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January/February 2011

 
    January/February 2011

A pension for problems

Famous and ageless baseball player Satchel Paige once said: “Don’t look back. They might be gaining on you.” As a resident of Connecticut, I feel that way about our state government’s pension liabilities, ranked among the worst in the nation. If Connecticut and other states do not address their major shortfalls in this area soon, they are heading for higher taxes (at best) and financial disaster at worst.

If you are considering a relocation in the near future, you might want to know which are the safest and which the most at-risk states in terms of state pension liabilities, according to a 2010 report from the Pew Center for Research (for the map of all states, see the Pew web site).

Best
91.6% to 107.4% funded
(not in ranked order)

  • New York
  • Wisconsin
  • South Dakota
  • Idaho
  • Washington
  • Tennessee
  • North Carolina
  • Georgia
  • Florida

Next Best
84.1% to 91.5% funded
(selected from larger list)

  • Vermont
  • Pennsylvania
  • Ohio
  • Arkansas
  • Texas

Worst
54.3% to 68.8%
(not in ranked order)

  • New Hampshire
  • Rhode Island
  • Massachusetts
  • Connecticut
  • Illinois
  • West Virginia
  • Kentucky

Next Worst
69.6% to 78.4%
(selected from larger list)

  • New Jersey
  • Indiana
  • Maryland
  • South Carolina
  • Alabama
  • Mississippi
  • Louisiana

 

Reader Feedback

We want to make this newsletter as useful as possible for you. If you have comments, suggestions or observations about the newsletter, please email them to: editor@homeonthecourse.com.
I promise to respond quickly. Thanks.
-- Larry Gavrich, Editor

Preview of 2011: The South Rises Again

The stars seem to be aligning to make it likely that 2011 will be a turnaround year for sales in golf communities and other leisure residential developments in the southern U.S. For those who have been waiting to “time” the market, it looks as if your time is at hand.

Don’t, however, count on a perfect storm of circumstances that will send prices quickly to the levels we saw before 2007; the national unemployment situation and lingering consumer skepticism will keep any improvement at a slow, if steady, pace. However, we see many signals that prices may have reached bottom in southern golf communities. Baby boomers who have been deferring their moves south are sensing this, and the numbers of exploratory visits to communities were up in the communities we contacted for this story. As golf communities begin to work off some of their fat inventories of unsold properties, and circumstances (aging, relocation, family issues) compel some individual owners to continue to cut their prices, the numbers of properties for sale will drop to levels considered normal in the years before the recession. Real estate works on the law of supply and demand, and with supply dropping and demand increasing, especially as the north endures a snowy and frigid winter, prices will firm up.

 

Boomers stop waiting for absolutely top price

Baby boomers like to think of themselves as “self-actualizing,” which is just a discreet way of saying self-absorbed. (Some of my best friends and I are boomers.) They have always wanted what they wanted when they wanted it, but the recession threw their plans -– and their 401Ks -- into a cocked hat. Many of us put off plans for early or on-schedule retirements. Our 401ks, if we didn’t panic and sell off all our equities, have now scratched their way back well more than halfway, but our homes have still lost 20% or more of their paper value in just four years. It is disconcerting to list a home for that much less than we could have sold it for a few years ago, and emotionally tougher still if it’s the home in which we raised our kids.

But consider that those who raised their kids in their currently owned house, by definition, have equity in it and, in some cases, a substantial amount of equity. Lost in the mass-media’s relentless reporting that 30% of U.S. homes are underwater is the fact that 70% are not, and many of those are occupied by baby boomers who benefited from a run-up in values in the ‘90s and ‘00s that was far greater than what they have lost in the last couple of years. For those willing to accept a market price for their home, they will find in their southern dream destination a wide choice of properties, a much lower cost of living and year-round golf. More and more boomers are going to recognize that there really is no dilemma in their decision to cash out of their above-water homes and get on with their lives.

 

Losing patience with being patient

We saw clear signs last year that many boomers have lost patience waiting for their home values to rebound. Traffic to established golf communities was up virtually across the board last year; and, with few exceptions, sales were up as well. Visits to The Landings, just outside Savannah, GA, for example, were up 11 percent last year, “bolstered,” says President of The Landings Company Bill Houghton, “by the best November we have had in over five years.” And, Houghton says, sales transactions in 2010 were up a robust 36 percent compared with 2009.

End-of-the-year traffic was also up smartly at Carolina Colours, the New Bern, NC, golf community that debuted a new golf course and a new group of homes sharply priced in the $200s. According to developer Ken Kirkman, traffic to the community was up 10 percent in the last quarter of 2010, and his real estate office wrote four contracts in December, compared with just one in December 2009. In Chapel Hill, Governors Club Realty facilitated the sale of 35 properties (homes and lots) in 2010, a modest bump up compared with the 31 sold in 2009 in that upscale community.

