Too many golf courses?

[edmorrissett]

Golf is the only sport I know in which the supply is increased not in response to demand but in large part by third parties (real estate developers who want to make money by selling lots, etc. at premium prices).  The number of golf rounds per year has been relatively flat for several years. Thus demand is not growing.  The developer builds the course and gives or sells it to the property owners several years after completion.  This oversupply is a key reason so many courses/clubs are currently struggling.  Does golf need a "certificate of need" process similar to the health care industry?  The present situation has the potential to do serious damage to the game if it continues unchecked.

[Jonathan Cummings]

A thought provoking post Ed....

[Mike Benham]

.   The present situation has the potential to do serious damage to the game if it continues unchecked.

Free enterprise ... if they build a good product, maybe even price it appropriately, it will sell.  

Bandon Dunes and Pacific Dunes are prime examples of this ...

[RJ_Daley]

I agree with your sentiments Ed.  But, who or what agency would regulate a certification of need process.  I wonder if some of the overfinanced with lack of good market study of demographics CCFAD or upscale courses built as for profit corporations, won't end up in backruptcy proceedings where the initial development costs and assets go wasted and they get turned over for more realistic recapitalization values.  Rather than these individual dream seekers (that could describe my own daydreams to develope a great course) perhaps these over built to low public market demand courses might get turned over to private country club organizations or limitted partnerships sub-S like organizations where less dependency on fluid local public golfers is a factor.

WE have such a course in my area of Wisconsin.  It is going to bankruptcy auction July 15.  It will go for less than half what it cost to build.  It has 18 very good holes on a disjointed routing and the original developer couldn't even fund construction of any manner of clubhouse.  And, parts of 4 holes wound up on another's property causing an unacceptable 99 year lease arrangement to be negotiated.  I think the only viable entity would be a private group to convert it to a low budget low member fee private entity.  I think there are many other similar new developments.  Money got lent too easy, I think...

[John Nixon]

Government regulation of leisure activities? I think not. So if a developer wants to build a course to attract home buyers to his site and gets his application rejected, he can sue because the authority's denial is infringing some "right" of his? Is there a "right" to build, or play, a golf course? To a large extent, market forces dictate the success or failure of a course. If someone builds a course without due regard for demographics, economics, etc. I'm not too concerned how they end up  - that's how the free market works.

[Mike Hendren]

In my nineteen years of commercial real estate finance, I have never thought twice about financing a golf course, though I suspect I am more capable than anyone at my bank.  Like hotel financing, the demand is simply not quantifiable as it is speculative every day of year.  Spec, after all, is a four letter word.  

In the banking courses I teach I implore the participants to understand that the demand for commercial real estate is primarily a function of employment and job growth and that supply is a function of capital.  The availability of capital, both debt and equity, will always drive the development of new golf courses as well.  

Let's face it, other than entitlement issues, there are few barriers to entry into the golf course development business.  I bet 9 out of 10 people who frequent this site have at one time considered developing a course.  

Just like those titans of industry that own professional sports franchises for any myriad of reasons other than the IRR, there are plenty of folks out there who'd like to get in the golf course business despite the inherent disconnect between risk and return.  

The old line is that you HOPE the second owner makes money, but it will likely be the third.  

For what it's worth,

Mike

[A_Clay_Man]

Certainly there would never be a need for the use of another house lined crap track ergo no need for certification. No matter what some developer wants.

From how I read what you wrote about ruining the industry, I'd say, as an industry, they ruined themselves.

If keeping up with the Jones' is costing too much?  the diligence to find a better way is preferable over regulation.

[Mike Vegis @ Kiawah]

Comrad, you are right.  The wheels of capitalism are oiled by the blood of the working golfers.  We need a "temporary" (as most all government agencies are when initiated) Bureau of Golf Use Symmetry (B.O.G.U.S.) to insure an equal distribution of golf courses to coinside directly with the needs of das (golfing) people!  Golfers of the World Unite!  Only a benevolent government agency could be wise enough to dole out the privilege of the use of private property...  Its worked so well in other aspects of our economy...

[Jeff_Mingay]

As someone (attempting to make) a leaving at designing and building golf courses, Ed's post is somewhat frightening, 'cause it seems to be a logical analogy. But, I can't help think that there are still regions of this world deprived of good golfing, that in turn, need new golf courses.

There's no doubt big markets, like say, Long Island, Myrtle Beach, the sand hills of North Carolina, and Palm Springs for example, are over-saturated with golf courses. But, places like Hanover, Ontario, Canada, where we've just started a new course, have nothing but a few courses built by farmers during the 1940s and '50s.

I might be incorrect, typing off the top of my head, but theoretically, spending $1.5 million (or less) on a new course in Hanover has to have more potential to be profitable than another $15-$20 million golf deal jammed into the Pinehurst area, Myrtle Beach, Palm Springs or onto Long Island.

