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March 2011

    March 2011


Practice range at Creighton Farms

Whose community is it anyway?

It is difficult to conceive that prices in the leisure residential market will drop much farther than they have. With lot prices off 50% in many partially developed communities and home values off as much as 30% in more established communities, the market offers plenty of good choices for serious buyers –- and that does not take into account some sellers desperate enough to take an extreme low-ball offer.

The dilemma, though, is whether to pay comparatively higher prices to buy into a community and golf club owned by its residents, typically the safest choice; or to consider a lower-priced community where a developer runs everything (or runs the golf club solely).

The choice will come down to how much homework you do and how many visits you make. The fact is that some communities across all categories appear to be safe choices.

Here are a few from each category that we have visited personally and believe to be worthy of consideration. Understand, however, that as we learned in the last few years, things can change quickly. Do your homework and ask a lot of questions. If you want additional information on any of these communities, contact me at editor@homeonthecourse.com. (Note: Golf costs listed below represent full-family golf initiation fees and monthly dues.)


Communities & clubs that are member-owned and run

Champion Hills, Hendersonville, NC
The community’s Tom Fazio course was recently rated #5 in the golf-course-laden state of North Carolina. Residents' strategic planning and management mimics those of successful corporations.

Homes: $400,000 to $3 million
Golf: $45,000/$750

Governor’s Club,
Chapel Hill, NC

27 holes of Jack Nicklaus Signature golf near both Duke University and the University of North Carolina. Everything we said about Champion Hills above can be said about how Governor’s Club is organized.

Homes: $375,000 to $3 million+
Golf: $33,000/$700

The Landings,
Savannah, GA

If you rest on the 7th day, you can still play a different course at The Landings the other days of the week. The six courses just 15 minutes from downtown Savannah include designs by Fazio, Hills, Byrd and Palmer.

Homes: $200,000 (condo) to
$3.9 million
Golf: $19,000*/$583
* must be recommended by member; offer expires in May; reg. rate $33K.


Residents run community
but not golf club

Glenmore, Keswick, VA
In the wake of an ugly embezzlement, one resident stepped in to buy the club and has been holding “town hall” meetings to ensure member input. The John LaFoy layout is a roller coaster affair (in the best sense) just a few minutes from Mr. Jefferson’s campus at University of Virginia.

Homes: $435,000 to $1.8 million
Golf (private): $17,000/$451

Pawleys Plantation,
Pawleys Island, SC

The Myrtle Beach National organization recently bought the golf course from its original owner, and although vacation players are slowing rounds to 4 ½ to 5 hours, the Nicklaus Signature course is in its best shape in years.

Homes: $159K to $1 million+
Golf: $15,000/$250

The Reserve,
Litchfield Beach, SC

The Greg Norman course is part of the McConnell Group, and membership includes access to the outstanding six other courses, including Sedgefield (Greensboro) and the Old North State Club (Uwharrie Point), annually ranked in the top two or three in North Carolina.

Homes: $479,000 to $2.3 million
Golf (private): $10,000/$546


Developer owns and runs community and golf club

Creighton Farms, Aldie, VA
Southworth Development Corp. doesn’t do anything halfway at its hand-picked and upscale properties in the U.S. and Scotland. Creighton Farms is no exception, and its proximity to Dulles Airport and Washington, D.C. makes it much more accessible than, say, another of its holdings, Scotland's Machrahanish Dunes.

Homes: Custom homes & villas from $1.5 million.
Golf: $40,000/$725

Carolina Colours,
New Bern, NC

Pepsi Cola was invented nearby, and Carolina Colours is putting some fizz into the local real estate scene with the opening of its new Bill Love golf course and sharply priced homes.

Homes: $222,000 to $600,000
Golf: $10,000/$160

Brunswick Forest,
Leland, NC

Possibly the fastest growing golf community on the east coast, thanks to a deep-pockets ownership group, proximity to the vibrant city of Wilmington and a well-reviewed new golf course, the Tim Cate designed Cape Fear National.

Homes: $105,000 to $799,000
Golf: $5,750 (annual pass).


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-- Larry Gavrich, Editor

Safe At Home: Member-owned clubs in league of own,
but you can win with developer-run communities too

With so much tumult in the leisure residential market over the last few years, today’s buyers are looking for communities whose financial profiles have been stable (i.e. predictable) through the recession. In general, member-owned and run communities have performed well, without wild gyrations in their balance sheets or their real estate prices. At the other end of the spectrum, many developer-owned communities that were still being formed in 2007 were brutalized by the recession, which virtually wiped out all buying activity; as property sales dried up, so too did the resources to maintain these communities’ golf courses and other amenities. Spooked by the economy and the hit to their retirement funds, residents were not inclined to throw more money at the developer-owned amenities without a guarantee of some sort. This led Cliffs Communities members, for example, to float a $60 million loan to financially strapped developer Jim Anthony, collateralized with The Cliffs' legendary roster of amenities. Property owners in other fledgling communities, both upscale and down market, were not so fortunate.


