Golf Club Atlas
GolfClubAtlas.com => Golf Course Architecture => Topic started by: Charlie Goerges on January 26, 2009, 05:59:56 PM
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Not wanting to derail Peter Wagner's thread, I will ask in a separate one.
Is it possible to build a golf course and make money?
Michael Hendren brought up the old saying that "the third owner makes money" on the course. Is it ludicrous to even contemplate building a new course? And I'm not talking only in the current downturn, but even when the economy is booming again.
And where does the idea of a "standalone" course fit VS resort and real estate courses?
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Of course..... but it isn't going to happen with million plus dollar maintenance budgets!!! There is a definite need for good affordable golf... Until someone comes up with a model where the average working class guy can afford to play twice a week I don't see it being profitable.. IMO golf has reached a point that it can't continue in the direction it is going. It is time to bring the game back to its roots. Find a site with good soils, create some interesting holes, invest in good greens complexes, plant the proper grasses, turn off the water, and I think you will have a winner.
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Charlie,
I have run through the math on this a few times over the years. Right now, it is probably cheaper to buy one than build one. The exception is if you can find a way for someone else to pay for it, so you don't have to service debt. That is typically the real estate developer, but they ain't doing so hot these days either. Costs (can vary a bit by region and either way depending on management and site are generally in the range of maintenance Costs of $600k and Pro Shop at $400K. But debt service on $10M is about $1Mil per year. Profit to the owner should be at least 10% (really more) for about $200K. You can still run a golf course on less than $1.5M if there is no debt.
That means you need 25,000 rounds at a total of $60 per player (maybe $40 greens fee, $12 Cart, and $4 each for food, merchandise and range balls. But, if you have a mil annually in debt, you need to get another $40 dollars per round. (Or be in an area where you can get a lot more players)
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Charlie,
A family near me built a nine hole exec. on land they owned. That, naturally, was a big help, but they also made other good choices.
-They built a range w/grass tees, mats, bunker, putting green
-They stayed away from competing with full length courses by building the exec., although it does have a couple of par 4s and a boomerang par 5
-They steered clear of placing the course anywhere near water or sensitve areas. They breezed through every regulatory body, local state and federal.
-They keep hand maintenance to a minimum, no impossible areas to mow, bunkers that are easy to access w/sand pro, firm greens and fairways, judicious use of growth regulators(including on the greens), a smaller clubhouse than the one I have at Hotchkiss ;D,
-Relatively inexpensive daily fees and season passes.
They have done well from the start.
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Jeff,
I don't see the point in buying someone elses problems. If the course isn't performing well financially what is the point in sinking more money into a looser. There are way too many dull boring golf courses in this country that will never do well financially.
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Jeff:
Did you just retire with your last post?
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Jeff,
I don't see the point in buying someone elses problems. If the course isn't performing well financially what is the point in sinking more money into a looser. There are way too many dull boring golf courses in this country that will never do well financially.
Obviously you have to find the right course but in the case of Deltona:
1. Developer gets land that has already been permitted. Saves time and money in comparison to a new course. Lawyers get less. :D
2. Local town does not want to lose the existing golf course/open space to 100% condos and strip malls if the course fails, so the town will be flexible (in some situations) to the developer. Deltona Club was able to add permitting for 200 town homes to a tired old design. Yes the Florida housing market is dead today, but the baby boomers still will head South at some point.
3. Architect gets work, construction crews get work.
4. Mike gets a "new" very reasonably priced course that is a ton of fun to play that is 2 miles from I-4 :
(http://watervilleresearch.squarespace.com/storage/other-stuff/del16.jpg)
(http://watervilleresearch.squarespace.com/storage/other-stuff/del16a.jpg)
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Tom,
Now that's funny!
Charlie,
My answer is yes it is possible to build a stand alone golf course and make money. I took a stab at writing about this back in a June thread:
http://golfclubatlas.com/forum/index.php/topic,34855.msg701744.html#msg701744
Sorry for the length.
I'm a strong believer in non-equity clubs and even more so today.
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Interesting replies everyone. One thing that strikes me on this thread, Peter's other thread, and Peter's link, is the overwhelming negativity on debt (that's not me editorializing either). Basically, if a lot of debt is needed to get it going, it sounds like you're headed toward "3rd-owner" territory.
Donnie and Jim (Edit: and Jeff; sorry for missing it.) brought up maintenance costs and construction costs. Other than land costs, is it fair to say that those two are the largest portion of startup and operating costs? I'm just a simple person, but those seem like the biggies.
On your other thread Peter, you mentioned a real-estate component of high-density commercial or something to that effect. I can honestly say that I've only ever thought about real estate (when it comes to golf courses) as housing. I'm curious what might be an example of a commercial use that seems compatible with a course?
P.S. Jeff, if you retire, you can always fall back on your interrogation skills! ;)
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Impossible
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So I see you are a realist Cary.
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Impossible
Cary,
How would you explain Bandon Dunes then? As an outsider looking in they appear to be doing just fine and there isn't a house in sight.
OT - I remember a fun trip 8 of us took from my home course to Bandon/Pacific some years ago. On the return flight 3 of the guys were drafting their business plan of opening a strip club/steak house just down the road from the Bandon complex. They felt they had a trapped audience!
