Private Golf Course under a land preservation subdivision.

[makuck]

210 acre excellent course w/ named architect, 18 holes, 27k sq ft of commercial-improvements and senior water rights. Private non-equity club, they are losing money under this model. They are arguing it should be valued as open space. There is a city operated golf course across the highway also excellent quality operating a public daily fee course at a profit (slightly lesser quality course). There is a 154 acre residential parcel also across the highway with 5 x 5acre subdivided parcel envelopes and a 17k sq ft res-improvement sold $9m (smaller land area, lower intensity of use, and inferior water right). The course is also currently (historically) valued a little over $9m. The course owners are arguing for a $5m (taxable) value. They attempted negotiating with the HOA owners, but the HOA don't want the course due to the capital losses on the bottom line to the overall business (some of them think they will be able to get it for free once the original developer goes into bankruptcy). The development somehow has around $17m in debt (more a reflection of the business model in my opinion the business itself is worthless). Speaking strictly on the real estate component, due to a land preservation subdivision, lots surrounding the course were allowed to build at a greater density of 5 acres (35 acres normally required), however in this process the course itself according to county planning/zoning will likely never be allowed to have greater density or build-out despite their senior water rights.

So I am at a bit of an impasse on how to reconcile this opposing data. Common sense would dictate a smaller property, with inferior water, and inferior allowed intensity of use (res vs comm) would be the value floor, and the unknown component is would they even be able to get a profit if they went semi-private or daily fee even, because it would increase the supply in the county by approximately 30% overnight. I have very limited data to determine actual demand as the courses have kept their rounds played and so on confidential and I'm pigeon-holed in a rural area where data won't necessarily relate perfectly to a more urban area where I could obtain this data.

In some articles I've read that value transfer doesn't really happen with the lots surrounding the course, that the course should be valued on its own merits.

Looking for any insight really. This is beyond my competency, I'm being forced to do this valuation under a jurisdictional exception rule. I've taken a day course on appraising golf courses and read the AI book on it, but they don't go into these unique scenarios.

Thanks in advance!

 

[makuck]

Want to add, I've also run the cost approach of course since it is a special use property, using vacant agricultural land with similar water rights and can arrive at the $9m figure.

 

[KHS445]

My first question would be who is the client? Second is what is the purpose of the appraisal?

From you comments my assumption is that the owners of the course are the client and tax valuation/appeal is the purpose. If that is the case and the owners of the subject are not being cooperative in providing you with ANY information I would walk away. Not saying they are but my initial impression is they are attempting to control the results of your report by limiting your access to pertinent information. Suppose you do prepare a report with the limited information they are willing to share and then at a later date additional or possibly information that conflicts with one or more of your assumptions becomes known, where does that put you and your assignment results?

If you decide to move forward I believe the answers to your questions will be found once you complete your highest and best use analysis. By answering all four questions you should have a solid basis on which to estimate a value. I would also be very concerned as to how a course that is suppose to have a value in the nine million dollar range has nearly twice that amount of debt. Are there other appraisals out there and if so do you have any idea how the valuation was determined. Again one needs to ask themselves if the property owners are trying to control the valuation process by limiting the information you receive for tax valuation purposes and then did they provide a bunch of information and projections to whoever prepared the appraisal(s) used for lending purposes.

Based on your comments only:
Physically Possible: Sounds like most anything is physically possible, especially with the existing watering rights.

Legally Permitted: Sounds like zoning maybe an issue in subdividing into parcels similar in size to the surrounding properties. It doesn't appear that the controlling governmental unit is willing to make any changes to the existing zoning. Don't expect the surrounding property owners to be of much assistance and they are enjoying a scenic view of a well maintained property with no real cost.

Financially Feasible: Sounds like a private golf course is not the answer. What alternative uses are available? Large parcel residential maybe your best bet.

Maximally Productive: Again what use would provide the greatest bang for the buck?

Now if after you go thru all these steps and decide you are comfortable with the clients level of cooperation all I can say is good luck and I hope your fee is worth the time, effort, hassle and risk. Personally I would find this to be an interesting assignment, but when I get the feeling that either the client or the property owner is being less than fully honest with me and is withholding potentially helpful information I will have a come to Jesus discussion with them and offer to let them find another appraiser. It is their property but it is my report, license and reputation and I want it to be as fair and honest as possible.

