K-W Badminton Club – Special Member Meeting Notice

Hello K-W Badminton Club members:

Your Board is very excited to announce a new opportunity before us. As with the purchase of our property, we are choosing to present this decision to the membership of the club for ratification, through the provisions of our By-Laws and a Special Member Meeting. Your Board unanimously supports this decision. We ask all members to please read all of this document carefully, and be aware of the Special Member Meeting called on Wednesday May 23rd at 7:30pm to pass the resolution to proceed. Also, please note that all information in this notice is confidential, and is not to be shared with anyone outside of the membership.

Since the purchase of our building in 2013, we have been approached several times by developers interested in purchasing the property. Two important changes in our areas continue to intensify this interest: the completion of the LRT near us, and the ongoing commercial development of the Kitchener Innovation District, in which we are located.

Your Board’s responsibility is to the long term future of the club as an independent badminton facility with dedicated operations. It was decided in 2013 that the purchase of our property was the only way to secure our future. That decision has proved many times over to have been beneficial for the club and our financial security. No decision to sell our property would be considered by your Board unless it continued to guarantee our dedicated facility operations to promote and grow badminton.

Fortunately, the value of our property continues to increase, and the interest in it for more progressive development opportunities supports an arrangement that meets our long term requirements. The badminton club has received and signed a conditional Agreement of Purchase and Sale (APS) from a consortium of prominent local developers, Zehr Group and Momentum Developments (Zevest Development Corporation). Here is an outline of the terms of the APS:

  • We sell the property for $650,000, which covers our debt (bank loan).
  • The Buyer must find, build and relocate us to a 10 court badminton facility, with similar or better features as we have now (lounge area, kitchen, locker rooms, viewing areas, change rooms, showers, 30’ clear court height, wood gym floors, parking, etc.)
  • The new location must be within 5 km of our current location.
  • We will own in full this new badminton facility outright, without any lease or debt.
  • The Buyer has five years to relocate us. During this time, we stay in our current badminton facility, rent-free, under a formal lease agreement.
  • If, after five years, the Buyer is unable or unwilling to move us, we have the right to purchase back the whole existing property for $2.
  • The APS is conditional for 120 days from signing, on both sides. The Buyer will use this period to resolve its development plans for the property and ensure it is comfortable with re-zoning issues, if any. We will use the conditional period to review possible properties or other relocation plans with the Buyer, and refine our exact facility requirements.
  • After the APS conditions are waived (at most 120 days, plus 30 days after closing) and the agreement is final, the Buyer will assume full responsibility for the building. To be clear, all revenues from parts of the building not in the badminton area (courts, and upstairs meeting room) would revert to the Buyer, as they see fit.

For those interested in the actual APS, here are links to the signed documents (do not share these links or documents outside of the club):

Notice for the Special Member meeting

  • The Board calls for a Special Member Meeting, per our By-Laws article 7, on Wednesday May 23rd 2018, to be held at the badminton club at 7:30pm, 69 Agnes St.
  • The purpose of the meeting is to discuss, review and vote on the following single Motion item:

“Be it resolved that the adult voting members of the K-W Badminton Club Inc. support and endorse the decision to sell the owned 69 Agnes St. property per the general terms of the signed Agreement of Purchase and Sale (APS) presented to the membership on May 23 2018 with notice of the Special Member Meeting. The membership understand that the APS is conditional for 120 days to September 4 2018, and the members approve the Board working to conclude the APS conditions on behalf of the membership, finalizing the sale of the property.”

 

  • Adult members (age 19 and up as of May 23 2018) are entitled to a vote. Per our By-Laws, article 7.12, members who cannot attend the meeting may assign their vote to a proxy agent who will attend the Special Member meeting, and cast their vote for them. If you wish to do so, please fill out this form, and give it to your proxy agent to present at the meeting.

“The undersigned member of K-W Badminton Club Inc. hereby appoints _________________________________________________, or failing the person appointed above then _______________________________________, as the proxy of the undersigned to attend and act at the May 23 2018 meeting of the members of the said corporation, and at any adjournment or adjournments thereof in the same manner, to the same extent and with the same power as if the undersigned were present at the said meeting or such adjournment or adjournments thereof.”

Signed: ____________________________________________

Print member name: ________________________________

Dated: ____________________________________________

  • While this document may answer many of the questions members might have, the intent of the meeting is to provide a forum for members to ask questions prior to voting. The meeting will start with a presentation outlining the APS and offer, and then a question and answer period, followed by a formal vote on the Special Meeting Motion.
  • Due to the importance and relevance of this decision, the vote will be cast by ballot rather than show of hands, as per our By-Law, article 7.15. Please ensure that you acquire your ballot from Carol Heimpel, Secretary, on arrival at the club. You will receive ballots for all signed proxy forms you submit on arrival as well.

