[RussBaribault]

First and foremost these clubs are absolutely getting ripped off in reference to property taxes. $100,000 plus in property taxes is not abnormal for courses in the Delaware, Chester and Montgomery counties. Especially, White Manor located in Radnor Hunt has some of the most expensive homes in all of Pennsylvania. I know Philmont South has had serious development discussions.   

The real reason these clubs are hurting is that and I have research this extensively, on average,  it's about $700-$800 a month just to walk on the property. Then you have food, golf carts, golf association fees etc etc.

Unless your are the Merions, Philly CC, Aronomink's or Philly Cricket's your going to have trouble finding members. A family paying $10,000 plus a year for CC membership is alot. If you play 45 times a year, it comes to $250 a round.

[BCowan]

First and foremost these clubs are absolutely getting ripped off in reference to property taxes. $100,000 plus in property taxes is not abnormal for courses in the Delaware, Chester and Montgomery counties. Especially, White Manor located in Radnor Hunt has some of the most expensive homes in all of Pennsylvania. I know Philmont South has had serious development discussions.   

The real reason these clubs are hurting is that and I have research this extensively, on average,  it's about $700-$800 a month just to walk on the property. Then you have food, golf carts, golf association fees etc etc.

Unless your are the Merions, Philly CC, Aronomink's or Philly Cricket's your going to have trouble finding members. A family paying $10,000 plus a year for CC membership is alot. If you play 45 times a year, it comes to $250 a round.

Russ,

   The private clubs in Northwestern Ohio are around $80,000 in yearly property taxes, so that is just a drop in the bucket in regards to the whole enchilada.  I've been preaching the absurdity of the model for years, they are all the same.  I was astounded to learn a year ago that only $1.6 Million of a $7 million dollar annual budget of a course was (maint/golf operations) and the rest was well the money pit.  Now the above course is doing great and is in a great area so they can piss money away.

     People don't want to address the issues, Men don't like to admit they are wrong and they would soon go public or close the course down all together and wave the BS golf declining flag.  Everyone offers the same Family model and waits till the last minute to change.  Some of the smart ones close their clubhouses down November-end of March with a few Christmas parties in December.  We have a few gems in the D that are located in declining areas, a member can't carry their clubs till after 4pm.  They will be public after the next downturn.  Meanwhile destination golf and upscale public offer people another alternative the didn't have 30 years ago.  It irritates me to understand how much effort and risk was taken during the golden age by investors and such to see it pissed away by fools.   

[Steve_ Shaffer]

There are private clubs in the area that are doing well besides the " Creme de la Creme" mentioned by Russ B above- Waynesborough, Huntingdon Valley, Sunnybrook, Sandy Run, Wilmington, Tavistock, Stonewall, Bidermann, Green Valley  and maybe some others. The lure for clubs that have sold is no assessments  and possible capital improvements and continued existence for who knows how long and maybe some money in member's pockets. Lower level clubs are another story.

[mike_malone]

Steve,


Don't you think Sunnybrook, Waynesborough, Stonewall, Wilmington and Bidermann are in that top echelon of rich clubs?

[ChipRoyce]

Conspiracy theories aside, I think the simplest answer is probably the right one.


Of the current generation of prospective members:
- There's a group who have the $ and will pay top $ to join the top tier private clubs
- Don't see the value in an expensive initiation fee and dues for the remaining tiers


Some member owned clubs may:
-  not see a $ path to continued solvency
-  lucky to have corporations willing to come in and maintain the club, even if no longer member owned.
-  perhaps its even dawned on the members that in the big picture, this is a more attractive structure (eliminating risk of assessments, member committees accidentally ruining the club / course).


Not saying these corporations will succeed. In fact, I would be much more optimistic if these deals were happening in an environment similar to 2008-2009 (height of the financial crisis where the companies are properly capitalized and surviving the worst of the economic downturn). To see these purchases / rollups at the height / pinnacle of the market (bubble?) suggests that some may not survive a robust downturn in the economy.

