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November 2013

    November 2013
Do Your Homework, 
or You Might Wind Up with
a Ham Sandwich

by Doug Terhune

Doug Terhune is the broker in charge of Carolina Plantations, a full-service brokerage serving Brunswick County, NC. He is the guy we rely on for updates about such established communities as Ocean Ridge,Brunswick Forest, Porters Neck and the many other golf developments along the Highway 17 corridor north of Myrtle Beach.

Doug is brutally honest with his customers about the state of Brunswick County's market and local developer practices. And that is precisely why we choose to do business with him.


Back in 2009, a proud young man from Miami called our office to inquire about the value of the investment homesite he purchased in 2006 during a developer ‘big event’ weekend. He had about $225,000+ invested in his 1/3-acre “nature” homesite. According to one of our brokers here, the young man had also purchased some investment property in south Florida that was not faring very well, and he just needed to be reassured that his NC property was still sound.

When my broker researched the property, he asked the young man if he wanted the truth about the current status and value and, of course, he said, “Yes!” We told him that nothing had happened to his homesite in three years in terms of infrastructure (i.e. roads being paved, curbs, utilities, access to the homesite, etc.) and that there were no homes built yet in this section where 200+ homesites had been sold to eager buyers.

The young man seemed a bit dismayed by the lack of progress and the escalation of broken promises, so he naturally asked the broker what he felt he could get for the property if he were to put it on the market. The frank reply was “Your homesite is not worth a ham sandwich.” There was about 10 seconds of silence and the young man seemed almost on the verge of tears.

Investing in land, stocks, bonds, marriage, a business, sports or almost anything can be a nerve-wracking experience. That is why it is always good to take your time and research any investment you decide to jump into. Recently throughout the Southeast, a number of investment groups have been on the lookout for semi-completed developments to invest in. In Brunswick County alone, we had over a dozen communities that were in the process of being developed go belly up and leave the original development vacant. Some had roads and utilities while others had partial infrastructure.

In the past several months, I know of several “WEEKEND LAND SALES EVENTS” that have taken place in North Carolina. Homesites have been reduced to a fraction of the initial intended prices, and a marketing team comes in, builds a new entrance, surveys and stakes the homesites, advertises to everyone in their massive databases, puts up a tent, brings in 40 sales agents and attempts to use the “herd mentality” to sell all the homesites in three hours.

Some of these marketing groups have been successful and some not so much. The key, though, is not whether the group that picked this property up from the bank makes money, but whether these are legitimately good bargains. Here are some Pros & Cons that everyone might want to consider:


  • The prices are reduced
  • Basic infrastructure should be in so that you can build right away


  • When you have 100 Buyers together under a tent and 50 homesites to sell, you invariably have a herd mentality going on, and many people the world over make huge mistakes in these pressure-cooker environments
  • Most of these communities have zero amenities (pools, tennis, fitness, golf, etc.), so chances are strong that most people purchasing these sites will never build on them
  • That translates, down the road, to the overwhelming majority of these homesites coming back on the market -– which in turn means values will drop significantly as investors simply want to get rid of their investments once they know they are not going to appreciate
  • These marketing groups are not developers. As soon as they have everyone’s money, they are down the road to their next opportunity, never to be heard from again.

As a general real estate broker, I am perplexed as to why someone would risk $39,000 on a homesite in a four-street community with zero amenities or homes built. Plus, these slick marketing groups often don’t even let you know where the community is located! Conversely, anyone today can walk intoSt James Plantation, Sea Trail, Brunswick Plantation, Winding River, RiverSea and numerous other communities and purchase a $35,000 homesite in a community that has hundreds or thousands of homes built, all infrastructure and amenities in, and community activities always going on.

While our market here is doing well, the numbers of homesites on the market is huge -– 1,097 in 19 of the most stable communities in our area, or something like a five to seven year supply, given our current absorption rate. We also have more than 750 homes for sale in those communities.

If you are going to invest in real estate again, do what you did years ago and research the developer, builder, sales team and other particulars before you make any kind of commitment. In the past seven years, the average American has removed one word from the real estate vocabulary, and that word is “risk.” And if you don’t investigate and consider carefully how much risk you are taking on, instead of a good investment, you just might wind up with a ham sandwich.

Smart Money Pours into Golf Communities:
Should Your Money Do the Same?

