A Richmond golf club has entered bankruptcy protection, unable to refund millions of dollars in initiation deposits owed to current and former members.
The Dominion Club, a 19-year-old country club that includes a Curtis Strange-designed golf course in Western Henrico County, filed for Chapter 11 bankruptcy protection Monday evening. It notified members at a meeting at the club.
The Dominion Club did not have the money to pay back $1.7 million in initiation fees that were contractually supposed to be returned at the end of December to current and former members, said Vernon Inge, a lawyer from LeClairRyan who is representing the club. (You can see a list of the members and former members, and what they are owed in a filing here.)
Other members were supposed to eventually be paid back $10 million to $11 million that they paid in initiation deposits. But those funds weren’t due just yet. That will make those members unsecured creditors, Inge said, adding that it’s unlikely unsecured creditors will get much money back.
Some vendors might also not get all they are owed, Inge said. Despite these problems, the club has been mostly up-to-date on its bills and will keep paying them after the filing.
The country club, which opened in 1992 and was developed by HHHunt, is operationally on better financial footing, Inge said. HHHunt is owed $10.6 million from the club and will turn that credit into equity, Inge said, meaning the developer will lose that sum.
“It’s business as usual,” said Inge. “It will be completely transparent to the users of the club that we are in Chapter 11 and the club will be providing services when the weather permits, just like it’s always been.”
Dominion is the second local course to enter bankruptcy in recent years. In October 2009, the Federal Club filed for Chapter 11 bankruptcy protection. That course was eventually sold for less than half of what it cost to build it.
Other golf clubs have filed Chapter 11 bankruptcy protection in Williamsburg and Lynchburg. And even courses that cater to the wealthy are struggling to find enough new members to replace ones that have given up their memberships. (You can read about that in an RBS story here.)
Compared with the Federal Club, the Dominion Club has far more members (more than 700 compared with fewer than 150) and has enough cash flow to maintain the course, Inge said.
Inge said the Dominion Club has paid back $6 million in refunds. However, the club does not have enough to keep paying.
Members were first notified that initiation deposits would not be refunded in a letter that went out last week.
HHHunt has been operating the club, Inge said, and might try to turn over control to the members. That move was also tried at the Federal Club, but the member-group did not end up bidding.
“The members will basically be the only creditors,” Inge said. “Ultimately, we want to find a way for the current members to control the golf course.”
HHHunt considered selling the club to the members last decade, but the deal fell through.
Dale Austin, the chief financial officer for Patient First and a member at the Dominion Club, said he paid an initiation of $16,000. Austin said members were supposed to get their money back after a certain number of years or when they left the club.
“If you resigned from the club, you had to do it on Aug. 1 and it was effective Dec. 31,” Austin said. “Typically, a member only gets his or her money back when the club can sell the membership.”
Aaron Kremer is the BizSense editor and covers the golf business. Please send news tips to Editor@richmondbizsense.com.
This is a total shell game (feels almost ponzi like). You have one one of Virginia’s most successful developers (Harry Hunt) and development companies HHHunt bankrupting a single entity they own to get out of paying deposits to past members. The club owned by a HHHunt entity is incredibly financially viable with 700 members and many years $1,000,000 profits.
Now what makes it look bad on paper is there is another HHHunt entity (Loch Loven or something random like that) which owns the land the club and lake sit on and that other HHHunt entity draws out $800,000 to $1.1 million annually. You don’t see this type of success with clubs very often but with a young, vibrant and active membership located in one of the most successful planned communities around it is a very unique situation.
While most clubs would re-invest these types of profits back into the club for new greens, irrigation system etc, HHHunt viewed it as a cash cow to pull the money out (well within their right) and not re-invest into major capital projects.
This bankruptcy is about not paying back members large initiation deposits and taking down a particular HHHunt entity to benefit other HHHunt entities with a windfall like write off. HHHunt will tell you how much they have lost in The Dominion Club (total spin), but really it’s the money paid to other HHHunt entities for crazy rent and other services.
More power to any company for being successful, but something doesn’t smell or feel right here. Don’t feel sorry for Harry Hunt, David Reemsnyder, Dan Schmitt David Tuggle and other HHHunt executives as they are living life large with multiple homes, expensive cars etc. Harry Hunt is most likely at his Florida home just off a private jet.
Feel bad for the members of the club who made a choice to join the club based on a promise and contract that their $18,000-$28,000 deposit would be paid back. Also feel bad for the vendors and employees of the club who will suffer.
Something tells me that this probably skirts that legal gray area just enough so there is not much one can do, but that doesn’t make it right. Yes, corporate greed is alive and well here in the Richmond area!
Hopefully others will share their thought and Richmond Bizsense will do some investigating and tell all sides to this story, not just the HHHunt spin.
