Property Values & Failing Golf Courses
Please pass this on to anyone you know who owns property in a golf course residential development. There's a link at the end of this posting that must be viewed. It shows how a golf course closure in Florida knocked $24 million off the value of its neighborhood.
The disaster associated with failing community golf courses is the negative effect on residential property values - beginning from the rumor itself. It can be a domino-effect because falling home prices lowers assessments, which lowers property taxes collected by local counties and cities. For instance, if a neighborhood of 1,000 X $400 thousand dollar residences paying $2,500 annual property taxes drops 20%, then taxes drop to $2,000 and the city/county loses $500,000 in property tax revenue. It means those bone-jarring potholes won't get fixed anytime soon.
There is not much information out there in terms of hard data to come up with a formula for how much property values decline due to golf course closings. It's because each situation is unique unto itself. I see golf courses with only 350 residences going under. I see others that are part of over 1,000 homesites having trouble surviving. There are hundreds of factors involved.
In my view, every person living in a golf course neighborhood - fairway views or not - must become resolved to keep the golf course forever alive.
So, how much will home prices be affected by a golf course closing? Information I have learned so far runs from $20 per foot to almost 40% of appraised value. For instance, when a popular golf course in Florida closed the residents reported an immediate $20.00 per square foot drop in home prices.
In my experience, the decline in property values begins with the moment of uncertainty. I believe, if the golf course is the centerpiece of the neighborhood and rumors indicate it is struggling to stay afloat the HOA must step in immediately to begin its feasibility study.
There is probably no way out without a financial commitment from every property within the boundary of the golf course development.
I receive calls and emails every week from residents who are fearing the demise of their backyard fairways. They see themselves upside down on their mortgages, which has already happened several thousand times in (recent) ten years.
Do your own experiment; Try sitting on each side of the table. Be the seller. Then be the buyer:
You, as property seller, set your asking price after consultation with your real estate broker and put your house on the market. The real estate agent shows potential buyers how great life will be with beautiful views of the fairways beyond your backyard.
Now switch chairs and take the role as the potential buyer. Ask yourself, "How enthused are you to own that home if you learn that the beautiful fairways behind your yard could become an unsightly weed patch?"
Real estate agents will tell you, "Even the hint of the uncertainty of the future of the golf course can be a deal-killer!"
Start Now with Your Feasibility Group. Write: email@example.com, or call me, Mike Kahn: 941-739-3990.
I believe every golf course residential development homeowners association (HOA) needs to form a feasibility group (FG) immediately - even if your golf course is currently healthy. The FG should include a source of golf course expertise in the group to obtain the best grasp on all the issues and costs associated with keeping the golf course alive and well. The key is to gather the facts about the golf course as though it has already dropped its keys on your lap.
Some truths may well be that the golf course cannot possibly survive. If the imminent failure of the golf course is determined then plans for 'life after golf' need to be explored.
Here's a hypothetical example:
A 36-hole golf course residential community of approximately 1,000 residences. The facility includes the two 18-hole championship golf courses, swimming pool, tennis courts, a health center, clubhouse with a dining room and bar, and the golf pro shop.
The development is located not far from another development, which also has a golf course. There are 68 golf courses listed within 20-miles of the subject. The population within 20-miles of the subject is over 2.2 million.
First. At 2.5 persons per residence, 1,000 homes equal 2,500, more or less, persons. The current golf participation rate in the USA from reliable sources, National Golf Foundation (NGF, ngf.org,), Pellucid Corp (pellucidcorp.com), is 8.8%. Applying 8.8% to 2,500 persons means there may be 220 hardcore golfers in the subject's neighborhood prepared to pay to play the two 18-hole golf courses. However, for these purposes, we'll raise the participation rate to 30%, because the golf courses were the 'lure' to attract golf-playing buyers. If so, 30% being golf players would provide the golf courses with 750 golf players - 375 per golf course.
