Aimed to offend everyone equally, without prejudice.
Do you know what a soldier is, young man? He's the chap who makes it possible for civilized folk to despise war. -
Allan MassieIt is easy to simply discount Memorial Day as the start of Summer. A time for Barbeques and beaches. I’m all for the barbeques and beaches, but, I would like to take a moment to remember those who have given the ultimate for this great Country.
It’s hard to imagine the devastation of losing a son/brother/father/daughter/sister/mother in the line of duty. It’s never happened to me. But I am grateful for those sacrifices made by others. I’m grateful to everyone that lead to the founding of this Nation and continue to protect our freedoms and the American way of life. I’m grateful for those who are still making sacrifices in hot, dirty, nasty places so that we don’t have to worry about being attacked again on our own soil. We don’t have to worry about losing our children because some Islamic fanatic decided to crash a plane into something iconically American or blow up Disneyland or the Superbowl. The sacrifices are great, but the alternatives are so much worse.
I have lost friends that were simply doing their duty for their Country. Some, like Jesse Sameck, very young and on his first deployment to Afghanistan and some near retirement. All tragic. I have stood in formation in the 120 degree sun in Kandahar watching flag draped caskets being loaded into the back of a C-17 for their final trip home. People that I was flying support missions with 3 days earlier. The sacrifices really hit home when they are people that you have worked with. You experience the magnitude of these losses when you see those who worked along side you being loaded in draped caskets.
That is the price of freedom.
From the revolution forward, Americans have been fighting to forge and protect this great Nation. It’s easy to just sit back and live your life and take all that has been accomplished for granted. To take freedom and safety for granted. To complain about wars and administrations and the expense of freedom and protection. But, on this day, at least, remember that freedom doesn’t come free and let’s remember those who paid the price for the rest of us.
I consider myself both a fiscal and social conservative. I’m not fully on board with the GOP, as I, like many others have been alienated over the years by the Republican Party. The party struggles to remain current and reflective of the views of its constituents.
I was not a supporter of Barack Obama for a number of reasons. Mostly because I believe in meritocracy and I believe that people that can help, do help. They just don’t like others (big government) telling them how. I don’t want large government, and I don’t want my tax dollars wasted on programs that I don’t believe in. I saw Obama’s campaign ideals contrary to this kind of thinking.
I also believe in the United States of America, of the Constitution of the United States of America, and of the People of the United States of America. No system is perfect, but, I truly believe that we have the most perfect system possible. The political process ran its course. I raised my voice, cast my vote, and made an effort to be heard. But, the people spoke, and the wisdom of the people was contrary to my own. But, that’s how the system works. We can’t all be correct all of the time. So, we as a people cast our votes, and raise our voices to be heard. It is not possible for everyone to get what they want, so, we govern ourselves by the will of the majority.
Today, Barack Hussein Obama was sworn in as the 44th President of the United States of America. This was an historic occasion that has much of the Nation, if not the world, excited and expectant. With every new President, we have a new set of ideas and ideals that will represent the people of this great Nation. But, this is not the entire story. We are not a Nation run by one person. Even though the President has certain powers, there are systems of check and balances, of committees, of advisors that affect the direction that our Nation follows. We’re all in this together.
On this occasion, the changing of the guard, I have hope and expectation. I hope that we can move forward together. To fix the problems and issues that are before us and to prosper as a Nation and as a People.
President Obama is an intelligent and charismatic man. Regardless of his campaign platform, he has reached across the aisle and has given us a glimmer of hope that we will continue to rule close to center rather than from extremes in an effort to represent us all. I hope that he will continue to ask, and to listen, to his advisors as well as his opponents.
Let’s all remember that this is an historic day. Let’s support this great Nation and our new leader in any way that we can and move forward to a prosperous future for us all.
This was a response to Warren Miller's article on New West regarding Economic Stratification.
( http://www.newwest.net/main/article/warren_miller_economic_statification_and_... )
There were a number of very negative responses about how the members are snobs that deserve what they get... This was my response:
I’m not exactly sure what the basis is of all of the negativity. Are you all opposed to wealth? Are you opposed to privacy? Is it jealousy? I’m really not sure, and for me, it’s confusing.
