FAILING RESIDENTIAL GOLF COURSES: ARE THERE CASES FOR CLASS ACTION?
Failing residential golf courses: Is there a case for a class action? Should your HOA lawyer up? This article needs circulation. I need your comments.
NOTE: I am not an attorney and I do not offer legal advice.
The failing golf course community issue is serious because we’re probably talking $ billions in lost property value for which I believe there’s culpability in many cases. It began with feasibility studies that were often intentionally (wink, wink) prepared to patronize the developers, bankers, and brokers. The prize was the inflated lot prices people paid to have a golf course over their back fence.
The (possible) Dupe: Selling lots to buyers at premium prices based on the value of a backyard golf course - assumed a forever amenity.
The (likely) Truth: It was abundantly clear (to me) that many golf courses were planned based on false data and were doomed to fail from day one.
The Hit-and-Run MO: The developer only needed the golf course to prosper until he sold all the lots so he could get his ass out of there.
At the end of this article, I invite any HOA or Country Club Board Members to a free conference call with me and colleague, Bill McIntosh to discuss these situations.
So, please circulate this posting to every person you know who lives in a golf course community where people are losing $ thousands in the value of their residential properties. Residential properties they bought under what I suspect may have been intentionally flawed pretenses. I mean many residential centerpiece golf courses (I believe) were doomed to fail from the get-go.
PEOPLE TRUSTED THE DEVELOPERS, THE BANKERS, AND THE BROKERS
Thousands of ordinary hard working responsible America homeowners are suffering from a 20% to 40% drop in the value of their residences due to the failure of their backyard golf course. In virtually every case, these folks were sold their property by developers and brokers at premium prices, many paid two or more times the price of residential lots not backing on a golf course. The sales pitch was the beautiful backyard view and the prestige of living in a golf course community. Buyers were led to believe that the backyard golf course was creating added permanent value, which I believe was based on false feasibility studies. In the sales pitch, lot buyers were encouraged to buy premium lots on the golf course, "Before they’re gone!"
So, was a premium lot on a golf course really a wise investment? Ask the residents of the (former) Ravines Golf Resort in the Jacksonville, Florida area. Ask the residents of Walden Lake in Plant City, Florida. Ask the residents of Oak Ford in Sarasota, Florida. Ask the residents of Magnolia Plantation in Lake Mary, Florida. Ask the residents of Glen Mary in Louisville, Kentucky. Ask the residents of Turkey Creek in Alachua, Florida (you gotta see this Youtube presentation). Ask the residents of Columbia Lakes in Houston, Texas. Ask the residents of Tartan Pines, Enterprise, Alabama. Better still, ask the residents in Petaluma, California when Adobe Creek Golf Course grew in – follow the link. Ask thousands of golf course residential property owners, particularly on golf courses built since the early 1990s and you’ll hear the same story. Just about every residential golf course built since 1990, in my opinion, was doomed to fail while on the drawing board!
I believe, in my experience, many homeowners who bought lots on golf courses were duped by the developers, bankers and the brokers to pay premium prices for golf course lots based on false or wrong feasibility studies. I state that because I believe the feasibility studies were prepared to ‘patronize’ the banks, particularly, so the banker could approve the construction loans. One group that may have had an inadvertent ‘passive’ responsibility for the developer-banker-presentation is the National Golf Foundation (NGF), ngf.org. Although the results homeowners are suffering today are through no real fault of NGF, it was NGF published material that was indicating upwards of 12% participation in golf nationwide around Y2K, which was quoted in feasibility studies.
My question was; When the NGF’s national golf participation rate is stated 10%, and Michigan’s participation rate is 12.5%, wouldn’t another state’s participation rate need to be less than 10% for the national rate to be 10%?
So, when feasibility studies were prepared by various companies (most work, I suspect carried out by kids fresh out of school) they were quoting (relying) on NGF national statistics. However, I smelled a problem with feasibility studies using NGF national statistics. For instance, (I repeat) if golf participation in Michigan is estimated at 12.5%, how can all other states be 10%? In fact, I conducted an in-house feasibility study for a golf course under construction in Springhill, Tennessee, located about 35-miles south of downtown Nashville. The original feasibility study suggested full play capacity almost on day-one.
The Springhill golf course now known as King’s Creek was being built and financed based on the standard feasibility studies of the times (prepared around the year 2000). I was working for the golf course principals at the time and I was questioning where the so-called beat-down-the-doors golf players were to come from. I requested and was given the task of doing an in-house feasibility study for the King's Creek principals and my local study spelled doom for the project.
