"The Value of a Name" article in Golf Business

[Mike Nuzzo]

This months Golf Business magazine (national golf course owners association) has a cover story entitled:

The Value of a Name - with Gary Player on the cover.

The author, Dan Gleason, a freelance writer and communications teacher for the U. of Phoenix doesn't seem to be a very seasoned golf writer.

Some of the proof of the added value of a signature designer would be the fact that the big designers housing values are the largest.  I don't see the proof of the added value, only that they get the really big projects.

I was looking, but didn't see any real figures anywhere.  How can you suggest doing it yourself, and use one anecdotal story and then infer it can be risky.  

Is that what you want the National Golf Course Owners Assoc. to print?

If the real estate value for a project is $185MM, and the course construction and architect fees account for 10+% of the budget, wouldn't it reason that for 3-4% you would be as profitable with the real estate portion and give the course a fighting chance to survive?  Would a person want to pay an extra 7-14% for their home because of who designed the course?

I wish Golfweek would write a piece on the true value of a name, and some of the ridiculous costs that have been incurred for subjectivity.  
Brad, I volunteer to be the author.

Cheers

[Tom Dunne]

Go U. of Phoenix Fighting Bloggers!  

[mikes1160]

My god, that article is about a thousand words too long....

[Jim_Kennedy]

If the real estate value for a project is $185MM, and the course construction and architect fees account for 10+% of the budget, wouldn't it reason that for 3-4% you would be as profitable with the real estate portion and give the course a fighting chance to survive?

Mike,
That's what the guy from Toll Brothers said, basically. They look at the potential in the housing element and then select the architect whose fee is in line with the % they are trying to gain.
I was looking in my bookmarks but could not find an article which listed 50 architects and the price of homes at these developments. The most expensive homes were at Weiskopf courses, ca. 850k, if memory serves. Second highest was Nicklaus, although his sell-out rate was faster than anyones.

I don't really think it matters if you're spending 80k more for your home if you are capable of spending 800k in the first place. Look at it this way, if you spend 200K for your golf dreamhouse/membership and it appreciates 50% in 5 years, a not impossible number, you 'make' 100K. Start with 800K and you 'make' 400K.

   

[Lou_Duran]

Nuzzo,

I would love to read your article.

Please consider that most developers at this level (who can raise debt and equity financing for a $200MM project) have been around the block a few times.  They don't need to pay $1MM+ design fees to rub shoulders with the big boys.  They do so simply because of the returns of a branded project are so much superior, and quite possibly less risky, than those of a generic one.

The Preserve in Carmel Valley is a good example.  Sandy Tatum and Mike Pouellet (sp) routed a very nice course on beautiful, wonderfully hilly, rustic terrain.  The owners then brought in Tom Fazio to design the greens, place the bunkers, and complete the project.

The Preserve bears the Fazio label and it is 80%+ sold out with the cheapest remaining home sites going for $1MM+.  I don't know what Fazio received for his incremental contribution to the property, but probably the sale of a couple lots more than covered it.

I have no doubt that Mike Nuzzo with the appropriate budget could design an equally compelling golf course.  Unfortunately, the well-heeled consumers buy BMW, Sony, and Fazio, without any consideration to Honda, Sanyo, and Brauer.  You can crunch all the numbers you'd like, but it would not change this reality.

[JohnV]

The Preserve bears the Fazio label and it is 80%+ sold out with the cheapest remaining home sites going for $1MM+.  I don't know what Fazio received for his incremental contribution to the property, but probably the sale of a couple lots more than covered it.

Lou, you bring up a very good point.  Years ago when the startup I helped found was at a trade show in New York City with about 10 our our people in attendance, I asked our CEO how we, a small company with a brand new product and almost no sales who was trying to make its money last so we didn't have to get third round funding too soon, could afford to spend $25K or so at a trade show.  His answer was that if we sold one computer we would pay for the show and more (they sold for $100K or more.)  We sold two as a direct result of that show.

Sometimes you have to spend money in a way that might not look wise if you just look at the figure if it helps you make more of it.

[George Pazin]

Mike -

Don't wait for Golfweek to pick you up for your paper! Write it and publish it on here. If it's strong enough, someone will pick it up. If nothing else, it would be a good marketing piece for yourself.

