Golf Encourages Golf Courses – Not Real Estate

Here is an interesting interview with TJ Duncan, a local Reno businessman in the golf business, with additional information from the perspective of additional experts on Reno and Northern Nevada golf courses. It was printed in the Northern Nevada Business Weekly on April 7, 2014. So the information is less than a year old.

Here is the article by John Seelmeyer (jseelmeyer@nnbw.biz)

Golf, not real estate, drives recovering business

TJ Duncan is in the golf business. Period.

“I don’t build houses. I’m not a developer,” says Duncan, vice president of Reno-based Duncan Golf Management. “But I know how to run a golf course. You have to stay in your lane.”

That approach is proving successful for Duncan Golf Management, the growing company that owns three northern Nevada courses and manages two more.

And industry observers say a focus on the business of golf — rather than development of golf-related real estate — is one of the keys to fixing the troubled business.

And after years of battling economic headwinds, the golf business finally may be getting a little help from social and economic factors.

The troubles of the golf industry in northern Nevada are no secret.

Just within the past few months ArrowCreek Country Club began a Chapter 11 bankruptcy reorganization. LakeRidge Golf Course filed a Chapter 11 petition before the course was acquired by Duncan Golf Management.

The City of Reno looked at closing Rosewood Lakes Golf Course after a consultant reported the course would continue to lose more than $400,000 a year. (The course may continue operating under a partnership between the city and The First Tee of Northern Nevada.)

The Lakes and Resort courses at Genoa Lakes, which had been operating under a receivership, sold in January for the amount its lender was owed.

And margins appear to be tight across the business.

J.J. Keegan, a Colorado consultant whose firm, Golf Convergence, analyzed Reno’s Rosewood Lakes course for the city government, found the municipal course needed to generate about $1 million a year in revenue to cover its operating costs and capital requirements.

While his estimate applied only to Rosewood Lakes, the National Golf Course Owners Association says gross golf-fee revenue at courses in the Reno and Lake Tahoe area averaged $1.16 million last year.

At courses statewide, the average revenue last year was $1.9 million.

The basic problem: Too many courses, too few golfers.

About 8.3 percent of the population living within 30 miles of Reno plays golf, says Keegan.

Avid golfers account for about a quarter of the total golfing population in the region, Keegan says.

That translates into 379 avid golfers per 18 holes within 30 miles of Reno, the consultant says. The national average is 468 avid golfers per 18 holes.

Much of the over-supply represents a hangover from the real estate boom years, when golf courses were an attractive amenity in high-end communities — no matter whether homebuyers played golf.

“They built those things like they were a community swimming pool,” says Jeff Woolson, executive vice president and managing director of golf and resort properties on a nationwide basis for CBRE.

More troublesome, he says, many of the golf-oriented residential developments didn’t include enough homes to provide a solid financial base for the courses. Typically only about a third of homebuyers at golf communities are avid golfers.

That left courses vulnerable to a triple whammy with the onset of the recession, Woolson says.

Hard-pressed consumers cut back recreational play. Businesses scaled back their golf events. And the collapse of the residential real estate market sent developers scrambling.

As the golf business gets back on its feet, the deed restrictions that provided assurances to homebuyers at golf course developments now are proving to be an obstacle to getting supply and demand in balance.

Keith Cubba, national director of the golf group for Colliers International, says those deed restrictions generally limit the opportunities to redevelop money-losing courses into other uses.

“We’re lost very few courses nationwide,” Cubba says.

With the difficulty of reducing the supply of golf courses, owners are focused on increasing demand and managing their costs.

“They’ve cut as much they can,” says Woolson. “They have to boost their top lines.”

The industry is getting some help, he says, from three demographic groups:

• Retiring Baby Boomers with time and disposable income for golf.

• Women, particularly those aged 50-plus without children at home.

• Middle- and upper-income Asian-Americans. “They are golf-crazy,” says Woolson.

And the general economic also helps, says Cubba.

“People are feeling a little better, and memberships are showing an uptick,” the Colliers International executive says.

Even so, rounds played at golf courses in the Reno-Tahoe area last year — 19,345 — marked a 1.6 percent decline from a year earlier, the National Golf Course Owners Association says.

With golf courses selling these days as operating businesses, rather than speculative real estate investments, successful operators such as Duncan Golf Management are those that keep tight control of their operations.

“You have to watch everything,” says Duncan. “You question everything.”

With its ownership of Wolf Run Golf Club, LakeRidge and Dayton Valley Golf Club, and its management of courses in Tahoe City and Fallon, the company achieves economies of scale in purchasing, marketing and other operating costs.

The company operates with a core staff of about 30, a number that swells to 150 during peak seasons.

While Duncan Golf Management continues to integrate LakeRidge into its system after taking control of the course at the start of this year, the company may add another course or two to its regional portfolio.

“We continue to look for new opportunities, and the opportunities seem to be growing in number,” says Duncan.

But the company wants to make sure that it can add value to any acquisitions.

“We’re not growing just to grow,” Duncan says. “We’re growing responsibly.”

Source: Golf Not Real Estate