State

Modesto's YMCA deal bittersweet

Selling Modesto's YMCA building last month kept the nonprofit out of bankruptcy, ended a foreclosure threat and allowed leaders to refund memberships and replenish endowments, those involved said.

However, the institution's bittersweet ending tilted toward bitter for creditors. Most settled for half the money owed to them, chief volunteer officer Dennis Wilson said in an e-mail Friday.

The nonprofit's real estate broker confirmed that the buyer, who has leased the facility to a private health club, paid about $2.38 million, a figure computed by The Bee after both sides refused to disclose the price.

The YMCA's debt had grown to $2.18 million when its headquarters at 2700 McHenry Ave. was listed a year ago for more than $3.5 million. YMCA board members closed the facility Feb. 28 and sold it Sept. 17, saving the humiliation of a public auction.

"I have tremendous confidence in Dennis Wilson and Allen Layman," Brian Velthoen, president of Velthoen Associates Commercial Brokers, said of the two remaining board members most involved in YMCA affairs. "They may have been part of the decisions (leading to the YMCA's trouble), but at least they didn't abandon the Y, and they faced up to solving problems. I can't fault people who do that."

Three weeks after the closure, Modesto Commerce Bank and its parent company, the Bank of Stockton, issued a notice of default on long overdue loans of nearly $1 million, according to documents at the Stanislaus County clerk-recorder's office. In June, the lender scheduled a sale at auction, documents show, which was delayed because Wilson had nearly closed the deal with In-Shape Health Clubs, Velthoen said.

Foreclosure would have left nothing for unsecured creditors, including members expecting refunds, he said.

"That's the gun those guys had to their heads," Velthoen said.

Some vendors still unpaid

Wilson said he continues to negotiate with five or six unpaid vendors. Most others "were willing to accept 50 cents on the dollar" of what they were owed because the YMCA could not sell the building for enough money to cover all debts, he said Friday.

On the day escrow closed, Wilson referred The Bee to recorded documents for the purchase price, then said a week later that revealing that information "is up to the buyer."

Paul Rothbard, In-Shape's chief executive officer, said both sides signed a confidentiality clause to keep the price secret. Rothbard also represents the buyer, R&R Development, an investment group leasing the building to In-Shape.

"It's standard practice in nearly every transaction our group has been involved in," Rothbard said. Not divulging purchase prices helps protect against competitors trying to discern business practices, he said.

Purchase prices generally can be calculated from the transaction tax appearing on recorded deeds, which are public record. But savvy businesses sometimes use an exception granted in the California Revenue and Taxation Code allowing redaction of the fee amount, as long as it's paid.

Stanislaus County Clerk- Recorder Lee Lundrigan said no record showing the fee amount is kept when people use that loophole. But her accounting division produced a receipt of the tax collected for that transaction, allowing The Bee to compute the purchase price, later confirmed by Velthoen.

Tim Bettencourt, a partner in CoSol Commercial Real Estate in Modesto, said withholding that kind of information comes down to "personal preference."

Disclosure encouraged

But Elizabeth Schmidt, who advises nonprofit management through her firm,Southpoint Social Strategies, said nonprofits encourage trust and confidence with transparency, not secrets. She has written trade journal articles on nonprofit ethics.

"It is difficult for me to think of a reason why this information should not be publicly disclosed," she said. "The public's faith in all charities can be eroded by the appearance of shenanigans by one charity, so I would encourage them to disclose their financial arrangement or explain why they do not feel comfortable doing so."

In his e-mail response, Wilson ignored a question about the duty to share information with those who supported the YMCA over the years.

The nonprofit repeatedly refused to reveal financial information and failed to produce audits for at least three years, landing it last year on probation status with the YMCA of the USA.

Against the advice of their accountant, YMCA leaders by fall of 2007 had nearly drained supposedly untouchable endowment principal, once $408,000 strong, under Steve Smith, former executive director.

Several endowments tapped

Robert Babington Sr., the YMCA's general secretary in Modesto from 1948 to 1962 before joining national staff, set up a fund for camp scholarships in 1991. His will, obtained by The Bee two years ago after Smith refused to share Babington documents, clearly showed he wanted his money used only for needy children wanting to attend Camp Jack Hazard.

Other endowments honoring Bart Bennett and William Eakin also were raided.

Bob Babington Jr. said Wilson has assured him that the endowment will live on to help the YMCA of Stanislaus County's only remaining program — summertime Camp Jack Hazard, held on high- Sierra land leased for 85 years from the U.S. Forest Service.

"It sounds like they're working on it," Babington said. "I sure hated to see them lose that building, though."

Velthoen said, "Dennis has a real sense of responsibility to the heirs of the people who put up those endowment funds, to do right by them. He has spent hours and hours working through all of this stuff. It's not fun and he's not getting paid a nickel for it."

Wilson said about $340,000 was "set aside to fully replenish the endowments," reduced to $41,790 two years ago. The YMCA will choose a foundation to administer the endowments for camper scholarships, he said.

New endowment for campers

Skippy Williams, a former camper and camp director, established an endowment this year with other alumni and gathered enough to send 13 underprivileged children. Founders hope the Jack and Buena Foundation, which has no relation to the other endowments, continues in years to come, Williams said.

Velthoen said his firm significantly discounted its usual fee to allow the YMCA to repay endowments and as many creditors as possible.

In-Shape released some details on plans to spend up to $7 million renovating the aging facility.

The club will upgrade basketball and racquetball courts, create a Kids Club with a maze, build two group exercise studios for yoga and Zumba classes and dedicate a private area for women's workouts, said Rob Farrens, executive vice president. The Stockton-based company operates 34 clubs in California, with five in Modesto.

In-Shape has employed Modesto contractors in many projects throughout California, Farrens said. For example, Huff Construction Co. lists In-Shape buildings in Los Banos and Antioch on the Modesto company's Internet portfolio.

YMCA members who might be owed refunds but have not received them should call 578-9622, Dennis Wilson said.

Bee staff writer Garth Stapley can be reached at gstapley@modbee.com or 578-2390.

THROUGH THE YEARS

• 1918: A committee forms to create a chapter of the YMCA in Modesto.

• 1924: The YMCA establishes Camp Jack Hazard.

• 1963: The nonprofit breaks ground on its headquarters at McHenry and Floyd avenues.

• 1982: The YMCA opens a $650,000 gymnasium at the McHenry complex.

• 2007: YMCA leaders confirm $1.8 million in debt and hire a new chief executive officer.

• SEPTEMBER 2008: With debts reaching $2.18 million, leaders announce that the McHenry headquarters is for sale. They hope to receive $3.595 million.

• FEBRUARY: Unable to close a deal, the YMCA shuts its doors and discontinues all programs except for summer camp in the mountains.

• MARCH: Board members lower the price to $2.95 million. A lender issues a notice of default on an unpaid loan, setting foreclosure proceedings in motion.

• JUNE: The lender, still unpaid, issues a notice of trustee sale, scheduling bidding for the YMCA building at public auction. The process stalls when the bank allows more time for pending sale to a private party.

• SEPTEMBER: R&R Development, an investment group, takes possession of the building for an undisclosed amount and leases it to In-Shape Health Clubs. The YMCA's chief volunteer officer says the nonprofit is "in the process of paying all outstanding debts, including monies owed to members and vendors." Depleted endowments "are being replenished," he says.

• THIS WEEK: The Bee calculates the purchase price at $2.38 million, confirmed by the YMCA's real estate broker. It's not enough to cover all debts, he says.

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