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February 2012

    February 2012

Florida Blogger Predicts
Strong Year for Home Sales

   Much of what I know about Florida real estate comes from reading the almost daily missives of Toby Tobin, a Flagler County blogger who follows real estate trends in his home state and elsewhere.  Toby and I have traded some back channel information about such places as The Cliffs Communities and Reynolds Plantation, as well as the peculiarities of the Bobby Ginn saga as it made its inevitable way toward disaster. (Toby was one of the few to score an interview with Ginn.)  One of the reasons I respect Toby is that he isn’t selling anything except his opinions, which he bases on data and other facts.  He has no axe to grind except the truth.
    That is why I am pleased to report that Toby predicts a healthier year for the housing market in his neck of the woods, the Palm Coast of Florida.  He reports that two of the three legs of the stool of a recovery are in place:  The number of homes sold in January in Flagler County was up nearly 50% over the same month in 2011, and up more than 25% for the nine months ending in January.  And the total value of those homes that sold in January increased to $17 million, $3.45 million more than in the previous January.  Perhaps most importantly, the homes-sold figures and total-sales figures bottomed in January 2008.  They haven’t risen rapidly since then, but the rate has accelerated in recent months.
    Markets cannot be considered on the full rebound until prices begin to increase.  The incredible number of foreclosures and short sales from the savagely beaten Florida economy have tamped down prices since 2006.  But Toby says he sees some light through the clouds; based on early sales reports, February could provide the first month since 2006 in which median home prices in Flagler County actually increase.  I am not yet seeing the same price increases across the rest of the southeast, but consider that Florida’s housing market tanked a couple of years before the markets in other areas favored by retirees.  Toby is confident that 2012 will be the year of the turnaround in much of Florida, and based on his data, analysis and experience, we have no reason to doubt him.  We just hope it’s catching.
    For Toby’s complete article on the Palm Coast turnaround, click here.


Membership Costs Vary Widely in Multi-Course Communities

  If variety is the spice of life, then retired golfers with plenty of time on their hands can really spice it up in a golf community with multiple golf courses.  We did a little research on multi-golf course communities –- some we know personally, some we know only by reputation –- and discovered that membership costs are as varied as the golf course layouts.  Here is a sampling (all rates based on “full-family” golf):

Desert Mountain, Scottsdale, AZ
Six golf courses by Jack Nicklaus
Equity golf initiation:  $140,000
Monthly dues:  $1,205
Food minimum: $1,500 per yr.
Notes:  Membership transfer fee of $65,000; $40,000 social membership (golf June to October); $50 fee if you don’t show for tee time.

Reynolds Plantation, Oconee, GA
Seven golf courses by Jack Nicklaus, Jim Engh, Bob Cupp (2), Tom Fazio, Pete Dye, Rees Jones
Initiation: $25,000 to $65,000
Monthly dues:  $187 to $555
Note:  Reynolds Plantation is currently in receivership,
but most of the courses remain open.  The club offers all kinds of membership options, depending on how many and which courses the member chooses to play.  However, expect prices to decrease as the development works its way through bankruptcy proceedings.

Cliffs Communities, SC & NC
Six courses (7th under construction)
by Jack Nicklaus, Tom Fazio, Tom Jackson, and Ben Wright
Initiation:  $75,000 equity ($50,000 non-equity)
Monthly dues:  $750 (est.)
Note:  As of press time, The Cliffs was preparing to file for Chapter 11 bankruptcy, but all courses remain open.

The Landings
Six courses by Arthur Hills, Arnold Palmer, Tom Fazio and Willard Byrd/Clyde Johnston.
Initiation:  $33,000 ($28K with purchase of property)
Monthly dues:  $623
Note:  If you want to play a popular course at a popular time, The Landings' complex tee-time assignment algorithm may not give you your first choice.  However, if you are willing to play at off-times, it is typically no problem.

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-- Larry Gavrich, Editor

The Enemy Within:  When Residents and Club Members Fight, Home Values Lose

    In the history of human relations, tribal warfare yields mostly losers.  Capulets and Montagues.  Hatfields and McCoys.  Corleones and Tataglias.  One side might win a battle here and there, but the war ultimately makes losers of everyone involved.  And so it is in golf communities:  More and more, battle lines have been drawn between developers and residents, and even among fellow residents –- typically between those who belong to the community’s golf club and those who don’t.  No one wins.