Let us know how things turnout.

 

[Terrel L. Shields]

Want to add, I've also run the cost approach of course since it is a special use property, using vacant agricultural land with similar water rights and can arrive at the $9m figure.

HBU? Agri? Then the humps and dumps etc. of the golf course needs to be accounted for with a cost to cure to make it acceptable as farm land...If pasture land only, then perhaps less so, but traps need filled, tees leveled, etc.
The cost approach in a court case here contesting the assessor, held that a golf course is best to be valued by the cost approach. Most are not money making enterprises in the face of less demand for golf by a younger generation, and the sales approach is incorporated in the land "as if vacant". I think you have to sort out the HBU part about what legal uses the property can be put to and what restrictions are in place that prevents it from being developed into something else. The land will be taken over by the lenders, not the HOA, if it goes into foreclosure, right?

 

[The Warrior Monk]

My first question would be who is the client? Second is what is the purpose of the appraisal?

From you comments my assumption is that the owners of the course are the client and tax valuation/appeal is the purpose.

Agreed; that's the way I am also reading it.

So, to the OP, if the report is in fact for tax valuation/appeal the local regulations have to be know. Assessor's will often tax on use, which many times, such as in a case like this, can be entirely different from market market value. The first thing I would do is find out the value type, because market value might not be appropriate, but another value type where HBU is not required.

 

[makuck]

Thank you both for your replies and time.

My first question would be who is the client? Second is what is the purpose of the appraisal?
…...
Based on your comments only:
Physically Possible: Sounds like most anything is physically possible, especially with the existing watering rights.

Legally Permitted: Sounds like zoning maybe an issue in subdividing into parcels similar in size to the surrounding properties. It doesn't appear that the controlling governmental unit is willing to make any changes to the existing zoning. Don't expect the surrounding property owners to be of much assistance and they are enjoying a scenic view of a well maintained property with no real cost.

Financially Feasible: Sounds like a private golf course is not the answer. What alternative uses are available? Large parcel residential maybe your best bet.

Maximally Productive: Again what use would provide the greatest bang for the buck?

Let us know how things turnout.

Client is the county commissioners with myself being an employee of the county, and the purpose being market value utilizing H&B use analysis. Residential use would not be allowed according to planning/zoning, it's already maximally built out and the golf course was set aside to allow for greater density surrounding. Despite this similarity to open space, they are allowed to have the high intensity use of a golf course, clubhouse, and pro-shop, and enjoy the corresponding senior commercial water rights which I have to value in conjunction with that use. Based on the zoning and corresponding land preservation agreement it looks like the options are golf course or an agricultural use (would cut the value in half).

Agreed; that's the way I am also reading it.

So, to the OP, if the report is in fact for tax valuation/appeal the local regulations have to be know. Assessor's will often tax on use, which many times, such as in a case like this, can be entirely different from market market value. The first thing I would do is find out the value type, because market value might not be appropriate, but another value type where HBU is not required.

I'm on the assessor side. It's a market value with H&B use analysis required. Based on residential use being prohibited by the land preservation I'm determining an operating golf course (the current use) is the interim H&B, but either a different for-profit business model (increase income), or the sale to another group of private end-users (change in ownership is allowed) would potentially maximize profitability. Again lacking data here.

HBU? Agri? Then the humps and dumps etc. of the golf course needs to be accounted for with a cost to cure to make it acceptable as farm land...If pasture land only, then perhaps less so, but traps need filled, tees leveled, etc.
The cost approach in a court case here contesting the assessor, held that a golf course is best to be valued by the cost approach. Most are not money making enterprises in the face of less demand for golf by a younger generation, and the sales approach is incorporated in the land "as if vacant". I think you have to sort out the HBU part about what legal uses the property can be put to and what restrictions are in place that prevents it from being developed into something else. The land will be taken over by the lenders, not the HOA, if it goes into foreclosure, right?

I heavily relied on the cost approach in my original analysis with unsupported economic obsolescence factors (60% off the course development cost, and 40% off all the golf-improvements) due to the 2000 bust resulting in lower greens fees and net course closures over time since then. However, in the regional market we actually have a new championship golf course, and drive-shacks being built, with flat to moderately appreciating interest in the sport. I have loose support to the cost approach and the obsolescence factors applied from a nearby inferior residential comp across the street with smaller improvements, on a similar (smaller) acreage, with inferior agricultural water rights setting a value floor at $9M. Ideally I would bracket it with other golf courses (same use), but the sales aren't there in this rural resort area. Vacant 5-acre buildable lots nearby (not part of the golf course HOA) sell for $800k - $2m ea, but because this is a dramatically higher intensity of use I'm not considering that data.

