Vous êtes sur la page 1sur 18

EvaluationofRestonAssociationsPurchaseand

ManagementoftheTetraProperty

AFailureinBoardOversightandStaffManagement

PreparedfortheRestonAssociationsBoardofDirectorsandChiefExecutiveOfficer

January25,2017

PreparedbyRestonRecall
EdAbbott
AlisonKamat
TerryMaynard

BecausetheBoardofDirectorsoftheRestonAssociation,togetherwithRAstaffand
legalcounsel,havefailedtonegotiateacontracttoinvestigatethecircumstancesthat
leduptothepurchaseoftheTetrapropertyataninflatedprice,aswellasthecost
overrunsassociatedwiththatpurchase,wehavetakenituponourselvestoexaminethe
publicrecordandpresenttheknownfacts.Hereisourreportofthosefindings.

Thestoryinbrief,OpEdbyTerryMaynard

HistoricalBackground

RestonLandCorporation

1980rezoning

DevelopmentofLakeNewport

PurchasebyTetraProperties

2010appraisal

RestonAssociationpurchase
2015appraisal
Problemswithbuildingarestaurantonthesite

9
9
10

FairfaxCountyChesapeakeBayResourceProtectionArea

10

Floodplain

10

RestonAssociationeasements

11

Neighborhoodopposition

11

Askingprice

11

PurchaseproposedattheRestonAssociationBoardmeeting

12

ResolutiontobuytheTetraProperty

13

Referendum

13

Referendumpasses

13

Financialprojections

14

RentbackagreementandBillLauer'sdeath

14

Renovationbudgetandcostoverruns

15

IndependentreviewoftheLakeHousepurchase

16

Mediaworldbidsonproject
17pagecontract
Conclusion

16
16
17

Thestoryinbrief,OpEdbyTerryMaynard
This is an op-ed by Terry Maynard, co-chair of the Reston 20/20 committee, originally published
in RestonNow, January 11, 2017.

Twoyearsago,formerRABoardPresidentKenKneuven,Restonshomeownerassociation
announceditsdealwithalocaldevelopertopurchasehisproperty,theTetraofficebuilding,for
overtwiceitscountyappraisedvalueof$1.2million.ThisstartedthelongslideofReston
Associationintobadgovernanceandmismanagement.

Howdidthishappen?Nooneknowsforsure.However,Mr.KneuvenandRickBeyer,wholives
ontheshoreofLakeNewportoppositetheTetraproperty,havebeenfriendsforsometime.Mr.
BeyerwasactiveinsupportingtheRATetrapurchase.Hewaslikelyconcernedabouthisview
and,asaresult,hispropertyvalue.ItisnotknownwhetherBeyeraskedafavorfromKneuven
ineliminatingthisriskbyhavingRApursuethepurchaseoftheTetraproperty.Itisclearisthat
afterMr.KneuvenlefthisRApost,heobtainedemploymentasaSeniorConsultantatAGB
InstitutionalStrategies.Mr.BeyerisaManagingPrincipalatthesamecompany.

Asfortherestofus,RAanditsBoardjustifiedpaying$2.65millioninpartbyassumingthata
costlyrestauranttheretwicethesizeoftheTetrabuildingmightbebuilt.RAdidntbotherto
note,however,thattherestaurantwasneverapproved,andtherearenumerousenvironmental
restrictionsandeasementspreventingconstruction.Moreover,RAsappraiserputthe
propertysasisvalueatjust$1.1million.Infact,thepropertyhadbeenonandoffthemarket
withlittleinterestformostofadecade.

Nonetheless,tosellthedealinacommunityreferendum,RAprojectedthatrenovations,inside
andout,wouldcostRAmembersjust$259,000.Todate,interiorrepairsalonehavecost
Restonians$692,000notcounting$925,000insellercontributionsandaComstockprofferto
RAwhichcouldhavebeenusedformuchbetterpurposesandanRAconsultantprojects
proposedexteriorimprovementswillcost$1.2million.

Ontheothersideoftheledger,RAprojectedrentalincomefromarentbackagreementwiththe
Tetraownersofmorethan$140,000through2016.Unfortunately,thesloppilywrittenagreement
allowedTetrasformerownerstowalkawayattheendof2015,resultinginanimmediate
$100,000lossinRArevenues.RAscrambledtomakeuptheshortfall,butasofNovember
expectedyearendcashflowlossesreached$902,000,some$515,000morethanRA
projectedfor2016duringtheTetrareferendum.

