Golf Gets Into Swing of Business : Aging baby boomers are giving up aerobics for less strenuous exercise. Home buyers are putting a premium on lots near fairways. That’s made golf a hot commodity.
Golf is as much a real estate play these days as a recreational game.
Take Bob Hope. The entertainer is willing to sell, donate and trade a total of 5,700 acres, mostly in the Santa Susana Mountains, for 59 acres of federal land that are essential to his proposed championship golf course and residential development in eastern Ventura County.
Laguna Hills developer Barry Hon doesn’t even play golf, but he just agreed to pay $275 million for 6,700 acres of undeveloped land in Riverside County, where a golf community will be built.
Golf-crazy Japanese investors now own 30 courses in California.
The new game in golf is buying, selling and developing courses. From Bakersfield to Marco Island, Fla., golf is booming. Annual U.S. spending on the game is expected to double to $40 billion by the year 2000 from $20 billion in the late 1980s. Expenditures for golf-related travel, lodging and real estate accounted for 47% of the spending. Equipment, greens fees, membership dues, lessons and cart fees accounted for the remainder.
“Our country is under-golfed,” said Jack Barthell, a partner at Kenneth Leventhal & Co. in Los Angeles, an accounting firm that specializes in real estate. “Golf has become a hot commodity.”
Home buyers are willing to pay a premium of $30,000 to $100,000 for lots facing a fairway. Resorts offering golf amenities are increasingly the No. 1 choice for vacationers and conventioneers. Some golfers shell out as much as $175 a round to play on such privately owned courses open to the public as Pebble Beach Golf Links.
Golfers are also flocking to municipal courses, some of which host up to 100,000 rounds a year.
Driving the demand for courses are aging baby boomers who are giving up aerobics, jogging and health clubs for a sport that usually puts more strain on the nerves than the body. The number of golfers rose to 24.7 million in 1989 from 17.5 million in 1985 and 15.1 million in 1980, according to the National Golf Foundation. The nonprofit trade group estimates that 30 million will be golfing by the turn of the century.
Another factor pushing golf course development is builders’ fears of future restrictions. Although golf courses can help fulfill zoning requirements for open space, environmentalists criticize them for their heavy use of water and chemical fertilizers, which can produce toxic runoff.
Economics and baby boomers are changing the character of golf. Once considered a mostly white, male, country club sport, golf is played by a broader spectrum of players: About 45% of all golfers are clerical and blue-collar workers, and women account for 40% of all new players.
“If golf ever was elite, it clearly is not now,” said Robert D. Thomas, a spokesman for Southern California Golf Assn. in North Hollywood. “Really, only a fraction of the people belong to an organized club.”
Most of the 13,728 U.S. courses are municipal courses--the cheapest places to play.
Not since the heyday of President Dwight D. Eisenhower has the interest in golf been so keen.
“Golf is a growth industry,” said John T. Martin, corporate vice president for residential marketing at the Irvine Co. “With higher incomes now, an aging population, earlier retirement, flextime, more holidays and more residential mobility . . . there is more demand for golf courses and golf course communities between now and the year 2000.”
The National Golf Foundation estimates that 4,000 new golf courses, or one a day, need to be built by 2000 to provide golfers with enough places to tee off.
Nationwide, 400 new courses are in planning or under construction this year, up sharply from the 190 new golf courses opened in 1989, according to the National Golf Foundation. California is second only to Florida in ongoing course construction but is No. 1 in course projects in the planning.
A decade ago, builders wanted to unload golf courses as soon as they built them. “They did not want to manage them; it was a burden,” explained William H. Sherman, of Golf Realty Corp./William Sherman Co., a San Rafael golf consulting firm.
Today “that is pretty much a thing of the past. Golf courses do generate revenues and do have a value unto themselves,” said Dan Azark, vice president in charge of golf courses at Hyatt Development.
At Marriott resorts, for example, not only do golf courses help to fill rooms, they operate as profit centers on their own, according to Roger Maxwell, vice president of golf operations and development for Marriott Corp. Marriott recently created a new division to market golf management services to developers of free-standing public or private courses.
Existing golf courses are generating more revenues because of the increased number of players and rising greens fees, membership fees and other fees, which have gone up 15% to 20% during the past couple of years.
With the popularity of the game and the shortage of courses, builders are finding that home owners are willing to pay a minimum of a 15% to 20% premium to live near a fairway in a new residential development. Typically, those premiums go to finance construction of the courses, whose costs range from $3.5 million to $6 million for an 18-hole municipal course to $10 million plus for a resort-quality one.