The Super Predictability Strategy

Golf communities that have whistled past the graveyard of the recession are those in which the original developer has departed the scene after selling almost all the properties and turning over the golf club to its members. In the most mature and stable of these communities, homes have been built on virtually all lots, and members own and run the golf club (or have hired an outside management company to do so under the members' direction). Communities and clubs owned and run by their residents tend to be the most stable over time, and their futures are more predictably positive if no middleman, such as a developer or investment group, stands between the property owners and their ability to govern. When a golf club owned by its members requires renovations, for example, the club’s board makes its recommendation to the membership, and the members vote yes or no to pay for the improvements from the club’s financial reserves (unusual), borrow the money and pay it off over time (occasional), or assess all members a set amount to cover the costs (more typical). Many of these communities are run like successful, conservative corporations for the benefit of their “shareowners,” with a conscious effort to keep plenty of money in reserve for unforeseen problems (e.g. loss of members during a recession).
     Sure, when it comes to governance, some residents and club members will disagree with each other on some issues (e.g. the size of assessments for repairs or renovations). But there is nothing like self-interest (i.e. home values) to focus everyone on critical needs, and if the argument is cogently made that renovating the golf course or clubhouse will add more to the value of the community’s properties than the amount of the individual assessment, the checks are willingly written. When it’s yours, when you own it, you are more inclined to reinvest in it.

     “…with 250 members, each of us owns 1/250th of the club,” says Mike Tower of Champion Hills, where he lives and is chairman of the Hendersonville, NC, club’s greens committee. “It makes a huge difference to think of oneself as an owner/member as opposed to just being a member. It also helps to explain to the more opinionated members that they only have one out of 250 opinions and votes to exercise.”
     As a former communication executive who has visited more than 150 golf communities in the last six years, I know that the quality of club and community governance is a function of the quality of communication among constituents, especially when it comes to spending money. Generally speaking, a member-owned club does a better job of internal communications than does a developer. The most successful developers, in my experience, are those who are forthcoming about issues, before they rise to the level of emergencies. Sadly, these are relatively few in number.


Sound and fury and good decision-making

Although the volume at board meetings of some member-owned clubs may occasionally resemble Tea Party meetings about the value of legislative earmarks, the decisions that come out of club debates are sound, more often than not. As mentioned above, the most valuable single asset for most golf community club owners is their home, and the value of homes in a golf community is directly tied to the perception of the quality of the golf club and its course. Thus, when decisions need to be made, especially those that involve the condition of course and clubhouse, members who are residents are apt to rally to the cause.
     Champion Hills, the 20-year old Hendersonville, NC, community with a classic Tom Fazio golf course, fits squarely in the category of consistent performer over time. Although we encourage caution about signing up for an “equity” membership in any club in these turbulent times –- in many communities, it takes years for your deposit to be returned after you resign the club -- Champion Hills seems to have made its equity membership work by emphasizing the notion of “ownership” rather than return on investment.
      “Last fall,” says Mike Tower, who moved to Champion Hills in 2004 with his wife Sandy after he retired from the pharmaceutical industry, “[our] club members voted overwhelmingly to assess themselves $6,000 each to completely pay for an overhaul/expansion of both the clubhouse and the health club. In these uncertain times, I think it demonstrates a willingness to do whatever is deemed necessary to keep the club as well maintained and up to date as possible.”
     And, Tower adds, “Borrowing the money was never even considered. We really value continuing to be able to say that we are debt free and have healthy cash reserves.”
      The next best thing to members owning the club is for one of their fellow residents to own it, the way things have played out at The Glenmore Country Club and golf community just to the east of Charlottesville, VA. Glenmore took a crooked path, literally, to its current club ownership status. Its club president, who had married into the family that developed Glenmore, embezzled more than $600,000 from the club’s treasury. That led the embarrassed family to sell the club to one of its members who lives inside the gates of the community. This may not be the standard path to ownership most clubs take, but the new owner has the resources and the will -– he and his wife live amongst their fellow members –- to invest in the course and make member-focused decisions. On a re-visit to Glenmore last fall, after the dust had settled, the course, the clubhouse and the staff struck me as shipshape.


Edifice Wrecks: The end of conspicuous statements of wealth?

