Bonita Bay Group in News Again Selling Golf Assets

This well known Naples-based developer’s financial struggles continue to offer a window into the world of high-end golf and country club communities.

Palm Coast, FL – January 24, 2010 – GoToby.com has covered the changing landscape facing developers of high-end golf and country club communities. I’ve concluded that the Great Recession exposed a fundamental flaw in the business plan underlying these real estate developments. This belief is fortified by a continuing string of articles from other sources.
Until the Great Recession, Bonita Bay Group was regarded as a premier developer of high-end golf-based communities in the Naples area. They face the same financial conundrum as fellow developers WCI Communities and Crescent Resources who each opted to reorganize under chapter 11 of the federal bankruptcy laws. A much smaller WCI has since emerged from bankruptcy. Crescent Resources has yet to file a plan for reorganization. Meanwhile Bonita Bay Group has stubbornly resisted bankruptcy by selling off assets, including the sale of several golf courses to members.
Laura Layden of NaplesNews.com has chronicled Bonita Bay’s saga. An article posted yesterday regarding asset sales provides a window into the topsy-turvy world of high-end golf and country club communities. The harsh reality is that country club style golf is largely an unprofitable amenity. Club deficits can be underwritten by real estate sales revenue, but the cash flow deficit incurred when sales revenues dry up can quickly drain developer’s pockets. Both developers and members suffer. Clubs can face foreclosure or bankruptcy while members discover that "refundable deposits" aren’t so refundable.

By LAURA LAYDEN – Saturday, January 23, 2010
David Morgan, a financial planner with Raymond James & Associates in Naples, said he’s been asked for advice from several investors interested in buying the club at TwinEagles. He said any buyer would likely want residential lots to go with it.
“As a straight investment a golf course is a very difficult investment to see a return on your money,” Morgan said. “It’s often a money-losing proposition. It’s romantic to own, but financially not the most rewarding investment.”
And
“Bonita Bay tried to over expand and heavily over-leveraged to take advantage of the boom cycle,” said Jack McCabe, a housing expert and CEO of Deerfield Beach-based McCabe Research and Consulting. “It definitely came back to haunt them.”
He said the continued success of high-end golf and country club communities is highly questionable. That raises questions about what Bonita Bay Group will focus on going forward since that has been its specialty from the start.
“All of the homebuilders that are building right now are all introducing downsized products,” McCabe said.
Going forward, the developer will not have as big of a drain from its clubs, most of which have operated at a loss.


A January 22nd Wall Street Journal article "The Case for Golf-Only Clubs" adds additional perspective.
"The big formal dining room, where men wear jackets and ties and women get somewhat dressed up, just doesn’t work anymore," said Richard Diedrich, a clubhouse architect out of Atlanta. Joe Webster, who developed and manages The Dye Preserve, put it more bluntly in dollars-and-cents terms: "Most clubs that are open for dinner at night are losing seven figures on their food and beverage operations."
Those losses are folded into dues. Mr. Webster said that a typical golf club with 300 members might spend $1.5 million a year on course maintenance, or $5,000 per member. "Everything you pay in dues above that is basically so you can have lunch," he said. Lunch is his shorthand for the cost of supporting a kitchen, other services such as the locker rooms, and clubhouse staff — essentially, all the non-golf amenities that a club offers.


Toby’s Commentary: The Great Recession has forced many golfers, I among them, to make some hard choices. The collective choices we make will affect the economics of the golf industry for years to come.
Golf is an expensive leisure activity mostly fueled by discretionary income.
Assuming club dues at $5,000 per year and cart fees at $25 here is the cost/round for different levels of play:
 