Maybe it’s the term “stratification“… Are you a skier? Well, there are many that can’t afford skis. Do you take joy when someone who can afford more expensive skis than you loses or breaks them? Do you think someone who can’t afford, even the 5th season pair that you’re wearing should envy/hate/ridicule you because you had the audacity to flaunt your 5th season skis around those who can’t eve afford that? Were you simply lucky, or did you work for those skis? My point is: there’s always someone better off than you and there’s always someone worse off.
Most of us strive to better our lives. Some are more successful than others and obviously some emphasize things differently. So, what is really important?
Family, friends, community and life experiences. There’s my list.
I see a lot of knee jerk comments and assumptions about who the members of the Yellowstone Club are, why they’re there, and how they got there. We’re all just people, pursuing our own dreams.
I know you don’t want to hear this part, but, I’m going to repeat it anyway… I grew up dirt poor. My mother was raising three kids by herself working as a checker in a grocery store in Indio, California. Basically a Mexican immigrant ghetto near the Salton Sea, out in the middle of the deserts of south-central California.
All of the “rich” people lived in Palm Springs, probably 30 or so miles away. We didn’t envy them and we didn’t hate them, and didn’t really care that they all packed up and moved away in the summer when it was too hot to stay. Most of the restaurants, clubs, etc. closed for the summer, but, that didn’t affect us, because we could barely afford Shakey’s Pizza once a month. I did hate the heat and wished we could go to a “summer home” that was cooler, but, it just wasn’t possible.
I am who I am. Growing up like this didn’t make me envy the rich. It kept me grounded. I knew that I wanted to be successful and that I needed to get out of the desert. This wasn’t for the sake of money, but, for the sake of raising a family and having some sense of security.
Through good times and bad, I managed to use a lot of my ambition to claw my way through college, working odd jobs, taking out student loans (did I mention my mother was a checker in a grocery store?), applying for scholarships, and getting Really, Really lucky…
Somehow, I managed to end up in the right place at the right time and the dot.com industry fell in my lap. Financially, this changed my life. Practically, it did not. Did I deserve this? Ya, I think so. It was hard work, determination, and a large helping of luck. But, why not? What if it happened to you?
So, after a couple of years at Yahoo!, I found myself thinking that I’d sold myself to the devil. I wasn’t doing what I wanted to do. I wanted to raise a family, hunt, fish, ski… I wanted to experience life. And I wanted my kids to experience life.
About this time, I started looking for someplace where I could build a cabin. Someplace close to good hunting, fishing, skiing, etc. Something that I could have never afforded in my earlier life. So, I stumbled upon this idea that was the Yellowstone Club.
Ten years ago, the slogan was “where families gather”. That, plus the fact that it was near great fishing, hunting and skiing, made me decide to take a look.
When I fist came out to look, it was simply a chairlift, a couple of very small cabins, and a bunch of dirt roads. There were only a handful of members, but, they were really interesting people. I loved it. This was a great place for me, and a great place for my kids… I didn’t care about privacy, and, at the time, it wasn’t a trophy. It was fun skiing, fishing, hiking and would never be crowded.
So, I bought a lot. It was the first lot past the guard gate, with a meadow in front where my then young children could bounce around picking wildflowers, eating wild strawberries, and I could see both Pioneer and Lone Mountain from my deck.
If you could have done the same, wouldn’t you? There was no reputation, no history, just an idea in the middle of paradise.
The next year, I built a log cabin. I redlined a floor plan that I found online, sent it to a log home manufacturer in victor, MT and built my little 3 bedroom log cabin for my family. We loved it!
For the first several years, we lived there the entire summer by ourselves. Nobody else around. We felt part of the Big Sky community, the Yellowstone Club community hadn’t really developed yet. But, by fits and spurts, the Club community also grew.
In the early years, we made many great friends in the club. People that we genuinely like to see and spend time with. It doesn’t matter what they have or don’t have, and, I certainly hope none of them judge me by the fact that I live in the smallest home in the club.
Then something changed… The ownership/management seemed to lose touch of what the club was about to many of us early members… It became a trophy, or what I like to call a Monument to the Robb Report Readers… (For those of you who don’t know what the Robb Report is, it’s a magazine that tells the newly rich what they’re supposed to want, just in case they’re not creative enough to figure that out on their own).
This is not what we wanted. We liked the small, understated lodge we all started with “The Buffalo Bar and Grill”. A small log structure with a kitchen and a bar where we happily squeezed in at the end of the ski day. Nobody wanted the “Caviar Bar”. What a fiasco!