Ifpubliclyknownatthetime,thesemassivemisstatements,mistakes,expensesandoverruns
wouldhavedoomedthepurchasesnarrowcommunityapproval.

Indeed,themassiverenovationcostoverrunswerenotrevealeduntilMay2016.
5


Whenthecostoverrunswererevealed,communitypressurebuiltandtheBoardagreedto
contractforanindependentreviewofthepurchaseandrenovation.

Afterchoosingtosignaprobono$1reviewcontractwithMediaworldLLC,usingateamof
Restonvolunteersexpertinfinancialmatters,afewmembersoftheBoardsabotageditsownby
insistingonexcessiveRAcontrolandcontractorliabilityinmultiple,lengthycontractdrafts.A
specialBoardmeetingwiththeMediaworldvolunteersinDecembercouldntsalvagethe
negotiationsanotherobstructionistdraftresultedandthevolunteerswithdrewlastweek,
explainingthemultitudeofreasonswhy.

Theincreasinglyurgentquestionis:WhataresomemembersofRAsBoardandseniorstaff
tryingtoconcealabouttheTetraacquisitionandrenovationandwhy?Didtheyengagein
illegal,unethicalorjustplainstupidbehavior?Unlessthereisacriminalinvestigation,the
chancesaredwindlingRestonianswilleverknowwho,how,whyandwhenallthisfinancial
mischiefoccurredastheBoardandstaffcontinuetohidethetruthanywaytheycan.Thefuture
ofhonest,open,prudentgovernanceinRestonhasneverlookedmoreuncertain.

https://www.restonnow.com/2017/01/11/opedvotetoputanendtothegrowingtetramess/

HistoricalBackground
RestonLandCorporation
RestonLandCorporation,asubsidiaryofMobilOil,wastheoriginaldeveloperforReston.1Up
untilthe1980s,mostofthedevelopmenttookplacesouthofBaronCameronDrive.The
propertynorthofBaronCameronwasforthemostpartwasundevelopedandwouldeventually
becomeknownasNorthReston.

1980rezoning
Beginningin1980Mobilwentforwardwithafullscaledevelopmentofhighendhousingin
NorthReston.Thepropertyat11450BaronCameronAvewaslocatedonLakeNewport,a
primelocationforupperendhousing.
InJanuary1980theRestonLandCorporationRezoningandDevelopmentPlanprofferedthat
thepropertyat11450BaronCameronAvewouldinitiallybeacombinationeatingestablishment
andRestonsales/informationcenter.Theyfurtherprofferedthatwhenthesales/information
centerwasnolongerneededforthemarketingofRestonthattheportionusedforsuchwould
beconvertedtooneofthefollowing:

anexpandedorsecondeatingestablishment
officespace2

RestonLandCorporationlaterrevisedthesiteplantodelayconstructionoftherestaurant.The
restaurantwasneverbuilt.

DevelopmentofLakeNewport
Inthe1990s,theprimelotsaroundLakeNewportweredeveloped.In1999RichardBeyer,a
localentrepreneur,purchasedoneoftheprimelotsandbuiltalargehouseonthesite.Thelotis
directlyacrossthelakefromthesales/informationcenter.

http://reston50.gmu.edu/files/original/b10d2c9dc0b91965f2e7684131f1a204.jpg
https://www.reston.org/Portals/3/2015%20DEVELOPMENT/Current%20Zoning%20Determiniations.pdf,
pg.3
2


SatelliteimageofLakeNewportshowingBeyer'shouseandtheformersales/informationcenter

PurchasebyTetraProperties
AfterthedevelopmentofNorthRestonwascompletedinthelate1990's,thesalesofficewasno
longerneededandRestonLandCorporationdecidedtoselltheproperty.
In2003WilliamLauer,ownerofTetraProperties,wasconsideringpurchasingthepropertyto
builda36,000squarefootofficebuildingontheproperty.Aneighborhoodcommitteecalled
"SaveLakeNewport,"cochairedbyRickBeyer,wascalledintoactiontostopBillLauerfrom
purchasingtheproperty.3
Lauercameupwithanewplantowrapa20,000squarefootrestaurantaroundtheexisting
3,000squarefootvisitorscenter.Onceagaintherewassignificantneighborhoodresistance,led
byRickBeyer.4ItisreasonabletoassumethatMr.Beyerwasinterestedinprotectinghisview,
hissolitude,andhispropertyvalue.

http://www.restonevillage.org/index.cfm?action=n63&id=251,19,28

http://www.connectionnewspapers.com/news/2003/jun/11/proposalstirsuplakenewpor
t/

InDec.2003Lauer,throughTetraProperties'subsidiaryLakeNewportLLC,finalizedthe
purchaseoftheformervisitorscenterfor$750,000,wellbelowtheassessedvalueof
$1,167,3055.InsubsequentyearsheusedtheLakeHouseasanofficeforhimselfandhisstaff.