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On your other thread Peter, you mentioned a real-estate component of high-density commercial or something to that effect. I can honestly say that I've only ever thought about real estate (when it comes to golf courses) as housing. I'm curious what might be an example of a commercial use that seems compatible with a course?
Charlie,
I was just making stuff up because my look at this back in June showed that you needed to add something extra to increase the success rate. One of Mike Young's earlier question was about building a course without houses and I was cheating a bit by adding commercial space. Regardless, I like the idea of office buildings adjacent to a course. Even if the course is in a suburban location you could still do medical office space or something like that. Heck, why not a small hospital? I like the higher density of this better than the low density of houses ringing the course. You'd have maybe two 4-story buildings along one fairway and then your left with an open course the rest of the way.
I dunno, just what if-ing.
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Impossible
OT - I remember a fun trip 8 of us took from my home course to Bandon/Pacific some years ago. On the return flight 3 of the guys were drafting their business plan of opening a strip club/steak house just down the road from the Bandon complex. They felt they had a trapped audience!
At a very minimum, you'd have to import the steaks......
;D
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Yes, I think you certainly can build, own and operate a course and make money. You just have to set up a practical business model and keep costs down. It just takes a good amount of work. You'd have to do a detailed market analysis (does the market in question 'need' the course type you are planning, how many golfers in the region, how many total courses, etc), you'd have to figure out to the dollar how much you can afford to spend, what you need to make, and any number of other things. But I have no doubt that given a good business plan, limited debt, and a competent owner/manager you could be very successful at building and owning your own golf course.
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Yes it is possible, but you need to...
Question every detail and expense like it could be the difference, because it might.
Apply a cost/benefit to every expense, especially any professional fees. Yes, you'll need help, but understand that many are there to separate you from your money. Doesn't mean they don't do good work, but you might be fine without them.
All the experts will tell you it's about revenues, they matter, but expense is the albatross around your neck. Keep in mind that most of the experts have never used their own money nor have most ever actually owned/operated anything. Run your course like your house, you can't spend more than you make, you don't have time for a second job, and you need some savings for a rainy day.
If you’re actually going to build it...keep one rule in mind at all times. It costs a hell of a lot more to build than to design. Get the design right. Hire a designer who can tell you what he wants it to look like, play like, and how to build it. Anyone can make changes after it's built, hire someone who can communicate what they want without making you build it a few times first. Better yet, hire someone who can design it and build it too… I’d avoid the builder who claims to be a designer.
Finally, operate with a zero based budget. If you don’t need something, don’t spend. You don’t need to warehouse parts, or food, or anything else. In today’s world everything is 24 hours or less away, you don’t need to stockpile anything, except cash.
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I'm with Don and Donnie on this one.
Jeff your $10MM is the real gonner.
Both Don and Donnie do it every day.
I like Don's thoughts on the designer too. :)
We definitely helped us get to that point.
Cheers
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The old codgers that know how to get it done are not going to tell you.....they don't don't join Golf Course Owner groups, don't have USGA greens( i would wager most profitable courses don't have USGA greens) and have ground driven reels etc.....
and they have a good weeny machine..... ;D ;D ;D ;D
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p.s.
Mike S.
That does look fun.
And like a lot more $ to maintain.
Cheers
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On your other thread Peter, you mentioned a real-estate component of high-density commercial or something to that effect. I can honestly say that I've only ever thought about real estate (when it comes to golf courses) as housing. I'm curious what might be an example of a commercial use that seems compatible with a course?
Charlie,
I was just making stuff up because my look at this back in June showed that you needed to add something extra to increase the success rate. One of Mike Young's earlier question was about building a course without houses and I was cheating a bit by adding commercial space. Regardless, I like the idea of office buildings adjacent to a course. Even if the course is in a suburban location you could still do medical office space or something like that. Heck, why not a small hospital? I like the higher density of this better than the low density of houses ringing the course. You'd have maybe two 4-story buildings along one fairway and then your left with an open course the rest of the way.
I dunno, just what if-ing.
I was just wondering because when I read it, I thought of about a million possibilities. In a suburban environment, the medical building would be a nice, low-key tenant. But just about anything could work from manufacturing to storage. Out in the boonies where I live, a host of additional possibilities can pop up. It got me thinking about outdoor activities that are compatible with golf. One that comes to mind is horseback riding. The two activities could inhabit nearly the same space (as long as there was sufficient land) without impinging on each other. The nice horseys could follow trails that run throughout the course so long as they were some pre-determined safe distance from the line of play.
Man it must be late at night, I just typed "horseys".
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Don, JKM,
Many good points; sounds like a lot of work though! I agree that the homework is a must, but Mr. Hendren's comment (even if he was joking) seems to imply that you can do all of that and still go bankrupt. One can be iron-fisted on the expenditures, and if that's what it takes to make the trains run on time, then so be it I suppose. But what if you don't want to be Mussolini?
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On your other thread Peter, you mentioned a real-estate component of high-density commercial or something to that effect. I can honestly say that I've only ever thought about real estate (when it comes to golf courses) as housing. I'm curious what might be an example of a commercial use that seems compatible with a course?