[archie_struthers]

 


Guess the question remains as to parameters for halting golf operations .without someone who signed off on a  deal weighing in its hard to assess the long term commitment.  Is it a real estate deal or a golf revenue deal ?

[JESII]

Archie - I haven't seen either deal but have spoken to people at both Philmont and North Hills. The pitch is that the professional managers will gain operating efficiencies and purchasing advantages. The revenue generation they expect to follow their capital improvements will provide enough profitability to make sense.


Neither entity is known to flip properties but the land development value is obviously Plan B.

[archie_struthers]

 




Jim that makes some sense from an operational perspective but my question remains for how long ?


They aren't just managing like Billy Casper or Troon but actually purchasing , whether its the note or the whole club . I assume its just the debt.  So what about the remaining equity ?


If they sell the asset do the members get a piece of the transaction ? I would assume so . Are there performance or lack of parameters that trigger a sale . Don't know the answer.  Is this just a way to park some institutional money for a while to get a return that's higher than currently available . I don't know but someone does.

[JESII]

My understanding on both clubs I mentioned is that the buyer could sell tomorrow if they wanted to and owns 100% of the equity. They've committed that flipping is not their business model (and it seems it truly is not) but they would have that right.


Apparently both clubs are essentially insolvent as is so this is a life line.


I do think your last point is what's driving a lot of these deals. On paper they can show increased valuations each year going forward if they need/want to...can't do that with treasuries over the next 5 years...

[Mark Pritchett]

I would expect (hope) in the purchase agreement that there is a time period of several years before any sell off or development could occur. 

[Rory Connaughton]

I would love to see the agreements governing these transactions. 
Buy 100 plus acres in Malvern for a total commitment of $7 mill. and collect revenue
to cover real estate taxes and in exchange you only have to operate as a golf club for x years?
Sign me up.


Begs the question, do memberships go for these deals based on their emotional connection to the club? Does that emotional connection cloud their view as the actual value of their asset?


Otherwise, why would you agree to give away so much for so little and no guarantee of long term viability of the club?  Why not simply sell and cash out for the benefit of the members?

[JESII]

Rory:

Yes.


Yes.


Because no single person has enough skin in the game to make a business decision...


Because they typically need a super majority of some sort to effect a sale and...Because no single person has enough skin in the game to make a business decision...

[JMEvensky]

Could the members put the money in their pockets? Wouldn't there be a large tax bill?

[SB]

I've got some background here, maybe I can answer a few questions:


Is this a land play?  For me, Concert, and a few others, no.  This is a pure business turnaround.  As Jim points out, land sale or development is probably a backup plan, but it's not the reason you'd do the deal.  There are certainly developers who are doing that, but they are usually pretty upfront about it.


Is this like the 90's REITs?  Not really, but the business plan is totally different.  Back then, investors thought the entire asset class was appreciating for a variety of reasons, so they wanted to be invested and make minor tweaks.  The sheer volume of people with that plan drove up prices for courses, combined with a flat/declining market made the late 90's deals (purchase and new development) end up mostly bad.  The deals these days are about turning around underperforming and poorly performing properties at low prices. 


Do they own the entire club/Can they flip?  Yes, they own the entire club.  They could flip if they wanted to, but there are so few buyers, particularly for big and improved properties, good luck finding the next buyer.  Based on ClubCorp's stock price, going public isn't an option any more. All the people that have been mentioned are, to my knowledge, long term investors.


How do their investors make money?  Let's say there's a club with $6M in debt that's having trouble.  If their loan has a 10 year amort and a 5% rate, they are spending $800K a year on debt service.  Let's say cash flow before debt service and assessments is $400,000, meaning they are assessing $400,000 a year, which is driving members away.  Someone like me comes in, pays off the debt and invests $2M, so I have $8M invested. But the club is still making $400,000 a year, so my investors are making 5% - not great, but better than 0%.  My $2M goes into stuff that actually helps the club as opposed to the useless garbage that most clubs waste money on.  Plus, believe it or not, there are a decent number of potential members that prefer to have someone like me running the club as opposed to a board, particularly when I eliminate assessments and fix problems.  So let's say I add 100 new members at $5,000 net per member, that's $500,000 to the bottom line.  I can run a club with the same level of quality for less than the members due to purchasing power, investing in efficiency, and quite frankly, the fact that I know what I'm doing.  Let's say that's $300,000.  So now the investors are making 15%, and it's unleveraged, so it's lower risk than a typical real estate investment.  Not terrible in a 0% interest rate environment.  These are obviously all made up numbers.  It's also worth noting that a lot of clubs can't be saved at any price, particularly if the club is insolvent.