Sales dry up, pyramids come crashing down
     Fights between residents and developers are the most public and the most publicized.  When the economy was humming along, property buyers didn’t mind participating in the legal Ponzi scheme that defined many high-end golf communities.  Purchasers knew full well, for example, that the $400,000 they paid for a raw piece of dirt was used largely to pay off the notes on already-built amenities, not banked by the developer for a rainy day or used to put the brakes on escalating dues and other fees.  As long as buyers kept coming during the boom, and the developer kept funding new amenities with a steady flow of lender financing, who cared?   But once the carousel stopped spinning and land sales dried up, as they have in such high-end communities as Reynolds Plantation and The Cliffs Communities, the pyramids began to crumble.  Those who jumped in last suffered the most:  They paid peak prices, much more than their neighbors did for their land or home and, likely, more in membership fees as well.  At The Cliffs, for example, a full-golf membership that reached $150,000 before the bubble burst will likely cost $50,000 or less once ownership issues are settled in the coming months.  Even folks easily able to afford the price of admission don’t like to pay triple what their next-door neighbor did for the same services.


If you build it, they will come -- to protest

    These days, developers are coming up with ever more unique ways to prop up the golf clubs they own.  In Sarasota, FL, for example, the owners of the private Jacaranda Golf Club saw a way to use unimproved property on their site to add to the club’s membership rolls.  They drew up plans for six high-rise condominium buildings; anyone who purchased a condo in the new units would be required to buy a club membership as well.  But the plans hit a snag when the community’s single-family homeowners -– there are no townhomes or condos in Jacaranda -– initiated a lawsuit to stop the high rises, citing a loss of views from their homes and an expected loss of market value.  The developer argued that the extra bump in membership was necessary to keep the club viable in the face of intense competition from a neighboring public course.  At last report, the developer had planted trees and bushes to block the views of the golf course from the adjacent homes and, homeowners alleged, had cut irrigation pipes leading to their lawns.  The homeowners also believed that the security cameras the club installed around the course perimeter were designed to spy on them.  (If you are interested, you’ll find a TV news report on the Jacaranda mess here.)
     “…this is an instance of legal terrorism, using the legal system to terrorize innocent people,” the Jacaranda homeowners association president told a local TV station.  The battle lines are drawn so severely at Jacaranda that, according to Robert Harris, an attorney who hosts an online forum called Golf Dispute Resolution, only a “mediated global solution” will resolve the issues.  In the meantime, the publicity cannot be helping home values in Jacaranda, or the acquisition of new club memberships.


Initiation Deposits:  To have and hold, ‘til death (or bankruptcy) do you part

   In the Bad Investment Hall of Fame, golf club “initiation deposits” deserves a special section.  Back in the roaring ‘90s and early ‘00s, these up-front “loans” to a developer seemed like a win-win for all.  The premise was simple:  Provide the developer with a deposit that would eventually be returned to you, pay your dues on a monthly basis and make full use of the club.  Then, whenever you decided to lapse your membership, you would be repaid your deposit (in some cases more than your deposit if initiation fees had risen).  The schedule of repayment was based on a waiting list and the number of new members who joined the club; a typical formula was for every three new members, the member at the top of the list would be repaid.  Ten years ago, of course, that seemed like a safe deal, what with the wealthy baby boomer generation poised to head to warmer climates and leisure-time lifestyles.  In retrospect, though, the idea seems akin to lending, say, WalMart $50,000 for the privilege of shopping there.
     The collapse of all things housing in 2008 put an end to the dream of a return on the investment or, in many cases, getting any of the principal back.  We run into former private club members all the time who long ago gave up on being repaid their deposits, some of them as much as $50,000.  After all, most club membership rolls are level at best or declining, so those formulas of one deposit for every three new members makes anyone at the back of the waiting list, or even in the middle, many years away from a payoff.  As someone suggested to me a few months ago, their tongue only slightly in their cheek, they were leaving their deposits to their children in their wills.
    Today, some clubs are actually forced into bankruptcy by lapsed members who insist on a return of their deposits.  At The Reserve Club of Pawleys Island, SC, a lack of new members and the consequent financial problems in 2008 caused members to look for a an owner to succeed themselves.  They were willing to give the club away for $1 in exchange for a promise from the new owner that he would invest in the club and keep it private for at least a decade.  Up stepped John McConnell, who had been acquiring some of the best private golf courses in the Carolinas, designed by architects like Dye, Palmer, Fazio, and Donald Ross.  (The Reserve is a Greg Norman design.)  But before a contract could be signed with McConnell, 30 former members of The Reserve sued for a return of their deposits in a class action suit that caused McConnell to step away from the deal.  The active members saw no other choice but to seek the “protection” of the bankruptcy court, which vaporized the former members’ claims and awarded The Reserve to the McConnell Group in exchange for payment of back taxes and some vendor liens, a total amount less than $500,000.  The former members would have been better off asking for occasional access to their old course.


