The Tellico Village Property Owners Board of Directors, staff, former board members from 2005 and United Community Bank representatives celebrated paying off the Wellness Center on Sept. 11 with a note-burning ceremony on the back patio of the building.
The event marked a significant milestone in the history of Tellico Village. The facilities plan was launched in 2005 and came full circle with the retirement of the note used to finance a portion of the Wellness Center.
Noteworthy was the participation of four board members from 2005 who can say they saw this project through from beginning to payoff.
Constructed between 2005-07 at a cost of more than $4.1 million, the Wellness Center was built using cash saved in advance and a $2.5 million construction line of credit. The corporate resolution authorizing the construction line of credit was signed by TVPOA president Bob Coates, treasurer Barry Corle and secretary Charlotte Soltman. General manager Winston Blazer and finance director Marvin Hunt signed for POA staff. Steve Hurst signed as United Community Bank president and his executive assistant, Beverley Gourley, notarized.
The line of credit was converted to an installment loan two years later, and the final full month’s payment was made in August 2020. The $18,150 monthly payment — $217,800 per year — is now available for other purposes to meet the ongoing needs of a growing Tellico Village.
We still have five pieces of debt on our books, though our general purpose line of credit has a zero balance. The Welcome Center note for $317,000 has about 15 years remaining. The medical office building note for $800,000 has about seven years left, though the debt is serviced entirely by the lease payments received from Summit Medical Group at Tellico Village. Most recently, about half the cost of the Toqua Golf Clubhouse was financed by a $1.2 million note and has about 14 years left. All these notes are well within the financial capabilities of POA to service.
The most significant portion of our debt is the roughly $6 million capital lease with the Tellico Reservoir Development Agency. This lease was converted from an operating lease (rent) to a capital lease (purchase) in 2016. The terms of the lease were renegotiated from a payment of about $400,000 per year, with an escalation clause of about $8,000 per year, and a remaining 67-year term to a fixed payment of $400,000 per year with 24 years now remaining. The assets being purchased with this capital lease include the Yacht Club, Chota Recreation Center, Tanasi Golf Clubhouse and hundreds of acres of common property and shoreline.
The original 99-year land lease between TRDA and TVPOA dates back to the development of Tellico Village by Cooper Communities in 1984.
We generally use debt conservatively to finance a portion of long-lived assets such as major buildings or land. For planned amenity expansions such as the Wellness Center and the Toqua Golf Clubhouse, we saved up about half of the cost of the expansion and financed the other half with debt. This practice is not only a conservative balance between equity and debt but balances the cost among past, current and future property owners of Tellico Village.
The medical office building was 100 percent financed but is being paid entirely by the lease payments received from Summit Medical Group. The Welcome Center was about 85 percent financed when UCB merged with First National Bank, and the former Tellico Village UCB branch building was made available for us to purchase. The opportunity to obtain what is arguably the most desirable piece of commercial property in Tellico Village at an attractive price was too good to pass up. The board seized the opportunity and converted the building to the Welcome Center as the central location for our marketing program and discovery tours.
In every case, the board thoroughly considered the value of the assets being purchased and financed and the benefits to property owners. We match the term of the loan well within the expected life of the asset financed. Even for long-lived buildings, we tend to finance for 10-, 15- and 20-year terms rather than 30 years. We pay notes off faster and at lower interest expense.
We also avoid capital equipment leases. These leases typically are more expensive than conventional bank financing and end-of-lease terms are often complicated and uneconomical. It has taken several years, but we intentionally allowed our previous equipment leases to run their course and purchased replacement equipment outright. We are now ahead of the curve and build capital equipment replacements into our annual budget and 10-year plan. Most years we commit about 80 percent or more of our capital budget to equipment replacements.
We maintain our equipment well and get extended life and mileage out of our rolling stock and other equipment. We save on interest expense and never have a car or truck payment.
The payoff of the Wellness Center note is a reminder of the long-term banking relationship we have enjoyed with UCB. When the facility was being considered, board and staff members sought financing from various banks and financial institutions in the area. One hindrance to obtaining financing were clauses in our governing documents prohibiting TVPOA from mortgaging or pledging assets as collateral for a loan without the assent of a majority of the members, a process which is terribly expensive and time consuming. UCB was the only institution willing to loan the money for the Wellness Center based on our ability to raise funds through the monthly assessment of property owners and from user fees generated by our operations. Our loans include a “Negative Pledge Agreement” that basically says we will not mortgage or pledge assets as collateral to anyone else. Our loans are backed solely by the full faith and credit of TVPOA but are unsecured by any physical assets as collateral.
From the bank’s standpoint, we are the best kind of customer they could have. We borrow money for long-lived assets, match the term of the loan to a conservative life of the asset and use a conservative mix of equity and debt for most of our major projects. We pay back our loans as scheduled and never miss or delay a payment. All in all, that is a pretty good strategy to follow.
