Story of Owe:

Golf communities tout their debt-free status

Golf communities have begun to treat their potential buyers like conservative Wall Street investors. “Debt free” has replaced “championship golf” as the selling proposition de jour. The bankruptcies of former high-flying golf communities such as Ginn Resorts and the financial difficulties of such former elites as The Cliffs Communities has put a scare into many prospective buyers. But sharp marketing managers at the stronger communities are transforming a lemon of a market into lemonade by using their companies’ deep pockets to advertise their companies’ deep pockets. Whereas the pre-2008 marketing battle among golf communities was fought over the size and quality of amenities –- “My fitness center is bigger than yours!” –- now it is being fought over the balance sheet.

Older is better

Older golf communities are in the best positions to market their financial stability. Communities that have been around for decades, and especially those where all or most lots have been “improved” with houses, are the most financially solid by definition. This is because their residents are running the show through their POAs (property owner associations). These homeowners who waved goodbye to their developers a decade or more ago have gotten used to running their communities and paying the expenses themselves. Despite some early sticker shocks that resulted from the loss of the developers’ subsidies for the golf courses and other amenities, POAs at established golf communities like Champion Hills in Hendersonville, NC, and The Landings in Savannah are running their communities as if they were Fortune 500 companies.
Governance, of course, is a challenge in the early days of independence as property owners hash it out over which amenities might be too expensive to pay for and which of their fellow residents are best suited for board positions. But despite the occasionally contentious meetings, mostly about spending and holding down dues increases, owners with a long-term interest in their properties do a better job of governing their community than the developer did. Loud board meetings are better than none, and good decisions typically emerge from vigorous debate.

Amenities first

Newer communities have picked up on the debt-free mantra and are touting their own financial conditions. Brunswick Forest in Leland, NC, for example, is the fastest selling golf community on the east coast, largely on the basis of its financial profile and reasonably priced properties. The community’s web site proclaims “Developer Strength, Stability and Resources,” and it is hard to argue. Backed by the $2 billion Lord Baltimore Capital Corporation, the 4,000-acre Brunswick Forest’s local developers finished the golf community’s amenities in the early days of property sales, whereas other communities of recent vintage were cutting expenses in anticipation of weak sales (self-fulfilling prophecy, that).
Brunswick Forest, instead, began work on its golf course almost from the gitgo and built a wellness and fitness center and a town center that quickly attracted medical and retail services. This visible sense of progress gave confidence to new buyers and also sent a message to the market that the developers’ pockets were indeed deep. The on-site Cape Fear National Golf Club, which opened last October, lagged the other amenities by a couple of years, but the ongoing presence of earth-moving equipment and press release updates showed constant movement forward. The course, which I played in March, was worth the wait, a perfectly indigenous Tim Cate design, which is to say it uses the native grasses and sand to exquisite advantage.

Patient capital for one community

Some communities that tasted the bitter medicine of foreclosure have re-emerged with new financial backing that they are eager to tout. For example, the 4,400-acre Balsam Mountain Preserve near Waynesville, NC, looked like a goner when its developer, Chaffin & Light, could not pay its bills. Lucky for the community’s well-heeled property owners that real estate investment company TriLyn held the note on the $22 million in debt and decided not to cut its losses, as many “banks” would do, by selling everything at a loss. Instead, TriLyn foreclosed on the property quickly and made a strategic decision to supervise management of the community's operations, citing as key to their interest the already built infrastructure, including a dramatic Arnold Palmer golf course on the top of the Balsam Mountain.
Furthermore, TriLyn sent a meaningful message to the market by not gutting the prices on its remaining inventory of 120 lots, a decision that made existing homeowners so happy that they haven’t complained about the increased fees they have been assessed (better to pay a few hundred dollars more per year than lose a few hundred thousand dollars in house value). “Balsam now has the advantage of stable, institutional ownership and no debt,” Balsam Mountain’s Director of Sales Bruce Fine told the Mountaineer newspaper shortly after TriLyn took over early this year.

‘Til debt do us part

Residents of some upscale golf communities have stepped in to save their struggling developers from default, and themselves from a catastrophic loss of value in their homes. The Cliffs Communities in the mountains of South and North Carolina became the poster child for this unique new approach to financing.
Faced with a Hobson’s choice, Cliffs property owners loaned developer Jim Anthony $64 million to finish promised amenities that included Gary Player and Tiger Woods designed golf courses (Woods’ first in America). Many, but not all, of The Cliffs’ residents ponied up increments of $100,000 to keep Anthony from seeking much-higher-interest loans in the open market. If Anthony had defaulted on such a loan, some distant bank or venture capitalist might have become the absentee landlord for all the Cliffs’ amenities. For the owners who now hold the note on the multi-community Cliffs’ amenities, they are earning a 12% interest rate, do not have to pay club dues for the duration of the seven-year term of the loan and, most importantly, have claim to all the amenities in the event of a default by the developer.

Keeping commissions In house

A few golf communities not only are debt free, but they also pad their reserve funds with additional revenues related to real estate sales. When a developer leaves a community after it is mostly sold out, a few agents in the on-site sales office typically stick around to sell off the remaining developer lots and, in some cases, to represent those residents who need to re-sell their own properties. But when all the original lots are sold, the sales office either closes or is taken over by a local agency that leases the space from the community. This is essentially the case at the mature and well-organized Champion Hills, where the local Prudential Realty leases an office on site. Agents in the office, one of whom is a full-time Champion Hills resident, are permitted to sell only properties inside the community.
The 20-year old Landings on Skidaway Island, just 15 minutes from downtown Savannah, took a slightly different tack -– the POA itself took over the real estate office once the developer departed. Today, the sales commissions that Landings Realty agents generate support the community’s financial well-being. In a real sense, when they purchase their properties, new residents at The Landings contribute directly to the community’s security even before they move in.