Determining whether to add a golf course to a development takes careful study. At Irvine Co., for example, if a 750-acre project is proposed, Martin said the company will assess what the impact would be if the standard 150 acres for a golf course were set aside, leaving 600 acres for homes. Then, Martin said, the planners ask themselves: “Are we at least as well off because the land has gone up in value on the 600 acres as compared to the 750 without a golf course?”
A recent evaluation on an Orange County site indicated that property values would rise 20% to 25%, Martin said, adding: “We’d probably make the decision to go with the golf course scenario. Once we decide to go with a golf course, the type of housing changes significantly. . . . One of the reasons you can get better land values is you can appeal to different types of buyers” who are interested in more expensive housing with a golf course amenity.
A golf course is the centerpiece at Irvine Co.'s Tustin Ranch development. The first phase--single-family detached homes, townhouses and some apartments, located off the course--featured moderate prices of $200,000 to $300,000. The next group of homes, located closer to the course, went for $200,000 to $500,000. More elaborate homes, being built closer to the course, are commanding $600,000 to $700,000.
The cash flow from land sales financed the Tustin Ranch golf course, which is open to the public at $45 a round during the week and $60 (with a cart) on the weekends. “In Tustin, it was flat as a pancake; we did lot of contouring,” Martin said. “It looks like a desert course and has brought a different quality to that area.”
Resorts have accounted for one of the biggest and most significant expansions in the golf course business, according to consultant Sherman. At Newport Coast, a new Orange County development, two 18-hole golf courses will open next summer, well before either the Marriott or Hyatt resorts are opened at the site. But already 50% of play time has been set aside for guests of the resorts.
“If there were no golf course, there would be no resort,” explained Doug Geoga, executive vice president of Hyatt Development Corp. A resort these days must offer golf or an ocean location.
Another reason to add a golf course to a resort is financing, according to Geoga. He said most of the money to develop resorts is coming from foreign investors, who consider a golf course “a very attractive, essential element in terms of financing desirability.”
Meanwhile, prices of existing courses have risen, but it’s difficult to track the increases because many courses transactions are private. “The appreciation has been dramatic,” said Barthell at Kenneth Leventhal & Co. He said a course on the market for $20 million a year ago now has an offer of $40 million. Japanese investors, in particular, are bidding up prices into the hundreds of millions of dollars for big-name, “trophy” courses.
Laguna Hills developer Hon originally had offered to pay $967 million for the prime golf properties of Landmark Land Co., a leading golf course and resort developer. But Hon had to settle on one piece of it, the Riverside County property, after federal regulators objected to his financing arrangements.
For all the hoopla about golf, however, some in the business are becoming cautious. “It is a booming business but a rapidly maturing business,” said Joseph L. Guerra, vice president for development, at American Golf Corp. in Santa Monica, which owns or operates 125 golf properties nationwide.
“In the last 24 to 36 months, prices have been going up, there has been heightened competition, margins are going down,” Guerra said. “Our greatest strength is that we’ve been in business for 20 years, we have some tremendous cash cows on existing properties, but prices of new ones are going up.”
* The Demographics: Of all Americans age 5 and up, 24.7 million, or 10.8% of the population, played golf in 1989. The 19.3 million men who played made up 78.2% of all golfers. Of all males in the United States, 17.5% played one round; 4.6% of all females did. The largest age group for U.S. golfers is 20-29: 16.2% of all Americans in that age group (6.6 million) played a round in 1989. They accounted for 26.7% of all U.S. golfers. Of all Americans with incomes of $75,000 or more, 20.5% played golf; 31.8% of all golfers make less than $30,000. By occupation, 46.1% of all U.S. golfers are professionals/managers/administrators. 17.8% are in clerical work/sales; 27.3% are blue-collar workers.
Top 10 States in Number of Golfers
California: 2,624,000 New York: 1,472,000 Illinois: 1,430,000 Texas: 1,370,000 Ohio: 1,291,000 Michigan: 1,267,000 Florida: 1,214,000 Pennsylvania: 939,000 Wisconsin: 739,000 Minnesota: 694,000
Total number of golfers, rounds played and total as percent of total U.S. population.
Rounds golfers played participation Year (millions) (millions) Rate in% 1970 11.2 266 6.0 1975 13.0 309 6.5 1980 15.1 358 7.2 1986 20.2 421 9.1 1987 21.7 434 9.7 1988 23.4 487 10.4 1989 24.7 474 10.8