Many residential communities have homeowners associations (HOA’s) or property owners associations (POA’s) which govern architectural standards, common area maintenance and community rules. Since some have golf or club amenities, whether the HOA/POA owns the club or not it has a vested interest in the club’s economics. Having recently worked on several HOA/POA golf course assignments, we’ve learned a good bit and made some observations that might be helpful.
In larger communities with multiple golf courses, the question arises of whether the community has too much golf, not enough golf or just the right amount. Often, the HOA/POA is subsidizing the club operations which can drain association finances. With golf participation having declined during the past decade this drain can be significant and impact the association. Conversely, some communities, which may not be built out may not have enough golf as growth occurs and sometimes need to consider adding some supply.
Why is this important?
In addition to building golf courses to provide a recreational/lifestyle amenity to homeowners, developers used them to enhance sale prices so homeowners have a vested interest in protecting and preserving the premium value of their homes created by the club. When the club declines, home values typically follow and a domino effect is created which can often cripple a community. This should be of great concern to homeowners and the HOA/POA.
For the HOA’s/POA’s that already own their community’s golf course(s), this means developing a true understanding of the impact the golf course has on the community’s home values and operating the facility in a manner consistent with the recreational goals of the community and the economics of the club so that the club will not only be well-maintained and thrive into the future, but also continue to serve as a desirable amenity for the community. This can often mean either higher HOA/POA dues (which non-golfers won’t like) or mandatory membership, which can and has resulted in litigation at numerous communities. Some of the possible scenarios include:
- The club is not financially sustainable and is being subsidized by the HOA/POA. It’s often under pressure from the non-golfers in the community.
- Non-golfers resist mandatory membership, ignoring the impact on their home values.
- There’s often a conflict because some demand financial independence of the clubs while others feel the community as a whole benefits from the club and all should support the club.
For those clubs that are either developer-owned or owned/operated by a third party, the situation is more complex. In most cases, the owner/operator of the club requires a financial return (profit) and if the club is struggling, budget cuts are often employed to stop the bleeding, which can precipitate that decline. The community, through the HOA/POA is then positioned where acquiring the club becomes a necessity and they become an unusually motivated buyer, often paying more than market value, and “bailing out” the owner/operator from a struggling operation. Some of the possible scenarios here include:
- The club is profitable to the owner but not maintained in a manner that supports home values in the community.
- The club is financially stressed, maintenance is declining and the owner is holding out for an excessive purchase price from the HOA/POA.
- The club is profitable and ownership takes advantage of the captive audience to implement excessive pricing.
- In each of the situations above, the community has no say in how the club is operated.
Once the club is controlled by the HOA/POA, it’s like a member-owned club. It’s probably a not-for-profit operation and decisions are then made by committee. While often not efficient, the profit motive has been removed and the community should benefit from the focus being shifted to the club’s role as an amenity.
Choices include maintaining the club as private for community residents, open up membership to non-residents or to allow some amount of daily-fee play from both residents and non-residents. In age-restricted communities there is often a concern for security and opening the gates to the outside can be perceived as risky. There is sometimes the option of simply raising the HOA dues given that all residents (whether they’re golfers or not) benefit from a thriving club in the community. Needless to say, just like taxes, raising dues is never popular.
Of critical importance in this discussion is the culture of the community. Are they more concerned with price? Or do they see value in preserving the community’s amenities and thus the value of their homes? Are they “owners” or “customers”. If a club or community boasts about having the lowest dues, one can be certain that the level of services and the value in membership will be compromised.
Often, a club has to choose between privacy/exclusivity and opening up to the outside. In one case I’ve observed, the club has opened for both non-resident memberships and non-resident public play. However, they’ve limited access to some club facilities to only residents. The resulting diminished value in membership to non-residents negatively impacts the dues rate that can be charged. Combined with dated facilities that are also no longer efficient for a modern club, the HOA/POA needs to make some decisions. Another client, a large community with 6 golf courses is contemplating whether to close, maintain or add to the golf offerings. The HOA/POA currently subsidizes the golf operations and seems to have established a limit as to how much they’re willing to contribute.
Among the choices HOA’s/POA’s encounter are:
- Whether to be private or open to daily fee play;
- Whether to welcome non-residents;
- Whether or not to invest capital in updating or upgrading the club’s facilities;
- Whether to pursue purchasing the club facilities (if owned by someone else);
- Whether to lease to an operator;
- Whether to retain contract management;
- Whether to sell to an operator
Key to understanding the best way to go is comprehending the club’s “culture”. At all levels, clubs take on a personality that often determines whether the goal is to be the best, to be the most profitable, to be the cheapest, to be the most exclusive or to be the biggest or smallest or most prestigious. For those clubs that are an amenity to a community, the club’s impact on surrounding property values should also be a consideration, especially since many (if not all) of the members can be homeowners in the community. Once the HOA/POA understands its facilities, location and market it can make these decisions from a more informed perspective.