2003: Despite golf losses, home developers press on

NAPLES, Fla.

Golf course construction has slowed considerably over the past three years, but high-end developers’ interest in golf remains strong.

That was evident when five of the country’s leading golf course real estate developers, who collectively have nearly 100 courses open or in development, recently gathered at a conference in Florida to discuss the state of the marketplace. Their main message: Developers will continue to build these so-called “loss leaders” as long as they help generate premiums on home sites.

“If you’re making $150 million on lot premiums, it’s easy to lose $20 million (on a failed golf course),” said Randall Bone, executive vice president of Aspen, Colo.-based Sunrise Colony Co.

The other major developers represented – Crescent Resources LLC, of Charlotte, N.C., The Bonita Bay Group and WCI Communities, both of Bonita Springs, Fla., and Pulte Homes Inc., of Scottsdale, Ariz. – shared that sentiment.

But some executives are beginning to question that wisdom in light of a golf market delivering mounting operating losses.

Arthur Fields, CEO of Crescent Resources, which developed TPC at Sugarloaf in Atlanta, said his

company has a new community in Charlotte without a golf course. The main amenity there: a large man-made lake. But Fields is uncertain how well it will sell.

“If a project needs an identity, golf brings it,” Fields said. “We’re going to find out if it works without golf pretty quickly.”

Last year, the equivalent of 248

18-hole courses opened, according to the National Golf Foundation. That is a 38 percent decline from 2000, when 398.5 new facilities signaled a 15-year high.

Real estate developers continue to drive new-course construction, in part because interest rates remain at record lows and home sales remain strong.

But how long will this last?

“Right now real estate developers have subsidized golf (course development/operations),” said Stephen Johnston, national director/partner of the KPMG Golf Industry Practice.

But if rates rise, Johnston predicted developers will face a “double dip” – weaker home sales and slower sales of club memberships. At some point, Johnston added, the “subsidy chains are going to come off . . . And when that (happens), there’s going to be a dramatic push to auction golf courses or to get rid of them as quickly as they possibly can.”

There already are signs of trouble in some markets. In Naples, an area saturated with high-end private golf course communities and upscale

golf-only clubs, there are 4,500 to 5,000 unfilled memberships.

Gary Sandor, senior vice president of The Bonita Bay Group, said such excesses could portend problems for the market.

“I’ve heard there’s roughly $450 million in membership inventory to be absorbed by clubs with $100,000-plus memberships,” Sandor said. “That's roughly a five-year

inventory. The question is how much of that is in clubs with real estate.”

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