2010appraisal
RestonAssociationappearstohavehadlittleinterestintheTetraofficebuildinguntil2010.For
reasonsthatarenotclearinthepublicrecord,RArequestsanappraisaloftheproperty.The
appraiserisTheRobertPaulJonesCompanylocatedinTysonCorner.Theirappraisalreportis
senttoMiltonMatthew,theCEOofRestonAssociationatthetime.
TheJonesappraisalstatesthatthefeesimplemarketvalueofthepropertyis$1,170,000.It
goesontostatethatifarestaurantpadwereaddedtothesitethecorrespondingfeesimple
valuewouldbe$2,760,000.6
TheJonesappraisaldoes,however,gointosomedetailonthecountysviewonpermittinga
restaurantonthesite.Severalpagesoftheappraisalsummarizeandinterpretcountyrules
basedon2003correspondencebetweentheformerowner,RestonLandCorporation(Mobil)
andcountyofficials.Acarefulreadingofthissectionofthereportclearlyshowssignificant
uncertaintyinthepermittingprocess.Thereportconcludes,adifferenceofopinionexisted
concerningthedevelopmentoftheproperty,whichishardlyaringingendorsementfora
restaurant.ItisnotknownfromthepublicrecordwhyJonesconsideredtheadditionofa
restaurantpadintheappraisal,giventheuncertaintyinthepermittingprocess.

RestonAssociationpurchase
InJanuary2015,RApubliclyannounceditsintentiontosignaletterofintenttopurchasethe
Tetraofficebuilding.7ThecircumstancesandeventsleadinguptotheBoardsconsiderationare
notknown.Nonetheless,RAbeginstheprocessofpurchasingtheLakeHouse.Sucha
purchasemustbeapprovedbyreferendumbytheRAmembership.

2015appraisal
ThefirstindicationthatRAwasconsideringthepurchaseoftheTetrapropertywasinDecember
2014,whenRA'soutsidecounselreceivesanengagementletterfromRobertPaulJonesstating
FairfaxCounty,VA,Dept.ofTaxAdministrationwebsite

https://www.reston.org/Portals/3/2015%20DEVELOPMENT/2010%20Tetra%20Property%20Appraisal.pdf
|website=RestonAssociation

https://www.reston.org/Portals/3/2015%20DEVELOPMENT/2010%20Tetra%20Property%20Appraisal.pdf

thecompanyispreparedtomakeanappraisaloftheTetraBuilding.Jonescompletesthe
appraisalinFebruary2015.8Theappraisallooksquitesimilartothe2010appraisal.Infactthe
appraisedvalueisaboutthesameasthe2010appraisal,$2.65million.Thereis,however,a
notabledifferencebetweenthetwo.
Unlikethefirstappraisal,theclient(RestonAssociation)instructedJonestoappraisethe
propertyasarestaurant.Thereportsays,Thepurposeofthisappraisalistoestimatetheas
isfeesimplemarketvalueofthesubjectassumingbyclientinstructionthatrestaurant
usesarepermitted.(emphasisadded).ThereisnothinginthepublicrecordastowhyRA
shouldinstructtheappraisertoconsiderarestaurantontheproperty.Thisisimportant,asthe
additionofarestaurantalmostdoublestheappraisedvalue.Theappraisalliststhe"asis"value
(norestaurantadded)usinganincomeapproachas$1.1million.

Problemswithbuildingarestaurantonthesite
Despitetheassumptionintheappraisalthat"restaurantusesarepermitted,"therewouldbea
numberofobstaclestoovercomebeforearestaurantcouldbebuiltonthesite.

FairfaxCountyChesapeakeBayResourceProtectionArea
FairfaxCountyChesapeakeBayResourceProtectionArea(CBRPA)maps9showLakeNewport
asaResourceProtectionArea(RPA)witharequired100footbufferaroundthelake,pursuant
to11817(b)(ii)oftheCountyCode.10
TheRPAdesignationplacesanumberofrestrictionsondevelopment.Thelakeandthe
shorelineareawithin100ofthelakemustbekeptasisorrestoredtoitsnaturalconditionif
changesaremade,topreventrunofffrompollutingthebay.FairfaxCountymayconsider
waiverstosomeoftheRPArequirements,subjecttocountystaffreview/approvalandapublic
hearing.Thecostsofsuchawaiverandlikelihoodofcountyapprovalisnotaddressedinthe
2015appraisal.