Charlie,
I was just making stuff up because my look at this back in June showed that you needed to add something extra to increase the success rate. One of Mike Young's earlier question was about building a course without houses and I was cheating a bit by adding commercial space. Regardless, I like the idea of office buildings adjacent to a course. Even if the course is in a suburban location you could still do medical office space or something like that. Heck, why not a small hospital? I like the higher density of this better than the low density of houses ringing the course. You'd have maybe two 4-story buildings along one fairway and then your left with an open course the rest of the way.
I dunno, just what if-ing.
I was just wondering because when I read it, I thought of about a million possibilities. In a suburban environment, the medical building would be a nice, low-key tenant. But just about anything could work from manufacturing to storage. Out in the boonies where I live, a host of additional possibilities can pop up. It got me thinking about outdoor activities that are compatible with golf. One that comes to mind is horseback riding. The two activities could inhabit nearly the same space (as long as there was sufficient land) without impinging on each other. The nice horseys could follow trails that run throughout the course so long as they were some pre-determined safe distance from the line of play.
Man it must be late at night, I just typed "horseys".
Charlie,
No keep going down that thought process. Consider golf's heritage at St. Andrews and sheep and all that... I say explore mixing them, mix the horses and the golfers and let's see what you get.
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Don, JKM,
Many good points; sounds like a lot of work though! I agree that the homework is a must, but Mr. Hendren's comment (even if he was joking) seems to imply that you can do all of that and still go bankrupt. One can be iron-fisted on the expenditures, and if that's what it takes to make the trains run on time, then so be it I suppose. But what if you don't want to be Mussolini?
Well, it is a lot of work. No one can say it any other way. And yes, he is correct, you can do everything 'by-the-book' and still go bust. However, that is my reason for saying limit debt to the highest degree. If your debt is $0 (doubtful for sure) then you only have to make enough revenue to cover the operating expenses, which can be cut in 'lean' times. But the less your debt is, the less you are liable for, obviously, when there is a downturn. I work for a man who owns his own driving range. This time of year, when we are out of season, he does most of the work himself, only having us come in 2 or 3 days a week at most (great for working on my gym physique but very hurtful on the wallet). If you are going to be an owner, that is something you'd need to be willing to do, at least for a little while until you could establish the business.
And you don't have to be 'iron-fisted' on expenses. The main budgetary item for the year is maintenance. So, have your Super put together a list of projected expenses, add a certain percentage and that is his budget for the year. If you budget him, say, $500,000 for the year, he can spend that money on whatever he wants, so long as he doesn't go over. Same with the pro shop, grill, etc. Butget them a certain dollar amount (assuming you aren't the one in control of it all) and so long as they don't go over that amount, they are fine. Of course, if they have a need through the year which requires more than budgeted, they have to come to you, the owner, for approval. That way, you don't have to be a toolbag as far as the money goes, you just require them be at or below budget unless you approve something higher.
As the owner, you can't be stressing about whether or not your Super buys an extra case of oil or your Head Professional buys a new line of shirts for the season. You just give them a set amount of money to spend and they go spend that amount and not a cent more. Now you audit the books every so often for sure, but you are not counting pennies on a daily basis.
I hope to be able to own my own place someday, anything from a basic retail/repair shop all the way up to a full club facility. No kind of business can be run successfully with excessive debt; debt is the #1 reason that small businesses fail. I would say a very good indicator of potential success would be asset to liability ratio. If its good (high asset-low liability) then it will be far easier to succeed. Thats about the best thing I can say to you if you really intend to own a golf course or any other business for that matter.
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On your other thread Peter, you mentioned a real-estate component of high-density commercial or something to that effect. I can honestly say that I've only ever thought about real estate (when it comes to golf courses) as housing. I'm curious what might be an example of a commercial use that seems compatible with a course?
Charlie,
I was just making stuff up because my look at this back in June showed that you needed to add something extra to increase the success rate. One of Mike Young's earlier question was about building a course without houses and I was cheating a bit by adding commercial space. Regardless, I like the idea of office buildings adjacent to a course. Even if the course is in a suburban location you could still do medical office space or something like that. Heck, why not a small hospital? I like the higher density of this better than the low density of houses ringing the course. You'd have maybe two 4-story buildings along one fairway and then your left with an open course the rest of the way.
I dunno, just what if-ing.
sounds like the set up at Commonwealth National outside philly, a palmer course about 15 years old. by the way i have heard that they are struggling right now.
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Tightly controlling the expense side doesn't make you a tool bag, iron fisted or Mussolini.
Go to your favorite family run restaurant and see how they do it; because that's the ethic you'll need to bring...if you’re actually selling golf for profit.
Now, if your selling something else like real estate or a club experience where all the members have equity and they want it a certain way and are willing to pay for it, completely different story.
Budgets are a necessity because you have to plan and that's all budgets are, a plan that explain the expense and justify it as well.
But, the problems start when budgets run the management. If you budgets 2K a month for equipment repair and you only spend a few hundred, that doesn't mean you spend the rest to stock up on things you "might" need or "extras". There will be months when you go over budget due to catastrophic engine failures or whatever.
Manage the budget, don't let it manage you and the best way I've seen is using a zero based budget that simply requires justifying each expense. Too many times I've seen arguments made for non-essential purchases because someone is under budget...and necessary expenses delayed because you’re over budget.
If you want to make money managing a golf course you need to know where your money is going at all times...the margins are that thin.
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No, not in today's market! Jeff Brauer's model is mostly correct.