[Jim_Kennedy]

Mike,
I found one page related to your topic:

 "The major message coming out of the table below is that it is well worth using an architect. The architect’s fee, whatever it may be, shrinks into insignificance when compared with the uplift in pricing and rates of sale that their projects achieve.
Given the obvious value of using an architect it is astonishing that 41% of golf developments continue to use no architect.
The leading 41 architects account for 30% of the development that has taken place. The table below measures the commercial performance of projects designed by these architects.

                 No Arch           w/Arch       W/Top 40 Arch
Initiation     $780                3,750               14,000
Dues            540                1,235                 1,855
Gr. Fees         16                    22                     50
Mems. Sold     68%                 72%                   79%

The previous table provides a number of separate statistics that measure the performance of architects’ projects. This research developed a net present value (NPV) model to draw all the various statistics into a single measure to value the projects.
The NPV calculates the present value of the future income streams that flow from the golf development. The three key income streams are initiation fees, member dues, and green fees. The rate of sale of memberships is also taken into account as the sales curve has a significant effect on the NPV. It (NPV) averages $7.9 million for developments that don’t use architects, $17.5 million for developments with architects and $28.9 million for projects designed by the top 41 names. The statistics speak convincingly as to the value of an architect(especially one in the Top 40).

[George Pazin]

I was thinking about this while printing t's this afternoon.

Without comparing the specifics of the developments, the numbers mentioned are really only rough guidelines that could produce unexpected results if acted upon imprudently.

It stands to reason that the biggest names often get the best properties, so they have a leg up there. Because the name is involved, they probably obtain financing on better terms as well, so that's another advantage. Certainly it's easier to develop buzz around a name, so there's yet another advantage.

But mostly what big names offer is safety and security. This is not to be underestimated when putting together a real estate development - not by a long shot - but a good salesman might be able to overcome the perceived disadvantages of developing a project around a non-name architect.

I guess what I'm trying to say is that a lot of what has been reported could easily be explained as self fulfilling prophecies. There is also no guarantee that, should an architect fall out of favor among the big boys, that property values might not fall. I'd be curious to know whether the projects cited where studied at longer intervals after opening. How has a place like Muirfield Village developed? Considering Jack and the success of the Memorial, it has probably been an absolute gold mine.

We have a development here north of Pittsburgh called Treesdale that is a GIGANTIC housing project with a wide array of homes surrounding an Arnold Palmer course. I'd bet good money that a lot of people who bought homes in this development don't even know who developed the course. But the success of the project would definitely go down as a win for Palmer's design company, by the standards of most people and most writers.

I was on a bachelor party outing recently with friends in Scottsdale and started talking golf with a good friend who is doing quite well for himself. He has been to Bandon, played BD &  Pac D, and hasn't even heard of Coore & Crenshaw or Bandon Trails. And Ben Crenshaw won 2 Masters and the architectural team has one certified masterpiece, several more that will likely end up acknowledged as such, and a course that kicks off the season every year on Tour!

So who knows how much of the success of a Weiskopf development is due to his involvement, and how much is due to other things?

Let me know if you need a proof reader and professional skeptic for your paper, Mike.

 

[Jim_Kennedy]

George,

There will never be any clear cut, or only, way to come up with exactly how much value a name architect adds to a development, there are just too many variables.
On the other hand, there are numbers and results that lend support to the idea that they do.

At the development you cited, Treesdale, I would agree that there are buyers who have little concern for who built the course, although I would bet that the AP brand was featured prominently in the initial / ongoing PR and was a major catalyst in it's success.

Going with the Jack Nicklaus brand is very similar to going with, say, the Trump brand. The Donald sold out his Towers at tremendously high prices. People recognize his name and they  consider his successes. This creates enough trust for them to be wiiling to plunk down scads of dough for his real estate because of that perception. Housing lots at JN courses sell high and fast (actually his sell out the fastest) for just the same reasons.
   
If there is another way to explain it I'm all ears.      

 

[Don_Mahaffey]

I'd say Del Webb's Sun City developments have been quite profitable. The ones I know of in PHX and the Coachella Valley are very successful. Who designed the golf courses?

[Craig Van Egmond]

Don,

    I think Greg Nash is responsible for most of the Del Webb courses.  A huge name for sure. I think Del Webb is going for a very specific demographic and its not the high end one. They seem to be doing a darn good job of it too. I've played a couple of the courses and they are solid but unspectacular.

[Mike Nuzzo]

Look at it this way, if you spend 200K for your golf dreamhouse/membership and it appreciates 50% in 5 years, a not impossible number, you 'make' 100K. Start with 800K and you 'make' 400K.  