Questions and answers

This decision to sell our property is not to be taken lightly: your Board has worked on this for three years, actively engaging developers to get to this current opportunity. While the Board feels this is the best way to move forward and secure our long-term future, we understand and anticipate that many members will have questions and challenges to this path. Included below is a list of questions to provide more understanding to our members.

If you have a question not answered below, please feel free to email us via this special email address: aps@kwbadminton.com. Or, please bring your questions to the Special Meeting for group discussion.

Why are we doing this? Why not just stay where we are?

In 2013, we had no choice but to buy the property, or our club would have failed. Our badminton revenues alone would not have sustained a fair market lease, either here or elsewhere. Nor did we have sufficient cash assets to buy a new property. So, we made the difficult decision to buy this property, renovate it, and generate income from it to sustain us. It took thousands of volunteer hours and over $500,000 of renovations, but we succeeded: we make as much money from rental income as from badminton now that we have completed the core renovations to the building. We also knew that the property would increase in value enormously due to its prime Kitchener location, which has proven true.

Despite this extraordinary success, this building and property are a huge liability. The building is very old (over 90 years), and in desperate need of additional renovations and updates. We are required by the City of Kitchener to complete an estimated $300,000 in renovations to meet the current building code, and none of those renovations will help us secure additional rental income. Every year, the club invests $30,000 and more annually into various maintenance updates, some expected, and many not expected. The club has to date invested every dollar of profit back into the property to maintain it: this will only get worse over time, as it continues to age. We have over $200,000 in total known issues that must be addressed into the next five years, not including the building code updates noted above.

The mission of our Non-Profit Organization (NPO) is the promotion of badminton, not to be landlords. The management of our property and business is very time consuming and challenging: a job your Board members do for free, year after year. If the club had to pay for executive officers and property management, there would be no funds left to support the maintenance costs noted above. While our club has achieved amazing success through the dedicated volunteerism of some of its committed members, this represents a great risk to our long-term future to depend on this. Especially with an aging Board, with few people coming forward to commit the many hundreds of hours to keep going as we are now.

So, when presented with an amazing APS that secures our long term future and gives us more courts, and erases all of our debt, we would be foolish to not consider that opportunity fully. The APS now before the membership has taken hundreds of hours over the last three years to develop and mature.

Why not get a commercial agent and list the property for sale?

We have had three serious developers over the last three years come to the club with interest in buying our property. In all cases, we made it clear from the start that we were only interested if:

  • They paid in full to move us to a new facility, which we own outright.
  • The new facility must have 10 courts.
  • The new facility must have the same general features we have now.
  • We can afford the new facility with our badminton operations income.

This Zevest APS does this and more: in addition to the above, it pays off all of our debt, lets us stay in our current location rent-free until our new home is ready, and we have no debt or loan on the new facility which we will own. Since we are a non-profit organization, our goal is not profit, but to maintain  long-term success and future as a badminton club. If we receive a deal that ensures this under the best possible terms we believe we can achieve, there is not much motivation for us to look elsewhere.

In addition, the interest in the Kitchener Innovation District is at a peak right now, due to the location of many tech companies near us, and the opening of the LRT. The market opportunity seems ideal, basically a very good time to sell.

Lastly, it has taken the Board many hundreds of hours to court developers and evolve the discussion to get a good APS in our hands. The scope of development these developers plan for the property is substantial, and there are few companies that can entertain it: there is a very limited market of potential buyers. Starting from scratch with a commercial representative will take a huge investment of time from the Board, and this unique opportunity could disappear. In a nutshell: why look a gift horse in the mouth?

This deal seems too good to be true. How can we trust it?

To be honest, our Board members always had this concern. It is a fair question and valid issue.

To resolve this, the plan was always to get proper legal review of any potential APS before signing it. The club engaged Tom Hunter, partner at Gowling WLG, to help us navigate the APS negotiation. Tom is an expert attorney, and has a long history with the club. To protect us, the final APS includes many provisions that ensure our security, since we lose title of the property before our new facility is built:

  • Our Leaseback during the period that we stay here at this location is held on title to the Property in priority to all encumbrances (5.a.ii.4). This means that if the Buyer defaults or goes bankrupt, our lease here would be secure.
  • We do have a lease during our stay at this location, which requires the Buyer to maintain the exterior building premises (“the Buyer shall be responsible for all repairs and maintenance of the Property at its cost;”, 5.a.ii.6).
  • Our lawyer gets to hold onto the deed, until we are relocated: “the Seller’s lawyer shall hold in trust a fully executed deed/transfer of land for the Property from Buyer to Seller, the Seller may register notice of the Repurchase Option on title to
    the Property in priority to all encumbrances”, 5.a.iii.2 and 5.a.ii.3. So, if the Buyer goes bankrupt or defaults, we would have possession of the deed to support our claim that our buyback right of the property for $2 is valid. And, we can register that Repurchase Option on title as well, to further bolster that position.

Who is Zevest?