Why are clubs failing?  It's different for every club.  1)  Overall there are probably too many clubs, but each market and submarket is different, and it's not really fair to compare northwest Philly with Atlanta or even Wilmington for that matter.  Local markets matter.  2)  Most of the clubs that I see failing are not well run (*duck head*).  I find that they spend money where they should not, and they do not spend money where they should.  Part of the problem is the board system, and not because the board is filled with idiots.  Quite the opposite, they are very smart people but this business is hard right now, and a board full of volunteer customers is not the way to run a tough business.  If any single one of the board members ran the club full time, they'd probably do much better than a board.  Probably not a popular opinion here.  3)  Capital investment problems happen often.  Problems include:  not investing at all, not investing regularly, investing too much at once, investing in stupid things, and spending too much for what you get.  These, combined with poor financial decisions to pay for said capital improvements (debt, assessments, etc.) are usually the final straw.  4) It is usually lots and lots of little problems.

Why wouldn't the members hold out for top dollar?  1)  Most people didn't join the club as an investment, but because they liked the club.  Now that they're members, they probably REALLY like the club and want to see it saved.  2)  Let's say the club gets an extra $2M from a home developer.  Split that 200 ways, and each person gets $10K, $6K after taxes.  Many members ponied up many times that to join the club, and some are paying that much (or more) each year in assessments.

[Rory Connaughton]

Jim, in response to your conclusion, yes


SB, thank you for the detailed response. Very interesting.


Here's hoping that, regardless of the structure, White Manor stays around for a long time. It's too good a course not to.

[JESII]

Thanks SB, that is really helpful...question though; isn't it infinitely more likely that cash flow is negative at the places entering these deals? Isn't that the point?


Good point about the regional, even local differences. The Northern suburbs of Philly are a whole different world than just the main line 15 miles away...

[SB]

Thanks SB, that is really helpful...question though; isn't it infinitely more likely that cash flow is negative at the places entering these deals? Isn't that the point?


Good point about the regional, even local differences. The Northern suburbs of Philly are a whole different world than just the main line 15 miles away...

Yes, Jim, most deals are not as simple as I laid out.  So the buyer has to dig in and see what other opportunities there are to either fix underperforming revenue or cut expenses.  Some failing clubs lease a lot of equipment, sometimes hundreds of thousands of dollars worth a year.  I pay those off and don't have that as a recurring cost, for instance.  Sometimes expenses are WAY out of whack.  Maybe it gets sold as a semi-private.  But, if you can't get there, you can't get there.  The club fails. 


The disturbing thing for me is that some of these clubs that fail either didn't recognize that they were in trouble, or they waited too long to do anything about it.  If they would have called a year earlier, they would have had a lot of options, including just fixing the problem themselves with a little help.  But once enough members leave, nobody can help them.

[archie_struthers]

 




Knew we wold get  to the bottom here, or at least close. This is such an interesting topic which gets to the very core of golf business. Not quite GCA discussion but certainly one that fits into whats happening in golf.


Any analysis of golf development and or ongoing operations is regionally sensitive and location driven. It will be interesting to see if Concert can achieve operational efficiencies so well described by some of our posters. Hopefully they can and allow members of some venerable clubs to continue to enjoy what can become a second home for many.


However to achieve success many clubs will have to evolve and understand the need of a new generation , whether it be cell phone use, cart  fees , pace of play necessities and a myriad of other variables that require golf , the business, to survive and prosper .

