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January 2012

 
    January 2012

Getting invested in golf communities

   Unless you are a speculator, you should not look at the purchase of a home you will live in as you would an investment in stocks and bonds.  But you also don’t want to look like a schnook five years from now if your $500,000 home is worth, say, $450,000.  We can’t claim to have the gravitas of a Standard & Poors but, then again, that rating agency didn’t do such a great job of assessing mortgage bundles during the housing market collapse. Therefore, with all kinds of customary equivocations and warnings –- chief among them, please seek professional advice before you invest in anything –- here is how we rate a few of the communities we have followed in recent years based on their perceived “investment grade.”

AAA (High Quality: Safe Bets)

Brunswick Forest, Leland, NC
   With about $2 billion in investments, Lord Baltimore Properties seems too big to fail.  Its comprehensive approach to marketing, which includes sharply priced and tightly organized discovery “events” (we hope to attend the next BBQ one) and sharply priced new homes (starting in the $200s), has helped Brunswick Forest become one of the fastest growing communities in the east.  Its proximity to a vibrant city, Wilmington, doesn’t hurt either.  And there is talk of a second golf course soon, probably to be designed by local favorite Tim Cate, one of the hottest architects on the east coast.

Champion Hills,
Hendersonville, NC

   When an independent golf rating panel presented Champion Hills with a top-five designation among all golf courses in North Carolina, residents and club members seemed especially agog.  After all, there wasn’t much else to improve on at the mature mountain community a half hour from Asheville.  Hometown boy Tom Fazio designed the course and then helped with the reworking of it two years ago.  The deeply funneled fairways not only redirect slightly wayward golf balls, but they also put adjacent homes well above the field of play.  (Home prices average in the mid- to high-six figures.)  Vistas from the golf course look good, as does the future at Champion Hills.

Glenmore, Keswick, VA
   What didn’t kill Glenmore made it stronger.  A member of the founding family –- he married in, actually -– embezzled nearly $750,000 from the golf club a couple of years ago, got caught and went to jail.  A Glenmore resident stepped in to buy the club from the chastened family, added improvements, stabilized the membership roll and made no bones about the embezzlement; the club’s web site includes that dark event in its “history” section.  A golf community that forthright, and just a few miles east of one of America’s great college towns, Charlottesville, seems too good to fail.

The Landings, Savannah, GA
   The Landings is something of an icon of stability in golf communities.  No golf community’s fate is more in the hands of its residents than at this multi-decades-old development just 15 minutes from downtown Savannah.  Not only do its residents run the homeowners associations and the six private golf clubs, but they also own the on-site real estate office; in a good year, the staff of agents, almost all residents of the community, contribute more than $1 million in real estate commissions to association coffers.  At 4,800 acres and with more than 8,000 residents, The Landings is too big and well organized to fail.

AA (Medium Grade: All that's missing is effective marketing)

Governors Club, Chapel Hill, NC
   The recent announcement of the on-site real estate office’s impending dissolution, as well as marketing communication efforts out of sync with the organized, professional appearance of the community, are the only things that keep Governors Club’s reputation from reaching the loftiest heights.  The Jack Nicklaus 27-hole layout is well tended and the impressive clubhouse kicks out some of the best food we have had anywhere inside the gates of a golf community.  The changes in elevation and substantial number of rock outcroppings throughout the community make it one of the most attractive we have visited.  But the oddly named golf club web site, GovernorsClub.cc (the ‘cc’ should come before the period lest it seem like a club in Central Congo) currently brags about the golf layout’s status as “the 15th best course in North Carolina”; anything outside Top 10 seems a bit limp.  That is a clear message that Governors Club needs clearer messages of its inherent high quality.

Wachesaw Plantation,
Murrells Inlet, SC

   We love Wachesaw and its classic Tom Fazio course, but talk about a fine golf community that hides its light under a bushel.  As just one of four fully private golf clubs in the golf-endowed Myrtle Beach area, Wachesaw would seem to have a wide-open avenue to distinguish itself locally and promote itself effectively to northern baby boomers.  Home prices on a dollar-per-square-footage basis are the lowest in the area for comparable golf communities.  A former schism between non-member residents and club members seems to have been bridged, for the most part; now if only the two groups could get together on investing in the reputations of both, they might all see their home prices and membership rolls rise.