First, I conducted my study of the Springhill-Franklin-Murfreesboro, Nashville, Tennessee golf market by actually visiting every golf course within 35-miles of downtown Nashville. Here’s, more or less, what I learned after running up over 500 miles to visit golf courses serving the Nashville and surrounding area:
In 2000, the metro population of Nashville, Tennessee, which included nearby communities like Franklin, and Murfreesboro, was approximately 1.3 million (in-city Nashville population in 2016, 684,410). Therefore, using NGF national market service area (MSA) statistics of the day, at 12%, it meant 156,000 people in and around Nashville would be golfers. At the time it was indicated estimated average annual rounds of golf per golf player was eight to ten per year (follow this link for a summary of golf participation), with core golfers playing up to 24 rounds a year. Therefore, the estimated 156,000 Nashville area golf players would (should) be playing 8 to 10 rounds, or from 1,248,000 to 1,560,000 rounds per year.
IN 2000 IT REQUIRED 30,000 TO 35,000 ANNUAL ROUNDS TO BREAK EVEN AT NASHVILLE AREA GOLF COURSES
So, in the year 2000, my research was indicating that golf courses in the Nashville area needed 30,000 to 35,000 rounds to support general maintenance, G&A, etc., (climate considered) just to break even. It meant that Nashville area golf courses should be profitable at 40,000 annual rounds, and highly profitable at 50,000 rounds. Therefore, for these purposes, I divided 1,560,000 rounds by 50,000 rounds, which indicated the Nashville area needed at least 31 golf courses to satisfy the NGF national participation demand when traced over the Nashville MSA. However, in my 500-miles of driving to all the golf courses in Nashville and surrounding areas I could not find a dozen golf courses! Not only that, but every golf course I visited was starving!
Apparently, the Nashville MSA was clearly not a 10% or 12% golf participation neighborhood. My in-house feasibility study concluded that less than 2% of people in and around Nashville, Tennessee played golf. Of the ten functioning golf courses I could find, only one, the municipally owned golf course appeared to be hosting more than 30,000 annual rounds. I concluded that there may only be (approximately) 26,000 golfers in the Nashville MSA area. Therefore, it was my conclusion that King’s Creek, a really nice Palmer design, was going to struggle (likely fail). Well, guess what?
King’s Creek Golf Course, Springhill, TN, is still open but after all these years could never afford to add a clubhouse. In 2017 it still operates out of a double-wide, more or less.
A few years later I was involved with another golf course and residential development under construction on the north side of Nashville near I-65 at Whitehouse. The golf course was only ever partially constructed and (to my knowledge) the Nicklaus design was never completed. Several $ million was lost in that miss directed project. So, where am I going with this?
WHY SOME HOAs SHOULD LAWYER UP…
I believe, to charge premium dollars for residential lots with a golf course over the back fence, developers, bankers, and brokers painted rosy pictures about property values based on flawed feasibility studies – likely intentionally in many cases. I also believe, if the studies were based locally rather than nationally it should have been clear to developers, bankers, and brokers that what applies to San Francisco, California, doesn’t naturally apply to Savannah, Georgia.
Let me put it this way: Do you mean to tell me that a small isolated US town of 3,000 people with no golf course within 45 miles that 12%, or 360 of the 3,000 population are golfers playing 8 to 10 rounds a year?
Not a chance.
“SO, MAYBE IT’S TIME TO LAWYER UP!” I TOLD AN HOA PRESIDENT RECENTLY
I’m receiving endless calls from golf club board members and golf community residents as they watch their backyard golf course flounder. In fact, even the rumor that the golf course is failing is hurting property values and worse, causing strenuous conflict between the golf playing residents, the minority, and the non-golfing majority - the other 88% who live there but don’t play golf. It’s where I believe the golfers and non-golfers should be concentrating their collective eyes on the ball, so-to-speak because they all share one thing in common: They’re all losing property value due to the failure of the golf course. They may have been purposely duped by developers, bankers, and brokers to pay premium prices for lots on or near a golf course that (to me) was obviously doomed to fail.
It’s for those reasons I believe there might be cases for class action lawsuits. Take, for instance, the Walden Lake golf course community in Plant City Florida.
Walden Lake was a beautiful 2,200 unit golf course single-family residential development just east of Tampa, Florida off Interstate 4. In the 90s, the Walden Lake's 27-hole golf course was a model golf and residential development. It was busy, vibrant, and the neighborhood was reportedly the number-1 source of property tax revenue for Plant City.
Today (2017) the Walden Lake golf course is closed and growing in.
With the demise of the Walden Lake golf course, I (roughly) estimate that the negative effect, collectively, on residential property values runs somewhere between $100 and $150 million – MILLION! A loss in property value of that magnitude has to hurt every resident, plus the Plant City’s tax man.
Meanwhile, the original developer, the bankers, and brokers who participated in the original Walden Lake project have made their money and are long gone.
WHO IS CULPABLE?
Walden Lake, to me, is an example of a flawed feasibility study, happily surfed by the developer to obtain the more-than-willing banker to finance the project. Then the broker earned commissions from the sale of every lot ‘duping’ (in my personal opinion) property buyers with a false assumption that the golf course was a permanent amenity.
