by Fred Seely
Editorial Director
Is real estate taking over golf courses?
There’s a growing national trend: marginally profitable courses are being sold to real estate developers; four have closed in this area in the past two years with another on the verge. There may be more on the way.
“Can the course make more money as a real estate development?” asks Jeff Kern, president of Jacksonville’s Embassy Mortgage and himself a low-handicap player. “If the answer is ‘yes,’ you may see the course disappear.”
Kern’s office sits just off what used to be the 12th hole at the Baymeadows Golf Club on Jacksonville’s Southside. Opened in the late 1960s, it was a popular place for three decades but play declined in recent years and finally the owners sold to giant homebuilder DR Horton, which plans a major development on the site if neighborhood protests can be overcome.
Not long before, the owners of one of the state’s oldest resorts, Ponce De Leon in St. Augustine, sold to developer Chester Stokes. He offered the course, built in 1916 and designed by the famed Donald Ross, to the community but the price couldn’t be met. Today, it awaits the houses that Stokes will place among the old fairways and greens.
Now, a partnership headed by Adams Homes is in the process of taking over The Course at Westland on Jacksonville’s western edge and plans to build homes. It was built in 1975 as part of a development originally called DuClay and, although a popular course, could not command rates high enough to warrant continued operation.
And Pineview in Macclenny is no longer fairways and greens, but site preparations.
It’s a national trend and even renown golf capitals have felt it — for instance, four courses in Myrtle Beach, S.C., have been converted to developments in the past two years.
John Wait owns SiriusGolf, a local consulting company, and he says more closings may be coming:
“The mid-90s was golf’s golden age as far as courses are concerned,” he said. “Then, three things happened:
“1. Residential developments boomed and courses were built at a record pace. Soon, it became very competitive. The new courses tended to be better, both in design and conditioning.
“2. Two forces entered the market, buying courses right and left: the Japanese and the Real Estate Investment Trusts. They were like piranha, paying ridiculous prices to gobble up golf courses.
“3. The economy went to pot at the turn of the century and 9/11 came on top of that. It was disastrous to the resort market.
“All of a sudden, there were more courses and fewer people playing golf.”
At least a half-dozen residential developments with golf courses in this area have popped up in the past 15 years, with more being built, and Mike Hughes, executive director of the National Golf Course Owners Association, says he is certain that most U.S. regions don’t need more golf courses.
About 150 new courses were built in 2004, most driven by real-estate development, Hughes says. The number pales in comparison to the number of courses built in the mid-1990s, but it’s still a lot of new courses for an industry that’s been struggling, Hughes says.
“I doubt there are many places that you can say don’t have adequate supply,” Hughes says. “There might be a few metropolitan pockets, but not many. It doesn’t help anybody to have a bunch of struggling golf courses.”
Jacksonville golf course architect Bobby Weed says real estate will continue to drive some golf course development, but he’s concerned that some developers don’t care if golf courses aren’t profitable as long as they sell real estate around them.
“That thinking has given golf a black eye in some areas,” Weed says. “But I think more developers are becoming more frugal and want golf courses to be more of a profit center.”
Kern says to follow the money.
“The biggest issue is financial,” he said. “Banks have been burned in golf course deals. They now look straight at the borrower and his worth rather than the value of the property.”
Hughes is worried that rising interest rates could hurt some owners’ operations, especially if they’re already operating with deficits.
“One of the things that has allowed people to survive in a very difficult environment has been low interest rates,” he says. “If they go up, it’s going to make it very difficult for a lot of people in the industry.”
With problems come legal problems, and course closings are being challenged. Even though there was no apparent formal agreement between Baymeadows and the developments around it, many residents feel that they were guaranteed a golf course life and have gotten politicians involved. It may be too late; survey crews are on Baymeadows.
“We’re now seeing legal hassles,” said Wait. “We’re starting to see litigation and often it’s over what the buyer was told. There may have been an understanding but no guarantee. You’ll see more deeded restrictions in the future.”
Indeed, Kern says that buyers have come to expect a golf course as an amenity in a higher-end community, and need to look to the day when the homesites are sold and the developer finds himself operating a golf course that isn’t making money. His answer, unless there are written guarantees to the contrary, is to ask the homeowners to buy the course or else he’ll either close it or make it open to the public.
Wait doesn’t think the golf course-building industry is dead, although he sees changes.
“I think you’ll see three types of course builders in the future,” he said.
“1. Affiliations of powerful industries — for instance, something like the PGA Tour partnering with a major homebuilding company.
“2. An individual who builds a course as a vanity.
“3. A hybrid, a high-end developer with builders.”
The first instance is growing elsewhere as the same PGA Tour builds what it calls Tournament Players Clubs with a Tour-designed golf course surrounded by a developer’s community.
The “vanity” courses would include at least one locally — Glen Kernan, built and closely controlled by developer George Hodges, who literally put sweat equity in the project by helping build it himself.
A hybrid example would be the soon-to-open Amelia National, developed by the powerful ICI Homes owner but with selected builders participating.
Even with the four courses missing and another one or two on the edge, there still will be plenty of golf to be played. The supply exceeds the demand in almost every area — one that’s slowly being eroded is what’s called “affordable” golf, defined around here as paying no more than $25 a round. Of the dead and dying courses, only Ponce De Leon was above the $25 figure.