August 26, 2009

Lemonade For Sale

Jim Taylor and Chip Hanly

Jim Taylor and Chip Hanly

Jim Taylor is the first to admit his timing was less than ideal. Co-owner and developer of Clear Creek Tahoe, a new high-end golf club near the California-Nevada border, he bought the property in mid-2007 -- as demand for such developments was peaking. Undaunted, he and co-developer Chip Hanly (on the right in this picture) went ahead and built a Bill Coore/Ben Crenshaw-designed course on the site and opened it this summer, right in the middle of a worldwide economic slump.

"To say it's contrarian would be an understatement," Taylor conceded in a recent interview with Deeds & Weeds.

Taylor and Hanly originally planned to sell 384 lots near the course along with a like number of memberships. But the brutal economy iced that idea. So now they've had to readjust their marketing plans -- indeed, their entire business model -- to reflect the new reality. The two decided to "mothball" their real estate sales operation and focus instead on selling the golf club.

The goal is a membership of just under 500 golfers. They hope many of these members will eventually get around to buying a lot and building a home...but members are under no obligation to do either. In the meantime, Taylor and Hanly -- who made their money in southern California and Arizona property development -- are essentially financing the club out of their own pockets.

"The reality is, the circumstances changed and we reacted to them," Taylor says. "It took away some things. It also gave us an opportunity to really reach out to a membership that wasn't driven by real estate but by people who want to actually be part of the amenities and who we can invite to join. We have an opportunity to put together a really fun club."

Handed lemons, in other words, they're giving the lemonade business a try.

Will it work? Impossible to know, of course. But Clear Creek Tahoe does offer an interesting window into the world of high-end golf course development these days. Here is my Q&A with Jim Taylor, in which he discusses his five- to 10-year time horizon for making money on Clear Creek Tahoe, why Arizona's Whisper Rock serves as a sort of model for his club, and more.

-- P.F.

Jim Taylor, co-owner/developer

Clear Creek Tahoe

Q. Even a casual reader of Deeds & Weeds would probably guess this is not the greatest time to be opening a new golf course community.

A. There's no question. To say it's contrarian would be an understatement.

Q. Has the plan been underway for a long while?

A. My partner and I, Chip Hanly, purchased the property in May of 2007. A number of golf course architects had made a pitch to route a course up there -- including Nicklaus, Jones, Greg Norman and then around the time I first got involved we had Fazio up and also Tom Doak. When Chip Hanly and I actually closed on the purchase, we shifted gears when we learned Bill Coore and Ben Crenshaw might be available to do the project. The land is so unique, we felt it needed an architect ...and Tom Doak would certainly be in that category ... that would find the golf course on the land and not make a golf course on the site, if you follow me. So Bill Coore came out and spent 10 days at the property before he agreed to take on the assignment. But getting back to your original question, we felt we had a unique opportunity to get Bill and Ben to do the project.

Of course, hindsight is 20/20 but at that point in time we felt that it was a fortuitous set of circumstances to get a piece of property special enough that they'd be willing to go forward, and No. 2, to fit into their schedule, because they only do one or two a year and don't vary from that rule. So we felt, "Let's grab 'em; let's go," and we immediately commenced moving forward with the golf course. We did not want to miss the opportunity of having them be our architects. The high-end market appeared to be unaffected by what was going on [in the economy].

Q. Did you ever give any thought to putting it on hold?

A. It got to a point in 2008, when the golf course was finished and we had to decide whether to open it or mothball it, we had a discussion of whether it would make sense to move forward or not. And we decided we had something so unique, provided we position ourselves properly in the market, that it made sense to go forward in spite of the circumstances that the world seemed to be going through. We decided it was in the best interest of the project to open it and to expose it to the people ... but we were already deciding at that point that it was not the right time to move forward with the infrastructure for our subdivision and we were simply going to mothball the real estate.

Q. What about the course is so unique?

A. We have an extraordinary setting. It's actually an ancient landform; it's a saddle between the eastern face of the Sierras and this really remarkably dramatic outcropping that towers up to 6,500 feet. ... This is basically a flat piece of land that sets in a mountainous setting. ... The site itself has hundreds of thousands of beautiful pines. And the soil is just remarkable -- it's basically composed, decomposed granite. The soils are such that we did not have to important any soil except for bunker sand.

