Pro’s and Con’s to Another Restaurant

By Barry Goldstein

Recently, I received the survey regarding the vacant space in the Anthem Center. The authors of the survey listed the pro’s and con’s of each of the 2 choices as they see the decision.  I am not sure of the amount of detail that they used or where it came from.  For example, they made an assumption on the cost of changing the current restaurant space to additional meeting rooms for our numerous clubs.  I am not confident in the assumed costs that they came up with but for the sake of argument; let’s assume they are correct (A big assumption). 

Since I am not an expert on construction costs, I will strictly look at the numbers that they provided.

Using their estimated costs, a homeowner must decide whether a onetime payment of $750,000 to repurpose the current space for the use by many clubs is an intelligent choice. The clubs would use these facilities multiple times and should alleviate some of the congestion experienced in our clubhouses. Currently there appears to be a shortage of meeting space for our clubs.

The second option is to allow a private for-profit restaurant operation. They are projecting that we will have to subsidize the private venture annually to the tune of at least $250,000 in the beginning, with no guarantee that the subsidy won't be increased. As we saw in the last round of negotiations for the last proposed restaurant, the board kept increasing the amount of the subsidy at every turn. We saw no limit and showed no bargaining power as the subsidy kept increasing. But according to the numbers provided in the one page Pro’s and Cons that we were just sent, after the initial cost to repurpose the space, the estimated maintenance cost is $160,000/year, a $90,000 savings compared to the restaurant subsidy. In approximately 7 1/2 years, we would recoup the cost to repurpose the space.  That assumes a capped cost for the new tenant, which has not happened in the past.  If we look at past restaurants that have failed, our board had increased the subsidy on a fairly regular basis as the tenants complained that they could not make enough money.  

To further understand these options, let us look at the recent decision of the board regarding the financial cost of the Liberty Center. The association used approximately $1,000,000 of our reserves for the repair of the Liberty Center. The board then chose to increase our assessment by 10% to replenish our reserves, instead of a special assessment. Remember that a special assessment is a one-time charge and not an annual increase to our dues.  Even if the assessment were spread out over a period of time, it will eventually end.  Then we are done.  A subsidy to a restaurant has no ending point. 

This decision for our Liberty Center now costs our homeowners an additional $770,000 per year, rather than a $1,000,000 charge one time. 

You do not have to be a financial genius to figure out which decision is the best financially. Having a restaurant after 5 previous restaurants have failed is not a smart move. You do not have to be a financial expert to see which option long term is in the best interest of our community.  

And remember, this simple analysis assumes that the numbers provided to us are in some way accurate and researched properly since this is an important financial decision for our community.

The real question is "If this were your personal money, would you make the more costly decision in favor of a restaurant"?

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