Always hoping to learn and find a way to get better at what I do often leads to some interesting conversations. My friend, attorney, PGA Professional and golf entrepreneur Herb Rubenstein (profiled here) and I recently engaged in a conversation about deferred maintenance on golf courses and how to account for same in a valuation analysis accurately. As avid golfers and members of the golf industry we wondered aloud to each other about the impact of course conditions on value.
Recently, we both played two separate (expensive) courses in Florida on the same day and lamented their conditions. We both observed significant (and unmarked) areas of Ground Under Repair (GUR) that did not appear to be either short-term conditions or weather-related. The USGA defines GUR as:
Any part of the course the Committee defines to be ground under repair (whether by marking it or otherwise). Any defined ground under repair includes both:
All ground inside the edge of the defined area and any grass, bush, tree or other growing or attached natural object rooted in the defined area, including any part of those objects that extends up above the ground outside the edge of the defined area (but not when such object is attached to or below the ground outside the edge of the defined area, such as a tree root that is part of a tree rooted inside the edge.)
Ground under repair also includes the following things, even if the Committee does not define them as such:
- Any hole made by the Committee or the maintenance staff in:
- Setting up the course (such as a hole where a stake has been removed or the hole on a double green being used for the play of another hole), or
- Maintaining the course (such as a hole made in removing turf or a tree stump or laying pipelines, but not including aeration holes).
- Grass cuttings, leaves and any other material piled for later removal. But:
- Any natural materials that are piled for removal are also loose impediments, and
- Any materials left on the course that are not intended to be removed are not ground under repair unless the Committee has defined them as such.
- Any animal habitat (such as a bird’s nest) that is so near a player’s ball that the player’s stroke or stance might damage it, except when the habitat has been made by animals that are defined as loose impediments (such as worms or insects).
- The edge of ground under repair should be defined by stakes, lines or physical features:
- Stakes: When defined by stakes, the edge of the ground under repair is defined by the line between the outside points of the stakes at ground level, and the stakes are inside the ground under repair.
- Lines: When defined by a painted line on the ground, the edge of the ground under repair is the outside edge of the line, and the line itself is in the ground under repair.
- Physical Features: When defined by physical features (such as a flower bed or a turf nursery), the Committee should say how the edge of the ground under repair is defined.
When the edge of ground under repair is defined by lines or physical features, stakes may be used to show where the ground under repair is, but they have no other meaning.
When evaluating the economics of any golf course, it is incumbent upon us (or anyone) to understand how much deferred maintenance exists and what the cost is to correct it. We surmised that calculating this square footage of all of the area through the green which should be classified as GUR would enable golf property appraisers and those otherwise evaluating a golf property to more accurately measure the severity and the impact of such deferred maintenance on overall playing conditions and valuation. Our conclusion suggests that appraisers, buyers, operators and managers include and accurately quantify real, verifiable data on ground under repair conditions which are not short term and which impact the overall quality of the playability and esthetics of a golf course.
We further suggest that course raters consider GUR conditions which do not appear to be temporary in nature in evaluating the playing conditions of a golf course since these ratings ultimately impact any course’s ability to attract players and charge fees.
Estimating the value of a golf course property involves the consideration of many elements. Part of the income analysis is the establishment of both reserves for development of an annual funding of replacement of short-lived items, and an estimate of the amount of deferred maintenance (such as GUR) that currently exists as of the date of the appraisal. These are not one in the same. Unfortunately, appraisals are designed not to evaluate the funding necessary to make such replacements, but rather the amount typical buyers in the marketplace allow in their analyses of potential acquisitions. This often leaves a shortfall that can show up as deferred maintenance down the road.
What’s the right number? If an owner seeks to be prepared for the inevitable replacements, it’s a sinking fund calculated as part of a reserve study needed to replace each component of a property. If buyer and seller are negotiating an acquisition/sale of a property it might be something as simple as a percentage of gross revenues or an amount available to put away. As appraisers, it’s our job to reflect (not dictate) market behaviors. As consultants, we advise our clients to be prepared for anticipated events. As I like to say from my flying days, “stay ahead of the airplane.”