Zehr Group and Momentum Developments have significant holdings and developments in the Kitchener region:

Both companies have the clear financial means and ability to manage a project of the scale required to relocate us, and develop this property.

Where is Zevest going to relocate us?

This is something that we will work on collaboratively with Zevest during the 120 day Due Diligence period. Options include:

  • An existing property and building within 5 km that can be renovated to our requirements for badminton, which we solely own, and have sole responsibility going forward to maintain.
  • A property within 5km that can be developed or renovated into a much larger shared sports facility. Our ten court gym would be part of that facility, which we would own and control outright (a commercial condo in effect). We would share in common areas, including lounges, kitchen, meeting rooms, change rooms, etc.
  • The development of a new 10 court facility on site here at 69 Agnes St., as part of the larger development plans for the property. This would likely be a commercial condo as well, which we own outright.

There are pros and cons to all of these options, but the intent is to leave them open during the Due Diligence period to see what makes the most sense for both parties. Zevest has expressed interest in the third option, which is the most ambitious plan, and has great value to the club.

What is Zevest going to do with the building and property?

Zevest is still exploring development options and best use for the property. Options include tearing down the buildings and developing condominiums, a commercial plaza, or just renovating the building and staying within the existing zoning (M2, light industrial).

What happens to our many renters and tenant (BATL)?

The development of the property, especially if re-zoning is required, will take several years to complete. But, any developer seriously interested in this property will not see our current renters as the best and maximal revenue potential for the property. Ultimately, it is very likely that the building will be torn down, or renovated for other commercial purposes.

BATL is in year four of a ten year formal lease with us. That lease will transfer to the buyer, once the conditions are waived (the lease allows for this.) The club will be relieved of this responsibility when the sale is complete.

All of our other renters are on short one year terms that are up for renewal in 2018. During the 120 day conditional period, all rental agreements will not be renewed and instead will be converted to month-by-month rentals. After the conditional period is waived and the purchase is final, renters will have to work with Zevest to consider their renewals. It is possible that Zevest will not renew these agreements.

Ultimately, the Board is responsible for the long-term best interest of the badminton club and our goals. While we respect and appreciate the many organizations and sports that rent space in our building, we must work first and foremost for the club’s long-term best interests.

What happens if the conditions of the APS are not waived within 120 days?

Members should understand that this APS is conditional, for both parties. There is a reasonable chance that some obstacle to the sale could surface during the Due Diligence period, including:

  • Major issues with re-zoning or Zevest development plans.
  • Unexpected relocation costs that Zevest might not be comfortable bearing. We anticipate the cost to purchase a property, renovate it, and move us into it will be between 2 and 3 million dollars . If those estimates turn out to be unrealistic, then the APS could fail to close.
  • Lack of support from the City of Kitchener to integrate our two property parcels in the Buyer’s interest.

If the APS fails to materialize, the club would continue as it does now. But, we would continue to engage with other developers, or a commercial broker.

You said there were three developers that approached the club. Where are things sitting with the other ones?

We spent quite a bit of time with one large developer in the past, but we are told that they found the challenges with re-zoning troublesome, so they backed off. We worked with another developer recently, but they are much smaller than Zevest, and they could not match the good terms of this APS with Zevest.

In the end, the Board feels Zevest is an excellent partner with the financial backing and local skills to bring this vision forward, and result in a great new 10 court facility for us, which we will own, without any debt.

What happens while we stay here during the five year relocation period?

The APS allows us to stay here rent-free, under a proper commercial lease agreement, which will be registered on title with the property. Zevest will be responsible to maintain the building for us, ensuring that our section remains as good as it is now for our successful continued operations during the transitional period to our new facility.

We will have dedicated access to our existing courts, parking, lounge, foyer, change rooms, kitchen and viewing gallery. We will not have access to, or use of, any other areas in the building.

As was the case when we had a discounted lease with the prior building owner, we expect that the club will achieve  substantial savings annually during the transition period, probably $30,000 to $50,000 per year. These funds will be retained to ensure we are able to pay for long-term maintenance and updates in our new facility.

What will happen to pickleball played on our badminton courts?

Our club values our partnership with KWPA to bring pickleball to our club. Our goal is to continue renting our courts for pickleball long-term during the day, both while we stay here during the transitional period, and after we move. We look forward to continuing our partnership with KWPA in the future.

I have suggestions and changes to propose. Can we change the APS or motion for the Special Meeting?

The Board always encourages participation and feedback from our members. Please feel free to reach out and email us any questions you may have, by emailing aps@kwbadminton.com, or sending your questions to the club and staff will redirect your questions to the Board (info@kwbadminton.com).

All the same, proper procedure for NPO governance means that the Motion item for the Special Meeting is set, and will not change. Members may only vote for or against it.

If the Motion does not carry with a simple majority, then the Board could then consider the feedback and propose a new Motion item for a future Meeting. But, failing majority support from the membership, the APS would be canceled and terminated.

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