Floodplain
AsecondmechanismthatpreventsdevelopmentontheTetrapropertyisthedesignationofall
theareawestoftheTetraofficebuildingdownthroughRA'sparkingareaasafloodplain.In
general,thisdesignationasafloodplainmeansthatnothingcanbebuilttherethatimpedesthe
flowoffloodwaterstotheareabeneaththeLakeNewportdam.Toimpedethatflowcould

https://www.reston.org/Portals/3/2015%20NEWS%20RELEASE%20FILES/2015%20Appriasal%20of%20
11450%20Baron%20Cameron%20Avenue.pdf

9
h
ttps://www.fairfaxcounty.gov/gisapps/DMV/cbpa/2005/114

10
h
ttp://www.fairfaxcounty.gov/dpwes/environmental/cbay/ch118aug2006.pdf

10

causethedamtocollapsefromexcesspressure,imperilingtheLakeAnneVillageCenter
downstream.11

RestonAssociationeasements
Finally,andperhapsmostimportantly,morethanhalfofthepropertyisunderRAeasements,
mostlyforparkingareasforRAtenniscourtsandtrailsnexttotheTetrabuilding,aswellasfor
twoaccessroadsontheTetraproperty.Inbrief,ifRAjustsays"no"todevelopers,thisarea
cannotbedeveloped.
InadditiontotheRestonAssociationeasements,othereasementsonthepropertyinclude:

Stormdrainandslopeeasements
Sanitarysewereasement
Phoneandpowercompanyeasements
Waterandsewereasements

Theeasementsaredescribedindetailinthe2010appraisal.12

Neighborhoodopposition
Givencommunityoutrageovercelltowers,currentplanstoredevelopSaintJohnsWoods,and
theproposed2003developmentatthissamelocation,justtonameafewinstances,itisvery
unlikelythatarestaurantofanytypewouldpasspublicapproval.

Askingprice
Giventhedifficultieswiththesite,itisunlikelythatarestaurantwouldbeaviableoptionforthe
TetraProperty.SowhywouldRArequiretheappraisertoassumethatrestaurantusesare
permitted?Theanswermaybeinoneofthemoretellingsectionsoftheappraisal,whichstates:
Thepropertycontact,Mr.BillLauer,reportsthatthepropertyhasnotbeenlistedfor
sale,butthathehashaddiscussionswithMr.McBride(RAslanduselawyer)andthe
RestonAssociationabouttheAssociationspotentialacquisitionofthesubject.He
reportsthathisaskingpriceis$2,700,000andthathewouldnotbeinterestedinselling
unlesshispriceismet.13
The2015JonesappraisalvaluestheLakeHouse,assumingitcanbeusedasarestaurant,at
closetoMr.Lauersdemandfor$2.7million.WithouttheassumptionofarestaurantatLake
House,theappraisedvaluedropsto$1.3millionorless,assumingthebuildingisingood

11

https://www.reston.org/Portals/3/2015%20DEVELOPMENT/2010%20Tetra%20Property%20Appraisal.pdf
12

https://www.reston.org/Portals/3/2015%20DEVELOPMENT/2010%20Tetra%20Property%20Appraisal.pdf
13

https://www.reston.org/Portals/3/2015%20NEWS%20RELEASE%20FILES/2015%20Appriasal%20of%20
11450%20Baron%20Cameron%20Avenue.pdfpg.15

11

condition,wellbelowMr.Lauersaskingprice.TherearenopublicrecordsorRABoard
statementsaboutthenatureorcontentofthediscussionsbetweenMr.LauerandRA.

