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Analysis: Tetra Purchase Will Have Implications for 30 Years

by Karen Goff — June 8, 2016 at 11:30 am 42 Comments

New Lake HouseThe overrun on Reston Association’s purchase of the Tetra building will have implications that will reach far into the future.

That’s the analysis of Reston 2020’s Terry Maynard, who crunched the numbers and found some of these key points:

Not counting the Tetra subsidy of $275,000 for external repairs, the Tetra budget will be $624,640 over budget by year-end. That’s $28-$30 per RA household; not an absence of impact on assessment fees as reported in RA’s Pro Forma Financial statement in RA’s referendum marketing “Property Purchase Fact Sheet” no matter how cleverly disguised by cuts elsewhere in RA spending.

As a result, the entire Tetra effort will be in the hole more than $400,000 by year-end versus the Pro Forma Financial statement’s prospective surplus of more than $200,000.

Still uncompleted repairs, particularly improvements to Tetra’s grounds, and the need for new furnishings will add to the growing cost next year and beyond.

By the end of 2020–the final date presented in RA’s Pro Forma Financial in the Voter’s Guide–RA will probably be more than one-million dollars in the hole, costing Restonians $40-$50 per household instead of the $10-$12 projected by RA.

Beyond that timeframe, a published pre-referendum analysis showed that RA will not operate Tetra in the black until 2048 using RA’s own assumptions and other conservative ones the beyond 2020 endpoint of RA’s Pro Forma Financial statement.

In 2015, Reston Association purchased the 33-year-old building — now called the Lake House — on the shores of Lake Newport for $2.6 million, which was nearly twice its assessed value.

RA plans to use the building for community and recreational space, and event rentals and afterschool care are expected to bring in about $100,000 annually.

But RA announced in recent weeks that the project, still under renovation, is experiencing large cost overruns. The RA Board voted last week to move $430,000 from its operating fund to cover the current deficit.

Maynard’s analysis say “it is unlikely Tetra will ever be profitable given RA’s track record of recovering less than 27 percent of the costs on all the other facilities it operates from swimming pools to the Nature House. Our assessment fees pay the other 73 percent of those costs.”

Read the rest of his study on Reston 2020’s blog.

  • RunDMC

    Man the only thing that could be the cherry on this cow pie sundae would be if someone from the board burned the place down and tried to collect on the insurance.

    • crabby

      If that responsibility was left to the board, they would get confused and burn down a completely different building, then have to pay for damages. . . . out of the operating fund of course.

      • Eric

        Except there’s no such thing as an “operating fund.”

        • cRAzy

          how about “slush fund?”

          • Reston Watcher

            Where they were keeping the extra $430,000 they used to pay for the overruns.

    • Reston Watcher

      Is it insured? It was my understanding that the loan was secured with future residents’ fees, not with the building itself, so there’s no reason the loan agreement would require insurance. It wouldn’t surprise me if RA decided to self-insure the building.

  • Quagmire

    I wasn’t around last year when the place was bought. Can someone explain to me the rationale RA used at the time for paying double the assessed value? Was there a bidding war?

    • LipstickOnAPig

      Rational: The property was considered under-assessed and the purchase was funded with other peoples money.

      • RunDMC

        Don’t forget the handshake “guarantee” of the tenant staying through, what, like 2017? And then not renewing the lease.

    • Ming the Merciless

      Short version – THEY LIED.

      • Lake Anne Fan

        The property had been offered for sale for several years. Nibbles from a couple of restaurant investors, but no serious interest until RA CEO and Pres said sure, why not!?

    • JoeInReston

      On May 5 of last year, Eve Thompson wrote an “Op-Ed: Tetra Price is a Fair Price” editorial explaining her rationale.

      Thompson was the Lake Anne/Tall Oaks Director at the time. She has since been elected to At-Large Director. She is also a Realtor.

      https://www.restonnow.com/2015/05/01/op-ed-tetra-price-is-a-fair-price/

    • cRAzy

      If anyone can “explain it,” they’re part of the problem cuz it is unexplainable and inexcusable.