As goes the club, so go home values
     Some developers have used the economy as a convenient cover for abrogating their responsibilities to their club members.  There is no more classic example than The Dominion Club in Richmond, where the developer of the surrounding community -- also the owner of the private club -- declared bankruptcy and then “repurchased” the club with a gun to the head of its members.  For fear that a closed golf club in their midst would drastically erode their home values, members didn’t press the issue in bankruptcy court for a return of their deposits, essentially forgiving the owner’s obligation to repay as much as $26,000 to each member.  (Houses for sale in the community, which is home to U.S. House Majority Leader Eric Cantor, are listed in the mid-six figures and higher.)  All the Dominion members got in return was the continuing operation of their golf club and the promise that, perhaps in a dozen years or so, the developer will sell the club to the members or some other organization.  Perhaps.
    A golf club’s health as reflected in the market values of surrounding homes has become of greater concern to club members during the housing recession.  The savviest members at golf clubs they own and run themselves are building operational and marketing programs around that notion.  We are quite familiar with one private club in the southeast in which club members with some background in marketing have made presentations to residents –- some of them club members, some not -- to show the connection between home values and the reputation of the club.  List prices for homes in this community -– they asked we not mention it by name -– lag the offering prices for comparable homes in other local golf communities by as much as 30% (on a dollar per square foot basis).  To my eye, there is nothing wrong with this particular well-landscaped community or its golf course that a bit of savvy marketing couldn’t help.  And yet it has been historically difficult to convince non-club members that such a program is in their own best interests.


Equity, shmequity

   As they scramble to make their clubs more appealing to new members, the boards of directors of many golf clubs are deemphasizing equity or deposit-based memberships and are proffering non-equity (non-voting) memberships at comparably lower prices.  What once looked like a safe investment has been besmirched by poor performance and the consequent bad publicity.  Dollar-pinching golf community home buyers are savvy about the recent track record of deposit repayments and, frankly, they would rather plow the $20,000 or $30,000 savings from a non-equity membership into upgrading the kitchen in their new home (or to pay for a couple of trips in winter).
     Some golf clubs still offer only equity club memberships, the thinking being that those who truly “invest” in their club and have a vote, literally, in its operation will be the best types of members.  If that is the only type of membership available in a club of your choice, then go ahead and join up, but with the understanding that you may never see all or most of your deposit again. Given a choice, choose the lower-cost non-equity membership and use the difference to take a nice trip, or upgrade your kitchen.


Is a golf community home in your future?   

     Even if you are not quite ready to purchase a retirement or vacation home in a golf-oriented area, now is a good time to start looking. Prices are poised to begin to increase (finally) and golf communities throughout the south are offering attractively priced “discovery” packages; these are excellent ways to kick the tires and spend a few days relaxing in a place that -- who knows? -- could wind up as your dream retirement location. (The required sales tours typically last an hour or two and are both helpful and generally low-pressure affairs.)
   If you are thinking about starting your search, please contact me. I don’t charge a fee for my assistance, and I have developed a questionnaire that will help you focus on your requirements for a golf community home. I’d be happy to send you a copy at your request.


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