PurchaseproposedattheRestonAssociationBoardmeeting
TheRABoardmeetsinitsregularmeetingtobegintheprocessofapprovingthepurchaseof
theLakeHousePropertyonJanuary22,2015.14Todiscussthepurchase,theBoardfirstgoes
intoaclosedexecutivesessiontodiscussandconsultwithourlegal/landusecounselona
probablecontractualmatter.TheBoarddiscussesthepurchaseinexecutivesessionforalmost
2hoursandprovidesnoinformationontheirdeliberations.
TheexecutivesessionsendsandtheBoardproceedstoproposeinpublicsessiontheaddition
oftheLakeHousetoRAsproperty.Theonlycommentsmadeintheminutesofthemeeting
regardingthepurchaseare:Overayearago,ourCEOwasapproachedbytheownerofthe
Tetraproperty(abuttingBrownsChapelParkandtheLakeNewportTennisComplex)anda
thirdpartyregardingthepossibilityofpurchasingaportionoftheparcelownedbyTetra.
Recently,thethirdpartydroppedoutofthediscussionandtheAssociationwasofferedthe
opportunitytopurchasetheentireparcel.
Neithertheminutesofthemeetingnoritsvideorevealanyoftheinformationrelatedtothe
discussionsbetweentheCEO,CateFulkerson,oranyothermemberoftheRABoardandthe
owneroftheLakeHouse(Tetra)property.
Thefollowingquestionsremainunanswered:

Whosuggestedthepurchase?
Whatneeddidthepurchaseserve?
Whoconductedtheinitialnegotiationswiththeowner?
DidRA'srepresentativesdiscussthepricedemandedbyLauerof$2.7millionortryto
negotiateforalowerprice?
DidtheCEOmakeanycommitmentstoBillLauerthatobligatedRA?
Whowasthethirdpartywhodroppedout,andwhy?
Wasthefeasibilityofhavingarestaurantonthesitediscussed?
Whatwasdiscussedduringtheexecutivesession?
Whatdemands,ifany,weremadeoftheboardmembers?
Whatpromises,ifany,weremade?

14

https://www.reston.org/Portals/3/2015%20GENERAL/FINAL%20January%2022%202015%20BOD%20M
eeting%20Minutes.pdf

12

ResolutiontobuytheTetraProperty
Aftercomingoutofexecutivesession,thePresidentoftheRABoard,KenKneuven,madea
resolutiontoaddtheLakeHousetotheRAsproperty.Themotioncarriesandincludesa
scheduletoputtheproposaltothemembersofRAinareferendum.

Referendum
AbouttwoweekslatertheJonesappraisalismadeavailableandtheRABoardofDirectors
holdsaspecialmeetingtoapprovetheTetraPropertypurchasereferendumquestion,factsheet
andletterofintenttopurchasetheproperty.15
Atthetimeofthereferendum,thefollowingwasknown:

ThereferendumcommitsRAtopaying$2.65million.
TheCountyputsthevalueoftheTetrapropertyat$1.20millionasofJan.1,2015.
TheCountyisobligatedunderstatelawtoassessrealestateatitsfairmarketvalue.
TheJonesappraisalusingacomparablesalesandincomevaluations,asisfair
marketvalueof$1.3million.
TheLakeHousewasnotingoodrepair.AnengineeringcompanyhiredbyRA
estimatedtheneededrepairsataboutonequartermilliondollarsspecifically,
$257,410overthenextdecade,including$144,364thatneedstobedoneright
away.
TheasisvalueoftheLakeHouseiftherepairsweremadewouldbe$1.3million
lesstheneededrepairsof$257,410toputitingoodcondition.Thatresultsina
valueofabout$1milliondollars.Thecommittedsalepriceinthereferendumismore
thantwoandhalftimesthisasisvalue.
Theowneroftheproperty,Mr.Lauer,insistedon$2.7millionorhewouldnotsell.
Gettingtothatappraisedvaluerequiredtheassumptionthatthepropertyincludea
restaurant.RAdirectedJonestoaddtherestaurant,perhapstoinflatetheappraisal
andbringtheappraisedvalueto$2.65million,justundertheownersprice,without
theintentionofusingitasarestaurant.

Asaresultofthis,RAmembersendeduppaying$2.7millionforanassetthatwasworthlittle
morethan$1million.

Referendumpasses
RAstaffandDirectorsurgedvoterstoapprovethereferendum.RAstaffandDirectorsmanned
aboothattheRestonFarmersMarketatLakeAnnehandingoutbrochuresandencouraging
visitorstothemarkettovoteforthereferendum.TheDirectorswroteeditorialsandmade
15

https://www.reston.org/Portals/3/2015%20GENERAL/FINAL%20February%209%202015%20BOD%20M
eeting%20Minutes.pdf