In other words, I can't help wanting to believe that there are still new golf courses to build. It's simply a matter of where and how it's going to work financially anymore.  

[Justin_Hanrahan]

I would have thought you collective ideas of what a "regulatory" body is (or should do) is a little extreme...surely there are many regulatory bodies already out there that have a say in whether a golf (or any residential development) gets built or not...

e.g. water authorities...I know from what I have read and heard (I am in Australia, so you'll have to forgive me!) that in many places there are already quotas concerning how much water any one site can use...That affects a course's viability.

Town planning (or your US equivalent)...these bodies are already out there ensuring that inappropriate developments don't occur.

Building controls...civil and structural...these groups are already supposed to be doing their job and checking that projects are safe and (to a point) practical.

Environmental auhtorities... loads of them out there...

Regulatory bodies abound and there is no obvious need for another one to deal specifically with golf courses. Assuming the other ones are doing their job, that is...

All that said, I agree that some developments simply should not go ahead but if they meet all that is expected of them, what else can you do?

[cary lichtenstein]

Not to worry. The laws of supply and demand always work.

Bank money will dry up on projects that are not worthy, lots of old courses will be renovated or close. Just look at the RTC. I think the courses that Hank Haney is at sold for 13 cents on the dollar in McKinley, Texas.

[Forrest Richardson]

Golf is only over-built in selected markets (regions) and in selected categories (type of course and price of green fee).

The over-supply in these selected categories will shift the price lower, just as it has shifted the green up in markets where there is only one or two good courses. As noted by others, the decency of the design also plays a role.

A key is quite simply to push to attract more golfers to the game — and more golfers to play more often. Making the game more affordable is key in both regards. The goal tooward this objective is being attacked as we speak. The think-tank includes a large group of golf industry folks — equipment, travel and course owners.

[A_Clay_Man]

Should we really worry?

Golf breaks alot of the traditional rules people live by (in a good way).

 Why should golf follow any direction a room full of small percentage owners think they have to do to save their precious industry, that wasn't theirs in the first place?

[Ben Cowan-Dewar]

I agree that golf is overbuilt in lots of regions, but is this a bad thing for golfers?

Myrtle Beach is the obvious case where it is awful for the developers, but prices will have to come down.

In Toronto, the current economic markets (not the poor spring) are hurting the courses. In a market that is overbuilt with courses of mediocre quality charging in excess of $100 (all figures Canadian), these prices have changed.

The model of CCFAD has already begun to suffer, and with rates lowering. The oversupply will inevitably lead to a section of golfers playing courses they could not afford five years, which must stimulate demand. I know this in simplified using our market, but courses two hours from Toronto that open with lower rates, already see the Toronto traffic.

Therefore, maybe this current irresponsible planning will soon lead to an increase in the flat rounds, which is a good thing. At least in my opinion.

[Don_Mahaffey]

Yep, in many areas there are too many golf courses. Funny thing is, courses continue to be built in these areas. Lots of people benefit when a course is built, designers, engineers, suppliers....and yet investors continue to lose money and the building goes on. There's something about golf that causes normally savvy investors to go brain dead. I don't care if you can buy a course for less then half of what it cost to build a few short years ago. If it loses money and has been zoned and platted in such a way that the land will always be a golf course, then what is it really worth? If a restaurant losses money it closes down, same with a shoe store or a grocery store...but if a golf course loses money, it just sells cheaper to the next guy so he can lose some too.
If you want a good laugh, you should read some of the pro formas prepared by "experts" for owners and potential investors. When I was in So. AZ., a developer was building a golf course and looking for someone to build and operate the course. He was going to give the land to the golf course owners so they could build and then own/operate the course. The pro forma he was using was prepared by a major golf player which usually goes by an acronym that's three letters long. It was an absolute joke, based on nothing but producing numbers to entice someone to build this course so the real estate guy could make his $$$. That course is being built right now, in a market where almost every course is losing money and many have sold for a third of what they cost to build. Why does this happen in Golf? Is a sucker truly born every day?

[RJ_Daley]

Don, very succinctly put!

It is an amazing phenomenon that otherwise fairly intelligent people get blinded by pipedreams, and the development and management of a golf course is just about at the top of the sucker list.  I have fought with that deamon for a dozen years now, and so far common sense has won out.  I am actually thankful that a project I organized in 92-3 actually got beat to the market by a better organized effort to build a country club in Green Bay.  We didn't loose too much because we didn't subscribe enough members to release the funds from trust-escrow to begin construction and the land was on options that expired.  If we would have, we may have been one of the lucky ones that succeeded because the GreenBay CC that beat us to the market has been a reported successful operation.  But, that is no certainty that we would have.  Our prospectus (pro-forma) was an offering document for common stock, and went through a great deal of scrutiny.  But the scrutiny was for legalese language and not accuracy of the forward looking statements of sales and expenses (that I think ours were realistic and conservative estimates).  I probably saved myself a lot of money and anquish by not going forward with it.  But damn, everytime I see a really golfy property, I get those urges.  

