THE
RESIDENCES AT THE BATH CLUB Annual Condominium & Maintenance Association Meeting December 13 | 2015
Presentation Summary Brief Introduction from the Board Resumes of the Board of Directors Significant Accomplishments Management/Building Team Improvements and Capital Investments Future Capital Investments Defending Our Rights – Litigation
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Introduction Your Board of Directors (Tom, Mark and Edward) are pleased to present this updated report to you on the progress of our Bath Club complex as we approach the Annual Meeting. During the last several years we have seen The Bath Club through the worst of the financial crisis and through the transition from the Developer to the Association and Owner management of the property. We have won awards for our management team and seen our values generally increase to record levels. We have managed the maintenance fees that remain amongst the lowest per square foot for luxury properties on the beach while we enjoy first-class services throughout the property. At the same time we have had to enforce our rights as necessary through a complex litigation and arbitration process. We hope you are pleased with the progress but we see this as just the beginning of what can be accomplished to make the Bath Club the best address on Miami Beach.
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Resumes of the Board of Directors Thomas K. Ireland, President | Tenure on Board 8 years Mr. Ireland started his career in real estate in 1960 with the founding of Mortgage Corporation of America, which became one of the largest mortgage firms in America. For over 50 years Mr. Ireland has been involved in the ownership, management and development of more than 110 significant residential and commercial real estate properties located throughout the United States and valued at over $4 billion. Mr. Ireland was also President of the Jockey Club Condominium Association for 22 consecutive years.
Edward M. Shumsky, Secy/Treas | Tenure on Board 8 years Mr. Shumsky’s 30-year business background has spanned three interrelated professional careers: legal/regulatory; corporate; and consulting. Mr. Shumsky has been a partner in a private real estate investment partnership since 2008. Mr. Shumsky served as Executive Vice President and Chief HR Officer for Florida East Coast Industries, a New York Stock Exchange railroad and real estate development company. Mr. Shumsky’s legal career included roles as the Director of Federal Trade Commission’s New York Regional Office and as an antitrust attorney with Federal Trade Commission in Washington, D.C. Mr. Shumsky is also the recently elected Chairman of the New World Symphony.
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Resumes of the Board of Directors Mark Penn, Vice President | Tenure on Board 9 years Mark Penn is President and Managing Partner and founder of the Stagwell Group LLC, a registered investment advisory company that invests in advertising, research, data analytics, public relations, and digital marketing services. Mr. Penn’s new fund has raised $250 million in funding, including former Microsoft Chief Executive Steve Ballmer, who is a core investor in the new company. Prior to The Stagwell Group, Penn was Executive Vice President and Chief Insight Officer at Microsoft Corporation, where he was responsible for working on core issues across Microsoft’s products, value propositions and investments, and leading the company’s competitive research and analysis. Penn reported to Microsoft CEO Satya Nadella and served on Microsoft’s Senior Leadership Team. Before coming to Microsoft, Penn was Worldwide CEO of Burson-Marsteller and Global CEO of Penn Schoen Berland, advising global corporate and political leaders including President Clinton, Bill Gates, Bill Ford and Tony Blair. For six years, Penn also served as White House Pollster to President Clinton and was a key adviser in his 1996 re-election, identifying "Soccer Moms" as the key swing vote needed for victory. Penn also served as chief strategist to Hillary Clinton in her Senate campaigns and 2008 Presidential campaign, devising her successful NY "upstate strategy" and creating the "3 AM" ad in the 2008 primaries. Throughout his career, Penn helped elect more than 25 leaders in the U.S., Asia, Latin America and Europe. Penn is also a globally recognized thought leader. He authored the 2007 bestselling book “Microtrends: The Small Forces Behind Tomorrow’s Big Changes”; was a columnist for the Wall Street Journal, Time.com, POLITICO, and the Huffington Post. Penn has also authored op-eds in The Washington Post, The New York Times, The Hill, and elsewhere. In a 1996 cover story, Time Magazine called him, “Master of the Message.” Penn earned his undergraduate degree from Harvard College and attended Columbia Law School. He is a member of the Council on Foreign Relations, the National Holocaust Museum’s Committee on Conscience and serves on the board of The Meridian International Center. Penn is also a visiting lecturer at Harvard College and the George Washington University.
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Installed First Rate Management Company A GOOD BUILDING STARTS WITH GOOD MANAGEMENT The Board has engaged First Service Corporation, one of the largest condominium management companies in the country, providing services to many of the top condominiums in South Florida, as our property management company.