[SB]

 




Knew we wold get  to the bottom here, or at least close. This is such an interesting topic which gets to the very core of golf business. Not quite GCA discussion but certainly one that fits into whats happening in golf.


Any analysis of golf development and or ongoing operations is regionally sensitive and location driven. It will be interesting to see in Concert can achieve operational efficiencies so well described by some of our posters. Hopefully they can and allow members of some venerable clubs to continue to enjoy what can become a second home for many.


However to achieve success many clubs will have to evolve and understand the need of a new generation , whether it be cell phone use, cart  fees , pace of play necessities and a myriad of other variables that require golf , the business, to survive and prosper .

No doubt.  You would know better than anyone here.


It is relevant to GCA because there are a lot of great designs that will be NLE if their boards can't figure out how to stay alive.  Many here are under the delusion that the crappy new housing development courses or the popular clubs with giant clubhouses and plain courses will be the first to close.  It's the opposite, those places will be the last to close.  Maybe the near death experience of these Philly clubs will open people's eyes that they could be next.

[Ed Brzezowski]

I think it should open folks eyes to the " if you build it they will come" syndrome. How many clubs pour money into giant clubhouses, elaborate fitness centers, tennis and paddle centers and the like only to see membership drop. A club down the street lowers their membership dues and you lose a bunch of members. But you are left with the debt on the infinity edged pool and fireplaces in tennis centers.

I believe this thread belongs here because these questionable decisions will lead to some great courses going away, especially here  in Philly.

Why can't clubs just want to do a good job at a reasonable dues structure? Everyone wants to be a premier club anymore. All it really accomplishes is to put some good clubs in peril. Monument building by boards with good intentions but misplaced actions.

[Kyle Harris]

There is an historical irony here that many of these clubs have already relocated once in their history due to similar financial circumstances, yet I do not recall such restructuring being a part of the initial "out of the suburbs" movements of the 1910/20's. White Manor's original golf course; for example is now Paxon Hollow, a municipal golf course of Marple Township.

Perhaps that is why clubs like Brookline Square folded?

[BCowan]

I think it should open folks eyes to the " if you build it they will come" syndrome. How many clubs pour money into giant clubhouses, elaborate fitness centers, tennis and paddle centers and the like only to see membership drop. A club down the street lowers their membership dues and you lose a bunch of members. But you are left with the debt on the infinity edged pool and fireplaces in tennis centers.

I believe this thread belongs here because these questionable decisions will lead to some great courses going away, especially here  in Philly.

Why can't clubs just want to do a good job at a reasonable dues structure? Everyone wants to be a premier club anymore. All it really accomplishes is to put some good clubs in peril. Monument building by boards with good intentions but misplaced actions.

+1

[Mike Bodo]

Why can't clubs just want to do a good job at a reasonable dues structure? Everyone wants to be a premier club anymore. All it really accomplishes is to put some good clubs in peril. Monument building by boards with good intentions but misplaced actions.

Given how tight the economy has been since the real estate collapse in 2007, this is a direction that many private clubs in the metro Detroit area have gone in. Most private club memberships now are non-equity based and many clubs have waived initiation fees, making it more attractive to new members. To the best of my knowledge I only know of one that club that has gone under the past 10 years, and there are only one or two that I can think of off the top of my head had to go the semi-private or public route just to stay afloat. As SB said in his post, I'm sure this varies depending on markets and sub-markets, but at least in the metro Detroit area most private clubs seem to have weathered the storm from the last recession and are doing well by and large.

[Steve_ Shaffer]

Corporate owned non-equity private clubs have existed in the Philadelphia area for awhile. Among them: Commonwealth, Spring Mill, Talamore, Applecross, Blue Bell &Jericho. They offer no assessments and refundable membership costs. All were developed as this type of operation. So what's happening in the area is nothing new except that member owned clubs are now resorting to this model for survival. Let's see what happens.

[BCowan]

but at least in the metro Detroit area most private clubs seem to have weathered the storm from the last recession and are doing well by and large

That is a stretch.  There are many clubs that are hurting and one downturn away from going public.   

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