 

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Our Vote for 2012:
Prices start to rise in best golf communities  

 It was the best of times, it was the worst of times.  It was the age of wisdom, it was the age of foolishness...  Charles Dickens, “A Tale of Two Cities”

 

     The worst of times is always the best of times for some.  People made money during the Great Depression as others were executing two and a half gainers out of skyscraper windows.  In our current housing miasma, some specialty real estate firms and auction houses are making a killing from foreclosures while the over-leveraged owners of those homes slink off to live with the in-laws, or worse.
     Most of us find ourselves in a middling scenario, scared witless to make a foolish move in this real estate market but beginning to think that if not now, then when.  A case can be made that 2012 is “when,” a year in which prices in southern golf communities bottom out and begin to re-ascend toward their lofty levels of pre-recession; and a year when those of us who have been considering the big move to a warm-weather vacation or retirement destination finally start the process.  Here’s why:

 

Housing and Employment Data Suggest a Reversal of Fortune

    Fear is exhausting, and many of us are worn out from being scared about the economy.  I sense from communication with my readers and with realtors throughout the south that baby boomers are fed up waiting for dithering politicians to do something about the economy.  We aren’t quite feeling Howard Beale’s “Mad as Hell and Not Going to Take It Anymore” passion (recall the movie “Network”), but rather a resignation that it is time to go on with our plans –- and lives — regardless of the economy.  And that means selling our primary homes and moving to warmer climates.
     The latest housing data suggest that, perhaps, this mass psychology is already in partial bloom.  Although home prices in major metro areas declined again, pending home sales were up in November to their highest level in 19 months, according to the National Association of Realtors, including an increase of 4.3 percent in the South, 8.7 percent higher than in November 2010.  This followed an announcement that existing home sales had risen nationally by 4 percent and by 2.4 percent in the South, 12.3 percent above a year ago.  And then last Friday, a few days before we mailed this newsletter, we learned that 200,000 new jobs had been created in the month before and that the unemployment rate had dropped 1/10th of a percent to 8.5 percent, and mortgage rates dropped below 4 percent.  This isn’t exactly a “Happy Days Are Here Again” scenario (yet), but the numbers all seem to be moving in the right direction.

 

Prices May Have Reached Their Bottom

    Recently, I did some research for a customer on Colleton River Plantation, a well-regarded Bluffton, SC, community that features Jack Nicklaus and Pete Dye golf courses.  I found a .41-acre lot for sale in Colleton River with lagoon and golf views listed at $7,500.  The real estate ad didn’t say it, but you have to assume that mandatory golf club membership is part of the deal (currently around $20,000).  Still, for a couple looking to build their dream home in an established community and planning to be golf members anyway, the price is about as low as a high-end golf community ever gets.  A 3,000 square foot custom home on that $7,500 lot at around $200 per square foot for upscale fixtures, cabinetry and flooring would fit right in with Colleton’s upscale gestalt…for a total cost of around $600,000.  A similarly outfitted home on a lot of that quality would have sold for $1 million or more in 2006.
     For those not interested in playing contractor, prices for resale homes in a wide range of southern golf communities make the decision easier to buy someone else’s design and then tinker with it.  In that same Colleton River community, for example, a four-bedroom, four-bath 3,300 square foot home with golf view and a mother-in-law suite above the garage is listed at just $449,000 (a short sale, which means the home is selling for less than the remaining mortgage amount).  That leaves about $150,000 (compared with the cost of building the new house) for renovations, if they even are necessary.  Unless you are dead set on building your own home, existing homes are cheaper on a dollar-per-square-foot basis.

 

Location, Location, Financial Stability
     Location, location, location drives prices in real estate, but in southern golf communities today, financial stability is just as much a factor.  Generally speaking, communities and golf clubs owned by their residents and members have fared much better during the recession than those still being run by developers (some exceptions include Carolina Colours in New Bern, NC, and Brunswick Forest near Wilmington, both featuring homes priced below $400,000).  We recently hosted our first Discovery Weekend at The Landings, near Savannah, a decades-old community almost completely built out and run by its residents (the six private golf courses and the on-site real estate office too).  Although these are challenging times for any golf community, you rarely hear of any compelling financial issues at a mature, resident-run development like The Landings or Champion Hills in Hendersonville, NC, or Landfall in Wilmington, NC, or Glenmore just east of Charlottesville, VA.  If safety is at the top of your list of requirements in a golf community investment, think maturity first.
    The recession revealed another brutal truth about golf communities:  Bigger (and more expensive) is not necessarily better.  The bigger the enterprise and the higher the price points –- think the sprawling 10-community Cliffs in the Carolinas or Reynolds Plantation in rural Georgia –- the more precarious the financial situation.  As of this writing, Cliffs founder Jim Anthony was rumored to be in default with his lenders, which included a group of his own property owners.  (See immediately below)

 