So, who is culpable?
LET’S GO BACK TO HISTORICAL NGF STATISTICS
Up in Canada, I belonged to the National Golf Foundation over 50-years ago. I read much of the NGF material back then (until about 1990, the NGF was a golf participation builder, then suddenly changed their mission to become nothing more than paper shufflers). In particular, back then they had a publication on planning a golf course. It indicated that a golf course needed a population of at least 25,000 for there to be enough people, approximately 2,500 persons, 10%, to support an 18-hole golf course. Even at the peak of golf participation in the mid-1990s, the national percentage reported by NGF was never greater than 12%.
So, looking at Walden Lake, in 2000 there were approximately 1,100 golf courses in Florida, with a State population of 16 million, or a golf course for every 14,545 persons. Therefore, even at 12% participation, that’s only 1,745 golfers per 18-hole golf course (872.5 per 9-holes), 755 short of the 2,500 golfing persons NGF said was needed to support an 18-hole golf course.
Don’t forget, Walden Lake was 27-holes, which makes it 1 ½ golf courses, so its fair share of golfers based on Florida State-wide statistics is less around 872.5 persons per 9-holes. If the 872.5 people (fair share) played 8 to 10 rounds a year, that’s only 6,980 to 8,725 rounds of golf per 9-holes, 13,960 to 14,545 per 18-holes per year for a golf course that needs 35,000 rounds per 18-holes just to break even. Walden needed 52,500 rounds over 27-holes to break even based on the cost of operating a Florida golf course. However, I know feasibility studies factored in tourist golfers, but Plant City, Florida, home of Walden Lake is not a Florida tourist destination location like Naples, Sarasota, St. Petersburg, Orlando, or Daytona. However, the feasibilities (I assume) assumed that the 2,200 residences in the Walden Lake community would provide plenty of golfers to support the golf course - perpetually. Wrong, again! In fact, it was common knowledge that fewer than 25% of people living in a golf course community would be golfers.
So, how many golfers might there really have been in the Walden Lake development?
Statistically, a single-family home represents an average of 2 ½ to 3 persons (link here to USA household data). Therefore the 2,200 Walden Lake homes, fully occupied, should compute to 5,500 to 6,600 persons. At a 12% participation rate (NGF highest national rate ever. It’s 8.8% in 2017) that’s still only a maximum of 792 golf players. Even if the participation rate is the ‘assumed’ 25% for people who bought in a golf course neighborhood because they play golf, that’s still only a maximum of 1,650 golfers – still not enough to support a 27-hole golf course according to the original NGF golf course planning recommendations, or provide the minimum 35,000 break-even rounds per 18-holes (52,500 over 27-holes).
WHAT ABOUT CORE GOLFERS – THE 8 TO 24 GAMES A YEAR GOLFERS?
Even if Walden Lake’s 1,650 residential golfers played 24 rounds a year (actually only 48% of golfers might play the full 24 rounds) as core golfers that’s still only 39,600 total annual 18-hole rounds. Remember, Walden is 27-holes and needs 52,500 rounds to break even (believe me, I’ve budgeted golf courses all over Florida). So, what I’m saying is that the Walden Lake golf course was probably doomed right from the get-go.
So who’s to blame when 2,200 homeowners were sold their property based on a falsely rosy picture, and then later lost from $100 to $150 million in property value when the golf course sure to fail, failed?
Examples like Walden Lake are why I think it is time for many HOA groups in the USA to consider lawyering up. I’m trying to be careful with my words. But, I mean it should have taken barely grade three mathematics to easily catch flaws in ‘smoke-and-mirror’ feasibilities that developers, bankers, and brokers used to tell people so they'd pay premium prices for golf course neighborhood properties. I mean, why couldn’t educated bankers catch such obvious flaws. Maybe they didn’t want to.
SO, YOUR $400,000 HOME IS SUDDENLY WORTH LESS THAN $300,000.
I’VE BECOME THE ‘SHOULDER’ FOR MANY HOAs. OF COURSE, THEY'RE ALL A LITTLE DIFFERENT.
We invite any golf club board member or HOA board member to arrange a free conference call with me, Mike Kahn, and my associate, Bill McIntosh, to discuss your situation. I assure you that we believe there is absolutely no more experienced source than Bill and me when it comes to golf courses and their communities. Believe me, we’ve been in the trenches in this business for over a combined 100-years. We’ve shoveled snow and dodged coconuts. We’ve lived on golf courses. We’ve operated our own golf courses.
You’ll find our conferences, which can include anyone on your boards, informative, matter-of-fact, and helpful for your HOA in the decision processes going forward.
There’s a lot of money at stake, so don’t put it off.
Start by giving me a call 941-739-3990, or email email@example.com.