_Mar/slowandsteady.jpg "Slow and Steady")
By Steve Eubanks
Drawing on lessons learned from the real estate bust, Toll Brothers is taking a cautious and calculated approach to growth with its golf division
He knew the model—he’d seen it hundreds of times. During a 28-year career with ClubCorp, David Richey lost count of the number of homebuilders he’d watched get into the golf business with naïve dreams and ridiculous expectations.
“They wanted to build what we called ‘Big Boy Clubs,’” Richey recounts from his office on the Virginia side of the Washington Beltway. “They all wanted to see who could build the biggest Big Boy Club that was going to cost $50,000 to join and jump to $300,000, and all you needed to do was sell it to 300 guys to make it work.”
That idea of the opulent club driving expensive real estate worked for a while, as long as the market for million-dollar homes remained solid. But once developers had sold all their homesites, they were left with cash-sucking clubhouses and golf operations that were going to lose $200,000 to $500,000 a year until the Rapture.
“And they all convinced themselves that this was going to work,” Richey adds. “Now look at how many of those clubs are in serious trouble today.”
So when Bob Toll, chairman of Toll Brothers, one of the country’s leading builders of luxury homes, approached Richey about running a golf management division within the much larger Toll Brothers company, Richey was up front with his new bosses.
“I got people to listen to me, especially when it came to big clubhouses,” Richey says. “All the clubhouses that are part of our group are tastefully appointed, but they also make business sense. We make a very good margin in our clubs by keeping our quality above the competition, while we make sure that our pricing is competitive with our competition.”
Richey admits to knowing his place—as a “side business” for a very large company. But golf isn’t a sideshow. Toll Brothers has more than 290 communities with homes that start in the $800,000 range, 13 of which have profitable, private golf operations.
“We have done well, although we saw quite a bit of a dip in the homebuilding side in 2009 and 2010,” Richey says. “Fortunately, most of our clubs were mature enough and many people were already in a club membership. So we fared well. We didn’t have the down years or double-digit loss in membership that you saw from other parts of the business.”
By the latter part of 2010, Richey was looking to acquire clubs outside the traditional development-centered model. “We were able to add a couple of very nice clubs during that time: Hasentree Country Club in Wake Forest (North Carolina) and Parkland Golf and Country Club outside of Fort Lauderdale. And we purchased the Snowmass Club in Colorado, where we’re never going to build a home. That’s a completely different model.”
So how has Richey been able to operate high-end development clubs at a profit where others have failed? By adapting to the changes in attitude and expectations among his clientele.
“We’re the only business left where if you want to join a club, you have to be mailed an application or print one out and fill it out by hand,” Richey says. “There are two generations of people who expect to fill out everything on their phones. We, as an industry, have to live in the world that customers are in.”
In Richey’s estimation, the golf business, at least at Toll Brothers, must ensure it is “part of a bigger experience” that extends beyond the golf course. “Every event has to have a purpose,” he notes. “For example, we don’t do a golf event without a social event. And we try to integrate kids into some aspect of everything we do.”
A good example of that “experiential” difference is Thursday nights at the Belmont Country Club in Ashburn, Virginia. Richey brought in acclaimed instructor Mitchell Spearman to operate his golf academy out of the club, but Thursday nights are family nights, when the golf tips are free, music is turned up, and drinks are available for everyone.
“It’s a destination, an event,” Richey says. “People are making Thursday nights on the range the place to be. Kids meet kids, fathers bring daughters, and families come together, spend time on the range and then go to the club for dinner.”
Richey is also bucking the traditions of higher-end clubs by adding golf carts that have USB ports so that people can not only take their phones onto the course but also charge them while they play. “People enjoy listening to music while they’re out there,” he says. “What’s wrong with that? We can’t be taking the fun out of the game. We have to be adding fun back into the game.”
Toll Brothers will have one more club coming online in the late spring, a project in Maryland just 20 miles from Washington that was closed for 18 months before Richey and his team took it over. “They tried to be a private club at $25,000 and it didn’t work,” he notes. “We closed on the deal in June of 2012 and will open again in May of 2015, so it’s a long process to get back.”
There are a lot of those clubs out there, and Richey plans to cherry-pick a few here and there. “We’re at a size now that allows us to have a lean staff but a top staff,” he says. “I’m not looking to acquire any standalone clubs now, but the company is continually looking for golf residential communities that fit our profile. We think that’s a cautious but smart way to grow.”
Steve Eubanks is an Atlanta-based freelance writer.