As many of you know, Kelly Moran and myself had a project in Old Bridge, NJ. The course was to be less than 5 five miles from one of the top three traffic junctions in the US (NJ Tpk., US 287, Garden State Pkwy, and the Staten Island Expressway. The site was less than 40min from NYC within 75 miles of over 8 million people.
We were to be granted a 25-50 year lease for a raw 208ac with a very, very low embedded cost (redevelopment fees, utility hook-up fees, and various other relatively minor fees). We were responsible for all build-out costs, had a very low and efficient capital cost structure that required building 18 holes, a small and reasonable clubhouse/pro-shop facility, maintenance facilities, adequate parking spaces, and adequate irrigation and water retention areas. Our initial budget for all of this ran near $11.5MM. Adding 10% for overage brought this up closet to $13MM. Heck, KBM wasn't even charging any outrageous fee! The project had a zero Real Estate component.
Our end pricing was only constrained by a state rule (for Green Acres Land) that prohibited us from charging local residents anymore than 50% of our top rate. Given that and market competition parameters, we assumed between 40-50,000 rounds max(seasons and conditions permitting, with some years accordingly lighter). Rounding out the all the pricing formulas, all the bare operating costs (Donnie...we were leaving the rough in their natural grasses and not planning on irrigating it), we broke even, after debt service and return of invested principal, near a $85 daily fee and really didn't make any $$ until we drove the average north closer to $110-115.
If we failed to hit the capacity #'s in any given season, we could have easily gone into the red and fallen behind our debt reduction(and thus exposed the principals to real and personal financial risk). We did exhaustive local and regional demographic market research. Kelly had a magnificent and highly-entertaining routing. Textron agreed to make us the only "to-be-built" loan offer East of the Mississippi and the town had agreed to defer any profit share until all invested capital could be repaid. Kelly and my team were in this as much for a labor of love and pride.
Sure, a course in the Northeast has inherent seasonal weather constraints and risks, but the offsetting argument is the density of population and active public golfer community. Yes, labor, marketing and regulatory costs are considerably higher in NJ as well, but none of those variables were large enough to break the model. Bottom line is we had to reach near perfection to make anything and break-even wasn't buffeted by a large margin. We had highly efficient operating schedules and budgets with realistic assumptions.
Eventually, costs rose and terms became onerous (higher interest rates, 100% full personal recourse, etc..) and after efforts seeking to have the township participate in the financing met stiff and unyielding resistance, we relented and abandoned it. Could we re-ignite this project, maybe, but given how tough times are, the model has only gotten far, far worse.
Back in 2004-5 we approached ALL the major group operators and developers and while all of them loved the location, each and every one noted that it was getting much cheaper to buy an existing course, than building a new one. Only (once deep-pocketed) RE developers and equally wealthy autocratic golf visionaries can afford to build new courses these days (with the exception of an occasional local government). Those folks, IMHO, are the only people hiring the Tom Doaks and C & C's these days.
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Don, I agree with you that the budget is a guideline. I like zero budgets. They do seem to encourage buying what you need rather than the "smoke 'em if you got 'em" (or spend it if you've got it) mentality.
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Steve, yours is the type of story that concerns me. It's true that even a modest project seems to add up fast.
It seems like when you subtract the real-estate projects, deep-pocket projects, and government projects, a pattern or common thread starts to emerge (among the projects that can survive). The common thread is you need an angle. Using Jim's example of the family from earlier in the thread, their angle was they already had the land. Major cost...gone. But even that is no guarantee. Other than already owning the land outright, I'm not sure what angle there is (besides being rich) that can compensate for the difficulties in getting a course built for a cost that allows the FIRST owner to survive and thrive.
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I'm curious as to the ethics of building a course, business-wise.
For the sake of argument, say that an area is somewhat over-built with higher-priced (but not outstanding golf-wise) resort courses/CCFADs. In these hard times those places are giving heavy discounts to compete.
Someone could come in to build a cheaper course (like the family Jim mentioned...who already owned the land) that beats them on price at the very least, and perhaps matches or beats the golf (depending on many variables obviously). Should they do it? Resort courses are at least subsidized by the resorts, but CCFADs may be standalone, so the new competitor could potentially put someone out of business, or into bankruptcy. And the local golfers would simply be exchanging one course for another.
Going by the rule of business, they should do it, because a cheaper, better product deserves to succeed. Unfortunately, the issue I see in this situation is the "3rd owner" phenomenon. The CCFAD goes into bankruptcy and a new owner comes in cheaper and leaner, and all of a sudden, they can run very lean and beat the "better run" business.
Any other ethical issues in General?
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On your other thread Peter, you mentioned a real-estate component of high-density commercial or something to that effect. I can honestly say that I've only ever thought about real estate (when it comes to golf courses) as housing. I'm curious what might be an example of a commercial use that seems compatible with a course?
Longbow GC in Mesa AZ is the centerpiece of a planned (yet to be built-out) light commercial/office complex. It seems to be the only course coupled with non-resort commercial development that I am aware of in the greater Phoenix area.
http://www.daedalusllc.com/projects/longbow/ (http://www.daedalusllc.com/projects/longbow/)
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Steve, yours is the type of story that concerns me. It's true that even a modest project seems to add up fast.
