Annual capital expenditures?

[mike_malone]

 In order to maintain a classic course,I think it is necessary to create a capital plan for needed changes.

     Is there some good way to quantify this? Should it be some % of the annual operating budget? Some relationship to annual dues? Or just a number that would be tied to the average cost of 3 or 4 projects?

     Certain things need to be done all at once,such as regrassing; but,bunker restoration,tree management(yes planting too!),fairway recontouring,tee expansion,etc. should be planned for offseason work.
   
     Must it be an annual political battle?

[TEPaul]

I know very little about this kind of thing but I went up to Canada a couple of weeks ago with Wilson Greenwood, the Merion Green Chairman, and he's particularly interested in this kind of planning, depreciation planning and budgeting has spoken about it publicly in some impressive places and will be doing more speaking on it in the future. If he happens to log on here and see this thread he would be a most important and interesting contributor to it.

[cary lichtenstein]

The best way to approach this is thru your long range planning committee. Make sure your clubhouse renovation plans are included as well.

You then bring it to your membership as a master plan, with a series of small group  informative meeting followed by a general meeting 1 week later.

This way, your do 1 vote, 1 time, and if it does not pass, figure out what the objections are, and bring it to a vote once again.

[Jeff_Mingay]

A "capital fund assessment" on each monthly bill is helpful, to build a capital fund for a rainy day.

[Dave_Miller]

In order to maintain a classic course,I think it is necessary to create a capital plan for needed changes.

     Is there some good way to quantify this? Should it be some % of the annual operating budget? Some relationship to annual dues? Or just a number that would be tied to the average cost of 3 or 4 projects?

     Certain things need to be done all at once,such as regrassing; but,bunker restoration,tree management(yes planting too!),fairway recontouring,tee expansion,etc. should be planned for offseason work.
   
     Must it be an annual political battle?

Mayday:
It does not have to be an annual political battle.  A well thought out capital budget whick encompasses all the necessary areas such as re-grassing, equipment, tree work, bunker, etc., etc. is what it thkes.  This can then be prioritized to fit an annual budget of some number or a financing plan created to meet the needs of the Club and the membership.
I don't think there is any magic number or %.  Each Club is different and must assess its' own needs.
Fairways and Greens,
Dave

[Patrick_Mucci]

Mike Malone,

I believe it's prudent for golf clubs to fund a capital fund.

All too often, unforseen expenditures arise, and a substantive capital improvement fund, or capital emergency fund can help a club weather the financial burden of these unforseen events, especially when clubs are struggling financially.

A club I'm familiar with sends out their annual bill with the operating and capital dues seperately listed as such.  Others assess monthly.

Some clubs combine the two, some segregate the two, but, a club that builds a more then adequate capital fund for unforseen, or planned projects, does a service to the club, its future, and the members who will enjoy the club for many years to come.

[mike_malone]

 We have capital assessments and build a kitty for a rainy day---my question is how to develop the plan to spend the $ and how to judge whether the present amount being raised is enough or not.
    Most comments have been helpful .I particularly like hitching the plan to the master plan.

[michael j fay]

The best manner in which I have seen this done is as an ongoing assessment. Monthly payments of $ 25.00 to $ 50.00 with 300 members will produce produce $ 90,000 to $ 180,000 a year. The money must be kept in a separate account and insulated from normal and/or extrordinary expenses. The account must be labeled for the golf course only with a specific end goal (i.e. restoration of the original architects work.  

I feel that an account of this nature should be instated as early as possible when considering a Master Plan. After the Club has fought for five years about the Master Plan there will be at least $ 500,000 - $ 1,000,000 to use to fund the plan.

[Bob_Huntley]

My club was formed in 1925. Within the past five years we have spent some thirteen million dollars on a remodel of one course and the complete construction of another. There are plans for the renovation of the Clubhouse for a few more big ones. No assessment is forthcoming and none has ever been proposed in the 85 year history of the Club.

The Capital Account is funded by a 50% Fee on all transfers of membership.

This brilliant idea was thought up by Sam Morse, the Duke of Monterey. It works.

[Patrick_Mucci]

Mike Malone,

Spending money is the inherent result of Creating a  "Master Plan".

Each club is unique and has different needs.

This is an area, where all too often, "keeping up with the Jone's" can be expensive and unnecesary, and all too often couched in terms of fulfilling the "Master Plan"

One needs to proceed with caution.

[TEPaul]

"The Capital Account is funded by a 50% Fee on all transfers of membership."

BobH;

Interesting! What does that mean exactly?

[Mark_Fine]

Mike,
Roughly 10% of your maintenance equipment cost is a good annual budget number.
Mark

[TEPaul]

Mark:

Would that be intentionally somewhat in line with depreciation?

[Steve Curry]

Mike,

I worked for a county owned course in New Jersey that had, early on set up the cart revenue as a means for Capital improvements.  This allowed the courses to be very progressive with equipment and improvements without a lot of the hoops normally jumped in a municipal environment.  Could be used at private clubs as well.

Steve

[Rob_Waldron]

Every Club has its own philosophy regarding capital expenditure budgets. I generally recommend that the budget be divided into "repair and replacement" and "improvements".