Cost per Round of Golf Played

Annual Dues

Cart

Rounds Played

Cost/Round

$5,000

 $22

 250

 $42

$5,000

 $22

 200

 $47

$5,000

 $22

 150

 $59

$5000

 $22

 100

 $72

$5,000

 $22

 50

 $122

$10,000

 $25

 250

 $65

$10,000

 $25

 200

 $75

$10,000

 $25

 150

 $92

$10,000

 $25

 100

 $125

$10,000

 $25

 50

 $225

Just a few years ago, my wife and I were spending more money on golf yearly than I made at my first job out of college. The financial fallout from the decline in the real estate market and its effect on our discretionary income necessitated our withdrawal from the country club golf experience. Many others in similar straits have done the same. Collectively, we will continue to enjoy golf at alternative, less costly venues.
Others have opted out of the country club environment for another reason. Just as the Great Depression instilled caution into the life-long spending habits of our parents’ generation, the Great Recession has gotten our attention. Several people with whom I’ve spoken are evaluating their motives for belonging to a club. They can still afford the high costs but have become more fiscally prudent.
For those whose primary motivation is the social side of the club experience with its exclusivity, organized tournaments, dining, and other activities a club environment is a clear choice. But for others whose primary goal is the enjoyment of the game and/or who play few rounds of golf annually, an expensive club no longer makes sense. This group too will seek more varied and less expensive venues.
The golf industry will need to adjust to the reality of these changing playing patterns. Clubs must be more flexible, offering multi-level membership options, non-resident memberships, and revenue producing outside functions. Some have already begun allowing non-member play, appealing to the growing number of unaffiliated players, but they do so at the risk of alienating their core dues-paying members.
While adjusting to the new reality, new policies will occasionally conflict with pragmatism. As an example, a longstanding policy at the Ginn-developed communities has become a losing situation. Once a member resigns or forfeits their membership, they can never rejoin; nor can any subsequent owner of the property. In its attempt to establish a consistent revenue stream, the company muscles members into continuing to pay else their property value be diminished by the lack of a club membership option. At the same time, Ginn-LA has opened up membership to non residents. Go figure.
In another anomaly, Grand Haven, a gated Palm Coast, FL golfing community charges non-golf member property owners $100.00 per round, even if they are playing as a guest of a full golf member. Yet, a non-resident of Grand Haven can play as a guest of member for only $80.00. I was told that this policy is meant to encourage residents to join the club. At the same time, Grand Haven has a program under which non residents can join.
Member and non member courses alike must finds ways to attract increasingly fickle players if they hope to survive. The resulting competition will likely make the game more affordable for all.


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5 replies
  1. Lew
    Lew says:

    What is after golf?

    O.K. you had to be very naive to believe that golf was not supported by the developer as a sales tool.

    Now, you have to expect that some of the golf facilities will loose so much money that they can’t keep operating.

    What will happen to those facilities? Will the facilities turn into other Matanzas???? What about the value of the houses adjacent to the course?

  2. Larry
    Larry says:

    The future private club

    The private club dilemma is deja vu all over again, as Yogi Berra might have said. The private clubs of the future will be the private clubs of the past — available only to the well heeled. The next level down will be the golf-only clubs the WSJ article implied — few dining options short of soup and sandwich, no expensive amenities, all dues going to pay for golf club maintenance. The next level will be the semi-privates; they will appear to be like private clubs but will accept outside play. Strictly daily fee course will anchor the market; some private clubs today will join the ranks of the daily fee clubs because they can’t support themselves. Hybrids will emerge, like golf club operators who buy clubs at a bargain and offer their members multiple courses for one membership fee. Anyone shopping for a golf community home should look first at clubs owned by its members and with fees under control. Those clubs that are heavily subsidized by developers today could very well be the members’ albatross later. https://www.golfcommunityreviews.com

  3. McRedmond Morelli
    McRedmond Morelli says:

    Boxgroove.com To The Rescue – We are the Vitamins

    Toby: great article on the implosion of so many golf development companies. They’re model was fundamentally flawed and it took sensibility for it to show. I created boxgroove.com almost two years ago because I saw this wreck coming. Now everyone wins with boxgroove.com. The private country club, the private country club member and the avid golfer. As they say in hockey…a hat trick or in golf parlance I would like to call it the double eagle! Please share http://www.boxgroove.com with your followers.

    Respectfully,

    -McRedmond
    CEO/Founder http://www.boxgroove.com

  4. BB
    BB says:

    "new reality"

    Your article seems to support the idea that we are living in a "new reality" but at the same time indicates "flaws" in developers’ business plans. This makes a point that I believe people miss when they paint developers with the "evil developer" brush-especially those developers who had established a long standing record of straight dealing. How could developers build a business plan for a new reality prior to its arrival? Anyone who claims that he could have been in this business and avoid the influence of the collapse is kidding himself. The only people who survived were those who just got lucky or were large enough to continue to absorb loss. There were those (as there always is) who took advantage of people but think about this before you accuse those in the business of greed.

  5. Denis
    Denis says:

    what kind of golf

    Sure, golf course ownership is not a good investment, but neither is your car, vacations, or eating out! Missing in all these conversations is What kind of golf and golf course do you want to play. Given the fact that golf courses sre expensive to maintain, golf will probably never be less expensive. Add in golf management company fees and you have another layer of costs.
    While the focus is on the struggling clubs, there are many well run private clubs that will survive. There is no need to run a 7 day restaurant at many golf clubs. While many folks use the municipal courses as an example of low cost facilities, many if not most, are subsidized by tax payer dollars. That’s OK, but many are in poor condition and pace of play is unbearable.

    Bottom Line: You get what you pay for and what you are willing to pay is almost always an issue of personal choice. Over the long haul, a good golf course community will be very appealing to a segment of the population and the ensuing increased value of homes will be appealing.
    A well run, private equity club, that responds to the needs of its golfing members, is often achievable AND you cut out the costs of a management companyydpLE

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