HOA’s, POA’s and their interest in the Community Golf/Country Club

It seems as though we’ve been fielding lots of calls about golf and country clubs lately that serve as the main amenity for planned residential communities.  Sometimes these clubs are private and other times are open for public, daily-fee play.  Regardless of the club’s operating profile or whether the club is owned by members, investors or the Property Owner’s Association/Homeowner’s Association (POA/HOA), the POA/HOA and the owners themselves have a distinct interest in the health and future of the club.

There are numerous types of relationships between a club and community and these variables can often be the differences between the success of the club and how it contributes to the property values in the community.  These can include:

  • Developer-owned club
  • Member-owned club
  • Investor-owned club
  • POA/HOA-owned club

As it relates to the POA/HOA, and the owners themselves, it’s critical to understand these relationships and the motivations of the owners.

In most cases, developers of a community will maintain ownership of the amenities (including the club) until a certain number of homes are sold.  Then, not desiring to be in the golf or club business (in most cases) they will convey the club to the members, POA/HOA or an investor.  The developer typically has an interest in maintaining the club to a high level through the sales process but that motivation can change as the implementation of his/her exit strategy nears.  It’s incumbent on the POA/HOA to observe this situation closely and to ensure as much as possible that the developer exits in a manner that will preserve the quality of the club and enable the club to provide value to the community.  That can mean the POA/HOA acquires the club.

In many communities, membership in the club is not in any way mandatory or all-inclusive.  A rule of thumb has often been that 20-30% of homeowners actually join the clubs in their communities.  Accordingly, a few are carrying the weight for the majority which can be perceived as an unfair burden.  In some communities attempts were made to enact retroactive mandatory membership policies which were in several cases shot down in the courts.  Therefore, the club is left to fend for itself and must carry its own weight.  This can  create the need for members from “outside the gate” which often meets resistance from property owners (that benefit from the club’s contribution to property values) who didn’t bargain for supporting the cost of a membership.  If the club is member-owned this can create not only a financial challenge, but also some hard feelings in the community as a result of some feeling like others are getting a “free ride”.

With investor-owned clubs, the profit motive indicates that any club will be different than if member-owned.  This could mean either positively or negatively, depending on the club’s history and one’s perspective.  The biggest difference is the lack of a “democracy” that gives all members a voice, but often hinders progress and timely decision-making.  While many investors, especially major management companies, have extensive resources for agronomy, food & beverage and merchandising at their disposal, it’s unlikely, for instance,  that investor-owned clubs would see the same level of golf course conditioning and presentation as the most upscale member-owned clubs.  It’s simply not practical or cost-effective to maintain tournament conditions all the time and maintenance specifications can often be adjusted with cost in mind.  The number of staff might be reduced and hours of operation may change to enhance efficiency and profitability.  Sometimes, this doesn’t parallel the expectations of some members.

A POA/HOA-owned club is much like a member-owned club, except for the fact that not all property owners are necessarily members of the club, unless there is a mandatory membership provision in place.  In many instances where we’re called in, the POA/HOA is either seeking to purchase the club, expressing concerns about the operation and upkeep of the club or demanding access or operation in a manner which preserves and enhances property values.  The POA/HOA and the individual property owners can take ownership (figuratively) in the club and support it or literally and run it.  Either way, the club will have “customers” (members) as well as others (non-member property owners) with a vested interest in the club who will seek to be heard.

A most common situation in the current market is an amenity club, owned by investors with limited capital investment in recent years and some deferred maintenance.  It’s this type of situation that a club looks to leverage with the POA/HOA as an exit strategy, presuming the POA/HOA will be motivated to purchase the club to assume control of the main community amenity.  With the POA/HOA having a vested interest in preserving the club, it is assumed that they are a potentially eager buyer and thus will not only pay more for the property than anyone else, but may overlook some of the deferred maintenance items.

Conversely, I’ve also observed the opposite situation where a member-owned club that amenitizes a community makes the decision to sell to one of the professional management firms in an effort to transfer the responsibility of day to day operations of the club.  An obviously critical element here is selling to a reputable and financially solid firm that will operate the club in a manner consistent with the goals of the community to preserve property values.

I was recently asked if there were any data available about declines in property values where clubs had either gone into decline of failed and even closed.  Each situation is different and there is no “rule of thumb” or universal tracking of such data, but one can be sure that when the main community amenity declines, property values in the community decline. Thus, the POA/HOA has a strong interest in controlling (maybe purchasing) the club, if they don’t own it and understanding its operations if they do.

What’s the solution for POA/HOA’s?  First, a group should be formed to observe and study the club and its operations.  A relationship should be formed with ownership (if not the POA/HOA) with the goal of cooperation to make or keep the club stabilized and protect property values.  The POA/HOA should work to get all owners (not just the golfers) on board with the idea that the club is integral to the value of their homes.  Lastly, the POA/HOA should get itself into a position where it has the financial capability to acquire the club, if necessary and the expertise to operate it in a manner which at the very least provides for neutral or positive cash flow.