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Deferring a golf course’s capital improvements can be a dangerous game. But how can owners and managers best execute large and small projects that deliver solid ROI?
By Rob Carey
In January, hotel industry analyst STR led off its year-in-review report as follows: “The U.S. hotel industry registered record-breaking performance levels in 2017…the absolute values for occupancy, average daily rate and revenue per available room were the highest that STR has ever benchmarked.”
Not only did this take place in a market where guest-room supply reached an all-time high, but also revenue per available room (RevPAR) has grown for 30 consecutive quarters — that’s seven and a half years.
To be sure, the hotel business isn’t alone in seeing solid results for quite some time. The combination of strong consumer demand, low unemployment and low interest rates has produced a “Goldilocks” economy across the board, one that has bounced very high off the bottom it reached in 2009-2010. Of course, that bottom put many golf facilities into a death spiral. Furthermore, “during that ‘survival of the fittest’ era, even the best resort properties stopped capital infusion into their courses and clubhouses,” said Michael Sizemore, director of club management for Omni Barton Creek Resort & Spa in Austin, Texas. “For the better part of a decade, we saw deferred maintenance across much of the industry.”
Even with the cheery business news, this economic cycle will end. In fact, the seeds of decay are already being sown. With the U.S. unemployment rate at 4 percent for five consecutive months as of February, wages are expected to rise, spurring inflation. Given that scenario, the Federal Reserve Bank has indicated that interest rates will rise three or four times over the next 18 months, making mortgages, consumer loans and business loans more expensive. In total, these and other related circumstances would slow the economy. The question is, when will that tipping point be reached?
For resort golf operators, the next question is: Once that tipping point comes, what position will you be in to keep current customers and attract new ones? The last recession provided ample proof that capital enhancements should continue even when economic headwinds appear. Therefore, the long-term success of resort golf venues will hinge on how owners execute their facility-enhancement projects.
Setting Priorities and Making the Case
At Marriott, Jim Keane, senior director of operations and development planning, commonly deals with asset managers who represent institutional investment firms that own resorts.
“In the annual budget process we have some leeway to do small infrastructure improvements, while the larger items are worked out in a multiyear plan,” Keane said. “But with any item, there’s a rigid structure for us to prove value by developing a competitive set analysis. We have to prove to the asset manager that we’ll make more money if they invest in what we propose. And in our world we’re competing (in golf) against upgrades to the resort lobby, guest rooms, spa or pool. We have to prove our items can deliver a strong return on investment: more rounds, shop revenue, food and beverage revenue, family membership participation or another tangible result.”
Despite the negative effects of deferred course maintenance, some directors of golf still find themselves having to explain why planned infrastructure projects must move forward even if business dips.
“It can be tough to get some owners interested in things like bunker lips,” Keane said. That is especially true when tired carpet, wallpaper or furniture on property is easier to see.
When framed properly, course projects can be compelling.
“Turf replacement, re-grassing greens, bunker renovation and cart-path renovation are capital improvements that could give you the opportunity to raise rates,” said Jim Stegall, executive vice president for KemperSports. “A fuller redo of the course could help move the facility into a higher competitive set, while remedial capital expenditures like equipment purchases are necessary just to maintain your place in a competitive set.”
At Barton Creek, Sizemore helped conceive a plan in 2017 to renovate three of the four courses in a fairly short time frame. This was, in part, to minimize the chances the project would have to be finished in a weakened economy. Ownership approved the course plans even while the resort was undergoing a $150 million expansion and renovation of guest rooms, spa, conference center and pool. The first course renovation (which included irrigation) and a new clubhouse debuts in May; the second and third course renovations (which excluded irrigation) will debut in early 2019 and early 2020.
For all three courses, “we’re rebuilding tee boxes and renovating all bunkers — changing some and eliminating others,” Sizemore said. “We’ll also do a lot to improve drainage and trim back the course edges that grew out during the period of deferred maintenance.” As for the project’s timing, he noted, “We had the money and didn’t know when the opportunity to do something of this scope might come up again. We have no daily fee play, so we need to be the desired property for golfers traveling to Texas Hill Country. If repeat guests don’t see improvements at your facility, you’re inviting them to leave you.”
Fruitful Projects Off the Course
While the course itself is the central feature of a resort golf facility, customer preferences are evolving in ways that will require alterations to other physical assets. Resorts that focus first on upgrading member-oriented aspects of the golf operation can create a long-term advantage for themselves. Once the economy slows, that revenue from memberships can continue to fund capital improvements.