First Service Residential manages the Bath Club complex with Lorena Rosario as our General Manager. First Service considers the Bath Club to be the number one managed building in its entire portfolio. They believe the property has the best employee training and service and is physically maintained and operated better than any other building on Miami Beach. They also believe we have the most qualified Board of Directors in the country. This opinion is shared by many real estate brokers who believe the Bath Club to be one of the three best buildings on Miami Beach. This type of commitment and recognition by one of the country’s leading service providers to the quality of our people and the quality of our property management helps create real value for our Owners.
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And Built a Stable Management Team Maintaining and continually training a stable and consistent property management team and staff has been one of the Board’s priorities. Our staff makes living at the Residences at the Bath Club an enjoyable experience.
Lorena Rosario William Patterson Julio Martinez Fernando Torres Charito Martinez Alberto Velasquez Danilo Gonzo
Senior Property Manager Concierge Maintenance Pool/Beach Supervisor HK Supervisor Valet Manager Security 7
8 years 8 years 7 years 7 years 6 years 5 years 4 years
Significant Capital Investments Made Our health club was completely renovated with all new exercise equipment, flat screen televisions, carpet, wallpaper and new spa massage tables and furniture. This project took over one and a half years and required an extensive design phase, bidding process and supervision
Over a period of 5 years, since taking control of the Maintenance Association, the Board has managed and completed the following substantial Capital Improvements. All of these improvements are designed to keep our building up to date and add market value to the Property – AND VALUES ARE UP.
Replaced and added landscaping throughout the Property; replaced the sprinkler systems and installed new landscape lighting. This is an ongoing annual process. Renovated and improved the pool and deck area. This effort required over one and a half years of design, engineering, permitting, bidding, contract negotiations and supervision. Cable TV and internet wiring was completely revamped throughout the Property with service and power upgraded. This was a one-year project.
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Examples of Capital Improvements
Four lobby fountains were renovated with new LED bubblers installed
Replaced all passenger elevator call panels with LED-lit panels with high-tech animated touch-screens
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Examples of Capital Improvements
Parking garage floor, which had structural cracks, was repaired & completely resurfaced including painting & re-striping. Walls & ceilings were also repainted.
Beach hut & storage units were custom manufactured & installed on our beach
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We Significantly Upgraded Our Facilities Upgrades Forty storage units were built to our specifications, permitted by the City, installed and rented to owners
All unit owners’ service lobbies were repainted along with new carpeting and baseboards
All deep water storm drainage wells were cleaned and repaired
Guard house was renovated and improved and security arms were replaced
Engineered, permitted and constructed a small structure for our northerly receiving employee
Expanded and rebuilt engineering facility
Replaced all lobby ceiling lighting and all fire stairwell lighting
Currently repairing and repainting the exterior of the building which will be completed in the first quarter of 2016
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All garage entry and exit doors were replaced with modern equipment
Future Capital Investments Our building is almost a decade old. Within the next several years the following repairs and replacements, which are estimated to cost several million dollars, will be undertaken: Repairing our exterior building stucco, which has started cracking, and repainting the entire exterior of our building (now under construction to be completed first quarter 2016) Replacement of the roof (2016) Replacement of our air conditioning condenser water piping (2017 or 2018) Replacement of our 4 main air conditioning units which provide cooling to unit owner lobbies and our main lobby (2016) Repair and replacement to major areas of our pressurized fire sprinkler system (2016) Adding additional storm water deep drainage wells (2016) Replacement of our entire security system within the building and all common areas (2016) Mold Remediation in Fire Stairwells (2016 or 2017) 12
Defending Our Rights - Litigation Over the last 6 years, your Board of Directors has spent a great deal of their individual time in various litigations to protect the interests of our residents. This has included discovery, preparation, depositions, mediation, arbitration, and trial and appellate court appearances. Key highlights are outlined below:
Exclusive Resorts Litigation: Litigation Settled and Time Share Vacation Club Is No Longer a Part of Our Community. The Board of Directors on behalf of the Association filed a lawsuit claiming The Residence at the Bath Club was not zoned or built to accommodate Exclusive Resorts use. The developer, Don Peebles, sold Exclusive Resorts 10 large units that were being used as hotel suites with 8 to 10 people occupying each unit on a short term basis. After two years of litigation, Exclusive Resorts entered into a settlement agreement with our Association that required ER to sell all of its units. The sale of the Exclusive Resorts units to Owners versus short term hotel users has been a dramatic enhancement to the value and marketability of the Property as well as to the quite enjoyment of all our Owners.
