Lease critics protest Fairbanks Ranch Country Club’s ‘sweetheart deal’ with city

•Club to begin paying rent Jan. 1, 2010

By Joe Tash

The Fairbanks Ranch Country Club is located on San Dieguito Road. Photo/Jon Clark

The Fairbanks Ranch Country Club, according to its Web site, is a “distinctly private, member-owned Club consisting of the most prominent business, professional and social personalities of the community.”
While the club itself may be private, its 27-hole golf course, opulent clubhouse and other facilities sit on public land, owned by the city of San Diego. The club and the original developer of the property have leased about 400 acres of land in one of San Diego County’s most exclusive and pricey ZIP codes since 1983, a 61-year agreement that runs through 2044.
On Jan. 1, 2010, for the first time since the lease began, the club is scheduled to begin paying rent.
Over the years, critics of the lease have called it a “sweetheart deal,” since under its terms, the club was required to pay only $3,000 in rent for the first 25 years of its tenancy. Adding insult to injury, say those critics, is the club’s refusal to pay $169,000 — unrelated to the rent payments starting next year — that city officials claim is owed under a provision of the lease tied to club membership sales.
Earlier this month, the San Diego City Council voted to cut $179 million from its budget over the next 18 months, including the city’s $369,000 share of the operating budget for the San Dieguito River Park, a 55-mile-long open space corridor — with public trails and recreation areas — that runs from Julian to Del Mar.
Members of the public and elected officials such as First District Councilwoman Sherri Lightner have asked whether lease payments from the country club can be used to make up some or all of the funding cuts to the river park, since the country club sits in the San Dieguito River Valley.
“We just see the connection. The country club sits there without paying anything and the river park … is losing the city’s contribution,” said Ann Gardner, vice president of the Friends of the San Dieguito River Valley, an environmental advocacy group.
“In that context, you’d think the country club would step up and recognize what a great deal it has and pay its fair share,” Gardner said.
In April, the Friends group wrote to San Diego Mayor Jerry Sanders, urging him to refer the disputed lease payment to the city’s delinquent bill collection unit, or consider terminating the club’s lease. But Gardner said Sanders never replied, and her group is frustrated by the city’s apparent lack of action in collecting the debt.
“I really don’t understand it, it’s a total mystery to me,” said Margaret Schlesinger of the San Diego County League of Women Voters, and the league’s representative on the river park’s citizens advisory committee. “How they could get a fantastic sweetheart deal to begin with and operate as an exclusive country club for 25 years on public land and not do what they should be doing, which is paying on their lease now? And I don’t understand why the city lets them get away with it.”
The club and city officials have been at odds for years over the membership provision of the lease, which states that during the first 25 years of the agreement, once the value of memberships sold by the club exceeds $25 million, the club will pay the city 3 percent of subsequent membership sales.
According to city auditors, the $25 million threshold was reached in 2003 and at that point, the club owed the city $60,000. Three years later, at the end of 2006, the city again audited the club’s finances and determined that the club owed the city $169,000.
The city wrote to the club in May 2007, requesting payment of the debt, but the club’s attorney wrote back in November, disputing the city’s interpretation of the lease. Attorney Dennis O’Dorisio wrote that the city improperly included in its calculations the proceeds from the resale of memberships from one member to another.
“The position is, the attorneys that we consulted with believe that the invoice (from the city) is not consistent with the language of the lease,” said Steve Wittert, the club’s general manager and chief operating officer, in an interview.
“We are continuing to look at ways to resolve the dispute with respect to the language of the lease,” Wittert said.
In the meantime, Wittert said, the club does not dispute the rent owed beginning in 2010, and plans to make those payments. The lease calls for the club, beginning in 2010, to pay the city 4 percent of food receipts, 6 percent of beverage receipts and 10 percent of other revenue. In 2010, those payments will total about $900,000, said Wittert.
The club operates as a tax-exempt 501 (c) (7) organization under IRS rules regarding social clubs. Its total revenue for 2008 was $12,632,287, according to the club’s IRS filing.
A review of city records did not indicate whether the amount owed to the city under the lease’s membership provision has increased since the last audit was conducted at the end of 2006. Gardner, of the Friends of the River Valley, said the city has conducted audits of the club every three years, so the next audit should be due at the end of 2009. However, an official with the city’s real estate assets division was unsure when the next audit would be conducted.
City officials did not respond to numerous interview requests regarding the lease. Spokespersons for Sanders did not return phone messages, and Lightner declined through a staff member to be interviewed. Lighter did say the matter has been referred to the city attorney’s office.
At a Dec. 9 City Council meeting, under questioning from Lightner, James Barwick, director of the city’s Real Estate Assets Division, said, “We recently were in a mediation with the Fairbanks Ranch people. We were not able to resolve the issue with them through the mediation process and we’re going to be meeting this week to determine what our course of action will be with regard to future action with the Fairbanks Ranch folks.”
Barwick also did not return phone messages left by a reporter, while City Attorney Jan Goldsmith declined through a spokeswoman to clarify what action his office is considering.
“We cannot publicly discuss this matter due to the attorney-client confidentiality requirement. Under our City Charter, the City Treasurer is authorized to instruct our office to file a collection action,” wrote Goldsmith staffer Gina Coburn in an email.
The lease has been controversial since a divided San Diego City Council approved it in the early 1980s. The decision came after the council had already approved a zoning change allowing Watt Industries, the developer of Fairbanks Ranch, to build 341 homes in the gated community near Rancho Santa Fe. The original zoning allowed only 128 homes.
According to Gardner, when Watt Industries deeded 616 acres of land in the river valley to the city, the agreement was that the land would be used as public open space. The city later decided to lease a large chunk of the land back to Watt Industries for the country club.
City officials justified the lease by pointing out that the country club’s members would pay for building the golf course and club facilities at an estimated cost of $25 million, and that the entire parcel will revert to city ownership at the end of the lease in 2044.
Over the years, the club has made several offers to buy the land or renegotiate the lease, and also attempted to get out of a requirement to expand the original 18-hole golf course to 27 holes, although the expansion was later completed.
A lease evaluation commissioned by the city in 2001 determined that the city had lost $23.5 million over the first 25 years of the lease by failing to negotiate the payment of market rent by the club.
In 2001, turning down an offer to renegotiate the lease that he called “insulting,” deputy real estate assets director Tim Rothans wrote, “The FRCC (Fairbanks Ranch Country Club) entered freely into this lease that provides FRCC significant economic benefits for the full term of the lease with no rent payments to the City for the first 25 years with rents that are significantly below fair market value for the remaining 36 years of the term.”
Wittert, the club’s general manager, said the club currently has no offer on the table to either buy the land or renegotiate the lease. But maintained the lease terms are fair.
“When the property was conveyed initially by Ray Watt to the city, the rent that was agreed upon over the first 25 years took into account the amortization of the investment in the facility by the (club’s) members of over $25 million, which at the end of the lease term would accrue to the benefit of the city. That always seems to be the other half that gets left out,” Wittert said.

I found this article very interesting. Although politically charged I can truly see both sides of the argument. What I am not sure I understand is how the club has managed to avoid paying 3% percent of the membership fees after the agreed upon number was met. What are your thoughts on this article, the club, the city?