The Hartford Club wants $1 million from its members by the end of the year to pay down $1.2 million in debts to Berkshire Bank, as the 140-year-old organization is behind on its loan payments.
The private club held a special meeting Nov. 6 asking members for voluntary minimum investments of $5,000 each, as it struggles to meet its near-term financial obligations while planning for long-term viability.
“We are a little behind, but it is not a foreclosure situation,” said Larry Brown, president of the club’s board of governors. “We are not in a situation where we are in any way going to have to close the club or shut down or anything like that.”
The Hartford Club wants to form a limited liability corporation, owned by members who invest. The LLC would give the $1 million to Berkshire Bank to pay off an $890,000 mortgage and pay down a $300,000 line of credit. The LLC would control the club’s loan and charge lower interest and require smaller payments to give the club flexibility to pay off debts incurred through the several hundred thousand dollar renovation of its famous cigar room and other facility upgrades.
The organization, rich in history, celebrated its 140th anniversary in September. Mark Twain famously was a member, and Gov. Wilbur Cross lived in the club’s apartments during his administration in the 1930s, long before they were converted to meeting rooms.
Today, however, the club is struggling with membership numbers and members’ use of the facilities, Brown said. Gone are the days when the lunch crowd at the club’s restaurant included several CEOs from downtown’s major corporations, who would frequent the club several days a week for lunch and dinner.
Today, membership is about 600, down from its peak of 1,000, although much more inclusive of women, young professionals, and minorities. Corporations no longer buy memberships as benefits for their executives — especially since the IRS banned that as a business expense write-off — and the club now is comprised largely of small and medium business owners, who use it to network and socialize.
“The club, kind of like Hartford, has really changed over the last 40-50 years,” Brown said.
The club generates $3 million annually from three revenue streams: dues; members’ use of benefits like the restaurant and events including wine tastings; and meeting room rentals to members and non-members for business conferences, weddings, and banquets.
The monthly debt payments to Berkshire Bank comprise such a significant expense that the club struggles to meet other operating costs, much less long-term goals to ensure the viability of the property and organization, such as replacing the elevator, redecorating the interior, and updating the heating system so the club can opt out of Hartford’s closed-loop steam system when its contract expires in four years.
“Finances are difficult,” said Diane Whitney, member of the club’s board of governors. “[Paying off the bank loan] would give us breathing room, get the bank out of our hair, and let the club regroup.”
The club pays 6.25 percent interest on its Berkshire Bank mortgage. If the club can shift ownership of that loan to an LLC comprised of member investors, the interest payment would be 3 percent over a five-year term, Brown said. The organization would structure the loan so the club would make lower interest-only payments to the LLC for the first few years, followed by higher payments on the principal.
The goal is to have the LLC established by the end of 2013, Brown said.
In addition to lower payments and less interest, having the LLC own the loan also puts The Hartford Club back at the mercy of local investors. The original bank note was owned by Connecticut Bank and Trust, whose CEO, David Lentini, was a club member and understood the cyclical nature of its finances, like a slow summer season, Brown said.
After Berkshire Bank bought CBT in 2012, working with an out-of-state bank became completely different, Brown said. Having a member-owned LLC would give the club more flexibility in determining the size and timing of each loan payment.
Berkshire Bank declined to comment.
“Berkshire Bank and The Hartford Club have been working collaboratively to work through the payment issues,” said Lee Hoffman, attorney with Hartford law firm Pullman & Comley and member of The Hartford Club. “[Forming an LLC] is a proactive step by the club to alleviate those payment issues.”
The response from club members after the Nov. 6 meeting was promising, Brown said, with a couple of members offering six-figure investments to create the LLC.
“It sounds pretty promising,” Whitney said. “We haven’t started counting money yet, but the members seem willing.”
Rather than all members donating $5,000 or more, the $1 million goal is most likely to be reached by a handful of wealthier members making significant investments, Hoffman said.
“For some people, it is more than simply a club, and they want to keep it going,” Hoffman said.
The club atmosphere led the membership to turn down a proposal more than a year ago from Joe Howard, owner of the Bond Ballroom in Hartford, to raise extra revenue for the organization. Howard wanted to open up the dining room to the public and keep the rest of the facility private.
“I don’t think it ever gained real traction because the board wants to keep it as The Hartford Club, a private organization,” Howard said. “It is a beautiful, beautiful place. That is why so many people are passionate about it.”
If the dining room were made public, the members would get less value for their membership and might opt out, Brown said.
The club is making a membership push by offering discounts to certain professionals and free memberships to the executive directors of 20 nonprofits in the region, including the Wadsworth Atheneum and Leadership Greater Hartford. Brown said the discounts bring in members who wouldn’t have joined otherwise, increasing use of the facilities.
Jason Kasprzak, 37, joined The Hartford Club six years ago because of its younger membership push. Kasprzak, owner of the Canton Dental Center, frequents the events like poker games and enjoys amenities like the separately ventilated cigar room.
“If The Hartford Club were to leave Hartford or be gone, a lot of people would miss it,” Kasprzak said. “I have definitely fostered some great relationships with people I wouldn’t have met otherwise.”