It seems like when you subtract the real-estate projects, deep-pocket projects, and government projects, a pattern or common thread starts to emerge (among the projects that can survive). The common thread is you need an angle. Using Jim's example of the family from earlier in the thread, their angle was they already had the land. Major cost...gone. But even that is no guarantee. Other than already owning the land outright, I'm not sure what angle there is (besides being rich) that can compensate for the difficulties in getting a course built for a cost that allows the FIRST owner to survive and thrive.
Charlie,
We had the land at little or no cost. Of course, we were responsible for the redevelopment planning($15k), engineering($75k), and permitting($10k), but those costs are minimal. It is very hard to to make a go even if your land costs are low. Feel free to drop me an e-mail if you want more detail.
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Charlie,
We had the land at little or no cost. Of course, we were responsible for the redevelopment planning($15k), engineering($75k), and permitting($10k), but those costs are minimal. It is very hard to to make a go even if your land costs are low. Feel free to drop me an e-mail if you want more detail.
I should note that Steve's soft cost estimates are VERY conservative as well.
To have someone that is in the land use profession like myself take on the project in my area (Northern California) it would cost Steve's group triple the amount listed above (at a minimum) in Planning/Permitting.
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Charlie,
This family didn't build a course to compete with others, they built something that didn't exist in the area (exec/range) and one which mainly serves a different segment of the population (although the Monday night skins game draws some players who might not otherwise play there ;) ).
I think the CCFAD that's now at bargain basement prices will always have the burden of being overbuilt, and will always need to charge higher fees, no matter how good of a deal it was for the '3rd owner'. I also don't think that any new course that gets built would ever price itself below the prevailing market. A quick look at the 'price fixing' that goes on in a place like Myrtle Beach is an example of this.
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Impossible
I have done it 10 times out of 10.
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No bank in their right mind would finance a new course today without major personal guarantees that are backed by excessive equity!!!!!!!!!!!!!
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No bank in their right mind would finance a new course today without major personal guarantees that are backed by excessive equity!!!!!!!!!!!!!
And I would never finance a project so large. You are asking for failure taking out a loan of $4-5 million. Everything has to go right for it to succeed. I would not go into a project like this if I could not outright pay for 75%+ of the total cost up front. Of course this goes with what I said about minimizing liability.
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Can you make money operating golf courses...Yes
Can you make money developing a golf course...Only under unique circumstances.
I look at deals every day. We avoid development deals like the plague. In most cases the development costs cannot be justified by the prospective cash flow and return on investment to the developer. Sure there are situations where a group of wealthy investors (Members) lend the development costs interest free (The old Club Corp 30 year plan). The Real Estate golf course model made sense as long as the golf course produced lot premiums and the development could be quickly built out. Unfortunately the housing market is stagnant and many developers are left with unfilled courses and numerous unsold lots. Meanwhile the cost to operate the courses continue and the debt service on the land comes due monthly.
When I was doing feasibility studies during my days at Legg Mason I did more negative feasibilities than positive. I know I pissed off several architects however my oligation was to my client, the developer.
I believe new golf courses can be successful but only if they are well located, positioned properly in the market, and well financed. Unfortunately our industry has been driven more by ego and passion for this wonderful game than sound business sense.
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I've been wanting to chime in since I saw this, but was away and just got back.....I cut and pasted the answer to this question (from my perspective) to a similar tpoic discuused some time ago....
Jeff Silverstein looks at the golf business model in a manner similar to our group....at its simplest a golf operation should be:
18 holes of a fun golfing experience at a reasonable cost
Small pro shop/locker room to collect fees with mininaml staff
BBQ grill at the turn for quick hot meals at a reasonable price
"player assistants" (volunteers who are pais little but play golf for free) to control pace of play and act as the starter.
A facility fairly easy to find and get to located within 30 miles of a reasonably populated area - this will generate approximately 30,000 rounds/year; in areas where the golf season is not 12 months; as this will cover the cost of operations - any round above 30,000 begins to generate profit ( for areas not in the Sun Belt/South where the metrics are different dure to a 12 month season...12 month golf season clubs need closer to 40,000 rounds to cover the additional added expense of really operating the addional 3 months/year to break even operationally.
Someone opined earlier that a 50% operating margin was generous....an example follows:
$2,000,000 in gross sales
$1,000,000 in operating expenses (course maintenance, salaries, etc.)
$300,000 fixed costs - equipment leases, property taxes , water purchases, office equipment leases, etc.
$700,000 in NOI/EBIT
$600,000 - Debt Service ( on $6.0 million of debt to build/acquire a facilitty)
$100,000 Net Annual Income on an investment of minimally $8.0 million (see above debt of $6.0 million + $2.0 million in equity as banks will only let you borrow 70% cost of a project maximum) is a 5% annual retun on your $2.0 million equity investment.
Looking at the above example, now you can undersatnd why acquiring existing facilities at a discount; which are failing operationally; makes economic sense. Reduce the $8.0 million outlay by 25%-50% and a $100,000 return on an equity investment of $500,000-$1,000,000 gives you an annual return of 10%-20%, which is respectable.
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Bruce,
You and I both know that the #'s you mention don't really work on any to-be-builts anymore. Nowhere on either coast could you build a decent and fun 18 hole course and associated facilities for $8MM. The costs have moved considerably above those levels. It's closer to $11MM and that doesn't even factor in the cost of the land or the soft costs of readying it.