Oh Contraire:  Too Big to Fail Communities at Distressed Prices

    I am asked often about the viability of The Cliffs Communities, the group of developments strung like pearls across the mountains of the Carolinas, as well as about other former high-flyers like Reynolds Plantation, also in financial difficulty.  The brainchild of Jim Anthony, arguably the largest private landholder in South Carolina, The Cliffs has defined the notion of luxury golf communities, with perfectly tended golf courses, expansive clubhouses and enough amenities to appeal to virtually every spare-time endeavor (think equestrian centers, nature trails, wellness and fitness centers).  Of course, the model was both simple and, when the recession hit, simply disastrous:  Use future real estate sales to pay for already constructed golf clubs and other facilities.  But without the land sales, you cannot pay for the amenities, and then the banks come calling.  Hiring Tiger Woods at an outrageous sum to design a mountaintop golf course -– some estimated Woods was paid a $20 million fee -- came to symbolize the crack in the model and the crack in Mr. Anthony’s well-crafted persona of smart thinking.  Everyone looks like a genius when the economy is roaring.
     On a percentage basis, prices have dropped from their lofty summits at The Cliffs; on a dollar basis, the drop has been even more impressive since the prices were so rarefied to begin with.  But The Cliffs has a few key things going for it:  Some of the communities are almost completely occupied, and the residents have deep pockets and a willingness to get involved in the icky aspects of bailing out the venture; after all, they loaned Mr. Anthony $64 million to finish a Gary Player course and other amenities.  It is hard to imagine The Cliffs vaporizing.  More likely is that some group will step in to pick up the remaining real estate from the strapped Mr. Anthony at pennies on the dollar, making further sales of land and construction of homes more realistic, and at prices well below circa 2005 levels.  That could establish The Cliffs as a pretty good “contrarian” play for those with patience and some at-risk capital.

 

Prices Go North in the South

    Real estate prices are strictly a function of supply and demand.  No great surprise there.  Right now, there is a strong supply of homes (and lots) for sale in southern golf communities, but increased demand from northern U.S. and Canadian baby boomers is starting to bite into that inventory, especially in the $200s to $500s price range.  (The top end of the market is pretty much a disaster, with the deepest discounts in terms of dollars and percentages; see section above on The Cliffs.)  Remember back in the mid 2000s, before the recession, how the migration from north to south was in full swing?  Our real estate contacts across the south tell us it is picking up in earnest again, especially in Florida, where prices had plummeted faster and farther than elsewhere and where Europeans, who seem more worried about their economies than we are about ours, are looking for safe havens.  (How ironic, in view of the Sunshine State’s problems with weather, traffic, insurance rates and the occasional sinkhole, that it would be considered a "safe haven.")
     I received four requests in the first week of January to assist baby boomers in finding a golf community home in Virginia and the Carolinas, more than four times the normal number.  Okay, the golf season in New England and the upper Midwest is kaput for the year, which gets us all thinking about window-shopping on the Internet for a home in a warmer climate.  But these customers are not contacting me for vacation advice but rather for a place to hang their hats -– and store their golf clubs -- for much of the rest of their lives, and they are taking the time to be specific about their requirements for a home.  That sounds like more than window-shopping.  The remigration south is beginning again in earnest, and it will produce more demand, resulting in a re-spiking of prices during the year.  This in turn could inspire developers with renewed confidence to start borrowing and building the inventory again, which would argue for only a modest increase in prices.  But expect developers burned by the recession to approach things a bit more timidly this time.

 

The Case for Selling Your House and Moving NOW

    I am a broken record on these points: 1) your primary home is only worth what someone will pay for it, not what you think it is worth; 2) if you live in the northern half of the nation or on the west coast, your day-to-day expenses are probably significantly higher than in most communities in the south; 3) you once had a plan to retire to a year-round golf climate so what are you waiting for? and 4) if you wait for the best possible price on your current home, the price of your future golf community home may increase faster because of the aforementioned population shift and the growing demand for homes in the south.
    The current market value for our own home in Connecticut is about 60% higher than we paid for it 20 years ago, and about 60% less than its peak market value seven years ago.  We are psychologically connected to the house; after all we raised our kids there and have spent 20 years getting comfortable with the place (the cable Internet service is especially wonderful).  But whoever makes an offer on our house won’t build our nostalgia into their offer; when we put the house on the market in the next two years, I hope we price it precisely at what the market will bear and sell it in a couple of days, even if the price is well below what we think it is worth.  Wherever we wind up in the south –- we currently own a condo and homesite in Pawleys Island, SC -– I know it will cost us considerably less in annual expenses.  As of this writing, and according to a calculator at BestPlaces.net, it is 21% cheaper to live in Pawleys Island than in our town in Connecticut.
    The savings add up, and in a year or two may equal the difference between what our home fetches in price and what I might have thought it was worth.  And you can’t put a price on being able to play a round of golf in January in South Carolina while your friends are shoveling snow in New England.

 

In Case We Are Not Your Type

    From time to time, a handful of our 1,000 or so subscribers indicate that the type size in our newsletter is a little small for them.  I sympathize since my eyesight is not what it once was.  But there are relatively simple ways to make text in a document like Home On The Course more readable.
     Different computers display type in a variety of ways, but virtually all give you control over the size of the type.  I am an Apple Mac user, and whenever I arrive at a site whose type is unpleasantly small, I hold down the Command key on my laptop and then press the ‘+’ sign as many times as it takes to bring the page into focus.  It could not be easier.
    It has been years since I used a PC with a Windows operating system, but I understand that in Internet Explorer, you click ‘Page’ and then ‘Text Size’ to change the size of the type.

 

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