Almost nine years into what’s left of its rollercoaster relationship with Flagler Golf Management, the company that’s run the city’s 34-acre, nine-hole Ocean Palm golf course, the Flagler Beach City Commission is nearing assigning that lease to a new company, entirely severing its ties with FGM and starting relatively fresh.
Thursday evening, the City Commission unanimously approved waiving two provisions of the existing lease and one provision from a separate settlement agreement with FGM to ease the way for the new company to take over.
Most of the lease, including rent payments–now at $3,000 a month and increasing at 3 percent a year–will not change. The lease also includes a profit-sharing provision, granting the city anywhere from 1 to 5 percent of gross revenue of any 12-month period, depending on that year’s revenue (the more revenue, the higher the percentage, starting at $200,000).
The new company’s name is KTS Holdings LLC. It will be led by Jeff Ryan, a co-founder of Cure Putters (whose CEO is featured in a profanity-laced one-minute YouTube commercial).
Ryan Ryan described himself to the commission as a “third-generation Volusia-Flagler resident, a PGA professional with 20-plus years,” the PGA being the Professional Golfers’ Association of America. He addressed the city commission Thursday.
“My CV and golf goes back pretty long ways from places like Pebble Beach to places in the local market here,” Ryan said. “We’re looking at coming in and doing a complete renovation and turning it into really an asset for the community. As much as it’s just a golf course and it’s limited in its size and it’s not 18 holes, it still can function and run as a–for lack of better words–a country club. On a city level, the amenities and all the activities that go along with a golf course in the country club can be done on a city level. So we’re really looking to bring something great to the city that we can all be proud of and enjoy.”
Ryan and Flagler Golf Management have a letter of intent. The city’s relationship with FGM has been problematic, to the point that last year the city voted to break the lease and seek new management and FGM sued in riposte, before the two sides reached a settlement agreement. That was last June. The agreement gave FGM nine months to find a buyer for the lease, in exchange for the city dropping all claims against it. Now FGM has a buyer.
But the lease itself couldn’t be scrapped: a previous commission approved it as a 15-year lease, with options to renew for two 10-year terms, above the objections of some of its members for exactly that reason: it was too long a term with which to handcuff future commissions. Notably, Flagler Golf Management had provided scant financial information to the commission back then, what would prove to be a defining problem of the company’s relationship with the city over the years.
Understandably, the new company essentially wants to take over without being responsible for anything else that FGM might have gotten itself into. It would be a “clean break,” in the words of Jay Livingston, the attorney representing the new company.
“It’s a local connection,” Livingston said of Ryan, though at this stage neither he nor Ryan provided more details. “And it’s the right kind of group that you want to have bring this golf course back to where it should have been all this time. The first time I played on that course was like in 1995. So it’s gone through a lot of changes, but it needs love at this point. The greens are virtually unplayable at this point.”
There were assurances from Livingston and Drew Smith, the city attorney, that the golf course would remain a golf course. The only caveats concern the paperwork.
“We’re trying to move towards an agreement to essentially purchase the assets of the of the golf course,” Livingston said. But there were a few concerns in the settlement agreement the existing owner has with the city.
There were a couple of sections that he wanted waived in the current lease. One section names Flagler Golf Management as being the operator. The lease permits another management company to take over. But if it does, and Flagler Golf Management as a company is dissolved, then, theoretically, the city would have the right to terminate the lease. Obviously, the new owners would not want that potential. The lease also requires city approval of any re-assignment of the lease.
The third concern isn’t in the lease but in the settlement agreement between the city and Flagler Golf Management. “What’s filed with the court what’s actually a public record that can be discussed, is a provision that says: the lease is not assignable. But if the current operator can find somebody to sell their membership interest and LLC to, then that’s how essentially they get out from under this, and avoid a repossession of the of the golf course. And the problem there is that, I don’t care what the entity is, no purchaser ever wants to buy the stock of an entity that they have no control over prior liabilities. My client wants to assume the liabilities and obligations that the operator has with the city under the lease. But anything unknown related to that entity, any other potential liabilities, those are really hard to pin down and it’s difficult to plan for those.”
So the new owner would rather have the lease assigned without being hobbled. Smith saw no issues with the company’s request. “These from my perspective are waivable because they’re all agreement points,” Smith said.
It might seem like a new lease. It won’t be. “At this stage of it, we’re only talking about the existing lease so there’s not a new lease yet because they would be taking an assignment of the lease that was done eight years ago,” Smith said. “But to get to, I think, where their end game is, they would probably have to come to the table with the city and say: we want to renegotiate this lease.” At that point, the rent and other financials would be put back in question.
Ryan said “everything that we’re going to be doing is in its best intentions, will be in line with market pricing locally, regionally, nationally for what we are.”
If Ryan’s take-over was not imminent, according to the settlement agreement, the city would take over the course in March, but would then have to re-start the process of shopping for a new management company from scratch, as it did in 2015. It would also become responsible for basic maintenance of the course (in 2015, those maintenance costs were $14,000 a year).
“What my clients are willing to do is take it in its current condition under the current lease, bring it up to snuff,” Livingston said, with renegotiations ahead, including incorporating a new, 3-acre enclave that the city had bought since the 2015 lease was signed, and could now be incorporated into the new arrangement. “So this is the first step towards what hopefully become something we can all be proud of.”
The commission approved waiving the requested lease provisions.