Marketing costs to get to those round counts have increased and competition has increased. Even Jeff would have trouble signing off anywhere near those #'s today.
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Bruce,
If 5% was being made, wouldn't the owners be satisfied enough to try taking cost cutting measures or ways to increase rounds before they sell.
Aren't the majority of these courses failing because they don't get anywhere near the number of rounds they need to survive, and doesn't that make it more likely that it requires a well funded company, one with a substantial number of existing properties that operate in the black, that can absorb a few points of loss to be successful as the next owner?
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Bruce,
If 5% was being made, wouldn't the owners be satisfied enough to try taking cost cutting measures or ways to increase rounds before they sell.
Jim,
I say this with love, but that type of leverage is what got us into this mess.
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The simple answer is no as the reward is not worth the risk involved in the making the intital investment....if your already in the game, you do what you can to make it...shaving a few points off ops isn't going to help most of the clubs in trouble, because the trouble is begger than that amount due to overspending or over-borrowing.....every operator knows to within a few hunded rounds what they need to run thru the door to operate at a break even, pay their debt and to generate their 1st dollar of real profit.
Steve Lapper is spot on, the example I gave works for an asset not on either coast, but for other markets...on either coast multiply my numbers by either 2 or 3.
I'll give you some choices for you to make with a make believe $10 million in a market that is fairly normal, not 2009:
1. Put the money in the bank at 5% - you can't lose , but inflation will eat away at net profits and your $10 million will always be $10 million.
2. Invest in the stock market at the historical 9% return rate, which gives you a net 5% return on your money, but you can lose some of the principal, but in the end your initail investment is grwoing to more than $10 million.
3. Invest your all money $10 million, borrow $10 million more and guranantee the repayment personally....if, work hard and if you do everything right make $500,000....that's the back of the envelope analysis we do....if I can say we'll do better than #3 most years, we do the deal...if not we do either #1 or #2.
1. Pu
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Mike,
Do I get a box of candy too? :-*
In Bruce's example there was 2 million equity and 6 million of debt, unless I misread it. That doesn't sound overly leveraged, does it?
Bruce,
Thanks for the reply.
Mike,
Oh well, I'll still take the love. ;D
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Nowhere on either coast could you build a decent and fun 18 hole course and associated facilities for $8MM.
I think there's actually quite a bit of the ole USA between the coasts... :)
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True George.....Steve L specifically was addressing projects on either the left or right coast.....in many ways the parts of the USA in between both coats are locations taht are a bit easier to make a go of it.
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I must say that I am befuddled by this thread. I am seeing people in the business saying (I'm paraphrasing): "yes it can be done, but it takes planning, discipline etc." and others saying "you'd be out of your f#@!ing mind" to try it. I can't help but think that this thread is evidence supporting that sage observation that:
"It's such a fine line between stupid and clever..."
Note that I'm calling none of you stupid (or clever for that matter ;)). Rather it seems that if one gets in and succeeds, one is clever; and if one doesn't succeed, well what else is left. Yes it's a very fine line, and it gets smaller and smaller every day.
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Charlie,
You do have to be clever, a dreamer for sure, and you probably need a little luck.
Just keep one thing in mind, all the experts were telling everyone to make a go of it just a few short years ago. Now they say, no way. They are not ahead of the curve, they just ride the wave.
How many business deals make sense right now? Does anyone really know what anything is worth?
I will say this. If you think the economy will rebound within...say three years. And if you have the money or if you can get it, then it’s not as farfetched as everyone thinks. You can build a golf course for less $$$ now then you could five years ago. Three years from now when others who played it safe are starting to test the waters, you could have a well designed golf course, built with an economy of construction not seen in recent times, ready to go. Heck, if you’re really clever you might even be able to stir up some govt money because at least you’re tying to do something constructive.
If one were to view it as a labor of love, as a lifestyle, then the real risks are macro. And if the whole world goes to shit, what's it matter anyway as at least you gave it a go. At the very least you’ll have an area you can graze your livestock and grow a little food ;D
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Nowhere on either coast could you build a decent and fun 18 hole course and associated facilities for $8MM.
I think there's actually quite a bit of the ole USA between the coasts... :)
George,
As Bruce tried valiantly to say, my reference to the "coasts" was just a point to emphasize how expensive such areas are for golf development. Of course, most of the "in between" offers a better value (often a better experience as well ;D) !
You know my fondness for the Steel City :D Go Steelers!!
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Bruce has pretty much got this nailed. To many people go off track and invest their monies in the wrong places, big clubhouses' are often the biggest cause of failure. You can make profits but much past £200,000 per year in the UK is very hard and £100,000 is pretty good, there is always something to spend money on. With big borrowings at say 6% it may nearly impossible. It is a small return, certainly its almost always single digit percent returns. I think in this current climate it will be hard to make money and most courses will lose money, who knows how long it will last, but new courses will be very rare for the next few years in western europe, there will definitely be plenty on the market and probably the ass will get knocked out of the market and you will buy much cheaper than new build. I suspect this will happen in the USA. So probably a lean time for new architecture.
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You know my fondness for the Steel City :D Go Steelers!!
That's why I included my smiley!
Anyway, golf seems like an industry you get into for love, not money. The old saying "Do what you love, the money will follow" is a bit naive - the money doesn't necessarily follow. But sometimes what does follow turns out to be worth more than mere money.