The other categories of golf community governance are those in which control is split between residents (the community) and the developer (the club), and those in which the developer controls everything. In the latter case, it pays for a potential property buyer to make sure the developer has deep pockets, a track record of success and, most of all, a strategy that does not resemble a Ponzi scheme. In the roaring ‘90s and into the 2000s, developers’ if-we-build-it-they-will-come business plans worked just fine. Land sales in Community 2 paid for lavish amenities in Community 1 where prices were established more to match the need for self-validation among nouveau riche buyers than for any inherent value proposition.
     I recently spent a few minutes in the $32 million clubhouse at the bankrupt Bella Collina, Bobby Ginn’s testament to ego and excess outside Orlando. More Etruscan palace than clubhouse, I half expected Caligula to step out from the sunken pool in the men’s locker room and clop across the perfect stone floor from behind one of the many Italian marble columns. Was this tasteless in its excessiveness or excessive in its tastelessness, I wondered? No group of residents or members would ever plan and pay for such an ostentatious anti-clubhouse, no matter the depth of their pockets or the width of their egos, but in the years leading up to the recession, some developers stroked the egos of potential buyers this way. Those days are gone.

     The Nick Faldo course at Bella Collina, which was pitched by the Ginn machine as ultra-exclusive, is now accepting public play; and local real estate officials are hinting that a new group of owners will build a neighborhood of homes in Bella Collina at about a third of what Ginn’s lowest-priced mansions cost.


Who Do You Trust? Developers with a plan, and deep pockets

In Coastal North Carolina, two communities that are developer owned and managed are demonstrating a level of financial security aimed at making bargain-hunting buyers comfortable. Interestingly, home prices in both are relatively modest, starting generally in the $200s. Brunswick Forest, just a few minutes outside Wilmington, is the work of Lord Baltimore, Inc., an investment firm with a few billion dollars worth of properties under management. Lord Baltimore has followed through on its promise to build and populate a town center with retail shops, a bank and medical offices at the entrance to the community, and to open one of the east coast’s best golf courses in recent years, the Tim Cate designed Cape Fear National. Brunswick Forest boasts that it is the fastest selling community on the east coast, and nothing I have seen over a few recent visits dispels that notion.

     Further up the coast, the unusually named Carolina Colours may not have quite the depth of financial backing of Brunswick Forest, but it does have Ken Kirkwood, a golf community development veteran whose experience spans some of the more impressive communities on the eastern seaboard, including Wilmington’s Landfall and its 45 holes of Nicklaus and Dye golf. Carolina Colours’ Bill Love golf course opened in 2010, a few years behind schedule, but Kirkwood’s under-promise and over-deliver style of operation appears to be paying off at the New Bern community as sales have been steady throughout the down years and increasing lately.


Change of club ownership resets expectations

Communities in which a developer or some other agent owns the golf club but property owners run the community fall into the middle of the spectrum. Where communication between the two groups is open and frequent, the relationship works to the benefit of all.

     At Pawleys Plantation in Pawleys Island, SC, for most of its 22-year history, the POA (property owners’ association) ran the community and the original developer owned and managed the golf club and resort operations. My wife and I own a vacation home in Pawleys Plantation.

     Over the years, club members complained a bit about conditions on the course, but this seemed more about on-course staff quality than about the owner’s commitment to invest. At the club’s annual meetings, its members were given voice to raise such issues. Last year, the owner of the club sold it to multi-course operator Myrtle Beach National (MBN). Now the well-organized MBN, which recognizes that Pawleys Plantation is the jewel in the crown of its dozen courses in the area, is maintaining the course to higher standards, even though the semi-private club’s members are enduring slower rounds. (I haven’t made it under 4 ½ hours the last four times I played.)

     It remains to be seen whether Myrtle Beach National’s drive to send visiting golfers to Pawleys Plantation will take all the “private” out of “semi-private,” but the upgrades to the course appear to be good for members and the residents who own property inside the gates of Pawleys Plantation. A well-regarded golf course, whether it is public or private, helps stabilize property values.

     If you are totally risk averse, then consider buying into a community that is at least 15 years old and whose club and community are run by its residents, being mindful that your carrying costs in such communities may be a little higher than in less organized developments, and you may be compelled to kick-in the occasional unplanned assessment. If you have a slight appetite for risk, look for a community in which the residents run the development but an operator with a good track record runs the golf club.

     Finally, if you understand the relationship of perceived risk to price, consider a community whose developer runs everything but ask tough questions about his plans and financial resources. Some of these communities may be as safe as those owned by their residents. Identifying them could pay off handsomely, but don’t rely on web-site marketing hype. Most golf communities that sound too good to be true likely are.


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