Saturday, November 22, 2014

Sometimes Money Is Not the Right Currency

There's no doubt that money matters. But not always.

I recently worked with a group that was struggling over how to find an equitable settlement with its developer (who was also a member of the group) over promised facilities that never materialized, and one of the key challenges was coming to agreement about constituted "equitable."

Here's the back story:

o  The project was started about a decade ago when the developer bought a piece of land and promoted it for a community location. He sold lots for a certain amount of money, with the understanding that some of the purchase price would go toward paying off the land, some would go toward infrastructure (roads, sewer, and utilities), and some would be set aside for building common facilities. While the exact nature of the common facilities had not been delineated, everyone agreed that the promise had been made.

o  The project was to be developed in two phases: roughly two-thirds of the lots were in Phase I, and the remainder in Phase II.

o  When the bottom fell out of the housing market in 2008, it put an unanticipated squeeze on the master plan. It was hard to sell lots, interest payments were piling up, and the cost of infrastructure development spiraled upward. The net result was that after Phase I lots were sold there was only enough money to pay off the mortgage and to complete the infrastructure. Nothing was left over to build common facilities.

o  Further complicating matters, it turned out that the Phase II lots were in a more remote location such that there were serious questions about whether it would be revenue positive to develop them. Thus, it was by no means certain that completing the development would actually yield any additional revenue with which to fund construction of common facilities.

o  As long as this issue remained unresolved, the developer was stuck in no man's land: halfway between being a real estate professional who hadn't kept a promise, and being a fellow member of the community. It was awkward. Everyone wanted to get beyond this limbo, to the point where the development phase was complete and everyone was just a member of the community, yet they needed a pathway that would both protect the rights (and dreams) of the community to common facilities and didn't bankrupt the developer in the process.

o  By the time I got there, the group had been gnawing on this bone for more than two years and there was serious fatigue over the time and energy it was taking to untangle this Gordian Knot.

Now what?

There were a couple ways to look at this.

Option 1: The Financial Solution
Under this approach the group could assign a dollar value to the empty kitty for common facilities and then compare it against what the developer offered as compensation. While there would undoubtedly be some serious numbers to crunch, there are known methodologies for getting all that accomplished. In the end you could compare the value of the proposed remedy to the value of the debt and adjust as needed.

In many ways, that's the point of money: to facilitate fair exchange between apples and oranges.

However, fair market value does a notoriously poor job of taking into account mental anguish, good will, and the importance of ongoing good relations among the players. As all the folks involved in this decision were going to continue to live together after the settlement, this mattered quite a lot.

Option 2: The Energetic Solution
Under this approach, the group would purposefully skip the step of conducting a careful financial analysis and go for the gestalt. That is, once both sides were satisfied that the offer is reasonable, the group could decide to accept it because it was close enough and the most important thing is to get the problem resolved and move on—not extracting the last nickel possible.

While money is a tool, and not inherently good or evil, focusing on financial equality as the prime directive has a way of devaluing intangibles—such as relationships, the lifeblood of community—rather than supporting them.

In the end, the group chose Door #2, and the relief in the room was palpable, as weight was lifted from everyone's shoulders and the sun came out from behind the clouds.

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