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November 2013

Seeing the Big Picture

Four owners reflect on the best capital investments they've ever made

Have you heard about the golf course owner who walked into a Porsche dealership? Surely not, since that isn’t where a course owner goes with surplus capital he or she could put to work. Instead, it would be a trip to the basement with a service technician to inspect the HVAC system. Or a tour of the course to study the state of cart paths and bridges.

No doubt, some course owners will harbor more aggressive plans, depending on the size of their surplus cash or perhaps a bumped-up line of credit. In a quick tour of privately-owned courses from various spots across the United States, Golf Business studied examples of discretionary expenditures made by four different ownerships. Did they make good choices? This foursome feels the answer is decidedly yes. Here’s what they invested in and why they chose to do it.

Traffic Builder

Seeing the Big Picture: Traffic BuilderA leisurely round of miniature golf on Rich Valley Golf’s new mini-course reveals a method to owner Jeff Austin’s investment and no madness to the layout. In tandem with his son, Jason, a trained landscape architect, Austin crafted a plan about a year ago to physically connect the facility’s golf shop to its three-hole practice loop and likewise to the rest of the driving range area. The intent: increase both traffic and revenue.

Austin is a general contractor whose combined businesses derive one-third of their revenue from golf at Rich Valley. This semi-private golf and banquet facility in Mechanicsburg, Pennsylvania, boasts a par-71 course that opened 10 years ago and succeeds in good part thanks to its popular Nolo’s Restaurant.

Adding a classy miniature course was a way “to bring in a whole new population of people to experience what we’ve got here,” Austin says. In supporting his claim, he points out that golf courses “usually aren’t located on Main Street” and calls his project an attempt—a successful one—to bring Main Street to his course. Visit Rich Valley Golf on weekdays and you’ll find “the mom with her 7-year-old and two of his friends, the 20-something couple out on a date, as well as plenty of grandparents with grandkids,” Austin says. He uses tasteful signage throughout the miniature course to stoke consumer interest in all lines of business at the facility, including weddings and corporate group events that patronize Nolo’s.

Costs to create this new amenity were kept in check due to Austin’s company having the machinery and skilled labor already in-house, including the design element provided by Jason. The Austins were on the ball in noticing that miniature golf courses, as of very recently, are part of the updated Americans with Disabilities Act. “We keep tabs on trends like that for our other business,” Austin says. “You have to have at least nine consecutive holes of your mini-golf course accessible and playable.”

As it turns out, Austin considers that a positive wrinkle. “We had a couple of vans from a local senior-care facility out here the other day,” he notes. “That’s added traffic and patronage, which is good for revenue and good for the general atmosphere.”

The Law Meets Supply And Demand

Seeing the Big Picture: Supply and DemandThe first half of this decade has emerged as a golden age of distressed-property purchasing in golf—if, indeed, a trend driven by grim business conditions can have a gilded edge to it. The one-off buyer is actually not driving this market; established management groups and small consortiums seem to predominate. So when news comes of an individual who’s spending his own money and keeping his own counsel on a course purchase, it piques curiosity.

Ross Cellino, a highly successful attorney based in upstate New York, purchased Harvest Hill Golf Course and Learning Center in the Buffalo suburb of Orchard Park a year ago at a dimes-on-the-dollar price low enough to make his pro forma on the operation seem viable. The dollar amount Cellino put up was then roughly matched by his investment in a clubhouse. The highly-respected course had gone without one since opening in 2007.

“I had never purchased a commercial real estate asset before,” says Cellino, co-owner of the 50-lawyer Cellino & Barnes firm, which specializes in personal injury cases and keeps offices in New York City and Long Island as well as upstate. To hear Cellino talk, his approach to owning and operating the course is diligent and sober-minded. At the same time, Harvest Hill’s profitability isn’t an immediately pressing matter.

“As owner, I don’t draw any compensation from the golf course,” he says. “The idea is to build net earnings so we can share profits appropriately and put money back into the asset,” he says. Accordingly, he has committed to continuing the facility’s hosting of The First Tee’s local chapter.

Cellino conducted his due diligence on Harvest Hill’s performance, but Mother Nature toyed with the study of revenue figures for March. The most recent historical was March 2012, which proved unseasonably warm. This year was altogether different.

