12 | OPERATIONAL FOCUS
The Challenges of New Golf Development Continued from page 11
one really good one, suitable for its market, was delivered for less than $5 million, though that number is still a significant one. Adding to this cost, the planning permission approvals and required timelines can also impact project momentum. For some, full golf course opening has been required before sales of any residential lots can commence or timing of other assets before future stages can be released.
These handcuffs have placed significant strain on cashflows and developer patience with the new golf assets which in the early years have made considerable operating losses, this being the next lot of challenges.
The Clubhouse Construction Challenge
The first component is the clubhouse and its cost. These buildings have traditionally come at a significant price, averaging over $7 million to construct, with some exceeding $12 million. That said one really good one, very appropriate for its market, was delivered for less than $1 million.
Other than cost to develop, and despite being the obvious focal point for the new “community”, the mistakes made and other challenges around new clubhouses have included:
• Traffic flow - the new communities have not provided enough regular demand (or golfers) from within to generate sufficient traffic/revenues flows to cover the fixed operating overheads and staffing requirements.
• The newly built golf clubhouses have been one dimensional, with limited other non golf or community facilities included.
• “Member only” space, if deemed necessary, was too separate and lacked atmosphere.
• The built retail space has been overly generous for the sales generated.
• Food and beverage pricing hasn’t encouraged regular visitation.
• Infrequent community events have occurred around the clubhouse facility.
• Cost efficiencies have been difficult to achieve given building layout and the services offered.
The Golf Operations Challenge
The final challenge in the golf development challenge is the financial performance of the golf operations. Over the period discussed I have seen nearly 50% of the profit and loss statements from these courses and there are still significant losses ($500k+ per annum) being experienced by many. Operational losses incurred in the first three to five years of operation have ranged from breakeven to over negative $1.6 million per year! The reasons for these results have included:
• Insufficient membership demand - Many of the courses built in the last ten years were built in markets that already had reasonable levels of supply. It was a case of we (the new courses) are coming whether you like it or not. All this did was fragment the local market and ensure that the new course wouldn’t be supported by the existing local club.
• Course was simply too hard to play on a regular basis. We want to score our handicap if we play well. What chances are you of returning if you are bashed up?
• Poor membership structures - In some cases membership was restricted to residents only (crazy, particularly when there were few initial residents who were golfers!) Others opened up as a private club, not readily accepting interested public play, designed to protect the real estate buyer - but they then quickly complained about golf’s performance.
• Initial membership pricing – didn’t reflect market, was based on cost to deliver, not perceived value.
• Insufficient, repeatable rounds demand - The public went there once or twice, played it, didn’t return frequently enough. At many the number of rounds played actually declined in year two, not increased. The goal should not have been 20,000 golfers twice a year, but 5,000 golfers eight times a year. With a good strategy such an outcome is much more achievable.
• Expense hungry F&B departments with minimal staff efficiencies able to be achieved.
• Course maintenance budgets that didn’t reflect the green fee being paid. Playing surfaces should have a direct correlation with green fees.
• High headcounts within Administration with too narrow skillsets.
So what will a new course need to be successful?
Based on what has been seen in the last ten years, the following is a list of what will be required for new golf operations to initially be feasible and sustainable over a longer term: Today’s reality dictates that any new built course will always be a mixture of members and guests. They will never be fully private so best accept it from the get go.
• An immediate membership base, in excess of 600 members on day one, growing to over 1,000 as soon as possible.
• A course that is fun to play for all level of golfer, not too hard with ball gobbling rough, with few “tricked up” greens.
• Genuine, sustainable rounds demand from the public (not just been there played it once, not going back, see comment above).
• Total annual rounds in excess of 40,000 per year, being a good, balanced mix of member and public and group play.
• An average green fee above $70 (ex carts).
• Decent levels of cart hire.
• Member and community support for day to day food and beverage.
• External food and beverage function demand from day one.
• Operations efficiency through pro shop, F&B and administration.
• A great marketing pitch that resonates loudly with the consumer.
• Course maintenance budgets in line with green fee pricing (no point spending money on maintenance it if is not returning itself through the membership or green fee.)
• Multi skilled management with accounting and marketing ability.
• Minimal debt (minimal interest cost below the EBITDA line).
The extent to which the above challenges are solved and the above needs met will determine the ultimate success of the development of “new” golf from a development perspective. One might start out by thinking it is the total development return that matters, but, based on what has been seen in the last ten years, the individual performance of the golf asset does and will quickly matter to those paying the bills.
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