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Rising Renovation Costs, Rental Contract End Leave Lake House With Deficit

by Karen Goff — May 23, 2016 at 4:30 pm 46 Comments

Tetra buildingReston Association says the Lake House property is facing a nearly $500,000 cost overrun and is seeking the Board of Directors’ approval to move $430,000 from the 2016 Operating Fund to cover some of the costs.

There are several reasons for the big gap. Among them: Former tenant Tetra commercial real estate was expected to rent back the property through 2016.

Instead, the company, which had its offices in the building since 2003, left at the end of 2015. That means RA did not receive about $107,000 in payments and was also responsible for paying $20,000 in property taxes. Tetra did not break a contract — the contract ended at the end of 2015. It did, however, unexpectedly opt not to sign two six-month renewals, said RA CEO Cate Fulkerson.

“When [Tetra president] Bill Lauer died [in 2015], it was his intention to rent back through 2016,” said Fulkerson. “His wife, Rosemary, said the company just could not stay — it held too many memories. So we said OK, but it accelerated our plan by a whole year.”

Adding to the deficit — renovation costs that ended up being more expensive than estimated. RA estimated that capital costs would be $259,000 this year. Instead, they are $687,000 due to LEED certification modifications ($60,000), preferences of the Lake House Working Group ($217,000), and Fairfax County requirements ($26,000).

The Working Group’s adjustments included a new layout, relocation of electrical systems for a new restroom and new plumbing for the kitchen, according to RA documents.

Fulkerson said there were even more suggestions for changes (from the working group, LEED and the county) that would have totaled nearly $1 million. Among them:an additional bathroom, more bathroom fixtures and more moveable partitions. However, she said she scaled them down in an effort to save money.

County requirements included restroom changes; a new water fountain to meet new plumbing codes; and a requirement to keep a load bearing partition that led to floor plan revisions.

LEED adjustments include a new HVAC system and light fixtures, among others.

When promoting the $2.6 million purchase of the Lake House in the spring of 2015, RA said it expected $55,000 net income in the first year. However, the latest budget proposal projects a $4,000 operating loss due to the unexpected expenses.

After a member referendum was approved by a narrow margin, RA purchased the building — which formerly housed Reston’s Visitor Center — in July of 2015. The association financed the entire $2.6 million purchase price.

Comstock gave the association a contribution of $650,000 to offset renovation costs. RA has projected income of more than $100,000 annually from after-school care and event rentals, which will begin in the next several months.

RA says it is optimistic it can quickly begin bringing in income. There has already been great interest in people renting the Lake House for events this summer, said RA spokesman Mike Leone.

Purchasing the Lake House, which sits on a little more than three acres on the shores of Lake Newport, gave RA 98 contiguous acres of open space as the property is next to Brown’s Chapel Park and Lake Newport Tennis. It also was a way to fend off interest from commercial developers.

Fulkerson said during the referendum process RA members would not see an impact to their annual assessments until at least 2018. She said on Monday that is still the case.

Fulkerson also said Monday that the money is available in the Operating Fund for Capital Projects. Moving it to the Lake House will not affect funding for other projects.

The RA Board will discuss the budget situation and moving money from the operating fund at its regular meeting on Thursday. It will also hear from the working group about potential long- and short-term uses for the property. The RA Board will also be looking at amended budget options for the remainder of 2016.

  • Mike M

    Gee, never saw this coming.

    Let me put my RA thinking cap on.

    OK. Sure! No problem! Just shut down some more pools. Oh! While we’re at it. Let’s shut down all the pools so we can also buy the API building.

    (Correct me if I’m wrong. But, isn’t this textbook mismanagement?)

    • Scott H

      Yup. Everyone that voted NO saw this coming. Never believe the rosy financial projections from the people promoting the spending of Other’s People Money.

  • Sue E

    I don’t understand how over $100k of anticipated revenue (Tetra real estate co. rent) was not included as part of the contract. It was too sad to stay in the space and RA said sure??

    • Karen Goff

      They were not bound by a contract for 2016. They had verbally agreed. The officially contract ended at end of 2015.

      • Sue E

        That’s really the issue. There was no contract for this expected revenue. Just a handshake. I realize the rent is a small part of the current budget issue, but to me it just shows a lack of business savvy or good legal advice.

        • Mike M

          Or it shows that RA wanted this to happen no matter how for reasons not entirely rational.

          • JoeInReston

            Could it have been a deliberate attempt to make the numbers look better to get it to pass referendum?

          • RestonRed

            Bingo! You are right. I’m sure RA board members just wanted to pad their talking points and numbers so they could say the picture was better than it was. Complete mismanagement and borderline fraud.

      • Adrian Havill

        A verbal agreement is a contract.

        • Adrian Havill
        • MJay

          A verbal agreement is not considered an enforceable contract with respect to real estate. Fulkerson either did not know this or wagered (and lost) a boat load of membership dues on the risk that the Tetra people would fulfill their non-binding commitment out of the goodness of their hearts (they didn’t; the reason is inconsequential). What’s worse is that Fulkerson should have brought all of this to the attention of RA’s $600,000/year lawyers. If they were good with this, then the lawyer at a minimum should be out on its rear end. The board at the time also is culpable for allowing Fulkerson to enter into a “verbal contract” despite the reality that such verbal contracts are unenforceable and, consequently, worthless.

  • Tetra packed!

    This Tetra deal is malfeasance.

  • cRAzy

    Why would any rational organization take money from an OPERATING fund to finance a CAPITAL improvement? Oh, yeah, stupid management!

  • RoadApples

    The road to hell is paved with good intentions:
    (it was the ‘intention to rent back through 2016’).
    Congrats to RA/CF on negotiating this rock-solid rental agreement!