“Our business in March of this year was almost nothing,” Cellino says ruefully, “compared to that big number in the previous March. But we’ve plugged away to catch up, and we actually have passed 2012 in rounds played, with a projection of 30,000 now pretty easily in reach.”

As a contingent-fee firm, Cellino & Barnes racks up case expenses and man-hours in the expectation of settlements or awards that may take years to arrive. “In the golf business, people pay their money before they even use your product and services,” the new course owner says. “That’s nice to see.”

A Small Factory For Better Swings

Seeing the Big Picture: Better SwingsIt’s common to hear modern golf courses described as too long, too difficult and too fatiguing to play. As such, it’s rare that a company would purchase a newly minted course and openly describe it with all those adjectives, then immediately make investments to directly address the problem. But when a real estate investment group acquired Westhaven Golf Club in Franklin, Tennessee, the principals decided it was their charge to sharpen golfers’ games so that they could enjoy the course by playing it more skillfully.

Whether or not game improvement can truly be carried out on such a scale, the teaching facility the owners of Westhaven built for its members—with star teaching professional Virgil Herring the marketable name on its shingle—is the envy of many private or semi-private clubs that aim to attract and retain members.

“Golfers who take lessons and receive proper technical analysis enjoy the game more and they play more,” says Matt Magallanes, vice president of the club. “The first time I ever played this course I had a strong sense the academy project was something we should embark on.”

Loaded with the latest in instruction technology and some creature comforts to stretch teachable hours and days dramatically, Westhaven’s state-of-the-art learning center cost approximately $250,000 to construct and equip. The course is private and draws on residents of the community it amenitizes—another reason Magallanes wanted to offer highest-tech instruction. However, the academy is open to non-members and non-residents, which instantly provides an impressive feeder for both the real estate and the membership rolls.

“Our incoming dollars from outside users is pretty significant,” Magallanes notes. “On the equipment side, almost 85 percent of our gear sales are to non-members.”

What’s more, Magallanes contends that having the academy “tells people ‘this is the place’ to come and take the next steps as a golfer.” By the end of the season, the Westhaven learning center will have logged 3,000-plus lessons, with Herring booking a hefty share. “Virgil does shows on TV and on radio—between him and the academy, it’s a very strong PR platform for us,” Magallanes adds.

With early handicap comparison tables filled out, it’s even looking like the members have started to hit the ball better. And yes, management is trying to remodel the course in places to make scoring easier as well.

The Cluster Effect

Seeing the Big Picture: The Cluster EffectIn a short period of time, using industry knowledge built up over a very long period of time, John A. Brown, Jr., has crafted a formula for golf course acquisition, management and operations consulting. The proverbial best-money-he-ever-spent would have to be the acquisition price of Island West Golf Club in Bluffton, South Carolina. Why? “Because that was the course that got us actively using our cluster concept,” he notes.

Brown Golf Management is the three-year-old company the senior Brown presides over, guiding a compact executive corps that includes two of his sons—all three of them alumni of Troon Golf. The cluster concept Brown touts involves buying a public course at a low purchase price in markets like Hilton Head, Pinehurst, upper Florida and central Pennsylvania, then making the right acquisitions around that anchor facility. Island West, which sold at a deep discount “partly because the psychology of the market had sunk so low at the very point we made our offer,” prompted Brown to get busy allocating resources in the high-value way he had envisioned when he left Troon after lengthy and distinguished service.

“We’re good operators, that’s a cornerstone of our early success,” says Brown matter-of-factly. “But we make more of an effort to be consistent within each market than most people do.”

To be fair, the clusters Brown and his sons construct only work if the inherent quality levels of the properties are comparable. Then they price, market and create programming that’s consistent, with a customer experience that golfers, consciously or not, come to rely on. All of these efforts are carried out with brainpower spread judiciously.

“In a given market I don’t have four club managers, I have one—that’s plenty,” Brown says. “I don’t have four superintendents, I have two.”

The on-site managers do their oversight and decision-making at a lower level of difficulty than they would elsewhere, but they don’t get whipsawed around. “We work hard initially on our strategy, then we implement it, with the support of on-site staff,” Brown says. “There’s no new memo every Monday changing things up.”

The foundation has been laid for further speedy growth, as long as one key factor—attractive purchase prices—stays in place. “It’s hard to tell on that,” Brown muses. “We’re looking out another 12 months of it, but that’s all we’re definitely counting on.”

David Gould is a Connecticut-based freelance writer.

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