  • Eric

    At a minimum, this was complete incompetence on the CEO’s part and
    negligence on the Board’s part. At what point does “we’re spending $2.6
    million” and “no impact on assessments” pass the laugh test? Our
    Board heard that and thought, “Yep! That sounds great!”

    • Greg

      All the more reason Cate Fulkerson needs to go.

  • Sue E

    Terry: you suggest that an independent, realistic, and thorough re-examination of Tetra’s costs and prospects should be conducted by some entity other than RA and, until that is completed, work on Tetra should stop. This makes sense to me. Is there a way Restonians can make his happen?

    • cRAzy

      Only the RA Board can do that, and they won’t. They’re too committed to this wasteful, stupid insanity.
      The only thing we can do is to get rid of whomever is up for re-election next year–one board member at a time.
      Maybe also through a recall process, but I think you need to have every vote in the community for that. Is anyone looking at that????

      • Alison Kamat

        Yes, as a matter of fact. You only need 10% of members to call for a recall referendum. For more information see https://www.facebook.com/RestonRecall/ or write [email protected]

        • Overrunhell

          As Colin Powell stated so eloquently years back — ” Then what, Mr. President…? ”

          Think about your objective. Replacing people with new people, who have good intentions, is naivete at best. Focus on the processes and set the tone and guardrails for future boards and staff.

          You also have an asset at Lake Newport half way through renovation. It might feel good to “kick the bums out” but again — “then what??”

          The silent majority will trump you, unless you sit back and put together a plan.

          • Overrunhell

            Commentary heard by the “d”s
            http://youtu.be/p-3e0EkvIEM

          • GrumpyOldMan

            What fantasy universe are you living in?

          • Overrunhell

            Not yours, I take it. Keep complaining, and tell me when you get the results you want. The Tetra matter is very serious, but I see nothing here that is going to achieve anything to repair the damage.

    • Terry Maynard

      The BOD has to make that move. The issue of what to do has now been turned over to the Board Governance Committee to prepare recommendations for the next RA Board of Directors meeting. I suggested in the linked post above that RCA take on the task. My fear is that too many on the Board and the BGC are wed to the decision made last year no matter what, but hope springs eternal….

  • JoeInReston

    “It is unlikely Tetra will ever be profitable given RA’s track record of recovering less than 27 percent of the costs on all the other facilities it operates from swimming pools to the Nature House. Our assessment fees pay the other 73 percent of those costs.”

    The Tetra property was definitely sold as a property that will recover its purchase price. Were the other properties sold as such? In particular, were swimming pools sold as such? I presume when the pools were put in that it was expected that the assessments would cover the maintenance.

    This does not seem like a fair comment because of the apples to oranges comparison.

    • Terry Maynard

      Joe–I think if you’ll look at the referenced op-ed I wrote where I track the revenues and expenses of the Tetra effort using RA’s assumptions about cost recovery (a program profit every year starting at about $80K plus 3% inflation, but $180K debt payments extending to 2035) you will see that, even then, Tetra wouldn’t start making money until 2048.

      Now, with an extra $1MM in losses virtually assured within the next few years, I think it is safe to say Tetra will never be a long-term net money maker for RA.

      Here’s the link to the April 2015 op-ed: https://www.restonnow.com/2015/04/20/op-ed-tetra-purchase-is-poor-value-worse-investment/

      • JoeInReston

        Perhaps i am just nitpicking one comment.

        I agree its a money loser and will continue to be a money loser. I agree it was a bad decision. I would like to see the people who voted for it get impeached (if such process exists) or voted out of office.

  • Overrunhell

    Terry Maynard, you obviously failed at writing and communication. I’m sure you are a fantastic analyst, and respected by the community. But, if you ever intend to spend time with people with opposing views, defending the cause, please limit the diatribe and get to the point.

    I learned this first hand way back when with my first economics professor. I

  • Overrunhell

    Terry Maynard, you obviously failed at writing and communication. I’m sure you are a fantastic analyst, and respected by the community. But, if you ever intend to spend time with people with opposing views – defending the cause – please limit the diatribe and get to the point. Good liberal arts colleges and business schools teach this.

    Ms. Goff might give you pointers as well.