[Forrest Richardson]

None of us will have our tombstone read:

HERE LIES A CHAP WHO BUILT A BEAUTIFUL AND AMAZING GOLF COURSE THAT WAS PLANNED WITHOUT REGARD FOR MARKET CONDITIONS AND FAILED TO ATTRACT ENOUGH REVENUE

I say, "Go for it...follow your dreams."

[paul cowley]

  for new developements,golf has become an expected amenity....just as two tennis courts and a pool complex was twenty years ago.....600 lots sold at 'x' dollars equals 600 new members\owners ,enough to support a golf course.

   if one assumes [lets say ]a 4 million construction cost to build said course,that equates to a 6000 + $ cost per lot sold.

   not hard to build into the sales price or proforma [assuming one sells the 600 lots].......its more supply and demand, what people want[require]......not a big deal....and one that represents serious damage to the game.......

[Don_Mahaffey]

Forrest,
I, too, dream of developing a "special" golf course. But, to ignore market conditions would probably turn my dream into a nightmare. We see it happen a lot. In most markets, my new customers (golfers) will come from existing properties. So, I need to be very competitive and be prepared for the inevitable price wars that will develop. And, it's not like I'm going to drive the other guys out of business as golf courses don't just go away, they just cut their prices, services, and conditioning to survive. Pick up the Thursday edition of the Az Republic and check out the golf ads. Yes, I know it's July, but do you think most of those courses advertising $20 green fees cost 2 mil to build? More like 5+. The real estate developer probably did well, but the management company that thought bigger is always better, or the golf course operator/owner, is hanging on my his fingernails.

[TEPaul]

I completely agree with Mike Hendren and quassi. I doubt the over-production of golf courses (for whatever reason) will hurt the game exactly--although it certainly will hurt various projects.

The free enterprise tenets of unregulated supply and demand work just fine--sort of Darwinian in ultimate effect. But there's no reason that would hurt the game itself exactly--it might even help it.

There are a number of other things that might ultimately hurt the game itself but the over-supply of golf courses shouldn't be one of them.

[Jonathan Cummings]

Jeff,

You must be like a number of folks in the golf course construction business.  "You're making a leaving in golf...."  

(sorry, cheap shot....forgive me).

JC

[Forrest Richardson]

Don,

You're preaching to the choir. Our office completes a half dozen feasibility studies per year (more in 2002), finding many times that the vision erected by the client is often larger than warranted. In several cases we've suggested that projects not move forward at all, even if pulled back in terms of budget. This is a painful position for all — especially those of us who love to design and build. But it's needed. In a few cases people will move forward anyway. Almost all golf course projects can be given a chance if designed and built tremendously well — and backed up with creative marketing and ample funding. Almost.

In one case where a client made a foolish decision we buiilt a fun, but verrrrrry affordable course: $2.2 million here in the desert. It failed, even at that very low investment. The failure was poor management and a non-existent marketing effort. (Our work was actually under budget.) I saw the failure coming. The client eventually sold at a loss — quite remarkable considering the small amount of the initial investment. The new owner has built a clubhouse and now thrives by selling quality (and fun) golf at very competitive rates. He wins.

Courses reinvent themselves when the market is saturated or poorly planned. In this case it was a matter of building too early in the development of an area — and not being patient and not investing in good marketing and management. Had the original client had a decent plan they would be in business and happy.

......BUT.....The original client still gets the credit for hiring me and having the original vision. Should any history book relate this story the "Samuel Morse" of the project will be my original client who saw the land, acquired it and envisioned a golf course.

[JakaB]

Jonathan,

Please explain what you thought was thought provoking about Ed's post...or were you just sucking up to a Morrissett now that Tom Doak is out of town.   I am very impressed how Ed was cut no slack by anyone but you on his rediculous premise.

[Jeff_Brauer]

The business is just getting back to normal, dammit, when golf courses can't pay the expense of their enormous constructon cost, after a breif period in the 90's when stand alone courses made some sense.

If we had "development police" a lot of courses wouldn't have gotten built, like Sand Hills, Bandon Dunes, etc.  Even Giant's Ridge!  The free market is sometimes ineffienct, and mostly brutally efficient, taking the mistakes out of the market, but you have to accept some overbuilding periods, underbuilding periods as part of the process.  The match of development to demand is rarely ever in perfect balance!

[Doug Wright]

The business is just getting back to normal....The free market is sometimes ineffienct, and mostly brutally efficient, taking the mistakes out of the market, but you have to accept some overbuilding periods, underbuilding periods as part of the process.  The match of development to demand is rarely ever in perfect balance!

Jeff,

Precisely. Just like other real estate, the stock market, or any other market one can think of. The free enterprise system is just that--people are free to make stupid or wise investment decisions at their peril. Cycles, cycles, cycles. The sky ain't falling now, just as it wasn't cloudless crystal blue all the time a few years ago.