February 2010

Forewarned, forearmed (Part 2)

This month we conclude our look at trends in golf community real estate.

Brutal Truth: Golf designer chic is dead

There was a time –- the Era of Irrational Exuberance -– when developers could hire top-name architects to design their golf courses, slap extra percentage points onto the price of their properties and customers would line up to pay the surcharge (although it wasn’t called that). Such communities sold out just like that (I am snapping my fingers).

Those days have come crashing. From coast to mountains, from mountains to desert, and on the international scene, big names on the golf scorecard no longer ensure stability or even longevity, if they ever did. Jack Nicklaus’ design empire seems to be especially affected, quite possibly because Nicklaus Design takes on more projects than most design shops. In Spain, for example, Polaris World, a company that hoped to build a “Nicklaus Trail,” turned over more than $1 billion in real estate holdings to their banks. Superstition Mountain Golf and Country Club and its two Nicklaus courses, the centerpiece of an upscale Arizona golf community, went to bankruptcy auction last year.
Carolina mountain golf developments especially are proving something of a graveyard for designers with star quality. At River Rock in Cashiers, the Phil Mickelson designed course may not be finished until 2012, if at all; few homes are built in the community, always a bad signal to prospective purchasers. Near Hendersonville, the developers of Seven Falls Golf & River Club insist the Arnold Palmer course there will be finished, despite a lien of $2.5 million by the contractor engaged to build the course.
Palmer did complete his course at Balsam Mountain Preserve (near Waynesville, NC) in 2008, an event I described at GolfCommunityReviews.com back in April as “good timing…before the economy hit the skids.” Oops, sorry about that. Just because a project is finished doesn’t mean it is paid for. Developers Chaffin & Light defaulted on a note for Balsam Mountain a few months after I praised their timing, but luckily their wealthy property owners, out of self-interest, rode to the rescue and provided a bailout.
Cliffs Communities developer Jim Anthony is asking his own property owners to do the same, floating the idea of $60 million in debt financing and putting up the lush Cliffs amenities, including six golf courses, as collateral. Anthony made an unfortunately timed bet on Tiger Woods, whom he hired to design the golf course at High Carolina, The Cliffs newest development. He paid Woods, whose two other projects in Mexico and Dubai are in limbo, a reported design fee of about $18 million more than the top fees veterans like Jack Nicklaus and Tom Fazio command. The Woods hiring may not have been the precipitating cause of The Cliffs troubles, but the debacle may come to symbolize the end of an era of star power in residential golf courses.

Lessons: Back in the day, a top designer’s name on the scorecard translated into higher prices for property owners, but also communicated stability and long-term value. In the current environment, the mighty are not immune from market forces or decisions driven more by ego than good business sense. I’ve played golf community courses by Arthur Hills, John LaFoy and other “second rank” designers that were as good as many courses by Nicklaus and Dye and superior to all but one or two layouts with Arnold Palmer’s name on them. If you are considering a golf community home, first identify an area you like, then a few communities in that area that seem to meet your criteria. Visit them and test out all the golf courses. Those communities without the big-name designer just might offer the biggest values. (Please contact me at This email address is being protected from spambots. You need JavaScript enabled to view it., and I will be happy to help with arrangements for “discovery tours” of any communities that match your requirements.)

Brutal Truth: Golf community promoters try to appeal to the ego in all of us

Three years ago, I received a huge leather-bound marketing piece from the Bella Collina community near Orlando. “Wow,” I thought. The thing looked as if it were handmade just for me. But as a former marketing and communications executive, I am made of cynical stuff, and my “Wow!” was followed quickly by “What the…?”
Today, Bella Collina is one of those floundering Bobby Ginn communities whose short, unhappy life has not included the promised clubhouse and other amenities. Properties in Bella Collina are worth a fraction of the seven figures many residents paid.
In its most aggressive years, The Cliffs Communities spent $14 million annually on magazine advertising and some of the slickest brochures this side of Bobby Ginn’s leather. Their marketing investment, though, was a drop in the bucket compared with the multi-hundreds of millions of dollars they invested in their lush golf courses, wellness centers, nature trails and naturalists, and even a resort in Patagonia. In recent months, Cliffs advertising has ground virtually to a halt as the community tries to retrench from the collapse of the high-end market. Ginn Resorts, on the other hand, has precious little left to retrench.

Lessons: There is no correlation between the amount of money developers spend on marketing materials and the stability and viability of their communities. (Indeed, the correlation seems to be the inverse lately.) Similarly, the connection between home values and the level of amenities in a community is less clear than it was a few years ago. If you don’t need the nature trail, the beach cabana and extra golf courses you will use only occasionally, why pay for them? When it comes to resell your property down the line, you may find that all those amenities held their value about as well as an outdoor backyard swimming pool in Maine.