Noted and successful investor Warren Buffet, who owns mega-holding company Berkshire Hathaway, said famously toward the end of the latest recession, that, “If I had a way of buying a couple hundred thousand single-family homes, I would load up on them.” He found another way to get in on the action; earlier this year, Buffet launched Berkshire Hathaway real estate agencies in California, Florida and my home state of Connecticut, where his company bought up the former Prudential real estate franchise. I can report that, in my own small town, I see as many Berkshire signs in front yards as those of any other real estate agency. The smart money like Buffet’s always rushes in to fill an investment vacuum; those of us who have put off the decision to buy our golf vacation or retirement home should take notice.

MetLife gets Reynolds Plantation
Buffet is not the only big kahuna tapping the potential for returns on real estate investments. MetLife, the giant financial services company, bought up the entire Reynolds Plantation property in Georgia, all 8,000 acres and six golf courses of it, and began immediately sprucing up the facilities that most needed a changeover. MetLife is notoriously a conservative firm, and the fact that their number crunchers saw strong potential at Reynolds Plantation, a large, luxury community on Lake Oconee, is worth noting. 
One of their calculations had to be the community’s proximity to Atlanta, among the nation's hottest business markets in the nation before the recession and housing crash. I recall visits in the mid 2000s to The Cliffs Communities in upstate South Carolina, about two hours from Hotlanta, and the 5,000 square foot, $1 million-plus homes local real estate agents told me had been purchased as summer retreats by Atlanta CEOs and professional people. Now, a general economy rebound is already starting to pay dividends for MetLife as more and more Atlantans and retirees from around the country have restored their confidence and their 40lKs. How long the sub $400,000 condos and single-family bargains in Reynolds Plantation or the sub $800,000 homes on the lake will last is anyone’s guess; before the recession, they were as much as 50% pricier.

Cobblestone Park gets second chance with D.R. Horton
My first visit to a golf community that had gone upside down financially was at Cobblestone Park, an altogether handsome community in Blythewood, SC, about 20 minutes north of the state capital of Columbia. The personification of golf community hucksterism before the crash, developer Bobby Ginn, bought Cobblestone in the early 2000s, made his customary promises about upscale amenities and triple-digit returns and convinced many novice real estate investors that Cobblestone was a guaranteed winner. One person who was taken in by the hype, a post office employee in New England, listed the house he invested in at Cobblestone on eBay for much less than he had paid two years earlier. A few months ago I checked, and the home was still unsold; it is sad that he has been paying taxes, homeowner dues and other costs to keep the unoccupied house going. (I hope he has at least rented it.)
National builder D. R. Horton saw the potential in Cobblestone and bought up most of the unsold land there a year ago, about two-thirds of the total acreage. Horton will soon finish the clubhouse, which sat like a white elephant for five years after Ginn left, and is building spec homes starting in the $200s. The reinvigoration of Cobblestone should be good news for those who own homes and property at Cobblestone and have waited for a white knight to arrive; but the sad fact is that Horton’s product is considerably lower priced than what Ginn had in mind, and those who bought their homes for $400,000 will find that similarly sized new homes in Cobblestone selling for under $300,000 will be a win-lose, making re-sales easier to find a market but making their selling prices a bitter pill to swallow.

Toll Brothers believes rumors of golf's demise greatly exaggerated
Toll Brothers, the conservatively managed national builder, has developed and managed golf communities for decades, but only in the last few years has it formed a golf division for the purpose of buying viable golf clubs inside golf communities. One notable investment, during the early years of the recession, was Hasentree, northeast of the North Carolina Triangle area of Raleigh/Durham/Chapel Hill. Hasentree’s financial difficulties had nothing to do with its infrastructure, which includes a well-reviewed Tom Fazio golf course, and when Toll moved in, they saw an opportunity not only to invest on the cheap, but to pair Hasentree memberships with their sister community in Raleigh, Brier Creek. Last year, Toll announced that it would build a new, European-style clubhouse at Hasentree, set to open in 2014, a strong signal to skeptical potential buyers that they are in the community for the long haul. Homes in Hasentree begin in the $300s, with the sweet spot around $500,000.

