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Wednesday, November 21, 2018

Golf Course Neighborhoods

Golf Course Neighborhoods

When I started working in real estate one of my first projects was a marketing assessment for a local golf course neighborhood that was still in development. I did my research, drew up my analysis, made my suggestions, my dire predictions. Sadly, the report was ignored, the vast majority of the lots remain undeveloped - but my interest in golf course neighborhoods was ignited.

How Did We Get Here?

In 1988 a bold proposal was put forward by the National Golf Foundation - "Build a course a day for 10 years". They believed that the aggressive development was necessary to meet the increase in demand that baby boomers would create. Initially, development fell short of the pace. The only time developers met the challenge was 2000 when 399 new courses opened. By 2003, when the golf industry burst, 4,448 new course had opened. Unfortunately, demand did not meet projections (the number of golfers increased by a mere 7.9 million) and many of these new courses were built in saturated areas.

Despite the golf industry being in crisis, developers continued to build new courses. By 2010, nearly a thousand courses closed and new course construction was in a sharp decline. That same year the National Golf Foundation (NGF) announced that another 2,500 courses would close before demand would return to equilibrium. Five to ten percent of public golf courses would close by 2020 - approximately 590 to 1179 courses. The remaining 1321 to 1910 course closures would be made up of private courses - an estimated 35 to 50 percent of all private courses were expected to close by 2020. The majority of these private course closures will be golf course neighborhoods (GCNs).

By 2016, between 150 and 200 courses were closing per year. 2017 saw 211.5 closures and 2018 is expected to be higher. More than 50% of these closures were private courses (mostly GCNs).

What Makes Golf Course Neighborhoods So Vulnerable?

According to the NGF, the magic number for an 18-hole course is 4,000 golfers in a 10 mile radius; but even this benchmark only suggests a strong chance of success. Unfortunately, GCNs are semi-private or private resulting in a very restricted client-pool, typically less than a tenth that figure. The resulting limited revenue eventually leads to lapses in maintenance.

As the course falls into disrepair and its debt rises, the facility's owner(s) look to sell. When they do sell, the course usually sells for between 10 and 35 percent of its FMV. The first sale happens between the course's 10th and 20th year of operation; the second sale happens before the 30th. These years correspond with the expected lifespan of numerous housing features such as roofing, HVAC, external wooden structures like fences and decks, and various large appliances such as refrigerators, washers and dryers, dishwashers, and water heaters. Additionally, homes built during the golf course boom may have a variety of questionable architectural features such as cathedral ceilings, fiberglass roof shingles, and synthetic stucco. Even the trees planted during and after a home's construction have had decades to grow, potentially damaging walkways, driveways, waterlines, porches, pools and other external features. So as home owners begin to see the need to repair their homes and replace appliances they are also seeing the golf course they took for granted falling into disrepair. Homeowners concerned with property values have to ask themselves, "Do I invest money in a home whose value is in jeopardy or do I get out now?"

What is a Golf Course Worth to Homeowners?

Homes in a successful GCN are valued around 7.6% higher than comparable homes. When the golf course fails these homes' values drop, usually by $20 per sqft, but can be by as much as 40%. A 3,000 sqft home could see its price drop by $60,000; a $300,000 home could be valued at $180,000. Seeing a golf course's closure in this light certainly justifies home owner concerns; why invest thousands of dollars in a new roof for a house that is about to be worth tens of thousands of dollars less?

Desperate HOAs often compound the matter by trying to save the golf course, usually by proposing huge mandatory fees or by trying to purchase the course outright with HOA funds. The irony is, the mandatory fees are never enough to save the course and they lower property values further by discouraging home buyers.

So What is a Home Owner To Do?

When it comes to GCNs, it is definitely an 'ounce of prevention' scenario. If the community waits until their neighborhood golf course is in crisis before they get involved it is already too late, especially if the intent is to save the course. GCNs hoping to maintain property values need to have a consistent, strong HOA (or a similar organization) with a working relationship with the course owner already in place, and even then there may be nothing that can be done to prevent a closure. Often times, the best that can be hoped for is to steer the closure by bringing the right buyers to the table. It can spell the difference between a golf course becoming an eyesore and a fire hazard and it becoming a series of water detention ponds bordered by flower gardens with walking paths, event venues, a dog park, a swimming pool, an outdoor yoga studio, a gazebo, grilling areas with dining pagodas (picnic shelters), a playground, and rest facilities.

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