Q. Where do you find people who will come and join this club?

A. Here's our analysis of the market, which is proving to be correct: The area we're in, which is oriented to the south and eastern end of the lake, does not have an outstanding private golf course. In my view. The places where people tend to be members are Edgewood, which is a beautiful setting and a decent course, but it's public play, and Incline Village, I'd say the same thing about it, and then Genoa Lakes. So the clientele that lives in that market area is there typically seasonally, has homes in the California and Arizona desert or the Bay Area, and they belong to outstanding clubs in those locations. They don't have the same quality golf experience available to them during the summer time when they're up at Lake Tahoe. We feel that is our primary market and that's where our primary interest has been coming from. And also the Carson Valley, Gardnerville, Minden and also to some extent Reno. We just had a member join from there, who's a member at Montreux. Even though it's a bit more of a drive, he's decided he prefers to be at Clear Creek...

We think we have something very unique. It's well positioned in the market, and it is in Nevada so when we sell real estate that's something people will take into consideration. And I think it's also a matter of price. We priced what we're offering at a level we feel is very appropriate to ... it's a compelling number in comparison with what somebody gets. Candidly, we feel there's a lot of people who are members of equity clubs that they basically can't get out of, whether they use them or not. And their dues are very high. There are clubs that have big clubhouses...What we've attempted to do is make it possible for someone to join Clear Creek for a relatively modest cost at this point in time.

Clear Creek Tahoe

Q. It's $30,000, right?

A. Well, it's $50,000 -- with $30,000 now and the extra $20,000 when we start our new clubhouse. That gives them full privileges at all the amenities. And then our dues are $5,000 a year. So we feel that, given what somebody is able to enjoy, that it's a very good value. The corollary is that if somebody decides to leave, they can resign and the dues stop and we'll refund their money from the next sale of the membership. It's relatively easy to get out -- and we feel that's an important ingredient in today's market.

Q. How many memberships have you sold?

A. Twenty two so far this year.

Q. And what's your goal?

A. Our membership cap is 495. Probably by the end of the year, we'll have 30 or 35 memberships sold.

Q. How has the changing economy changed your marketing plans?

A. We have 384 lots that we're permitted to sell. We decided last year we were not going to move forward with the lots, but because we were moving forward with the club we basically had to come up with a new business model. Basically, we're going to try and reach out and invite a great group of members to join -- not obligating them to purchase real estate, simply join the club. If you will, we're letting the club membership create our neighborhood. Now, a lot of the people that are joining have a near-term or long-term interest in owning real estate in the project. The old model for most of these things is to have a highly amenitized real estate project and require a real estate purchase as a condition of membership. We decided that is not working, would not work for us, and the reality of the circumstances caused us to reevaluate how we were approaching it.

There's always a silver lining in these things, and it does allow us to go out and really reach out to people who, if we required them to buy real estate, would not consider joining. Because of that, we have some really fabulous members joining and in some respects I'm almost...I mean, I'm not going to sit here and tell you for one second that I ... I mean, I would welcome to have the old model working and us be making money hand over fist selling real estate, but the other side of this thing is it allows us to put together a membership that's driven by the membership and not just because you bought a piece of real estate. It's a different mix of people.

Q. It's like an old-fashioned club.

A. And that's the way we're approaching it. You know, obviously there can't be a better example of somebody doing something that way really well then Gregg Tryhus over at Whisper Rock. I'm not suggesting for a second that we're going to have a club like Whisper Rock. But that's a wonderful club, and the real estate component is completely separate from it, and it's a fun place to be a member.

Q. How does it work for you financially, though? Didn't you originally set up the deal so it was dependent on you selling those lots?

A. Yeah. These clubs are expensive to run. It's no question that right now we're writing checks that aren't supported by real estate sales. But we will eventually sell real estate there. And our business model for selling real estate still works just fine. We have very little debt on the property and I do expect to get that taken care of by the end of the year. We just have a very modest amount of debt in comparison with the money we put into it. It's basically all equity. We have a great exit strategy, it's just going to take longer. ... We've used this also as an opportunity also to really take a look at what kind of a club we're going to be, making certain as we move forward with amenities, that we do so in way that the club can be sustainable economically without high dues. And, so, we're going to end up building a beautiful clubhouse in a spectacular setting but it's not going to be one of these giant clubhouses. It's going to be a modest clubhouse, the kind you think of with some of these other great courses where it's about the golf and the other amenities and it's not about a clubhouse having a ballroom.