I, like many others, wanted to be in “Montana“, not some surreal interpretation of Montana that proved that money can’t buy taste.
Let’s go back a few paragraphs… Sometime after I built my home in Montana, I found what I was looking for. And I knew it wasn’t printing my own money in Silicon Valley… So, I quit. I completely left the field of technology. I figured whatever was next I would figure out later.
Shortly after, in the spring of 2001, I took a trip up to Alaska to go moose hunting. It was a great experience. Just two of us, dropped off by a bush pilot out in the middle of indescribable vastness. It was a truly great experience for me, fishing for dinner, hunting, living amongst huge brown bears gorging on blueberries, but, it would also become another life changing event for me.
After shooting a moose and hiking it back to camp, we noticed there were no planes flying. For days, no signs of life… No contrails from jets flying the polar route to Asia, no bush pilots… nothing. We new something bad had happened, but, not exactly what. We figured we’d better start the year-long hike to Anchorage when we had our first signs of life… a 1941 Grumman Goose labored in, landed on the lake, tailed in to shore, opened the window and declared “guess what? They blew up the World Trade Center!”.
This had a profound affect on me. I had clawed myself out of Indio, California, or as the locals called it “Barrio Indio Norte”, and now here I was, in an upper financial stratum, all because of the opportunities that I had as an American. It deeply affected me. Other than giving money to charity, I had never done anything substantial back to the great Country that allowed a person with a little smarts, and a lot of ambition to ascend the strata like I did.
So, I did what I thought was the best thing I could have possibly done in that situation… I flew back home, walked into an Air Force recruiter’s office and told them “I have a commercial pilot’s license, and I used to teach in the math school at New York University, What can you do with me?”
Soon after, much to my family’s amazement, I was sworn in and trained in an Air Force Special Ops Command Combat Search and Rescue Squadron. Now, six years later, after 2 tours to Afghanistan, I have successfully completed more than 20 combat rescues. In other words, I flew out in the middle of the night, in an HH60 Pavehawk helicopter, found busted up kids in the deserts of Afghanistan, and got them home safely. Whether you agree or not, I feel like I did my part. My commitment was up almost 2 years ago, I still keep extending my stay in the Air National Guard because I believe in the mission, and I believe that we all need to continue to do what we know is right.
Coming back to the Yellowstone Club… Yes, it’s a mess right now. It’s not what I bought into, but, that’s not because of the members. Sure, there may be one or two that joined due to an ad in the Robb Report. And there may be a couple that are there simply to build a trophy house in a trophy resort… But, if you categorize the members simply as that, YOU ARE WRONG. We the members will navigate the current financial troubles and will do what we can to support the community. For many of us, this is home. This is a place where we have made a commitment and our families will be here for a long, long time…
I consider myself part of the Big Sky community. I play pool and shoot darts at Milky’s, we have dinner at the Corral, we have lunch at the Wrap Shack, and Bugaboo, you’ll see us at the Country Fair and the open air concerts in the summer, the local Rodeo at 320 Ranch on the 4th of July… I support the local businesses and people as best I can. They are my friends and my neighbors. Privacy is not what it’s about for me. My kids will always go to public school, and I’m in Big Sky because I fell in love with the area not because of any trophy, or ad… simply because of an idea… Where families gather. I’m doing everything I can to get back on that course.
So, before you jump to conclusions about who we are and why we’re there… ask yourself, honestly, would you have done the same thing?
I have been spending some time with my family up in our vacation home in southwestern Montana for the holidays. We belong to a Club that has a great group of members, but, unfortunately, had some unscrupulous owners that managed to put the club into a chapter 11 reorganization. So, needless to say, we weren’t sure what the overall mood would be like amongst the members this season.
There are, of course, people that are very concerned about keeping the club viable and getting through this reorganization. The members are banding together to have a common voice and to see things through the reorganization which will most likely end in a change of ownership with more opportunity for members to be equity owners in the club. The club would have been completely viable if not for some very questionable transactions of the previous owners that unduly encumbered the Club’s assets. So, this was not completely a product of a receding economy, it was merely exacerbated by it.
But, as I said, the members are a great group of people that will effect change in a very positive way. The bankruptcy was only a hiccup that will ultimately end with the club being run professionally, which is something that none of us have seen in the 10 or so years it has existed.
