affordable to the members. We will form a member focus group to quickly develop a specific fee structure increase to vote on by the members, to become effective October 2017. The fee structure may include some combination of dues increase and assessments. Details about the focus group and the member vote will follow.

Who is to say the project won’t exceed $1.6 million? Has the Board done anything to make sure this doesn’t happen again?
While there will always be some degree of uncertainty associated with cost of construction projects, particularly if unforeseeable conditions are uncovered during construction, for example, finding an unknown water source where the new foundation is intended to go. However, the Board has undertaken serious efforts to try to prevent additional cost overruns and believes that future cost creep is much less likely than when we received our initial estimate in 2015. The primary reasons for our belief are our confidence in the contractor, and the effort over the past 24 months that was put into developing the current bid. While the 2015 estimate was based on initial concepts for the project, the current bid was generated after detailed vetting of each element of the project and is based on a project scope and engineering plans that have been approved by the City. Further, the contractor has developed the bid from detailed drawings, designs, and countless site visits.

Additional steps this board has taken:
Just to be clear – the board has actively engaged the contractor to find cost savings strategies. We have shaved some items off the bid to create a lower bottom line, and we will continue to investigate other savings strategies. Some things may be possible – some things may cause delays and other costs (expert costs – survey fees – engineering fees) which make the “savings” not a savings at all.

This board has also taken steps to look forward to what other items may need to be repaired or replaced within the next five years. In our financial model, we have included $200,000 savings to be put aside for future capital expenses. This again is part of our mandate as evidenced in the bylaws. We feel comfortable knowing we are looking forward beyond the building project and including needs of the club we can foresee.

What are some of the risks associated with the vote and the project?
If the member vote does not pass to raise dues and/or an assessment necessary to pay for the project, the club still has obligations associated with the project, which when taken in conjunction with expenses already paid for, are estimated to be $500,000 plus potential legal fees. Additionally, in this scenario, the club will have nothing to show for its expenditures.
During construction, unforeseeable conditions may be uncovered, resulting in delays and/or cost increases. We feel this risk has been mitigated by basing the bid on detailed designs and engineering plans. Also, we are utilizing a contractor that is experienced, has an impeccable reputation, and is extremely familiar with the project and the site.

Future operating costs and capital expenditures may exceed the costs assumed for the purpose of creating the cash flow model, resulting in the club’s inability to meet its obligations without raising dues again. We believe we have mitigated this risk by using reasonable estimates of cost increases and by working with Club Manager Brendan Sheehan to determine what major repairs and capital expenditures are needed in the foreseeable future.

Proceeding with the project under the contemplated loan package will encumber the club with a loan of up to $1.5 million. This loan will utilize the club’s assets (essentially the club itself) as collateral. If the club defaults on the loan in the future, the bank may foreclose on the property of the club. We believe this risk is mitigated by analyzing the foreseeable future cash flows of the club and by requiring a member vote to approve dues increases and assessments before proceeding with the project. Additionally, if the club finds itself in financial distress in the future, the board and members may take action at that time to resolve any issues.

What we promise:
We promise to be better communicators with the members. It took your new board a little while to absorb all the facts and fluctuations of this project. Now, we are up to speed and moving forward. Please be on the lookout for more project related information. In addition to financing the improvement project, we believe there are additional opportunities to further strengthen the club’s financial position. The board will be diligently working on these opportunities and communicating with you about them.

While diverse board members and club members may all reach many different conclusions about how to best proceed in the best interest of the club, we strongly believe we can find comfort and friendship in knowing that we share a common goal. We look forward to serving you and the club this year.

Peace, love and Westover!

Your 2017 Westover Board

Beth Weldon President
Scott Fish Vice-President
Beth Perkins Treasurer
Andy Swanson Secretary
Greg Carroll
Diego Rubio
Jim Rizk
Rusty Campbell
Rowdy Stovall