With a nod to Yogi Berra, yesterday I had one of those moments of déjà vu all over again (Yogi Berra, for our European readers, is a former baseball player known for such malaprops as, "No one goes to that restaurant anymore; it's too crowded.")  On Sunday, I wrote about how some golf course operators are working with builders and developers to increase revenue for their golf operations.  Afterwards, I met a 70-year old couple who are living a nightmare in a golf course community where the golf course owner and residents could not be farther apart.
    Pat and Fred live in a condominium in Connecticut during the summer months but, like many retired couples in the northeast, spend the winter months in Florida, at a condo they own in Vero Beach.  The condo has a nice view of the eighth green of the Vista Meadows Golf Club and is within five minutes of the ocean.  Their community, which is called Vista Royale, is restricted to people 55 and older and offers a full range of activities on site. The couple love their neighborhood and neighbors, think Vero Beach is a great place to live and have been enthusiastic members of the Vista Meadows Golf Club.
    Things changed three years ago after two hussies named Frances and Jeanne came to town.  The hurricanes wreaked havoc in Vero Beach, the torrential rains they brought combining with extremely high temperatures to create black mold on the insides of many units.  According to Pat and Fred, the interiors of some condos were so black that they appeared to have suffered fire damage.  As if that wasn't bad enough, the insurance company that covered the community went belly up.  Of necessity, the state of Florida had to step in but is still trying to figure out how to deal with insurance coverage for Vero Beach and other places affected by the hurricanes.  The insurance checks have not come close to meeting the reconstruction costs. 

    In the last three years, some of Vista Royale's residents have passed away or moved to nursing facilities.  Many of their units have been on the market for well over a year.  Currently, more than 300 of the community's 1,200 units are listed, a quantity that is depressing the values of all the units in the community.  The company doing the mold removal work and other repairs has been overwhelmed by the magnitude of the work and has been fending off accusations of overcharging.  Pat and Fred say they have paid $10,000 to have a wall of sheet rock torn down, mold removed, and the sheetrock replaced. To complicate matters, asbestos was found in the walls of some of the older units, requiring special, and of course more expensive, handling.
    But the thing that seems to gall Pat and Fred and their fellow residents the most is the state of the golf course whose current owner, the residents accuse, is trying to force them into a rewrite of covenant restrictions to permit development of land adjacent to the course.  The residents are resisting any change to the original covenant, even though Vero Beach has a height restriction on construction (just two stories) and, Fred and Pat acknowledge, any new units would not affect the views from existing condos.  
    Last year, according to the couple, the course was in exquisite shape, attracted lots of outside play, as well as member play, and everyone was happy.  But for reasons unexplained to the residents, the owners of the course ran out of money and the mortgage holder foreclosed on the course, which was auctioned off last December for $2.8 million.  
    This year, the new owner has decided to test the resolve of the residents; he is keeping the lawn mowers in the tool shed, and the course has become overgrown and unsightly, according to letters written to local papers ("a cow pasture," one writer described it).  The owner, a local lawyer, is also threatening to turn part of the clubhouse into an "arcade" for people from outside the community to play games of chance and win gift certificates offered by local retailers (casino gambling is not legal in Florida except on offshore boats).  These arcades are popular throughout Florida, and Pat and Fred worry that their community will become host to a steady flood of "gamblers."  
    Vista Royale's owners had the opportunity to purchase the course two decades ago, but the golfers could not convince the non-golfers in their midst to ante up.  Now, of course, the price will be a lot steeper, but the cost of doing nothing might be even higher as the values of Vista Royale's condos spiral downward in a glutted market.  And with all the golf courses and condos in Florida to choose from, why would someone look at a unit next to a ratty looking golf course?
    Our bet is that there will eventually be some accommodation that both sides of this ugly argument can agree to.  One solution could be that the residents will make a generous offer to purchase the course and hire a management company to run it.  That offer would have to be well north of the $3 million the owner has invested in the course already.  The other, more reasonable alternative is for the residents to let the owner build homes along parts of the golf course as long as they meet certain architectural standards consistent with the rest of the community.  Vista Royale's residents, many of them well past 60 years old, should not want to go into the tough business of supervising the running a golf course.
    In the end, money will force a solution, as it almost always does.  The course owner will get some return on his investment, and the residents' will be comforted that the values of their condos will be restored, and that they can once again play golf on their own course.  We plan to follow this story to what we hope is a happy conclusion.

Mandatory memberships help courses survive

    Some golf communities in the southeastern U.S. try to make membership in their golf clubs as enticing as possible, either through free or discounted initiation fees, or the ability to transfer membership from one homeowner to the next.  Still, only an estimated 10 to 20 percent of those who live in a U.S. golf course community are golfing members of the adjacent club(s).  That could change in coming years as the financial realities of running a golf club drive some operators toward innovative deals with local developers and builders.
    Last year the net number of golf courses in the U.S. decreased, as the overheated housing market - remember when? - was in full steam mode.  Developers eager to take advantage of real estate demand waved some pretty enticing deals in front of strapped golf course owners.  In Myrtle Beach alone, a dozen courses were closed to make way for condos and single-family homes.  
    It is expensive to operate a golf course unless you are a municipality that can build operating costs into the local tax burden.   Operational costs are unpredictable year to year.  On top of the costs of routine maintenance, which have been negatively affected by increased energy and labor costs, add the unpredictability of irrigation-stressing droughts, especially in the south, bug infestations, bad winters (in the north) and all the other vagaries of Mother Nature and fickle markets.  Private golf course operator is not the most secure profession...
    ...unless you have enough dues paying members to ensure proper maintenance and financial viability.  An article in the current (August) issue of Golf Business magazine, published by the Golf Course Owners Association of America, features a former past president of the PGA of America who now owns a golf course.  He has developed a reasonable strategy to generate the kinds of profits that can support his club's facilities.  
    Will Mann, according the article, is partnering with local builders in the new community adjacent to his course, Cedar Forest Golf Club in Swepsonville, NC (Swepsonville is halfway between Greensboro and Chapel Hill).  Home buyers in the community will be required to purchase at least a social membership, for $3,000 initially and $80 per month, which gives them access to the clubhouse, pool, tennis, dining room and other amenities.  Those who want access to the club's exercise facilities will have to pay $5,000 and $175 per month.  Full golf members, with access to everything, including the 1969 Ellis Maples/Ed Seay course, will pay $10,000 and $300 a month.  More than likely, in the now topsy-turvy housing market, the builders will foot at least part of the initiation fees to help unload inventory.
    Mann predicts that up to 50 percent of residents will eventually upgrade to full golf membership, enticed by the opportunity to transfer the membership with the eventual sale of their homes.  Home prices in the neighborhood range from $450,000 to $1 million.  Mann will start a $2 million upgrade to the course and club this fall, a clear indication of confidence in his model to generate ongoing revenue for Cedar Forest.  Other golf course operators will be watching closely.  For those of us contemplating purchase of a home in a golf course community in the coming years, this type of arrangement could offer extra negotiating power with developers or builders who want to move their stagnant inventory quickly.