It is sad that debts and obligations can be washed away in bankruptcy court when the debtors have the resources to ‘pay-up.’ However, as a Realtor who was asked by a client that was interested in a home on the course 6 years ago, ‘who owns the golf course’? I soon found out from H H Hunt via phone, that they owned it, never intended to be in the business of owning a golf course and said if the members did not purchase it from them, they would sell it to another golf company, or something, to get it off their books. Needless to say my buyer decided to buy elsewhere but he was adament when he said,”…those memebers are foolish to belong to a club when they don’t own and control the course. There in trouble and don’t even realize it.”
When I told the listing agent of the home he had expressed so much interest in, my buyer’s sentiments, she totally discounted it. Later she called and said she had spoken to the President of the club and that my client’s statement was ridiculous and he did not know what he was speaking about.
Since then, whenever I’ve had a buyer interested in Wyndham I have disclosed what I knew to be true about the golf course. They have always said the same thing my previous buyer did.
I know this is a horrible situation, but why didn’t the memebers protect themselves against this years ago?
There’s really no way to say this without sounding rude, but the members likely didn’t protect themselves because most of them have never been members of another club before and have no idea how one is supposed to operate. If what Mike is saying is true that would have made me very skeptical long ago, why would the members not buy the club if it was pulling in millions in profits a year?
The vast majority of the golf members were/are members at other clubs. Many are members at 2 clubs today like Kinloch, Foundry,Hermitage etc.
Why didn’t the members buy the club? We tried about 3 years ago and thousands were spent on evaluations and appraisals by golf management consultants. The value came back at about $13 million. Hunt offered it to the members for about $25 million. They were not motivated to sell because they were making so much money off the lease of land and knew they could get out of paying back the deposits.
Remember Hunt says they don’t want to be in the golf business yet they own Hunting Hawk which they won’t sell and won’t sell the land The Dominion Club is on. They also just exercised an option to expand Wyndham by 300+ acres into Hanover County.
Lots of layers to this onion!
This smells bad. The perfect way out for Hunt and their banks is to dump their contractual member deposit obligations and then get the members to buy the club while sticking them with monthly obligations to Hunt for $83K for land rent and $100K for water charges. What a sweet deal for them. Maybe this was their original plan.
My suggestion would be to completely reject the first, sweet heart deal and wait for the banks to step in without Hunt. Right now the banks are hoping Hunt gets the members to buy the club. They could clear at least $10MM in obligations from their balance sheet. They would sell the club to the members – $25MM was their last (absurd) selling price – adding funds to their balance sheet. And, best of all, their proposal locks in monthly cash flow of $183,000 from the member buy-out. No doubt Hunt has negotiated a hidden deal with the bank. It is, after all, their style.
It is important for the current members to remember that the banks are secured creditors; they will divide whatever money there is. The member claims are considered unsecured, thus subordinate claims, worthless in any event.
If they want to really aggravate Hunt, they should bring back key members of the first buy-out committee. They did the research, they tried to negotiate with Hunt and they know how much it really costs to operate the club. Finally, don’t forget all the maintenance Hunt has failed to perform that will eventually be required; regardless of who is running the club. For starters, the greens are past time when they need to be redone. Another cost transfered to the future owners from Hunt.
Finally, Hunt’s assertion that the club is the basis for property values in Wyndham is self-serving fiction. It could be transformed into a park and the schools and Wyndham community would remain among the most desirable in Richmond.
Say no to their proposals and negotiate with the banks not with Hunt.
The judge seemed very upset with HHHunt at proceedings!
They tried to push through a motion that no one could sue HHHunt or entities moving forward in this case. Sneaky but it didn’t work!
They also tried to get a $1.1 million annual rent provision through to set an annual rent if they ever leased the club to the members. Again sneaky but it didn’t work.
The million dollar land lease from one Hunt entity to the other which basically put the club in bankruptcy and which they tried to continue through motion could not be produced when the judge asked to see it. Judge again was not happy.
Moving money from one Hunt entity to the other, one entity thrives (Loch Leven), the other bankrupt (Dominion Club) books that feel somewhat cooked, the missing lease; this is getting interesting!
Could there be CRIMINAL issues here? Should the Henrico Commonwealth’s Attorney be looking into this?
Looking for others on the resigned list to join a class action lawsuit. Would some attorneys in RIC who believe they can win this please step up?
I don’t know why anyone would think the refundable deposit structure would last forever. It was based on an endless supply of new members joining and paying the full deposit in order to pay out the older members that are still there or who have left. It works of a while but eventually you run out of new members since there is not an endless supply of them. That is the definition of a pyramid scheme. How could the members not realize that?