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April 2018

Taking Control

TakingControl.jpg‭One of America’s top builders learned the best way to drive residential sales on golf courses was to own the course itself.
 
By Kyle Darbyson
 
Nearly any other time, the owners of Hasentree had a “can’t miss” plan. Build a high-end private golf course, surround it with massive lots and sit back while executives in Raleigh, North Carolina’s burgeoning banking, health and education sector flooded in with their families.
 
The problem was, just as the plan was taking shape, the worst recession in recorded history hit. Hundreds of lots sat empty, the long-promised clubhouse failed to materialize and dozens of early equity members languished under the threat of foreclosure.
 
Enter Toll Bros., one of the country’s most renowned builders of luxury homes. For the Fortune 500 company, Hasentree was an attractive potential acquisition in an upscale market. But there was another reason Toll Bros. looked long and hard at Hasentree — at the time the company was aggressively growing its golf course ownership division.
 
 “We’ve always viewed golf as a conduit to home sales,” said Maurice Darbyshire, president of Toll Golf, the division within Toll Bros. that oversees golf operations. “We weren’t getting the level of support we needed from outside management companies.”
 
That fracture with third-party operators started when Toll Bros. developed the real estate around Blue Bell Country Club near its Pennsylvania corporate offices. During construction, the company sold the golf operation to a third party.
 
“I am sure you can appreciate that a for-profit management company’s goals were different than ours,” Darbyshire said. Capital expenditures and other reinvestments that should have gone into the club simply weren’t. Toll Bros. expectations of service and the management company’s efforts eventually came to a head.
 
“We decided that if we wanted the clubs to become the epicenter of the communities we were building, we needed to control the assets ourselves,” Darbyshire said.
 
The company began retaining ownership in golf properties, accumulating nine courses including Oak Creek Country Club in Maryland and Snowmass Club in the Colorado Rockies.
 
Darbyshire explained that the success of the golf division lies in the balance it strikes. “We act as a hybrid between a for-profit club and an equity club.”
 
The company looks for efficiencies and ways to drive down costs but never at the expense of the member experience. “The profitability of the golf club doesn’t affect our share price,” Darbyshire said.
 
Even with this unconventional business model, Toll Golf has produced consistent revenue growth, which has led senior managers to expand course ownership beyond the footprint of Toll Bros. developments.
 
Their timing was perfect. The recession left a glut of underdeveloped high-end properties on the market, golf clubs with boundless acres of surrounding real estate. “There is tremendous value for us in those empty lots,” Darbyshire said.
 
Their first purchase was Parkland Golf and Country Club in South Florida in 2010. The development was envisioned as a gated, private community of 800 homes surrounding a Greg Norman-designed course. When Toll Bros. took over, nearly half the home-sites were empty and the clubhouse sat semi-complete.
 
“We immediately extinguished all the equity memberships and paid everyone out,” Darbyshire said. In line with their desire to create an inclusive product, the new owners offered competitive initiation fees and monthly dues. They completed construction on the clubhouse and financed on-course improvement — all welcome investments in a community teetering on collapse.
 
That same model came into play when Toll Golf zeroed in on Hasentree. “We already owned a facility quite close and were very confident in that market,” Darbyshire said.
 
The market also was saturated with golf options, so again, Toll Bros. refunded members’ equity stakes and introduced appealing fee structures to Hasentree homeowners. “You just can’t ask someone who has already invested $500,000 or $1million in a home here for a $50,000 initiation,” said Hasentree general manager Cris Carter.
 
The completion of a 16,500-square-foot clubhouse followed. It was a massive investment that Carter admitted won over skeptical residents. “They were used to hearing things and never seeing any follow-through,” he said.
 
“There is a kinship between the (members) and the senior leadership team,” Carter said. “They’re just so accessible.”
 
That accessibility proved crucial when Carter saw evidence of turf die-off at his club (see sidebar Transitioning Turf). “They responded right away and we had an action plan in place within 24 hours.”
 
“We’re small enough (the club ownership arena) where we can all get on a call and share our expertise regularly,” Darbyshire said.
 
He also admitted that the fear of losing this intimacy has Toll Golf taking a conservative approach to growth. “We aren’t just going to add and add and add.” 
 
Management has identified three key markets with growth potential in luxury, private-golf communities: Palm Springs, South Florida and Phoenix.
 
“We know there is still an appetite for the high end product we’re selling,” Darbyshire said. “We intend to keep on providing it.”

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