Tom Tingle/The Arizona Republic Keller Williams real-estate agents Darrell Lund (from left), Kendra Singer, Crystal Nicely, Amy Nelson and Ryan Melville all specialize in selling golf-related properties.Arizona golf-course owners have endured month after month of reduced patronage, forcing some into bankruptcy or foreclosure. Others have scaled down operational costs, slashed membership fees or opened private fairways to public play.
Since mid-2008, at least 15 standalone and residential golf properties in the state have entered into foreclosure or bankruptcy. Market analysts said many more are sure to follow, particularly those with outstanding commercial real-estate loans.
So far, the Arizona golf industry has not reported any permanent course closures, but many private clubs have changed hands during the past year.
Nearly all golf-club owners have been forced to re-examine their business models and make adjustments, experts said. That process often leads to deeply discounted membership fees, the addition of daily-fee play for non-members, and the postponement of planned improvement projects such as a course redesign or new clubhouse facility.
Not surprisingly, such changes often do not sit well with members who bought in at or before the golf industry's economic peak. Many paid two or three times the current rate for their memberships, enticed by promises of royal treatment in an exclusive setting.
Meanwhile, houses built along the fairways in Arizona's many golf-course communities have been no less vulnerable to foreclosure than other homes, and several real-estate agents have capitalized on their availability by niche-marketing them to seasonal buyers.
In the rough
Pessimism about the private-golf industry's future prospects is palpable among operators and investors in the sport.
Some course owners have been trying to sell their way out of what has become a money-losing business for 25 percent of private-play course operators, according to a recent U.S. survey by the Florida-based National Golf Foundation.
Across the U.S., about 100 courses have shut down during the past two years, compared with less than 40 closures during the previous decade, according to data collected by golf-industry associations.
Recent sale prices for golf courses have fallen as low as 10 cents on the original developers' dollar.
The reason, local golf real-estate expert Roger Garrett said, is that courses are being judged today solely on their ability - or lack thereof - to turn a profit.
"When they're losing money, replacement cost doesn't really mean anything," said Roger Garrett, a broker at Phoenix-based Insight Land & Investments who specializes in golf properties.
Garrett said today's buyer can acquire for $1 million to $1.5 million a golf course that cost $15 million to develop. Some courses have sold for even less.
For example, he said, California-based golf-course owner and developer Wilson Gee recently purchased Club West Golf Course in Phoenix from Pinnacle West Corp. subsidiary Suncor Development Co. for $500,000.
Garrett said the only serious buyers in today's market are those who have devised a strategy to run the businesses more efficiently while attracting a wider range of regular players.
Gee, who also owns the Ahwatukee Country Club, in Ahwatukee Foothills, the Lakes at Ahwatukee and the Duke Golf Club, in the city of Maricopa, is hoping to boost business by giving each club's members access to all four facilities.
Still, even course owners with solid recession-survival plans have had trouble keeping the faith.
Gee informed residents of the Lakes in 2009 that he was considering the possibility of shutting down the golf course and building condominiums on the property. He later decided that a condo project didn't make sense in the current real-estate market.
Battle against time
The number of Arizona's roughly 340 golf courses exhibiting overt signs of financial trouble has been increasing steadily, and the past six months of mild economic recovery haven't helped.
"If anything's changed, it's probably changed for the worse," Garrett said.
Month after month of debt repayment and lackluster revenue have pushed many course owners closer to the finish line, he added, despite nominal improvements in the Arizona economy since January.
"People can only continue to write checks for so long," he said.
Golf-course owners are getting hit from all sides: Tourism is down, fewer locals are playing, water and labor costs are up, and excess competition has forced course owners to lower membership fees and greens fees.
Adding to those challenges is a decision by some lenders to place golf courses on their "toxic-asset list," he said, which means they won't consider lending money for a golf property under any circumstances.
Three lenders that once provided the bulk of financing for golf courses - GE Capital, Textron Financial Corp. and Capmark Financial Group Inc. - have all closed their doors to buyers.
Another Phoenix-area golf club that has been fighting to stay in business recently is the Arizona Golf Resort in Mesa.
The resort, five miles north of Phoenix-Mesa Gateway Airport, was scheduled for a foreclosure sale in late June, but so far the sale has been postponed, owner Izhak Benshabat said.
Benshabat has been trying to renegotiate a $19.2 million loan from LNR Partners, based in Miami.
Angry members
For many Arizona golfers, the net result of such troubles has been positive: Most courses have lowered their fees, and several members-only clubs have opened their doors to daily-fee play.
But for some existing private-club members, the changes represent broken promises.
Among the frustrated members is Don Davis, who joined Sedona's posh Club at Seven Canyons in 2003 for $105,000.
Davis, a seasonal Arizona resident from Milwaukee, said the club's owner, Scottsdale developer Dave Cavan, has failed to make good on promises such as building a permanent clubhouse to replace the more modest "temporary" facility.
Cavan spokeswoman Cheryl Walsh said critics such as Davis are being unrealistic, given that Seven Canyons and its primary lender both are in Chapter 11 bankruptcy proceedings.