Q. Is that a change you made because of the economy? Was your original plan for a clubhouse something larger?

A. I think we had an open mind about it. We've always said we wanted our clubhouse to feel intimate when a normal amount of people are there and feel very crowded if there is a major event, which we would then be using tents or something. That's always been our tendency, to not have a big clubhouse. But there's just no question that the world of potential club members does not want to be burdened by a big clubhouse and a big labor component that compels high dues. We need to be very careful about that?

Clear Creek Tahoe

Q. What other sorts of changes have you made to reflect the current economy?

A. We have a significant numbers of green and environmental things we've done at the property which we believe are market-appropriate but also save money. Among them are recycled water that we use to water the golf course; it comes from incline village. That's a major savings for us and it gives us an ample supply of excellent water. We're going to be using solar power and geo-thermal power to the extent it's practical up there, but given our orientation, it will be significantly feasible. All of our drainage on site, rather than going to the expense of installing curbs and gutters and culverts and concrete work, we've had swales and natural drainage engineered into the actual contours of the property, so the water stays on site. That's a good result but also saves money in terms of construction costs. We've increased the number of members to keep the dues down, from 395 to 495. Another thing too was the architects we used. We only used 55 acres of sod. We left a lot of areas natural, which is a typical Coore/Crenshaw trademark, but it also produces substantial savings in operations.

Q. Any other examples of how the changing economy is affecting your plans?

A. In order to maintain the golf course so its condition reflects the quality of the course and the membership we expect to play it, there's a certain level of expenditures that you just have to go to. But there are a number of things where you have choices about what else you take on. What we have so far is the lake house, the golf course and the fishing ranch. The common areas at the golf course consist of a really pretty halfway house -- we call it the Swiss Station -- that was built from local materials. Our temporary clubhouse, which will be made from wood, came from on site. We're going to proceed slowly with any addition common areas, most particularly in the clubhouse. The next major we're undertaking will be that clubhouse.

Q. When will that be?

We're going to have to get to about 125 members before then. We may or may not sell real estate next year. We're actually considering going forward with our first phase of real estate next year.

Q. That would free up some money, I suppose, for the clubhouse.

A. Yes, but we need to be sure. There's another side to it -- you have to bring up some infrastructure and that has to be paid for too. We wouldn't do it obviously unless we thought there was sales interest to support going forward.

Q. Until then, you and Chip Hanly are basically just financing the club yourselves? You're writing checks to keep it going?

A. Yes, and if you have a better idea I'd like to hear it!

Q. But you feel comfortable you can do it that way for a while?

A. Yes, we feel comfortable we can do it that way for a while. And we'll eventually get our money back. As I say, we have very little debt on the property. We feel the project is going to be successful. It's just going to take longer to get it where it will be successful from a financial perspective.

Q. How long do you think that will take for you to make your money back?

A. I think five or 10 years is a reasonable expectation.

Q. During the peak years of golf course community development, people wouldn't have waited that long.

A. I think the business model pioneered by a lot of other groups, including Discovery Land Co., their peak capital was in and out in the first year or two. It's a completely different world we live in now. If you have a successful real estate project and you can pre-sell lots before you close on the land, you're out before you're in!

Q. Do you and Chip Hanly imagine yourself there at Clear Creek after you've made your money, or do you move on?

A. This is a labor of love for us. We weren't looking to do this when this land became available. We just felt like it was too special to ignore. This was just such a unique opportunity, to have the opportunity to buy this land and put together these other two amenities. They all didn't come together. We put them together to create a club that had features we felt, if we were going to join a club, that would be ideal in this market. So we feel like we have something that is extraordinary. My primary home is in Southern California, Santa Barbara, and I miss [Clear Creek] when I'm not up here playing golf. I love this area. We all want to have homes up here. Even Bill Coore and Ben Crenshaw are building a home up here. This is not just one of a series of projects for us. This is, and I speak for all us, this is kind of a legacy project. We've all chosen to be involved on different levels of this thing because it's a one-of-a-kind project. I think the timing is obviously troublesome, from an economic perspective, but in every other respect this is an extraordinary project and it will be successful.

Clear Creek Tahoe