Repair and replacement requirements should be determined by the Super for the golf course and the GM for the clubhouse. The funding generally is derived from either a portion of dues or an ongoing assessment. The politics of the Club should determine how the charge is presented to the membership.
Mandatory reserves provide funding for emergency situations.


As far as the improvement budget is concerned many Clubs budget for ongoing improvements. These are the dollars that every Committee fights for. The funding can be derived from intiation fees, dues, and permanent assessments. If a portion of these funds is dedicated to annual improvements and a portion dedicated to long range major improvements Clubs can avoid large assessments for "Special Projects"

[michael j fay]

A Country Club is one of the few assets that actually depreciates faster than the given schedules. A capital improvement fund should at very least mirror the depreciation and more probably exceed it.

I feel that most Clubs would be better off expensing many of the items that it actually depreciates.

Keeping ahead of the curve is very difficult.

[Bob_Huntley]

TEPaul,

A new member joins the club by buying an existing membership from a resigning member or from an Estate. If the initiation fee is, say $200,000.00, then the Club pockets half of that for the Capital Fund. Assume twenty-five deaths and resignations a year then the accumulation can be substantial.

Bob

[Patrick_Mucci]

Bob Huntley,

Many clubs found that membership bonds were a form of debt that could have disastrous results on the club, hence, many clubs began charging initiation fees without issuing a bond to the new member.  As time went by, certificate or bondholders became extinct, and so did the debt associated with that class of membership.

At clubs that operate with no bondholders, raising the money for capital improvement funds becomes a task relegated to the dues structure or special assessments.

Your club's method seems painless, but, I would ask this question.  If a developer came along and offered the club
$ 600,000,000 for the property, can the bondholders override the Board, and, are there members who aren't bondholders ?

[TEPaul]

"Your club's method seems painless, but, I would ask this question.  If a developer came along and offered the club
$ 600,000,000 for the property, can the bondholders override the Board, and, are there members who aren't bondholders ?"

Pat:

$600 million for the property??? Jeeesus Pat, if Bob's club got that kind of money I'm calling Bob up immediately to borrow 800 DOLLAR from the man for some extra whiskey money and I haven't even met Bob yet!!

Furthermore, if a developer offered $600 million for a club I belonged to as a bondholder and the Board refused the deal---I'd just go ahead and take my 45 out and shoot the whole goddamn board first and then ask them to reconsider it!  
 
 

[TEPaul]

I'll tell you, I guess the good old days are gone now at my club regarding funding for capital expenditures. If we needed some money for a serious capital expenditure in the past someone would just call up Jack Dorrance and it would be done!  

[Patrick_Mucci]

TEPaul,

MPCC sits on some nice real estate.

What did the recent owners pay for Pebble Beach ?

Was Dorrance the CEO of Johson and Higgins, Campbell Soup, or just a member of TLSBC ?

[Jason McNamara]

MPCC sits on some nice real estate.

What did the recent owners pay for Pebble Beach ?

A steal at $820 million.

Jason

[Larry_Rodgers]

I did not see any allowance for the irrigationsystem. A typical system will last 20 to 30 years and during that period most of the electrical and impact or gear type components will need to be replaced.

Current new system $ 1,000,000 to 2,000,000 depending on area of country. Each component has a projected lifespan, my recomendations are:
  Sprinkler heads 10-15 years
  Control system 7-10 years
  Pumping system 10-15 years (depending on water quality)
  Piping & related components 20 -30 years

Over the life of the system (30 years), the demands of the golf course will require the system to be rebuilt.
The new systems should be:
 Better: as in station control
 Faster: as in application period
 and Cheaper: cost per control station is going down.

[Sean Remington (SBR)]

  I feel country clubs should have three catagories fo capital expenditures.

1. Golf course maintnenance equipment - ie, Mowers and support vehicles only
2. Golf course infrastructure -ie, Large equipment that benefits the Club overall, cart paths, bridges and maintenance facility improvements.
3. Course improvment projects -ie, Master plan work, bunker projects, tree removal etc.

  Years ago, early 80's, a Club could get by with one capital line item and a budget of $40,000 - $60,000. Not anymore. I started breaking out separate line items when it was obvious that I couldn't keep my mowing equipment in good order and meet the demands of Member expectations. This started to happen in the mid  late 80's and I have two reasons. 1. Lightweight mowing of fairways. 2. Use of large rotary mowers for rough. Gone forever are the days that you could use tractors and large gang mowers to maintain the largest acerage playing areas on the course.
  Also, in the 90's there was a mass movement back to walk mowing for greens and tees. There is no way $50,000 a year can do it all anymore. Mark Fine put out the number of 10% of equipment inventory for annual purchases. This is a good rule of thumb but for mowing equipment only. You cannot address all your captial needs with that figure alone without something falling behind.
   Today it takes a multi pronged attack of planning and financing to keep the course well maintained and up to expectations.

[Bruce Katona]

We take a % of  annual overall expenses and use that as a CapEx number.  That % is a below the expense line number that is added in to overall cost before determining the NOI of the asset.  Somewhat conservative, but it will leave you a few more $$ in the CapEx account and a few less dolllars in NOI.