25,000 people Per 18-Hole Golf Course (NGF)
Roll back 40-years when the National Golf Foundation published information about planning and building golf courses. Their recommendation suggested that it takes a population of 25,000 persons to support an 18-hole golf course. By that estimate, the subject 36-hole golf course needs a 50,000 population on its doorstep to support itself.
If the subject is available for public play, the population density appears strong enough to support the subject (2.2 million population divided by 68 golf courses equals over 32,000 per 18-holes - healthy according to traditional NGF guidelines).
One issue a feasibility group needs to learn is the true cost to operate a golf course.
So, what does it cost to operate 36-holes of golf, plus its supporting amenities?
Although there are some economic advantages by maintaining two golf courses out of one maintenance facility (I've managed 36-holes), I find it virtually impossible to maintain 36-holes to top-notch condition for less than $500 thousand per 18-holes ($1.5 million minimum total for the 36-holes).
Maintaining and staffing the clubhouse, swimming pool, tennis courts, fitness room, dining room and pro shop, plus G&A will run up to another $1 million (at least). Therefore, the bare minimum to continue to deliver a first rate golf course and its amenities is at least $2 million.
[I don't care who calculates or 'fudges' the numbers. I defy anyone to beat $2 million to fund 36-holes plus the amenities.]
On top of the minimum $2 million cost to operate 36-holes of golf, there's the contingency fund requirement, plus up to 20% annual capital outlay for golf course maintenance equipment replacement - every year thereafter.
If the homeowners in this subject want to assure the long-term future of their golf course and the 'integrity' of their neighborhood, they will need to start the process immediately. They need to be committed to providing the equivalent of the minimum funding to sustain the golf courses and amenities in perpetuity. Any agreement along those lines must include assessment mechanisms in case of unforeseen catastrophic events.
Based on the number of golf courses serving a 2.2 million population area, the each of the subject's 36-holes has over 32,000 population to draw from. Therefore, depending on normal economic factors, etc., The subject 36-hole golf course should be relatively buoyant. However, the long term future of the golf courses is not assured. Today's golf business 'economy' suggests that this is the time to plan a perpetual future - before it flips upside down!
Therefore, the 1,000 residential units in the development would need to commit to paying at least a token monthly/annual fee to guarantee the permanent future of their neighborhood. In return for their annual fees, they get to enjoy all clubhouse and amenity privileges.Only golf is extra.
The above-outlined strategy might be a little 'pie-in-the-sky.' With many community golf course failures looming, which will hurt property values, I view committing to some form of monthly dues as compulsory. It's an insurance policy upholding the value of each residence. In fact, by assuring the future it becomes attractive to future home buyers knowing they can rely on the value of their investment into their property. Plus the bonus is that they will enjoy permanent access to the club amenities. Only using the golf course becomes an optional choice.
I don't see any other way to preserve golf course communities. I believe if the HOA can show its determination to create a solid 'forever' neighborhood - all in one piece - for many years to come, I believe the real estate community will confirm that property values will remain stable and even increase over time.
What are the roadblocks to gaining 100% support from golf course community residents for a permanent solution for the future of the golf course?
"I don't play golf and couldn't care less whether the golf course fails or not."
"I'm too old to be concerned about the value of my property - especially after I'm dead."
"I'm retired and on fixed income. I cannot afford to pay an additional $300 a year to support the golf course."
One of the HOA's tasks will be how to get the right message out to the community so they'll climb aboard.
Many golf course communities are in the middle of the same dilemma right now. Over 800 have already failed. Follow this link to a Bloomberg Article: More than 800 golf courses have closed over a decade. Now clubhouses are going up in flames.
I don't believe there are any experts in this particular area in the golf world because it's a new phenomenon. It's a predicament that few anticipated (except me, apparently).
Finally: Here's the link to a YouTube presentation anyone living in a golf course community needs to see: https://www.youtube.com/watch?v=KqScfxgYf7M
Mike. Call: 941-739-3990, or write: firstname.lastname@example.org