    • JoeInReston

      Its not clear to me whether this is a case of good intentions/ bad outcome or a case of bad intentions/ bad outcome. Are we supposed to believe that the Chief Executive Officer of the Reston Association wasn’t smart enough to everything in writing? Occam’s razor would suggest otherwise.

      • Why do you bother?

        Occam has never met our esteemed Board of Supervisors.

      • RoadApples

        Touche’ on the Occam reference.
        That being said;
        I was attempting to give RA/CF the benefit of the doubt.
        Regardless; there is a ‘rat in the woodpile’: this rental business arrangement could run the game of
        naivete at best to a possible back room payoff (in some fashion) at worst.

  • Reston realist

    My understanding from reading the RA Board materials is that the construction overruns are the main cause of the $430k deficit. The revenue shortfall is obviously a problem but the consrtruction overrun of this magnitude is simply unacceptable. RA management has to be held accountable for this .
    Karen- I believe the article as written does not tell the real story. I would suggest a follow up or an amendment .

    • Karen Goff

      It’s all in there. Not sure what there is to amend. Members should go to the meeting Thursday to ask RA Board additional questions.

    • ItsNotMyMoney

      4. Install mirrors and smoke machines to facilitate transference of fiction to fact.

  • MJay

    Fulkerson should be fired, and I don’t just say that in jest. It is a poor excuse to state that the deficit is in large part caused by an expectation that the former property owner would rent the property back. If there was an expectation, then get it in writing. If it’s not in writing, don’t count on it, no matter how nice and convincing the party is. It is that simple.

  • Ming the Merciless

    Hey, we totally got ripped off! Who could have predicted that?

    THE WHOLE RA BOARD MUST GO.

  • John Farrell

    The cost of this boondoggle is now over $3.6 MM.

    All to protect the viewshed of three homeowners.

    This is a serious breach of credibility by the proponents of this purchase.

    Specific individuals within RA must be held responsible for a $1 MM overrun.

    • Dodge

      And who is on the working group which added a nearly a quarter of a million dollars for “preferences of the Lake House Working Group ($217,000).” When you have an expected income deficit, it isn’t time to start moving bathrooms.

      • BlameGame

        I’m calling BS on blaming the working group. They were never given a budget to work within. They were told to provide any ideas for the space – those with the budget were supposed to take the suggestions and see what could/could not be done. This is scapegoating at it’s finest.

        • Dodge

          Did you enjoy your time on the working group? :p /sarcasm

      • IWantMyMoneyBack

        There is still 125,000 in unexplained renovation expenses. A significant difference when the estimate was only 259 .

  • Chuck Morningwood

    We should start a petition to get this place named “Boondoggle House”.

  • Jamie MacDonald

    There is so much I could say, but saying it while the blood is boiling would be a mistake. I’ll just leave it at “I’m disgusted”. Like so many other elected officials, these flows MUST go!

  • Wings!!

    Should have been a Hooters….

    • Disgusted With R.A.

      At least with a Hooters or Twin Peaks , we might have made some of this money back!

  • james dean

    Terry Maynard w/Reston20/20 has some great info on this at
    http://reston2020.blogspot.com/2016/05/tetra-renovation-nearly-half-million.html

    • Guest

      Thanks to Terry Maynard and Reston 2020 for this significant contribution to the discussion.

  • clambj

    The RA better not take it out of their public art fund. Better to close down some more amenities that RA members actually use.

  • Adrian Havill

    Ah, the “too many memories” excuse. That’ll work.

  • Nyla J.

    Hold on! So when I receive my assessment bill next year I can just opt out of my contract with Reston? For me, paying the bill would hold too many memories. (Of simpler Reston times….of pools and paths…..and nothing to embezzle or broker shady deals upon)

    • thebratwurstking

      Interesting thought. Is there a legal way to not have to pay Reston HOA fees? Some kind of an opt out?

      As for the “unexpected” overrun. Unexpected by who? Certainly not those, who were against this purchase in the first place.

      And this handshake and broken deal? I never got a handshake deal with my bank or other organization I do business with. There is something called neglicence. Is it simply ours as fee paying residents? Or can somebody (or more than one) be held personally responsible for any of this.

      And no, my blood is not boiling while I write this, I’m just appalled by the lack of common business sense and practices displayed by RA on an ongoing basis. And all that, while being VERY well compensated.

      Just scratching my head…

  • Why do you bother?

    That explains the previously inexplicable county budget shortfall…

  • JoeInReston

    I’ll be salivating to throw the bums out come election time. What are the chances that the incumbents will be running unopposed?

    • Greg

      50 / 50.

  • Greg

    Cate Fulkerson should be FIRED today!

  • JoeInReston

    This latest release of Tetra information might have been valuable to voters in the 2016 Board of Directors Election, particularly for the at large seat.

    The election was held from 3/7 to 4/4. The results were released on 4/12. Leads to the question – when did this latest information come to light?

    • cRAzy

      That is exactly why it was withheld. It should have been part of the budget discussion in November, but the renovation costs never were presented, discussed, agreed upon.

  • edgyone

    Where are all the idiots that voted for this? They bought a 800k property for 2.6 million now they will spend another million? Someone is getting rich off our dues….

  • Lisa

    There is an RA Board of Directors meeting on 5/26 and this topic is on the agenda.Anyone can attend the meeting. “7:45 pm Lake House Working Group Status Report & Revised Operating and Capital”

  • Ellis

    I’m curious: Who are the members of the Lake House Working Group, and are they connected to businesses that benefit from $217,000 in adopted preferences?

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