“Resort memberships have the benefit of offering access to all hotel amenities, but more resorts now have large member-only amenities in the golf clubhouse,” Stegall noted. For instance, Quail Lodge & Golf Club in Carmel, California, renovated its clubhouse a few years back to carve out a members’ lounge and outdoor patio away from public spaces, in line with a trend that’s emerged among high-end resorts. Stegall notes that members-only fitness centers are increasingly desirable.
At JW Marriott Marco Island Beach Resort, ownership purchased a second course and clubhouse in 2011. In 2014, the resort completed “a wall-to-wall renovation with strong emphasis on the member experience,” said Chris Major, the facility’s general manager of golf. The Rookery at Marco's members-only area features a game room, library, lounge, veranda, dining room and executive meeting room. Golf membership is capped at 450 and the waiting list has reached 300.
“Our owners are playing the long game,” Major said. “The membership fuels cash flow that allows us to always have an improvement happening at the courses or clubhouses to keep quality high. It makes us more recession-resistant.”
Beyond the member segment, resort golf facilities need to draw hotel guests and local residents.
“Two things have changed that resort golf must account for,” Sizemore said. “First, technological progress and family considerations have altered our internal clocks. People want everything to take less time. Second, TopGolf has shown that there is demand at the intersection of golf and socializing. So resorts have to invest in ways that give people a faster but still satisfying golf experience, which will drive new revenue, yet also serve as a feeder for traditional rounds.”
One way to do this is through practice-area reconfigurations. At Ak-Chin Southern Dunes GC at Harrah’s Casino in Arizona, at Four Seasons Resort Lanai in Hawaii and at The Ritz-Carlton Reynolds Lake Oconee in Georgia, the practice ranges have been reimagined with new tee boxes built along the perimeter and upgraded target greens so golfers can play pitch-and-putt rounds on the range. The cost of play is incorporated into the resort fee for guests or priced reasonably for outside visitors. At JW Marriott Marco Island, there is now a daily fee for unlimited practice-area usage for non-hotel guests.
Other new experiences can be created through facility improvement.
“Bringing food and beverage up close to the practice range makes it a gathering spot where people of all skill levels will want to spend more time,” Sizemore said. “If a property chose to put a comfortable F&B element at the foot of its range, that might turn out to be a game-changer.”
In fact, at Colwood Golf Center in Portland, Oregon — a municipal facility — KemperSports oversaw the construction of a curved patio featuring highboy cocktail tables set behind the range’s hitting stalls. Since its 2017 debut, the new offering has brought in a stronger after-work crowd plus more families on weekends.
“Now, people are often waiting for a hitting stall, and they’re okay with that because it’s comfortable and they’re eating and drinking,” Stegall said.
The “linger longer” philosophy that backstops such facility improvements also extends to the clubhouse’s F&B and lounge offerings.
“Besides the traditional golf crowd, there are more people now who just want to wander over for a muffin and a coffee and practice a bit, or simply watch,” Keane said. “So both the F&B space and the service style have to be conducive to what people want.” His recommendation: “Easy accessibility and good choices for people who want to just grab and go, but also friendly wait service offering sit-down patrons trendy, interesting food and craft brews. The space should be nice but not too fancy, appealing to the casual lifestyle that everyone subscribes to now.” It could also include features such as large windows with golf views or fire pits and soft seating in an adjacent outdoor space.
But the projects that produce some of the most favorable ROI are those that usually cost the least: outdoor event spaces. Whether it is a covered pavilion with a concrete floor, a gazebo or simply an event lawn with perimeter landscaping.
“These things can cost just a few thousand dollars but bring a big payoff,” Keane said. “Our directors of golf are also in the wedding and special-event business. Both meeting groups and social groups love to use the golf areas, even if most attendees are not golfers because it’s a scenic spot. The contribution that weddings alone make to our golf P&L statements is incredible.”
At Marriott Grande Lakes GC in Orlando, the clubhouse and its surroundings have been restyled in recent years to better accommodate group dinners and receptions. “Between those events and the growth of resort membership, we had to convert space for a private dining room and a conference/function room,” Keane said. “We also added an event lawn behind the clubhouse that looks across the lake down 18 fairway towards the JW Marriott and Ritz-Carlton hotels. The lawn is a killer nighttime venue. We get a lot of groups that want to hit shots from a mat to a floating island in the lake.”