13

commentsinfavorofthereferenduminthelocalnewspapers.AVoterFactSheetpainteda
rosypictureofthepurchaseandwaswidelydisseminatedtoRAmembers.16Contraryviewsand
analysesweresimplyoverwhelmedbytheRAcampaigninfavorofthepurchase.
DespitetheonesidedRAcampaign,themarginofvictorywasnarrow,withthereferendum
passingbyfewerthan300votesoutofabout5600votescast.Onlyaboutathirdofalleligible
voterscastvotes.
TheBoardannouncedtheresultsofthereferenduminaspecialmeetingonMay11,2015.
AtthispointRAhadpurchasedtheproperty,theBoardandstaffcongratulatedthemselveswith
aheartywelldoneandmostmembersmovedonwiththeirlives.Andafewmonthslater,Ken
Kneuven,theformerpresidentoftheRABoardandthemajorBoardcheerleaderforthis
purchase,wouldwoundupwithajobworkingforRickBeyer,oneofthemajorbeneficiariesof
thepurchase.

Financialprojections
RAusedfinancialinformationwhichassumedthepropertywouldlastformorethanthree
decades,doublingthelifeofthecurrentbuilding.UsingRAsassumptionsabouttherevenues
andexpenses,lossesareexpectedtopeakat$2.0millionin20years,aboutthetimeRA
makesitslastloanpayment.
Extendingthisanalysisoutto2050showsthatthecumulativelossbeginstoshrinkafterthe
loanispaidoff,butdoesnotreachbreakevenorbetteruntil204833yearsfromnow.
BythentheLakeHousewillbe66yearsold,afull26yearsbeyondthetypical40yearlifetime
ofastickbuiltofficebuilding.Ifitdoesneedtobetorndown,itcannotberebuiltundercurrent
environmentalrestrictions.TheCountysChesapeakeBayPreservationOrdinancecallsforthe
returntoanaturalstateofallResourceProtectionAreas(RPAs),suchasthisone,attheendof
thenaturallifeofexistingstructures.
Ifthebuildingisstillstandingandusablein2050,theanalysisshowsRAscumulativeannual
returnoninvestmentwillbe0.5percentoverthenext35years.And,inrealterms,assuminga3
percentinflationrateasRAdoes,itwillstillbealosinginvestment,withanegative2.5percent
returnannuallyforthenext31/2decades.

RentbackagreementandBillLauer'sdeath
Mr.Lauer,thepreviousowner,diedquiteunexpectedlyjustasthereferendummeasurewas
passing.RAhadsignedanagreementwithMr.LauertorentbacktheLakeHouseforayear
withanoptionforanadditionalyear.RAincludedthisrentalincomeintheirfinancialprojections
thattheyusedtoconvincememberstovoteforthereferendum.Unfortunately,theRAcontract
fortheleasewasnottypical,inthattherenterhadtheoptiontooptouteverysixmonths.Mr.
16

https://www.reston.org/Portals/3/2015%20GENERAL/Tetra%20Guide_FINAL_Cutlines
%20Removed.pdf

14

Lauer'swidowchosenottorenewthelease,leavingRArevenuesshortbyabout$100,000in
2016.

Renovationbudgetandcostoverruns
ThiswasonlythebeginningoftheLakeHousefinancialdifficulties.InlateMay2016,abouta
yearafterthereferendumnarrowlypassed,RACEOCateFulkersontoldtheRABoardof
DirectorspubliclythatrenovationsfortheinterioroftheTetrabuildingweremorethan$428,000
overbudget.Priortothereferendum,RAhadestimatedtherenovationcostsat$259,000.By
May2016,theactualcostshadtripled.Anyestimateofrenovationcostsissubjectto
uncertaintyhowever,underestimatingbyafactorofthreeisgrosslyincompetent.Furthermore,
waitingafullyeartotellanyoneisgrosslynegligent.Finally,iftheestimatedrenovationcosts
hadbeenclosertotheactualcosts,itislikelythereferendumwouldnothavepassed,givenits
narrowmarginofapproval.
Tomakemattersworse,theRABoardofDirectorsapprovedanadditional$430,000forthe
LakeHouserenovationtocoverthecostofoverruns.InlightoftheBoardsnotofficiallyknowing
oftheoverrunasignificantoversighterrorbyitselfperhapstheapprovalwasnecessaryto
payforworkalreadycompleted.Amoreprudentcourseofactionwouldhavebeenforthe
Boardtostopallwork,demandafullaccountingofthecausesoftheoverrun,suggestremedies
toprecludefutureoverruns,andproduceestimatesoffuturespendingrequirementsandlikely
costrecovery.TheBoardmadenoneofthosedemandswhenitapprovedtheadditionalfunding.
Moregrievously,however,theBoardfailedtoholdaccountablethosewhowereresponsiblefor
theoverrun.
Unfortunately,thefinancialholefortheLakeHouseprojectwasevendeeperthantheRABoard
admittedatthetime.Athoroughcashflowanalysisshowedthefollowing:

TheTetrabudgetwasexpectedtobe$624,640overbudgetbyendof2016.Thats
$28$30perRAhousehold.RAsfactsheetclaimedtherewouldbenoimpacton
assessmentfees.
TheentireTetraeffortwasexpectedtobeintheholemorethan$562,000by
yearend,comparedtothesurplusofmorethan$208,000asstatedonthefactsheet.
Bytheendof2020(thefinaldatepresentedinthefactsheet),RAwillprobablybe
morethan$1,000,000inthehole,costingRestonians$40$50perhousehold,
insteadofthe$10$12projectedbyRA.
Beyondthattimeframe,RAwilllikelynotoperatetheLakeHouseintheblackuntil
2048,usingRAsownassumptionsandotherconservativeonesbeyond2020.

Inretrospect,RAsprereferendumpromisesrelatedtothecostsofrenovationandoperating
incomeprovedtobewildlyoveroptimisticatbest,andoutrightfalsehoodsatworst.Therehas
beennoaccountabilitytodate,eitheratthestafflevelorattheBoardlevel.
Tetrawilllikelyneverbeprofitable.RAoperatesanumberoffacilities,fromswimmingpoolsto
theNatureHouse,whicharecoretoRAsmission,butarenotexpectedtobeprofitableontheir
own.RArecovers27%ofthecostsrelatedtothosefacilitiesthroughusagefeesand
15

assessmentscovertheremaining73%.TheactivitiesforwhichtheLakeHouseisused,
however,arenotcoretoRAsmission.Suchinvestmentsneedtostandontheirownandnotbe
subsidizedbyRAmembers.

IndependentreviewoftheLakeHousepurchase
Inthesummerof2016,thefinancialmismanagementandoutrightincompetenceoftheRAstaff
andtheBoardwereinfullview.Facedwiththeneedforapprovinganewbudgetandan
increaseinassessmentfees,theBoardneededtoshowitwasnowseriousaboutbeingfiscally
responsible.OnJuly23,2016,theRABoardapprovedaprocesstoconductanindependent
reviewoftheLakeHousepurchasingdecisionanditsaftermath.Followingaseeminglyendless
discussionofthemeaningofindependentandadebateontheappropriatetimeperiodfor
suchareview,theBoardapprovedascopeofworkforthereviewandappointedaselection
committeeofAssociationmemberstoreviewandrecommendaconsultantforthereview.

Mediaworldbidsonproject
TheRequestforProposalswasissuedonJuly15,2016.17Theboardappointedcommittee
reviewed12proposalsandrecommendedthecontractbeawardedtoMediaworldVentures.
Mediaworldofferedtodothestudyfor$1,essentiallyvolunteeringtheteamstime,expertise
andthecompanyssupport.Mr.SridharGanesanheadsthecompanyandisalsopresidentof
theRestonCitizensAssociation.MediaworldsreviewteamconsistedofRestoncitizenswith
relevantprofessionalbackgrounds.OnSeptember8,2016,theselectioncommitteemetwith
thefirmssubmittingproposals.ThecommitteerecommendedacceptanceofMediaworlds
proposal,andonSeptember22theBoardapprovedthisproposal.
Atthispoint,itseemedlikearobustandevenhandedprocesswasfinallyinplaceforgettingto
rootcausesoftheLakeHousefinancialdisaster.Perhapscorrectivemeasureswouldbeputin
placetoassureitdoesnothappenagain.That,however,failedtohappen.

17pagecontract
OnOctober5,RAslegalcounselsentMediaworldadraftContractorsAgreementfortheir
review.Theagreementsetforthconditionsinthecontractunrelatedtothescopeofwork,
sometimesreferredtoasstandardconditions.The17pagecontractcontainedmany
unreasonableprovisions,includingthefollowing:
1. RAhadtherighttoremoveorreplaceanyoftheteammembers.
2. RAwouldownthefinalreport.
3. RAhadtheexplicitrighttomodifythereportandpublishthealteredreport.
17

http://www.reston.org/Portals/3/2016%20News%20Releases/071516%20RA%20RFP%
20for%20Tetra%20Lake%20House%20Independent%20Review.pdf
16