The Club normally employs approximately 600 employees in the area and directly affects the livelihoods of many more local vendors, small business operators, suppliers, etc. This combined with other large employers in the area that had to scale back operations due to temporary economic conditions and, in at least two cases, loss of construction loans when Lehman Brothers went bankrupt, has caused a lot of financial trouble in the local community.
When we first came out to Montana this season, there was an ad hoc member group meeting to give information about the chapter 11 proceedings and what the issues were and what to expect in the coming months. This quickly turned to a discussion on the local community outside of the Club. In other words, the Club employees, the residents of Big Sky, the residents of Bozeman that commute and work in the Big Sky community. These people, families, and businesses have been hit particularly hard by what is happening in the Big Sky community.
There were discussions on what we could do to help. What was suggested were programs that we could fund that would make loans to local business owners that have been affected by these economic difficulties and to make grants to local residents and families that were affected. There was a very positive response to this in spite of the fact that we were gathered to deal with a problem that directly affected the personal interests of the Club members, and the news about the Club was not very upbeat.
There have been a handful of members that really took the reigns on creating a facility to aggregate donations, review applications for aid, and distribute these cash grants. The driving force in getting this off the ground was Loren Bough, a club member and a local resident of the community. He gave a presentation that was positively received amongst the members and was able to raise a significant amount of money in a short amount of time to help those struggling with utility bills, groceries, medical bills, etc. that are simply struggling because of this temporary setback.
The program, called LIFT, is a tax exempt charitable entity that will raise funds through donations, and distribute these funds in the form of grants to individuals and families that are experiencing financial crises in the Big Sky area. In general, grant recipients must live or work in the Big Sky Area, the must have been recently laid off or hurt by the local economy, and must demonstrate financial hardship.
Last night, we went to a great New Year’s Eve party at the home of Warren Miller (the film maker / writer) and his wife Laurie. It was a fun party where everyone showed up with their holiday leftovers, some wine, and a Christmas tree to donate to the bonfire that capped the evening. The party was well attended by Club members, friends, and family. Everyone was upbeat and having fun.
At one point during the evening, Chris Wright and Whitney Peyton, got the attention of the crowd to have a quick “fundraising” event for the LIFT program. They decided to do it as a spontaneous auction and auctioned off things like a day of skiing with Warren Miller, or, spending a day whale watching on the Millers’ boat. The fun part of this was that every one of us know the Millers, and know them to be friendly, giving, and warm people. I’m sure they would welcome any one of us into their home, and Warren would love to ski with any one of us that asked… But, that wasn’t the point.
In this crowded room at the Miller house, Chris and Whit raised tens of thousands of dollars to help support the local community. The guests were willing to open their wallets to bid on, what were definitely valuable prizes, but, valuable prizes that we could have had simply for the asking.
The Miller party ended well before midnight. So, a number of us went down to the official Club New Year’s Eve Party. There was a band, dancing, party hats, and revelers waiting to ring in the new year.
When the band took a break, Chris and Whit once again took the stage and auctioned off ski dates, and whale watching, and joy rides with other members. Once again, they raised tens of thousands of dollars for the community.
The part that struck me was this. Here is a Club in trouble. All of the members are concerned about getting through the bankruptcy, as we all have a lot in invested and a lot at stake here. This has also, without question, been one of the worst economic setbacks that the country has seen in my lifetime. Everyone feels it to some extent. Obviously some feel it more than others, but, it’s there.
So, amidst all of this, I was surrounded by a group of people that were willing to open their wallets to help those that were hit harder than them. This really made me smile. Obviously, we’re not going to fix everything, but, here is a community doing the right thing by investing in the people of the community that most need help in a difficult time.
For me, this is a very positive start to the year. I look forward to a great 2009 and expect to see great things in the months to come.
If you are interested in the LIFT program, information can be found online at: http://mtcf.org/lift.html
There you will find information on making donations and applications for grants for people and families in need.
I get a lot of questions about Preferred Returns in Private Equity Funds, and various syndicated real estate deals. The basic confusion seems to stem from a confusion of a guaranteed return and a preferred return.
In most deals, it is difficult to guarantee a return. If we all knew what the outcome of a deal was going to be, investing would be simple. Just pick the deal with the highest guarantee.