Jim,
Thanks for the comments, It'd be time well spent looking for data.  Would you please send that link, it would be much appreciated.
Although I don't see a membership appreciating on the same percentage scale as a home.  If the membership was 100k, I don't see it going to 200k this century.

Lou,
I'll work on it over time, and post it if it works.
In 20 years all those cars will be long replaced.  I don't see the course and clubhouse ($40MM) on the $200MM project maintaining it's value over the long haul.
...and well engineered cars are better and safer.

Jim2,
The price of the course isn't just the fee, but also the expense of the course as compared to what I could build for 1/3 and have a comparable course - in some peoples eyes.
And thank you for the table.

George,
Thanks, you'll be the first to review my essay.
Initially I thought I wouldn't be a good candidate for a high end property due to an inability to sell homes, but upon reflection and some discussions with a canadian (might be my problem) I'm rethinking my assumptions.

And that article was very poor, without any substance.  

Keep it coming please...

Cheers



 

[Mike_Young]

I think the "value of a name" has more much effect on real estate than the "golf business".  But one must also understand that most "names" require a certain budget before they will construct a course.  With this in mind the "value of a name" has also hurt the golf business as developers have tried all sorts of ways to out do the competition.
It seems that most writers of these type of articles have a hard time separating the golf business from the development business.  The golf side can rarely afford the marketing budgets that are required to have the golf "heard of".  These budgets are in the real estate side of the project.  Seems to me that most of the successful golf projects rarely are seen in the big local ads because they have their clientele and don't need to spend the money.  Most of the big local advertising is done by those that have spent more than was necessary for their project and are trying everyway possible to bring in the rounds.
I would bet that most of the NGCOA members know the article is BS since many of them built their own courses and are not into telling their competition how they do it..
JMO

[Tom_Doak]

I accosted the author of a similar study which was published a few years ago in GOLF COURSE NEWS.  He freely admitted that there are so many variables involved [land costs, real estate values, construction costs, marketing budgets, and above all THE LOCAL MARKET] that it is nearly impossible to make good comparisons.

But, Lou, just because developers are paying big bucks doesn't necessarily mean that it's a better deal for them.  (Lots of high-end projects go belly-up, too.)  Perhaps they're just proving P.T. Barnum's famous quote.

I suspect the REAL value in having a big-name designer is that the owner doesn't have to work at promotion ... he just pays for the name, pays for ads, and prints the name everywhere he can, instead of actually having to figure out how to sell his golf course.  But, few courses make their money on the basis of one-time play, and once people have played the course they usually make their own assessments of value regardless of the architect's name.

[A_Clay_Man]

Mike-
Brad did just give a great talk entitled "Golf: A Great Game- Lousy Business"

I took away one clear conclusion, if you build a great golf course, the 5 million golfers who play avidly will beat down your door. Eventually. But as is the case, what and who, defines what great is, the real key to a successful project.

If thats true, then what's in a name? Same old same old.

[Jim_Kennedy]

Mike,
I don't doubt that you could build as good a course as some of those guys in the top 40 who get those peach development jobs. The table showed that 41% of developments didn't have an architect and the remainder were split out between the top 40 guys and all the rest.

I don't see how that will ever change. If someone invests $1 or 100 million dollars to create a development the time factor is paramount when figuring their return, the faster and higher it sells the more you make and the faster you get to the next project. So, it's known that Jack Nicklaus' involvement insures the fastest/highest return, partly because his name is known across the broadest spectrum of people, players or not. Weiskopf is right there too, so is Fazio, Hills, Palmer, Dye, Player, etc.. I think I even saw Jeff Brauer's name on that list.
When I was in Florida recently I'm pretty sure I read an advertisement for a lotterythat just gave you first pick  to buy into the C&C development there. Cost was something like $35k just to get on the list. Amazing.

[Steve_ Shaffer]

I was fascinated by an ad in last Friday's WSJ Real Estate for a "Fazio Golf Learning Center" at Bear Wallow Springs at Lake Toxoway, NC. This is "a community like no other in the North Carolina Mountains. The areas premier mountain golf community where you can enjoy spectacular new facilities such as the new Fazio Golf Learning Center, complete with a 20 acre Tom Fazio designed practice course and the new Lake Toxoway Country Club and Golf and Fitness Center..."
I called the contact number and discovered there was an existing private golf club not designed by Fazio but that he had been retained "to do some work on the course."
Amazing what a name can do!  

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