    The silent ‘d’ majority in our community are not interested in the comments here. They’re not going to give it time or attention, especially to pieces as long as yours. To get to them, the point needs to be succinct and well articulated.

    • Terry Maynard

      ORH–If you clicked on the link, you would see that I put the key conclusions in eight bullets near the front of the article. Even noted it was for people who don’t want to read a 2,000 word article with a spreadsheet at the end.

      At the same time, just announcing conclusions is useless unless they are backed by, yes, data & analysis. Otherwise, conclusions are just opinions–and everyone has those. So I explain how I came to those conclusions–and that takes more than a few sentences no matter how elegantly written.

      And, for the record, I spent a fair share of my career writing or overseeing the writing of analysis for senior US policymakers. Even had some concrete policy impacts there, so apparently my writing and communication are not too bad. (Can’t say I’ve had the same impact on RA BOD, however, which is unfortunate for all of us–that’s my opinion.)

      As for schools, I attended Grinnell, Iowa, UChicago (MA–Intl. Relations), & UC(Berkeley)–and was even complimented on my writing in UC Business School (Executive MBA–Management).

      Maybe the problem lies elsewhere.

      • Overrunhell

        Yes, it’s obvious you like to write.

        • cRAzy

          Overrun–Apparently you don’t like to read and learn.

          • Overrunhell

            What I see here is the same old diatribe. If there’s one thing the Trump phenomena has shown, a movement against the establishment requires someone outside the establishment to rally the troops. Many of the brilliant people here represent the status quo, and are never listened to. They’ve been howling for years, even have blogs, even ran for the board, but the community could care less.

            I recommend, if you all are serious — get behind someone who is attractive to the majority. You need a perceived rule-breaker, who says it like it is, but isn’t seen as one of the old community blowhards. I’m sorry if that seems harsh, but it is reality.

            Until that happens, this is all just entertainment to those who rule.

          • GrumpyOldMan

            If Trump is the answer, I sure as hell don’t want to know what the question is.

      • TrollerOfTrolls

        Terry, thanks for your analysis. For her to silently silently spew how she is not interested in the comments here she sure did spend a lot of time.
        Keep up the good work, your messages are obliviously being read and get out.

        It would be great if you could investigate and report what it would take for the membership to get a referendum going to sell the property and cut our losses.

      • Jean

        Terry I really appreciate your thoughtful and well-written analyses.

        • crabby

          Maybe I’m just a simpleton, but I appreciated Maynard’s analysis.

          • Overrunhell

            Well crabby, I predict this is just another futile exercise to change how Reston does things. Same people, just complaining, over and over and over again.

            Going to Mr. Maynard’s blog I see he has shared at least 38 papers, and over 2,100 blog entries. To what avail? What has all of this writing and analysis given to the community? Enlightenment? Wonderful, if that’s what you want. Here’s a thought though — those in power, couldn’t care less!

            I suggest if you want to rectify the Tetra fiasco, stop depending on these “golden idols” and do your own fact finding. Organize, dig in, and take action. Otherwise just troll like everyone else.

      • JohnBT

        My father worked with Mr. Maynard many, many moons ago, evidently verbosity (often coupled with flawed hypothesis), was his trademark on the job.

        I’m not sure that we should all fall in line based on his arguments. Of course someone would have to shovel their way through this pile to sort out what’s correct and what’s not; I suspect he counts on that as his foil.

        Clearly there are issues here but I’m not seeing all the evil that Mr. Maynard sees.

        • Analyst

          I don’t know, I thought it was pretty straightforward. Maybe your father didn’t make the cut at our shop?

        • james dean

          Mr Maynard’s analysis is very straightforward & thorough

          • Overrunhell

            Mr. Maynard took over 2000 words, not including attachments to come to the conclusion: an independent study (who? and how much will that cost?); and tear the building down.

            That’s just misguided and laughable. Let’s all get organized around that. The outcomes are so obvious. The community will rally around that for sure.

            Folks, focus on the issue and remedies.

  • james dean

    Thanks so much Mr Maynard… Most of us really appreciate all the time & effort you put into these matters… & most of us are very grateful for your insights & analysis

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