She added that the course is still well-maintained under its new, outsourced management and that Cavan remains committed to revitalizing the business.
"His goal is to not do what so many others have done, which is to walk away," Walsh said.
Davis is one of two Seven Canyons members who have been trying to organize other players against Cavan.
He said that when the celebrated Sedona club opened in late 2002, Cavan told prospective members that a portion of their entry fees would be set aside for a multimillion-dollar clubhouse.
"He was supposed to have put money in escrow to build that clubhouse," Davis said. "There's no money in escrow, and he won't say where the money is."
Course owner Sedona Development Partners filed for Chapter 11 reorganization May 27 in U.S. Bankruptcy Court, listing its remaining 150 members as unsecured creditors.
Cavan reassured members at the time that the bankruptcy did not threaten Seven Canyons' future operations.
"Seven Canyons is one of the premier golf communities in the world, and we have every intention to operate and develop this beautiful and unique property," he said in a company news release announcing the bankruptcy.
Walsh said much of the company's financial trouble stems from a time-share resort community that surrounds the golf course.
Despite selling all 12 one-month fractional shares in 230 of the community's 300 casitas, the inconsistency of timeshare-based members has made it difficult to support a full-time service staff, she said.
Two development partners originally involved in the project have since bowed out, Walsh added, leaving Cavan's company to fend for itself.
"They weren't planning to be the sole developer of it," she said.
But the biggest problem, Walsh said, has been the demise of Seven Canyons lender Specialty Financial, a real-estate investment trust that also filed for bankruptcy protection in May.
"The lender on this particular property went into bankruptcy, so the loan was basically recalled," she said.
Like many prominent Arizona real-estate developers, Cavan has more than one project in bankruptcy today.
Cavan Management Services, owner of the upscale Raintree Corporate Center office complex in Scottsdale, also filed for reorganization in June, when its lender sued.
The lawsuit was filed in Maricopa County Superior Court by Merrill Lynch Mortgage trustee U.S. Bank, which is seeking about $71 million in unpaid debt, interest and fees. The case has since been remanded to U.S. Bankruptcy Court.
Walsh said the real-estate market has wreaked havoc on all developers, adding that Cavan "feels terrible" about the situation and that he and his staff intend to make it right.
"Their goal is to maintain their projects and not to walk away from everything," she said.
Bargain opportunities
Garrett said Arizona developers overbuilt golf communities during the real-estate boom because they could charge far more for a residential lot situated along a golf course.
Now, many of those homes have been foreclosed on or sold via short sale, in which the mortgage-holding homeowner sells the property for less than the outstanding loan balance.
Ryan Melville, an agent with Keller Williams Realty, is among a number of Arizona real-estate professionals who have capitalized on the recent availability of low-priced homes in golf-themed developments.
"Arizona has more golf communities than California," Melville said. "I can show you homes for the low $100s on a golf course."
Melville and partner Darrell Lund, based in Tempe, said golf-property distress sales have created a cottage industry in the Phoenix area that caters mostly to Canadians and Midwesterners.
Melville and Lund built a website in 2008, azgolfhouses.com, which they said has led to a number of sight-unseen home purchases.
"Most of our golf buyers are out-of-state buyers who are paying cash," Melville said.
Lund and Melville, both of Keller Williams Realty, were not the only Phoenix-area real-estate agents to come up with the idea of marketing golf-course homes on the Web.
Other local Realtors operate similar sites, the names of which include azgolfhomes.com, azgolf properties.com and luxury golfpropertiesaz.com.
Lund said the number of golf homes coming on the market in poor condition has decreased, which could indicate that foreclosures are decreasing.
Still, he said there are more than enough golf-course homes available to anyone who really wants one.
"If I had the money right now, I don't know if I would build another golf course community," Lund Said.
A decadelong downswing
The Florida-based National Golf Foundation has been studying public-play golf courses and private, members-only clubs over the past decade. Two recent studies, for which research concluded in 2008, show a number of discouraging trends.
Members-only clubs
• There were 4,415 private clubs in the U.S. in 2008, supported by about 2.1 million golfers.
• On average, private-club membership was down 13 percent from each club's respective peak year, and the number of rounds played was down 17 percent.
• More than 10 percent of private clubs reported being at risk of financial failure.
• About 25 percent of private clubs said they were operating at a financial loss.
• From 1999 to 2008, 39 private golf clubs closed, and 387 converted to public-play facilities. In the same period, 343 new clubs opened, and 288 converted from public to private.
Public-play courses
• There were 11,581 public courses in the U.S. in 2008 - 2,449 municipally owned and 9,132 privately owned.
• On average, public-course operators reported rounds played down more than 20 percent from each facility's respective peak year.
• More than 13 percent of public courses reported being at risk of financial failure.
• About 60 percent said they were forced to cut back on maintenance, and 90 percent said they had to postpone capital improvements or repairs.
• From 2005 to 2008, an average of 125 public-play courses closed each year. Experts expect the trend to continue.
Source: National Golf Foundation
by J. Craig Anderson The Arizona Republic Aug. 8, 2010 12:00 AM
Golf course owners in rough situation
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