Having said that, I'm not rushing out to build a golf course....
:)
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One of the priniciples I follow is never to invest money in a declining industry and golf really is one of those.
I understand the passion for the game and the desire to develop, design golf courses, but the practically arrives the day after your grand opening and reality sets it that you must now rely on a stream of revenue that will be smaller than any of your pro formas and expenses that will exceed your expectations.
The banking world is particularly difficult these days, in part due to their own stupidity the past few years, so now they will punish every customer that underperforms, which will be 95% of their clientile.
Personal guarnatees will be the rule, not the exception, and who wants to give a personal guarantee??
I would look for businesses that will be able to make money in the climate we are in, and will be for the next 5 years. What those businesses are, I don't know.
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Cary maybe you could try a bit of part time bayliffing ;D
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I wonder about the long-term feasibility of any golf course. Ask an average 12-25 year-old about golf and they have no interest in the sport. This includes the children of country club members. The think golf is irrelevant.
They love the fast action of Lacrosse, video games, I-phones and blogs. Don't believe the promote Junior Golf rhetoric from the golf industry, it's not working. They don't read newspapers and they don't like golf. They may learn the sport when they get older but it may be too late.
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No bank in their right mind would finance a new course today without major personal guarantees that are backed by excessive equity!!!!!!!!!!!!!
Guarantor: "A fool with an ink pen in his hand."
Bogey
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I wonder about the long-term feasibility of any golf course. Ask an average 12-25 year-old about golf and they have no interest in the sport. This includes the children of country club members. The think golf is irrelevant.
They love the fast action of Lacrosse, video games, I-phones and blogs. Don't believe the promote Junior Golf rhetoric from the golf industry, it's not working. They don't read newspapers and they don't like golf. They may learn the sport when they get older but it may be too late.
Ray is absolutely correct. My nephew is 21 years old now and I gave him his first set of clubs at 6 and then his next set at 12 and then his next set at 18. He's going to college and working part time. He may have played once in the last 2 years. None of his friends are interested in the game. Sure, they'll play that Tiger Woods video game, but to go out to the city course and pay 20$ or $25 during the week to actually play is pretty much out of the question. They would rather hang out and shoot hoops and play video games.
So if you are building a course planning on that generation to support you, well good luck. And now you have these aging baby boomers with their retirement portfolios shot all to hell, are not looking all that great anymore either.
The proforma says you need to do 40,000 rounds at $40, $60, $80 a round? Who are these folks that are going to be playing the game for the next 20 years or ever how long it will take you to retire the debt?
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I wonder about the long-term feasibility of any golf course. Ask an average 12-25 year-old about golf and they have no interest in the sport. This includes the children of country club members. The think golf is irrelevant.
They love the fast action of Lacrosse, video games, I-phones and blogs. Don't believe the promote Junior Golf rhetoric from the golf industry, it's not working. They don't read newspapers and they don't like golf. They may learn the sport when they get older but it may be too late.
Ray is absolutely correct. My nephew is 21 years old now and I gave him his first set of clubs at 6 and then his next set at 12 and then his next set at 18. He's going to college and working part time. He may have played once in the last 2 years. None of his friends are interested in the game. Sure, they'll play that Tiger Woods video game, but to go out to the city course and pay 20$ or $25 during the week to actually play is pretty much out of the question. They would rather hang out and shoot hoops and play video games.
So if you are building a course planning on that generation to support you, well good luck. And now you have these aging baby boomers with their retirement portfolios shot all to hell, are not looking all that great anymore either.
The proforma says you need to do 40,000 rounds at $40, $60, $80 a round? Who are these folks that are going to be playing the game for the next 20 years or ever how long it will take you to retire the debt?
You guys are probably right about that demographic. I think that golf for so long has been the province of men and it's time to start finally looking to the 12-25 girls and women. As a father of two young girls, the atmosphere and attitudes toward women that I've witnessed in the realm of golf bother me and need to change. It's the only way the game can grow.
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My guess is that the 12-25 demographic, male or female, has never been and likely never will be a bedrock of revenue for any golf course. I think it may be very unusual for that age group to find golf appealing. I didn't take up the game till I was 27 and many of the guys I play with didn't get hooked until their late 20's or 30's. Ironically, it seems most of the guys I know that played a lot when they were kids, if they slipped out of playing, are a bit indifferent about getting back into it, but those who took it up later are the true addicts.
There is a young guy I've played with a couple times who is athletically the strongest player I've ever played with. He's played both university basketball and golf, is about 6'5" and hits the highest, purest irons I've ever seen. I asked him which other kids his age he played with when he was growing up and he said there really weren't any. He played with his Dad and his Dad's friends and anyone he could hook up with. He also practiced a ton by himself. He said he kinda liked being alone on the golf course.
I don't think kids have changed that much, though they have more options like video games to take up their time. I think it is the rare 12-25 year old that is passionate enough about the game to devote a lot of time to it. I have three kids 18-22, the two oldest are boys, and they like playing golf but it is not a high priority yet.
As far as girls go, fugettaboutit. Females in general don't derive nearly the same satisfaction hitting things with sticks as males do.
Anyway, I agree that today's 12-25 year olds are not real interested in golf, but I think that's always the case, and when the babyboomer echos get over 25, the demographics for golf may actually improve the long-term feasibility of golf courses.
