Saturday, December 31, 2011

worth reading Nightmare on Elm Street

Not so long ago, golf courses and upscale housing were the yin and yang of U.S. residential development –- a pure, unadulterated expression of the American dream. And nowhere in the nation was the seemingly insatiable hunger for a house alongside a fairway more evident than in the Coachella Valley of California, where dozens of private golf communities took shape around courses designed by some of the world’s most famous architects.

Today, houses in those communities aren’t selling, nor are memberships in their high-priced golf clubs. The bond between golf and real estate has been broken, perhaps forever -– and not just in California.

Mike Perrault of the Desert Sun recently reported on the current relationship between golf and housing in the valley. Here’s a condensed version of his story:

The green-grass playgrounds of Palm Springs, Rancho Mirage, Palm Desert, Indian Wells, and La Quinta -- loved by retiring and relaxing presidents -- are bleeding money and members.

The recession exposed the vulnerability of the business model that created an unbreakable linkage between golf and real estate.

“We’re entering a new normal; we’re in a recasting era,” said Pete Halter, chairman of The Halter Companies, an Atlanta firm that advises developers. “We can’t think that this will be over soon. Things have changed for good.”

Among the forces reshaping the relationship between golf and real estate:

-- Fewer people play golf, and baby boomers don’t have the time, money, or interest in the game their parents did. The number of golfers in the U.S. has fallen by 13 percent in the past five years.

-- A glut of club memberships. There are at least 12,000 openings in the Coachella Valley. Nationally, golf memberships have dropped by a million since the early 1990s.

-- The housing bust. Nearly 25 percent of homes for sale in the Desert Multiple Listing Service are on golf courses.

There’s much at stake, said Robert Borsch, partner at Club Mark Corporation and president of the homeowners association at Desert Mountain in Scottsdale, Arizona, which is touted as the world's largest private golf community.

At a typical country club, a 65-year-old member might spend $95,000 a year on dues and fees, Borsch said. That translates into about $1.4 million across 15 years. So a club with 500 members would take in about $700 million during that period.

For 80 clubs in the valley, that comes out to about $56 billion, Borsch estimated. . . .

Of 3,400 courses built across the country during the past decade, 93 percent are daily fee courses. Private membership courses, predominant in the Coachella Valley, are in competition with courses designed to cut costs and attract cost-conscious golfers.

“The places that are membership-driven have a lot more competition,” said Michael Horne, whose Palm Desert-based real estate firm, the Horne Team, works mainly with clients in Sun City Palm Desert and Sun City Shadow Hills. “Spending membership dues and using a course three or four months -- it's a tough sell versus pay-to-play.” . . .

The chatter nowadays at cocktail parties and driving ranges is often about friends trapped at declining communities where memberships are drying up and homes don’t sell, Borsch said.

Residents at Palm Desert Country Club lived through the nightmare. After its owner filed for Chapter 11 bankruptcy protection in 2009, the fairways died and the ponds stagnated. A new owner bought the club in September, promising to restore its luster.

But even when the economy recovers, golf industry analysts are even more concerned about societal changes.

Many younger people would rather spend time with family than hours on a golf course. Or they’re more focused on iPhones and iPads, electronic games, playing tennis, taking yoga and Pilates classes.

Those who are interested in a country club demand that the communities have amenities such as health spas, gardens, tennis courts, and other outdoor pursuits. . . .

Developer William Bone is chairman of Sunrise Company, which has built more than 12,000 homes in the valley at places such as Indian Ridge and Royal Oaks country clubs and Marriott’s Rancho Las Palmas Resort.

Sunrise’s latest project is the upscale Toscana Country Club in Indian Wells, where about half of the proposed 646 homes have been sold since 2004. About 40 million-dollar homes have been sold so far this year, a welcome trend considering as few as a dozen were sold during some previous years.

Bone has seen his share of economic downturns in the valley since he started building in 1973 on large swaths of land in Rancho Mirage. And he has noticed the popularity of golf is cyclical.

Bone said he believes there will be a rebound to this economic slump as well, with the caveat that other, larger forces are at play.

“I think you’re going to see more limited growth going forward,” Bone said. . . .