If it went into foreclosure I would suspect lenders would have the priority not the HOA but I haven't seen the documents. I do not believe this foreclosure risk is imminent as they are (only) losing around $100k/yr on a $5M-$9M value, and a good chunk of that loss is from a private lake operation with a second clubhouse which isn't part of the scope of work (further muddying the waters of membership fees).

Really just analyzing this as a best information available. I don't have the time to do the normal due diligence, normally I would not take an assignment as complex as this. That's where the jurisdictional exception comes in, since I am a county appraiser and it was assigned I basically have to do it, and do my best to obtain competency in the time allotted. The tax agent, who is well connected with MAIs of the state hasn't been able to find one to take the assignment for obvious reasons, too many holes to fill in the data to produce a credible result that isn't misleading! National valuation services has done a few appraisals of the club, but they limit the scope to simply analyzing the income stream from the total club operations as a private club with no further consideration of water rights, H&B, etc.

Really what I'd like to do is take the cost approach, supported by the nearby sale and hang my hat on it and just see what happens, no time for much else.

Thanks again all. I'll give a status update once this makes its way through court.

 

[PL1957]

Thank you both for your replies and time.



Client is the county commissioners with myself being an employee of the county, and the purpose being market value utilizing H&B use analysis. Residential use would not be allowed according to planning/zoning, it's already maximally built out and the golf course was set aside to allow for greater density surrounding. Despite this similarity to open space, they are allowed to have the high intensity use of a golf course, clubhouse, and pro-shop, and enjoy the corresponding senior commercial water rights which I have to value in conjunction with that use. Based on the zoning and corresponding land preservation agreement it looks like the options are golf course or an agricultural use (would cut the value in half).



I'm on the assessor side. It's a market value with H&B use analysis required. Based on residential use being prohibited by the land preservation I'm determining an operating golf course (the current use) is the interim H&B, but either a different for-profit business model (increase income), or the sale to another group of private end-users (change in ownership is allowed) would potentially maximize profitability. Again lacking data here.



I heavily relied on the cost approach in my original analysis with unsupported economic obsolescence factors (60% off the course development cost, and 40% off all the golf-improvements) due to the 2000 bust resulting in lower greens fees and net course closures over time since then. However, in the regional market we actually have a new championship golf course, and drive-shacks being built, with flat to moderately appreciating interest in the sport. I have loose support to the cost approach and the obsolescence factors applied from a nearby inferior residential comp across the street with smaller improvements, on a similar (smaller) acreage, with inferior agricultural water rights setting a value floor at $9M. Ideally I would bracket it with other golf courses (same use), but the sales aren't there in this rural resort area. Vacant 5-acre buildable lots nearby (not part of the golf course HOA) sell for $800k - $2m ea, but because this is a dramatically higher intensity of use I'm not considering that data.

If it went into foreclosure I would suspect lenders would have the priority not the HOA but I haven't seen the documents. I do not believe this foreclosure risk is imminent as they are (only) losing around $100k/yr on a $5M-$9M value, and a good chunk of that loss is from a private lake operation with a second clubhouse which isn't part of the scope of work (further muddying the waters of membership fees).

Really just analyzing this as a best information available. I don't have the time to do the normal due diligence, normally I would not take an assignment as complex as this. That's where the jurisdictional exception comes in, since I am a county appraiser and it was assigned I basically have to do it, and do my best to obtain competency in the time allotted. The tax agent, who is well connected with MAIs of the state hasn't been able to find one to take the assignment for obvious reasons, too many holes to fill in the data to produce a credible result that isn't misleading! National valuation services has done a few appraisals of the club, but they limit the scope to simply analyzing the income stream from the total club operations as a private club with no further consideration of water rights, H&B, etc.

Really what I'd like to do is take the cost approach, supported by the nearby sale and hang my hat on it and just see what happens, no time for much else.

Thanks again all. I'll give a status update once this makes its way through court.

I remember when I was young and enjoyed assignments like this ...