A preferred return is something quite different. In most Private Equity Funds, the concept of a preferred return simply means that the return will be paid before any profit sharing or participation by other interested parties. In other words, the “Pref” is a benchmark that must be achieved before a deal Sponsor, or a General Partner participates in any profit sharing. This is important to note, as I believe that profit sharing is one of the best ways to align the interests of a Sponsor and an Investor. The Preferred Return simply sets a benchmark, after which this alignment takes place.
For example. Let’s assume that an investor makes a $100,000 investment in a TIC syndication that is buys an income producing piece of commercial real estate, such as an office park. Let’s also assume that the preferred return is 6%/year. Finally, we’ll assume that the General Partner, or Sponsor profit shares in the deal with a 60/40 split in favor of the investor (slightly aggressive, but, this is just for sake of argument).
In this case, the preferred return is $6,000 per year (6% of $100k). So, if the project produces exactly a 6% cash on cash return, the sponsor doesn’t participate in any profit sharing. Of course, the Sponsor has in interest in participating in the project, so, this would not be the optimal outcome for most Sponsors.
Now, let’s assume that the project produces 7% or $7,000 per year on the same $100,000 investment.
In this case, the investor will receive $6,000, or the Preferred Return, and the remaining $1,000 will be split 60/40. In other words, the investor receives $6,600 and the sponsor receives $400 out of the $7,000 produced by our example office park..
Obviously, the sponsor will want the project to produce returns much higher than the preferred return in order to participate in a larger portion of the profits.
What this does, is aligns the interests of the Sponsor and the Investor. The Investor should expect to receive at least the Preferred Return if the project is successful, and the Investor knows that the Sponsor has a vested interest in the success of the project and will strive to achieve a return on investment much higher than the Pref.
So, what happens if the project doesn’t produce enough cash to pay the Pref? In most cases, the Sponsor will simply accrue the unpaid portion of the Pref. In other words, if year one only produces 7% and the Pref is 8%, then, the difference of 1% will be accrued. This accrual will either be paid and made up when the cash flow grows to a sufficient amount to pay the Pref plus the accrual, or, more often, the accrued portion of the Preferred Return is made up upon the sale or repositioning of the asset.
In other words, the return is not “guaranteed”, but, will be made up as long as the project supports it.
The amount of a Preferred Return will vary greatly depending on the Sponsor and on the type of deal. I see a lot of Prefs that range between 6% per year and 15% per year.
Generally, new Sponsors will start with higher Preferred Returns in order to entice prospective investors. Unsavvy investors may mistake the Pref for a guaranteed return, and may not understand that a high, seemingly unachievable Preferred Return, may be just that… Unachievable.
Stronger sponsors with strong track records don’t need to use this tool as much to “sweeten the pot” as the economics of the deals being sponsored more than make up for the tighter Pref, or, even lack of a Pref. It makes sense if you think about it… A 40% cash on cash return, with little or no Preferred Return is a pretty good deal… Even with a 70/30 profit share it is much better than a 15% Preferred Return that barely beats the Pref.
In general, there is more room to lower or remove the Pref if there is a higher expectation for a strong return.
One phenomenon that I’ve seen lately, are Sponsors raising their Preferred Returns in order to scramble for extra capital. There is one Sponsor, in particular, that I saw come out with a product about 2 years ago that had a 10% Pref.
Well, they did fine raising money their first and second rounds. They placed the money into office buildings, and did okay at first… Then, in the midst of raising their third round, I started getting email announcing higher Preferred Returns.
I’m paraphrasing here, but, essentially, I received an email that stated they would raise the Pref to 12% if you put in a certain minimum amount into this fund (higher than the Fund minimum). In addition to that, they stated that they would raise the Pref to 15% if the investment was made within 30 days…
They were trying to spin it in a very positive way. Making it sound like a great deal to the Investor. But, what it sounded like to me, was an act of desperation. I couldn’t understand why they would be putting this out in fund III and have all of these perks for larger investments and fast investments.
From what I understand, that particular firm is now in trouble and struggling with their portfolio properties. I’m sure they saw this coming and thought an influx of new capital would help keep them afloat. I’m not sure how much money they raised, but, the end result was not positive. In this case, the 15% Pref, although it sounded great, was obviously a losing bet.
My point here, is to not get lulled into false hopes based on a large Preferred Return. If it sounds too good to be true, it probably is. You really do want to find a happy medium, where the Sponsor is willing to give a Preferred Return that is achievable and fair, with a reasonable expectation to exceed this and make all of the time and expense of putting the deal together worthwhile.