4. RArequiredeachmemberoftheteamtosignaconfidentialityagreementmaking
everythingconfidentialandindemnifyingRAfromanyandalldamagesRAmightsuffer
asaresultoftheteamswork.
5. Eachteammemberwouldbeliabletopaydamagesforanybreachofconfidentialityby
anyoftheteammembers.Theseconditionswouldlastinperpetuity.
TheMediaworldteamredlinedthedraftandeliminatedmostoftheobjectionablelanguage,
suchasindividualliabilityforcontractbreachesofotherteammembers.Theteamforwarded
thereviseddraftonOctober24,2016.OnNovember24,2016,Mediaworldreceivedanote
fromRAscounselbasicallyrejectingallthesubstantivechanges.
TheBoardmetonDecember7todiscussthecontract.Mediaworldexplainedtheproblemswith
theoriginaldraftconditionsandobjectedtotheonerousconditionsinthecontract.Theyinsisted
thatanyfinalcontract1)couldnotimpairtheteamsabilitytoconducttheworkindependently,2)
couldnothaveonerouspunitiveclauses,and3)couldnotallowRAtoalterthereportand
presentarevisedversiontothepublicasMediaworldswork.
Duringthediscussion,oneboardmemberproducedafourpageconsultingcontractthatRA
hadrecentlysignedwithanotherfirm,QuantumGovernance,doingsimilarworkongovernance
issues.Thisfourpagecontractcontainednoneofthepunitiveclausesofthe17pagedraft
giventoMediaworld.Afterthediscussion,theBoardwentintoexecutivesessiontoobtain
furtherguidancefromitscounsel.
OnDecember16,2016,Mediaworldreceivedareviseddraftcontract.Therevisioneasedsome
theconcernshowever,oneonerousliabilityprovisionremained.RAwouldpayforliability
insuranceupto$1million,butaliquidateddamagesclauserequiredMediaworldtopay$2,000
foreachbreachofconfidentialitybyanyteammember,plusanyotheravailableremedy.
Basically,thenewdrafteasedthepunitiveburdensonindividualteammembersbutincreased
therisktoMediaworld.
Mr.GanesanwasnotwillingforMediaworldtoassumesuchriskforaprobonoproject.Other
teammembersfeltthatthereviseddraftwasstilloverreaching,especiallyforaprobono
project.OnDecember22,Mr.GanesanwrotetotheRABoardthattheycouldnotacceptthe
contract,althoughtheywouldconsiderashorter,lesspunitiveversionsuchasthecontractRA
signedwithQuantumGovernance.NothearingfromRAoritsattorney,Mr.Ganesanwithdrew
MediaworldfromnegotiationsonJanuary4,2017.

Conclusion

TheRABoardandstaffhaverejectedtheselectioncommitteeschoiceofawellqualifiedfirm
willingtodotheworkonaprobonobasisbyimposingunreasonableconstraintsandpenalties
onthefirmanditsmembers.Bydoingso,theBoardandRAstaffhavestoppedaninvestigation
oftheflaweddecisionmakingprocessesinvolvedintheLakeHousepurchaseandthelessons

17

itcouldprovideinmodifyingprocessesformakingsimilarcapitalspendingdecisionsinthe
future.
TheBoardhasanobligationtokeepafailureliketheLakeHousepurchasefromhappening
again.Forstarters,theRABoardshouldimmediatelychangethebylawstoprohibitthe
purchaseofafacilitythatreceivesthemajorityofitsrevenuefromactivitiesthatareunrelatedto
theprimarypurposeoftheRestonAssociation,whichistopromotethepeace,health,comfort,
safety,andgeneralwelfareofitsMembers.

Atthispoint,itdoesnotmakesenseforRAtohireexpensiveconsultantstodotheworkthat
Mediaworldwaswillingtodoonaprobonobasis.Anyreportcomingfromsuchaneffortwillbe
producedtoolateforRAmemberstomakeinformedvotingdecisionsinthenextBoardelection.
Thepublicrecordcontainsenoughinformationtoestablishthatthereweremultipleproblemsas
wellasapotentialconflictofinterest.

Nonetheless,theRABoardshouldremovetheonerousrestrictionsandengageMediaworldto
doaforensicanalysisofthedecisionmakingthatwentintotheLakeHousepurchaseand
recommendchangestodecisionmakingprocessesthatwillhelpavoidmakingsimilarmistakes
inthefutureandbetterserveRAmembers.

18