 

The market gets personal for your editor

I see the re-emerging interest in southern golf communities through my own experience. This month, visits to our web site, GolfCommunityReviews.com, will reach an all-time high of almost 10,000, about 40% higher than any previous month. Since Thanksgiving, I have received more requests for assistance in finding a golf community home than in any eight-week period in the web site’s four-year history. (Contact me at editor@homeonthecourse.com if you would like a free, no-obligation consultation). Perhaps most significantly, individuals representing investor groups interested in purchasing multiple golf community properties and even golf courses themselves have contacted me for information. Gone, at least for now, are the glory days of Madoff-like double-digit returns on equity investments. The “smart money” investors seem to have made the calculation that leisure residential property has reached bottom, and they are looking around for the highest returns in the current market. Apparently, they are finding them in beaten-down golf-related investments. Once the smart money gets in, smart individual buyers can’t be far behind.

 

An expensive game turns cheaper and more inclusive

One of the above-mentioned investment groups believes 100 to 200 golf courses will close annually in the coming years. I think 200 may be a little high, but whatever the correct number, the golf industry is hurting and shaken by its biggest economic crisis in 50 years. Tiger Woods turned out to be anything but the one the industry was waiting for. Now clubs are scrambling to work against type, which is to say find creative solutions to a falloff in members and rounds played. Self-conscious (at last) about impressions that golf is an expensive game, initiation fee decreases of 50 percent and more are not uncommon. Late last year, the vaunted Cliffs Communities, for example, ran a promotional sale on memberships at $100,000, down from $150,000. We’ve seen initiation fees elsewhere drop from over $100,000 to well under, and some five-digit fees have vanished altogether as clubs try to generate the desperately needed cash flow that comes from monthly dues.
Vacation homeowners are also benefiting from sharper and more creative pricing by private clubs inside and outside the gates of golf communities. The gated community of Wachesaw Plantation and its fine Tom Fazio course in Murrells Inlet, SC, south of Myrtle Beach, offers one of the most liberal “national” memberships for local vacation home owners. After application and initiation fees of less than $1,000 combined, a national member family (i.e. one who pays taxes elsewhere) is charged monthly dues of just $220, with no limitation on the number of rounds they can play annually. For those golfing couples who use their local home a few months a year and prefer not to have to hustle tee times at the many, but sometimes crowded, public and resort courses in the Myrtle Beach area, Wachesaw Plantation offers an excellent deal.
After the McConnell Group purchased, closed for renovations and then reopened (in September) the private Reserve at Litchfield, a few miles south of Wachesaw, they announced a promotional initiation fee of just $5,000 compared with the 10-year old club’s original $32,000 tag. (The Reserve’s current “regular” fee is back at $10,000.) McConnell is also signaling a trend in golf club offerings by buying up seven excellent private clubs in the Carolinas and making them available to members of any of the group’s clubs.

 

Out of the (tee)box thinking

Entrepreneurs like McConnell are the exception rather than the rule in the golf industry. I probably won’t make many friends by saying this, but golf course management is not exactly a hotbed of creativity. With a few exceptions, golf pros and directors of golf were bred to be excellent personal communicators, not effective strategists or marketers. They were trained and encouraged to concentrate on giving lessons, remembering peoples’ names and following the guidance of their boards without questioning. But they rarely have been faced with the challenges of managing through adversity. It hasn’t helped that the economy and job insecurity has scared many golf managers into doing what they think they need to survive –- which is to accommodate the wishes of their membership, boards and owners without much consideration or understanding of the consequences.
But now, the economy is forcing the industry to undergo a sea change, and many golf course operators are at a loss to conjure the out-of-the-box ideas they need to survive. But the most nimble and creative clubs are going to impress migrating baby boomers looking for the best club membership deal, as well as the best real estate values. Consider The Reserve at Lake Keowee’s brilliant new membership plan that grants full privileges to a member’s parents, grandparents, children and grandchildren. Conventionally thinking golf club operators -– the same ones who moan about young people not taking up golf in sufficient numbers -- will recoil in horror at the thought of giving away membership privileges that they charged for in the past. But how many parents, after paying hundreds of thousands of dollars in college expenses, will continue to pay club membership fees for their children? And how many “emancipated” 24 year olds, at the very beginning of their careers, will have the money to pay the dues themselves? Better to engage these young adults in the life of the country club and encourage them to bring their friends (guest fees and future members), rent carts, pay for meals and drinks in the clubhouse, and sign up as members in their own right when they have established a career (and, in all likelihood, a family). The Reserve got it right, and other clubs will follow, perhaps not as aggressively but at least in raising to 30 or more the age at which a child can stay on a parent’s membership plan.

Look also for private clubs to start permitting unfettered use of cell phones in their clubhouses and on their golf courses, and making sure that all facilities in the club will accommodate wireless communication. Count on a relaxation of dress codes as well to accommodate younger members. Jeans, for example, are now permitted in the members-only restaurant at the aforementioned Wachesaw Plantation.

Golf is about the only industry left in America where you might occasionally still hear the words, “We’ve always done it that way.” Come 2012, that phrase will vanish, along with the clubs that stuck to a tradition of complacency. What remains will be a new breed of country club ready to accommodate a whole new flock of migrating snowbirds.

 

 

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