The Golf Course That Got Away - Yale Farm

[Craig Sweet]

Patrick...I like this: "Only when being successful and making a profit is demonized."   

Some "success" and some "profits" should be demonized, and you know it....just look at the drug peddler on the street corner. I would love to work in an industry where contracts with obscene bonuses are drawn up with a wink and  nod....

[Craig Sweet]

One thing I noticed is the property is in two townships?  How was that for permitting and approval?  Is it true that this "headwaters" issue was the prime factor in not getting permits?  Water quality....water in general...is more and more becoming a big deal, not just in the east..

[Jim_Kennedy]

The two towhships made it a little more difficult, but there were many factors, not the least of which was resistance from a couple of neighbors who were also loaded with enough cash to keep up the fight.

[David_Tepper]

To quote (or at least paraphrase) Warren Buffet: "There may or may not be class warfare in America, but there is no doubt who is winning!"

[Bruce Katona]

Ok, so the project does not happen now......it's real estate, deals never really die, they get re-engineered into another "next great idea" during the next market upswing. 

Someone keep an eye on this parcel.  Once we are thru the current real estate morasse, this propery will come back into the mix as another project.  The only way this will not happen is if the State of Connecticut purchses the land with green acres/open space funds or if the current property owner donates the land to that state to take a tax write-off.  It will not stay undevelopede forever.

As one intimately comfortable with the development process, well heeled neighbors who do not want something happeneing next to them are the greatest deterrant to a project's permitting success.  You can work and design around environmental challanges and threatened and endangered species, but not your neighbors.

[Jim_Kennedy]

Bruce,

I think the property can be bought for 24 miilion now. 

[Jim_Kennedy]

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[W.H. Cosgrove]

Getting on point......Is there a market for another golf course in the area?  If the area is overbuilt, how many more players/members would it take to absorb the availability?  Or would all of the propoerties suffer? 

It seem pretty clear that estimates  and proposals for new clubs and courses was tremendously optimistic a few years ago.  When that capacity is filled the wages and taxes may look far more attractive to the townships and state?  As long as the property remains undeveloped, a golf course will always be a possibility and more palatable than a strip mall.

But in this environment, how long will it take to create enough demand? 

[Jim_Kennedy]

W.H.,
Yes and no. There is no real need for another course in the area, and the only one of a similar nature (6 figure initiation fee) to what was proposed for Yale Farm is Bull's Bridge, down in Kent/New Milford, although BB had no housing, only a few club cottages.

During this past decade we had a half dozen golf courses proposed in our general area, and a few more within an hour's drive, all with housing included (no surprise there). Two existing 18 holers  shut their doors before the '09 season so they can proceed with their plans for renovating their courses, along with adding housing and commercial components, but nothing has been done at either place.

The new ones that 'made' it during this period were a 9 hole exec w/range, an existing 9 holer that added a back nine, and a new 18 hole course that was located precisely where it was needed. All three are public and no housing at any of them.

[W.H. Cosgrove]

So the low end is working and the high end may be either underserved?  Or Unneeded? 

It wil be interesting to see whether the market recovers nationwide in the next few years and which end, low or high, will be most resilient.

[Jim_Kennedy]

W.H.,
Unless it's going to be coupled with a resort/commercial/housing, I don't think the high end is needed here. 

[Bruce Katona]

$24 million is a bit steep for an undeveloped and unapproved land parcel, in the current environment.  No way to make the numbers work.

The price will come down as the cost of carry (insurance, real estate taxes, etc) get to be too much for either the land owner or contract purchaser to continue to bear.

[Jim_Kennedy]

Yes, but in this particular instance the property has been owned for generations, and holding costs are not an issue.

[Tim Nugent]

Bruce, seems like they were trying to sell somewhere around 60 estate sized parcels.  If they got around $1m per, that would leave them $60-24= $36m to develop it.  Of course permitting is a wild card but IF  it had gotten permitted, I think it could have gotten done for $36m.  $12m for the course, $12m for the CH/maint, and $12m for the infrastructure/devel costs.  Hopefully, the membership fees/dues could handle the day-to-day (including RE Taxes, although I don't know how Conn's taxes are figured).
So, as long as there is a RE component to offset the high purchase price, it's possible it could get done.

But, since the housing is not going anywhere for awhile, it would be dubious to plan on it as a source offsetting income.  Plus, after Uncle Sam gets his share, is it really even worth doing.  I mean, could you make more money putting all that capital to work on something else (more liquid) with a lot less risk?

Although, the topo looked pretty bold, one has to wonder' "Is this a good place for such development?".  Man is pretty good at making anything he wants, where ever he wants.  But at what cost? 

[Bruce Katona]

Tim: You are spot on with the back of the envelope financial analysis.  Unless you had 25 of the 60 lots presold ( to pay for the land a capiatlize) and a construction loan line lined up where you could ultimately borrow the $36 million required to complete the project, you wouldn't do it.

Let's say, you could accomplish the proposed plan and construction in 4 years from groundbreaking to CH completion/last lot sale.  The cost of carry on the $36 million borrowed (assuming 50% max. draw in any one year) would be about $6-$7 million. 

Why take the risk....if you have access to this kind of equity and debt there are better investments which would offer a better return.

heck for $60 million you can buy large prtions of existing golf portfolio's and hit the ground running day 1 - no grow-in, no lot sales.

Just my $0.02.

[Jim_Kennedy]

All true, but then you wouldn't have the golf course in your own backyard, which was why he pursued it for 6 years.

This wasn't 100% business.

[Tim Nugent]

Jim, if the golf world was all business, few courses would get built.  It comes down to passion and ability to fund that passiion for many projects of individual owners.  Unfortunately, it is the large sums of capital needed that requires courses be coupled with residentail/resorts to defray some of the cost, otherwise, I'm sure they would rather not bother. 
A sad fact in permitting is you have to basically ask for it all at once.  Look at the masterplan for Bandon, even it shows future housing, whether or not it is ever built.  If one owned the land, it may be possible to get just the course permitted and built and then, if need arises, develop tyhe remainder.  But if you need the presales, you have to incude it, and the housing is what will kill more GC projects than just a GC alone - but since everyone lives in a house, they pick on the GC to kill the project.

[Jim_Kennedy]

Tim,
There is no good reason for someone to continue on a quixotic six year battle to build a golf course if that person's main interest is getting into the golf business.

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