'Have We Got A Deal For You!'
No two golf course communities are the same, but most began with one thing in common: The developer's goal was to peddle as many homesites as possible, then sell the golf course to its members and move on to another project.
The process is supposed to take a couple of decades -- or more. In the early years, the club relies on financial support from the developer. This helps keep dues low and amenities high, making the club attractive to new property-buyers. By the time the developer is ready to get out, in theory, the club will be established and ready to carry on independently.
In practice, this "turnover" has been a challenge for a lot of clubs. Members signed documents when they joined saying they would take over the course at some future date, but were they really paying attention? "The number of club members who don't understand how this works is shocking," says Frank Vain, president of the McMahon Group consulting firm in St. Louis. "Someone really should have 'Turnover 101' classes: 'You agreed to pay X to join this club and, upon the issuance of a certain number of memberships, the developer had the right to turn it over to you. Now you owe $10,000.' "
The real-estate meltdown has heightened anxiety over these turnovers -- and in many cases, it has accelerated them. Now, instead of enjoying decades of developer-subsidized club life, members often watch in horror as their communities seek bankruptcy protection or sink into foreclosure. Then comes the kicker: With the developer's back to the wall, it approaches members asking them to buy the course -- immediately.
There was much turnover drama this spring at Reynolds Plantation, a high-end community outside Atlanta. Facing a severe cash crunch, developer Mercer Reynolds proposed selling five of six courses and other assets to the membership for $45 million. This was the plan all along, management insisted. It just needed to make the turnover a few decades sooner than anticipated.
The membership wasn't interested. In a resounding defeat, 82 percent of the community's homeowners voted no. "The principal reason was economics," says Joe Manning, a retired Atlanta attorney who was part of a homeowner group opposed to the purchase. "The amenities they were selling were appraised at $14.2 million. The $31 million difference was for all practical purposes a loan to the developer...and there was a high risk that money would not be repaid."
Members made the right decision, says Fred L. Somers Jr., an Atlanta lawyer who specializes in private clubs but didn't work on either side of the Reynolds deal. "This is nonsense," he says of the offer. "In a market where nobody's getting top dollar, you're not going to get top dollar."
When members are approached to buy out a developer, it's critical to assemble a team of experts who can analyze the deal from all angles. It's not just the club's finances. It's drainage, water treatment, property easements, food and beverage, and more. Somers suggests making the developer pay for the members' due diligence. "You should ask for a minimum of $50,000," he says. "Unless you've got an experienced developer on your side, it is not a level playing field."
So many clubs are going through this right now, there's no excuse for not reaching out to them and learning from their experiences. The board at Arizona's Desert Mountain visited and interviewed nine clubs in similar circumstances before buying Desert Mountain's six courses and other amenities for $73.5 million in 2010. Board president David White says the "best practices" they learned from that trip were instrumental in their negotiations, which led to a deal that won "yes" votes from 99 percent of the Desert Mountain membership.
Members of Las Campanas, a New Mexico club with two courses, would tell you to expect the unexpected. They got a shock in 2009 when, during negotiations, representatives of the bank that had taken control of the club abruptly shut it down. The board hurriedly agreed to give the company what it wanted -- a 53 percent dues increase -- and the club reopened. Negotiations continued, and the membership eventually took control of Las Campanas in 2010.
Would Reynolds Plantation ever take the same approach and shut down its courses? Not going to happen, promises Andrew Bolnick, a court-appointed third-party receiver who now oversees the property. "Our lenders assure me we will have the money needed to continue operating," he says. "It's business as usual here."
He meant that as a positive. For private clubs these days, "business as usual" doesn't sound quite as reassuring as it once did.
Do you belong to a club whose developer wants you to buy it? Somebody had better start a blog. Reynolds Plantation members learned just how valuable an online forum can be. Though the developer sold its side of the story to club members, it wasn't about to share their email addresses with the anti-buyout group. Luckily the independent reynoldsplantationblog.com served as a sounding board on the takeover. "Without question, it was very helpful," says member Joe Manning, who opposed the deal.