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Defending Our Rights - Litigation Construction Defects Litigation The Association filed a lawsuit 5 years ago against Turner Construction involving over 500 construction defects and hired a team of professionals including the Pistorino engineering firm to prepare independent reports on our building and property deficiencies. The Board has spent hundreds of hours each year on this litigation including depositions, mediations, court appearances and meetings with various professionals, sub-contractors, attorneys, and the general contractor Turner Construction. Many of the defects have already been repaired by Turner; however, there are still major items unresolved including the replacement of air conditioning condenser water piping, the replacement of the four (4) major air conditioning units that service unit owner lobbies and our main lobby, roof replacement, repair and replacement of certain portions of our pressurized fire sprinkler system. Through a final Court ordered mediation, this lawsuit was recently settled with Turner, their insurance companies and their subcontractors agreeing to pay our Bath Club Condominium Association (reserve fund) a one time lump sum of $1,750,000. Our attorneys, consultants and engineers feel that this is an exceptional settlement for us. This sum is sufficient to repair and/or replace the major items mentioned above. The majority of this work, including replacement of air conditioning units, replacement of the roof, and replacement of the entire security will be engineered, and bid out with completion scheduled for most items in 2016 and 2017. 14
Defending Our Rights - Litigation Developer Litigation: The Board Secured Control of the Maintenance Association and Won Other Valuable Rights. The Association filed a lawsuit against the developer Don Peebles eight years ago demanding the turnover of the Maintenance Association (MXA) and its bank account as provided in our various condominium documents and under Florida law. It took three years of litigation before we were able to reach a settlement agreement in December 2010 whereby Mr. Peebles transferred control of MXA to the Condominium owners. As part of that settlement agreement, Mr. Peebles agreed to sell the Association 32 parking spaces (now our valet spaces) and turn over deeds to the property. Needless to say, it took another year of litigation in state court to force Mr. Peebles to honor his commitment to sell the parking spaces. It also took several additional years of litigation before a three judge arbitration panel ordered Mr. Peebles to turn over the deeds to the health club, tennis courts, pool and landscaped areas he had previously agreed to in the settlement agreement. This same arbitration panel found that the Developer had an obligation to provide food and beverage service and to lease cabanas to our residents as provided in the various condominium and maintenance association documents. Unfortunately, the developer also has defaulted on these commitments and we are in court again to force him to honor these obligations. In June we won some important victories at the Court of Appeals in our litigation. Basically the Court of Appeals ordered Mr. Peebles to provide outdoor food and beverage service every day during all “Regular Hours” (which we believe is 7:00 a.m. to 9:00 p.m.) and during which any of the Bath Club facilities are available for use by our residents.
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Defending Our Rights - Litigation Developer Litigation: The Board Secured Control of the Maintenance Association and Won Other Valuable Rights. The Appellate Court also ordered the Developer to lease cabanas to our residents at reduced prices that the Bath Club members pay as previously ordered by the Arbitration Panel. Finally, the Court ordered the Developer to provide the appropriate insurance coverage as was required by the Arbitration Panel for any of the events held at The Historic Bath Club. We have now gone back to the District Court to have it enforce the Appellate Court’s mandates. Among the most important pieces of litigation was challenging Mr. Peebles’ use of the pool deck for commercial purposes. In the past, he hosted parties of hundreds of outside people on our pool deck. Working with the City of Miami Beach officials for the past several years, the Board obtained a ruling that the Developer can not use the pool deck for any commercial purposes. In addition, the City also prohibited the developer from transporting equipment over our pool deck and walkways for use in beach events. We continue to challenge Mr. Peebles acquisition of the Bath Club memberships. Two years ago he acquired unfettered ownership of these memberships but did so under cover of night without the proper notification to the Association as required by our documents, which we of course would have opposed. We believe this may give him unfettered and illegal control of Bath Club memberships to the detriment of our residents. We have appealed this case to the Third Circuit Court of Appeals and are waiting for oral argument to be scheduled. If we win, it could require Mr. Peebles to give up his sole ownership of Bath Club memberships and return it back to the original members, where it belongs, and where he may no longer have unfettered ability to pack the membership with whomever he wants.
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Thank you