Troubled Golf Courses

(Source-NYTimes July 7, 2014)

According to the National Golf Foundation last year was the EIGHTH consecutive year of net golf club closings with 157 closings and 14 openings. Valuations for golf courses and golf course debt have been slow to recover even as most asset classes have recovered from the financial crisis.

The NY Times article goes on to say:  "From 1986 to 2005 about 4200 net new golf courses were added in United States, a 40% increase according to the National Golf Foundation." Apparently an "erroneous report" suggested that the supply of golf courses would not be sufficient to accommodate retiring baby boomers.

What the projections did not account for, however, was changing behavior among retirees.

"Prior to 2000, the assumption was that boomers would behave the same as retirees in the 1950s to the 1990s--people would retire and get a membership at a golf club", said Douglas Main, director of real estate consulting with Deloitte Transaction and Business Analytics. While plenty of baby boomers still love to golf, he said, many are working longer, traveling more and taking up other leisure activities.

Meanwhile the younger set has not given the industry much of a bump. “The family dynamic has changed", Mr. Hirsh said. (Larry Hirsch, president of Golf Property Analysts) "Dad's not leaving for the golf course at 8 o'clock Saturday morning and coming home just in time for dinner".  This would suggest a larger bar and bigger dining facility is not necessary and that we Eastman Members will be spending money on overbuilt, underutilized Center facility just as we are today only costing us more dollars.

"The worst off are those developed in the last 15 years as part of a residential community off the beaten path.
“They're relying solely on demand from that community,” Mr. Main added. When the bottom fell out of the housing market, developers had no way to pay for the expensive amenity.

Here at Eastman the Board does have a way to pay for this expensive amenity. It is us the members whose Assessment Fees they can continue to increase as they wish. We do want to state that we are not opposed to a reasonable economic golf links course with a modest snack bar and pro shop for Eastman players. However if a manicured lush resort golf course with pristine sand traps and a luxurious restaurant/country club facility are required, then we advocate for that complex being decoupled from the Eastman community just as the Sewer Company was recently sold off.

"Golf courses have high fixed costs,” Mr. Nanula (chairman of Concert Golf) said. "At a typical course, it's at least $500,000 a year just to mow the grass." Moreover many clubs are mismanaged, he said. "The typical dynamic at a private club is that it's not run with profit in mind but with the idea of making the PLACE fabulous", he said. As a result, he said, "we consistently see clubs that have no rhyme or reason on spending."

However here at Eastman in the past 12 years we have taken a perfectly affordable, enjoyable, playable LINKS golf course and developed it as a RESORT golf course. According to the FY 2002 Eastman Audit Report the golf course was valued at $700,000. In the FY 2013 Audit, the golf course is listed at $3,526,656. An almost $3,000,000 increase in valuation (which accounts for more than 30% of your Annual Capital Assessment cost, or $308 of the $890 for FY2014—see ECA Budget p. 84). In addition we have depreciated the golf course asset value over the same timeframe by almost $1,600,000—remember this is money you paid in. It is the addition of the $1.6 million depreciation and the $3 million in improvements that provides an overall capital golf expense in this period of $4.6 million. These figures DO NOT INCLUDE the capital expense for golf course vehicles and equipment maintained in a separate cost category of the community's financial statements. Over the same timeframe, I would estimate more than $1 million of capital monies have been expended for golf course vehicles and equipment. This would include the recurring purchase of golf carts and the associated interest cost of those purchases.

Why are the Center/Golf advocates so privileged and the Sewer Owners so financially deprived? Could one assume that the golfers demand more return for their assessment dollars and sewer owners accept less for their assessment dollars?

You can read the full article at http://tinyurl.com/lmxsgcf

Submitted by Robert Logan