Just the other day, I read a wonderful article by David Chag & Robert Mancuso of The Club Council entitled “What’s Missing in Club Renovations?” They’ve really hit the bullseye in their comments and accurately highlighted the implementation and operational consideration but from my perspective as a real estate appraiser/consultant, I wondered about two things; value and recapture of investment.

As noted in their article, clubs have been investing in facilities at previously unseen rates. In come cases the amounts invested have raised more than a few eyebrows, and have often come with substantial debt to the club. Accordingly, even in the world of 501-C7 not-for-profit clubs, return on investment (ROI) or at the very least recapture/recovery of that investment should be considered.

As we all know, assessments are most unpopular and debt doesn’t just go away. It needs to be paid back. As I’ve previously written, the “space race” has motivated clubs to reinvest, often causing operational challenges that can require adding more members than the club can comfortably handle, stressing the facilities for access and increasing the cost of membership.

I often see clubs focus only on the cost of renovation projects without thoroughly examining the future ability of the club to pay for the renovations while maintaining the quality of the club experience through facilities access and quality maintenance and conditions. With respect to debt, is it really fair to leave the next generation of membership with a debt load that’s difficult or impossible to service? It wasn’t that long ago that clubs were failing and some closed altogether while others were acquired for “pennies on the dollar” much to the chagrin of lenders.

Having grown up at a club that never reinvested and ultimately failed, I would never advocate against the need to reinvest in and update aging facilities. However, it has to be done with an eye to the future and a sense of stewardship that recognizes the next generation and what’s being passed on.

Since I’ll be making presentations on “Measuring the Health of Your Club” in August on an NCA Webinar and in September at Golf, Inc. Chag and Mancuso got me thinking. How will all the points they made impact the income/expense pro forma and ultimately value? The questions I’d ask are:

  • Is there sufficient additional cash flow to service the debt?
  • Is there sufficient revenue to offset the potential added expenses generated by the upgrades?
  • Can the funds invested be recaptured and in what time period?
  • Is the (presumed) added value to the club enough to support any financing needed to satisfy lending requirements?

The economic feasibility of the project depends (IMHO) on the answer to each of these questions being a resounding “YES”.

That said, the analysis of a club’s health isn’t exclusively financial. As I state in this article, at member-owned, not for profit clubs, the element of happy members is (again, IMHO) is what really makes a great club. Thus, there is a Non-financial element that must be considered and that comes down to whether the membership is willing to pay for proposed changes and upgrades.

There are some that measure the health of a club by ratios of debt to equity, debt to revenue and other financial yardsticks. There’s a subjectivity to determining a club’s health that cannot be overlooked, and especially in the case of member-owned clubs, an emotional attachment that often leads to poor decision-making.

Every club is different and measuring the health of the club can depend on any combination of revenues, expenses, cash flow, debt, deferred maintenance, member satisfaction, member willingness to pay and competitive market considerations.