Are All Golf Courses Alike?

New York State courts have adopted a unique method for the valuation of private clubs (PR). In tax certiorari (tax assessment appeal) cases a method called the “market rent” approach is used which conceptually isolates the real property value by using rental comparables to estimate market rent for the subject property which can be capitalized into a value of the real property.

Since comparable lease market data is limited for private clubs, the methodology has used rents from municipal (MU) and daily-fee (DF) courses to estimate the percentage of revenue attributable to rent, which is then applied to private clubs under the hypothetical assumption that they are Daily-fee golf facilities. Not only is the mode of operation (business model) significantly different but so are the physical characteristics of the real property.  Private clubs, in this instance,  are analyzed on the basis of rounds and fees, as opposed to members and dues.

Golf facilities (PR and Public) are made up of land, golf course improvements and building improvements (real property). Let’s talk about the differences. While we all are familiar with the operational differences, with private clubs relying on annual dues and public access courses relying on daily fees, that is more about operations.  The real property is the focus of this article.

ONe of the first questions any golf course architect will ask is how the course will be used and who will be playing it.  At a seminar offered by the American Society of Golf Course Architects (ASGCA) at the recent GIS, I posed the question to the panel of what are the physical differences between PR & MU/DF golf courses. They can be significant.

First and foremost, the daily-fee golf course is usually designed and built with pace and volume of play in mind. Whether a course is planned as PR or MU/DF is significant in developing the design.  Most MU & DF courses host a higher volume of rounds than private clubs and routing, hazards and sequence of holes are designed to accommodate this volume of golfers and minimize the time necessary to get around the course. Conversely, the PR course typically has more hazards, a routing focused on creating the ideal golf holes for challenge and scenery, while not preparing for a high volume of rounds. Most DF & MU courses need to host more rounds and have tee time intervals at 10 minutes or less. Many PR clubs have tee time intervals at 10, 12 and even 15 minutes, enhancing the experience and limiting membership to provide easy access.

Private clubs and DF/MU courses also have very different infrastructures and buildings. Clubhouses are very different. Private clubs typically have large locker facilities, fitness areas and banquet areas, in addition to a choice of dining options. DF/MU rarely have these amenities. Few DF/MU courses have the swimming, tennis, and other sports facilities enjoyed by private clubs.

According to the American Society of Golf Course Architects (ASGCA), no matter what level of a golf facility is being planned, there are certain elements that are common to all.

These basic real property components of a golf facility are:

  1. Land
  2. Parking lot
  3. Pro shop (minimum of a few hundred square feet)
  4. Restroom(s) (unisex and handicap accessible as a minimum)
  5. Maintenance storage building (minimum of a 2-car garage)
  6. Maintenance equipment (mowers, hand tools, see appendix on equipment)
  7. Golf Course Improvements (tees, greens, fairways, irrigation, drainage, etc.,)
  8. Other buildings and facilities (swimming, tennis, etc.)

Notice that clubhouses are omitted from this list.

In his famous 1927 book Golf Architecture in America, George Thomas writes: “The Municipal Course should first of all consider congestion; everything hinges on that, for there is the absolute necessity of getting as great a number of players around the course as possible between daylight and dark, and those many persons are all hammering golf balls in diverse ways both as to length, direction and execution, and like all golfers, are doing it with implements ill-suited to the purpose.  In the opinion of the Municipal Greenkeeper, all such impeding obstacles as long grass, traps, hazards, one shot holes, and so forth are best elsewhere, and there is much truth in his belief.”

Furthermore, in his 2005 book Golf Course Architecture – Evolutions in Design, Construction and Restoration Technology, Dr. Michael Hurdzan, PhD, states: “A public golf course can expect to host golfers with a wider variety of skills than an upscale, invitation-only country club.  This suggests that the public course might have more gentle hazards than those found at the private club.”

In his 1982 book Turf Management for Golf Courses, Texas A & M professor James Beard wrote: “Public fee and municipal courses may exhibit only the elemental concepts of strategy, having few bunkers and other hazards, whereas courses designed specifically for hosting major championships usually have numerous bunkers and water hazards to accentuate the strategic, heroic or penal nature of each hole and to create a high level of excitement during competition.  The normal private club or resort course falls somewhere in between.”

These are the first clues that PR and MU/DF golf courses can be very different and not appropriately comparable to each other, despite both being golf facilities.

Private clubs typically have more complex and precise irrigation systems and because players demand quality playing conditions (and are willing to pay for it), these courses typically have better components as listed below:

  • More and larger Hazards (bunkers, ponds, trees, etc.)
  • Different types of turfgrass
  • More extensive and lush rough areas
  • Better maintenance practices throughout
  • On-Course amenities (bathrooms, water fountains, “turn stations”)
  • Better drainage systems (Better Billy Bunker reports 90% of its customers are private clubs)
  • More extensive golf practice facilities

Golf course maintenance practices are typically more complex at private clubs with larger budgets and result in healthier, more dense turf and more manicured, precisely mowed playing surfaces. Conversely, DF and MU courses do not provide the strategic design, playing surfaces or conditions that private clubs do.

Off the golf course, these differences are even easier to identify.  They can include private clubs having:

  • Larger, more elaborate clubhouse facilities with expanded locker/shower areas and often multiple dining and function areas
  • Larger and more complex maintenance facilities, often with multiple buildings, storage areas for sand and chemicals and improved fuel facilities and wash areas
  • Turf nurseries
  • Additional sports amenities, such as swimming pools, tennis, paddle, squash and other facilities, including indoor sports facilities

As clearly demonstrated herein, all golf courses are not alike.  An analogy might be restaurants.  McDonald’s and Ruth’s Chris are both “chain” restaurants.  However they are not comparable, serving dramatically different products, and most importantly in very different environments with different facilities.  Golf courses are segmented into submarkets.  While it is easy for the unfamiliar to segment those markets by operations, it should be emphasized that each requires real property characteristics and improvements necessary to meet the demands of each submarket.

Therefore, while the typical MU/DF golf course can operate, and even thrive with more limited facilities, the private club requires dramatically different characteristics to be successful.  The differences are clear to the golf and club consumers and they make choices accordingly.

Thus, if the appraiser employs the market rent methodology, it should only be used by comparing leases of similar properties.  Private club leases should be used for private clubs and municipal/daily-fee leases for public access courses.  Apples to Apples!