Challenge takes on a challenge
National companies are not alone in seeing the advantage of buying up troubled golf communities. Challenge Golf, a 30-year-old Texas-based developer and owner of nine golf communities, has cherry picked a couple of choice ones in the Carolinas, including Balsam Mountain Preserve near Waynesville, NC, and Grand Harbor on Lake Greenwood in South Carolina. These represent Challenge’s first investment in golf communities outside Texas, where they also own a string of separate golf clubs in the far eastern part of the state. Though both communities have seen their share of financial hiccups in their relatively short histories, Balsam Mountain and Grand Harbor could hardly be more different, with Balsam occupying one of the highest, most breathtaking pieces of property in the east, where its Arnold Palmer golf course occupies the premier acreage in the community. Balsam Mountain is upscale, with prices starting generally in the mid-to-high six figures. 
Grand Harbor, on the other hand, is set in a remote upstate area of South Carolina, its nearest city of consequence Greenville, a good 45 minutes away. But nearby Greenwood offers plenty of modern services and conveniences for retirees looking for bargain golf in well-organized and maintained communities. Grand Harbor, whose Davis Love golf course is unique in its replicas of Revolutionary War ruins, features golf course view homes that begin at $270,000, with a year of free dues included. Another community on Lake Greenwood, Stoney Point, which was purchased by a couple who live in the surrounding neighborhood, features homes priced from the low $200s, and memberships in the semi-private club that do not require initiation fees.

Champagne taste, white wine prices for now
Challenge has many decades experience running golf developments, but some newbies with deep pockets have entered the fray as well. The latest owner of Currahee Club saw a prime piece of property and swooped in, circa 2009, to buy the community near Toccoa, GA. The principal of the ownership group reportedly owns part of the Gucci enterprise, and after my visit to Currahee and an overnight in one of the community’s lushly decked-out cottages, the luxury connection makes sense. Currahee has terrific potential, a sprawling piece of property along the shores of Lake Hartwell and at the foothills of the Blue Ridge Mountains, with a golf course by Tom Fazio’s younger bro Jim that will have all types of players shaking their heads in wonderment (and some in frustration). Very quietly, and with the kind of targeted marketing budget possible with a deep-pocketed owner, Currahee is making an impression with Atlantans looking for a long weekend escape and a broader audience of baby boomers considering an upscale community at -– for now –- a relatively bargain price. Some homes with mountain views are priced under $500,000 currently just because the community is in its earliest stages of development, but virtually all amenities are in, including a huge clubhouse and a sports club with modern fitness center and large outdoor pool. For the last two months, Currahee real estate office staff have been leading couples through a newly built Southern Living Showcase home that overlooks an iconic par 3 hole, all carry over a quarry. That certainly helps the deluxe image, and we expect prices to rise steadily once a few more homes are under construction. (Note: If you are interested in the lushly appointed Southern Living home, it is priced around $1 million fully furnished; contact me if you would like more info.)

The Donald gets it too
We could go on about the smart money investments within golf communities. Donald Trump purchased the golf club at Peninsula Club on Lake Norman, north of Charlotte, and not surprisingly slapped his name on the club's entrance. Resident members nervous about The Donald raising their dues must have figured out, before they voted in favor of the sale, that a Trump course would have positive effects on their home values. We’re confident that Trump, whose son Eric is supervising club operations, is counting on more members from the surrounding golf community to join. 
Southworth Development, a Boston-based company that owns properties in the U.S. and Scotland, scooped up Creighton Farms in the rolling hills one hour from Washington,, D.C., after Ritz Carlton’s attempt at developing golf communities came a cropper. The golf course, a Jack Nicklaus beauty, is challenging and fun to play, and you can’t beat the proximity to both city and mountains, within an hour east and west.

Lots of choices, not just communities in transition
We are by no means touting these “transitional ownership” golf communities above member-owned developments like The Landings in Savannah, GA, now in its 40th year of operation and owned fully by its members (the real estate, the six golf clubs and even the on-site real estate company) or a community like Brunswick Forest in Leland, NC, near Wilmington, that is the fastest growing golf community on the east coast over the last five years. (Our local real estate contact there tells us Brunswick Forest sold 55 properties last month, a figure Donald Trump might blush at.) Brunswick Forest is owned by the deep-pocketed Lord Baltimore investment firm which was smart enough to build all amenities first, including one of the best golf courses opened in the last 10 years in the east, Cape Fear National, and to locate its community in a suburban area that was already a magnet for shopping and other services. It is impossible to imagine at this point that either The Landings, Brunswick Forest or other communities with similar pedigrees and properties "under roof" could possibly falter, even during another recession.
In short, the current market for golf community homes provides clear choices. At places like Reynolds and Cobblestone Park, you are betting that their new owners, MetLife and D.R. Horton, respectively, have done their homework and are investing for the long haul. At places like The Landings, owned kit and caboodle by residents and members of the clubs, you are betting that a long tradition of success will continue for many decades to come. In communities that fall somewhere between in terms of financial backing, some careful analysis is still required. There are many fine places to live and play; the choice comes down to how attractive the potential, and modest risks, of property appreciation compare with the safety and modest appreciation potential of a sure thing.
I’d be happy to help you sort out the choices. Please contact me at your convenience and we can talk about it.



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