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I'm curious as to the ethics of building a course, business-wise.
For the sake of argument, say that an area is somewhat over-built with higher-priced (but not outstanding golf-wise) resort courses/CCFADs. In these hard times those places are giving heavy discounts to compete.
Someone could come in to build a cheaper course (like the family Jim mentioned...who already owned the land) that beats them on price at the very least, and perhaps matches or beats the golf (depending on many variables obviously). Should they do it? Resort courses are at least subsidized by the resorts, but CCFADs may be standalone, so the new competitor could potentially put someone out of business, or into bankruptcy. And the local golfers would simply be exchanging one course for another.
Going by the rule of business, they should do it, because a cheaper, better product deserves to succeed. Unfortunately, the issue I see in this situation is the "3rd owner" phenomenon. The CCFAD goes into bankruptcy and a new owner comes in cheaper and leaner, and all of a sudden, they can run very lean and beat the "better run" business.
Any other ethical issues in General?
No question, building that course killer is 100% ethical. It's a business, and when the market is weak, if there is a niche, then the developer should have no reservation. Somebody will fill it eventually. If the numbers work, if there is demand, if the competition has priced themselves out of the market, it was their choice, their business model, their risk analysis. If the others operate on razor margins, it's their doing. Should developers wait for a sale or bankruptcy to emerge? I think not.
It should serve as a warning to future developers. I'd hope the architect did a better job than the CCFAD, so his client has a huge "Margin-of-Safety".
What I don't understand is producing the Big Box products absent the housing component in emerging markets. Markets that don't garner a ton of tourist golf and has a golf population that confuses Jack Nicklaus with Jack Nicholson. They have all the costs associated with the Big Box projects, and only golf to reduce the debt.
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My guess is that the 12-25 demographic, male or female, has never been and likely never will be a bedrock of revenue for any golf course. I think it may be very unusual for that age group to find golf appealing. I didn't take up the game till I was 27 and many of the guys I play with didn't get hooked until their late 20's or 30's. Ironically, it seems most of the guys I know that played a lot when they were kids, if they slipped out of playing, are a bit indifferent about getting back into it, but those who took it up later are the true addicts.
There is a young guy I've played with a couple times who is athletically the strongest player I've ever played with. He's played both university basketball and golf, is about 6'5" and hits the highest, purest irons I've ever seen. I asked him which other kids his age he played with when he was growing up and he said there really weren't any. He played with his Dad and his Dad's friends and anyone he could hook up with. He also practiced a ton by himself. He said he kinda liked being alone on the golf course.
I don't think kids have changed that much, though they have more options like video games to take up their time. I think it is the rare 12-25 year old that is passionate enough about the game to devote a lot of time to it. I have three kids 18-22, the two oldest are boys, and they like playing golf but it is not a high priority yet.
As far as girls go, fugettaboutit. Females in general don't derive nearly the same satisfaction hitting things with sticks as males do.
Anyway, I agree that today's 12-25 year olds are not real interested in golf, but I think that's always the case, and when the babyboomer echos get over 25, the demographics for golf may actually improve the long-term feasibility of golf courses.
Greg, after reading your post mine sure does sound like a lot of doom and gloom. I just think that its a lot easier to catch the golf bug when you're younger and stay a "core golfer" than to pick up the game later in life. But I do understand where you're coming from because I could not believe the people at my 25 year highschool reunion a few years ago that came up to me and said that they play golf now. Some of these people, both male and female, were some of our most nerdy non-athletic type folks that you have ever seen.
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Gary,
Because I love the game, I hope you were being a bit overly pessimistic and I hope I am not being unrealistically optimistic. Most of the people on this site get a real kick out of golf courses, not just the game itself. But I think the aesthetic pleasures of the game are lost on most young people. When our boys were young, they played on summer hockey teams and when we'd travel to tournaments I'd always bring my sticks and try to work in some golf along the way. Entering one park, we crested a hill and before us was a beautiful scene of forest and hill and sky and I commented upon it to my son, to which he replied in a matter of fact, almost reverse paternal tone, "Dad, I'm 13 years old, I really don't give a crap about trees and clouds and hills".
The 12-25 age group is certainly not a demographic that can be ignored. It is those young people who are passionate about the game through their twenties that draw others into the game later on. That's what happened to me. A friend I used to play squash with who was a scratch or plus golfer and had competed at the top amateur levels in Canada as a kid, invited me out to play one summer and I was almost instantly hooked, partly by the game, but also by the grounds for the game. If it had not been for a peer of mine like him, I may never have taken up the game.
I think there may also be an element at play for those less than athletic people, like those at your reunion, that turns them into hard core golfers. When they play, they get addicted to the sense of achievement from getting better, a feeling they may never have previously experienced from athletic pursuits. This sense of achievement may be missing for more athletic types that played golf during their youth, who become frustrated trying to recapture what they were once capable of.
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Greg,
You're right about that 12-25 demographic, they're not going to be the ones to support the game. And I have seen plenty of 40+ year olds, non-athletic, 18 hdcps. addicted to the game. I just think that the greenfee these days is so much higher to expose a kid to the game that there will be fewer scratch players in the future like your friend bringing someone else into the game much like you were. But, one may not have anything to do with the other. :-\