Golf, not real estate, drives recovering business
April 11, 2014
TJ Duncan is in the golf business. Period.
"I don't build houses. I'm not a developer," said Duncan, vice president of Reno-based Duncan Golf Management. "But I know how to run a golf course. You have to stay in your lane."
That approach is proving successful for Duncan Golf Management, the growing company that owns three Northern Nevada courses and manages two more.
And industry observers say a focus on the business of golf — rather than development of golf-related real estate — is one of the keys to fixing the troubled business.
And after years of battling economic headwinds, the golf business finally may be getting a little help from social and economic factors.
The troubles of the golf industry in Northern Nevada are no secret.
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The Lakes and Resort courses at Genoa Lakes, which had been operating under a receivership, sold in January for the amount its lender was owed.
Just within the past few months ArrowCreek Country Club began a Chapter 11 bankruptcy reorganization. LakeRidge Golf Course filed a Chapter 11 petition before the course was acquired by Duncan Golf Management.
The City of Reno looked at closing Rosewood Lakes Golf Course after a consultant reported the course would continue to lose more than $400,000 a year. (The course may continue operating under a partnership between the city and The First Tee of Northern Nevada.)
And margins appear to be tight across the business.
J.J. Keegan, a Colorado consultant whose firm, Golf Convergence, analyzed Reno's Rosewood Lakes course for the city government, found the municipal course needed to generate about $1 million a year in revenue to cover its operating costs and capital requirements.
While his estimate applied only to Rosewood Lakes, the National Golf Course Owners Association said gross golf-fee revenue at courses in the Reno and Lake Tahoe area averaged $1.16 million last year.
At courses statewide, the average revenue last year was $1.9 million.
The basic problem: Too many courses, too few golfers.
About 8.3 percent of the population living within 30 miles of Reno plays golf, said Keegan.
Avid golfers account for about a quarter of the total golfing population in the region, Keegan said.
That translates into 379 avid golfers per 18 holes within 30 miles of Reno, the consultant said. The national average is 468 avid golfers per 18 holes.
Much of the over-supply represents a hangover from the real estate boom years, when golf courses were an attractive amenity in high-end communities — no matter whether homebuyers played golf.
"They built those things like they were a community swimming pool," said Jeff Woolson, executive vice president and managing director of golf and resort properties on a nationwide basis for CBRE.
More troublesome, he said, many of the golf-oriented residential developments didn't include enough homes to provide a solid financial base for the courses. Typically only about a third of homebuyers at golf communities are avid golfers.
That left courses vulnerable to a triple whammy with the onset of the recession, Woolson said.
Hard-pressed consumers cut back recreational play. Businesses scaled back their golf events. And the collapse of the residential real estate market sent developers scrambling.
As the golf business gets back on its feet, the deed restrictions that provided assurances to homebuyers at golf course developments now are proving to be an obstacle to getting supply and demand in balance.
Keith Cubba, national director of the golf group for Colliers International, said those deed restrictions generally limit the opportunities to redevelop money-losing courses into other uses.
"We've lost very few courses nationwide," Cubba said.
With the difficulty of reducing the supply of golf courses, owners are focused on increasing demand and managing their costs.
"They've cut as much they can," said Woolson. "They have to boost their top lines."
"People are feeling a little better, and memberships are showing an uptick," the Colliers International executive said.
Even so, rounds played at golf courses in the Reno-Tahoe area last year — 19,345 — marked a 1.6 percent decline from a year earlier, the National Golf Course Owners Association said.
With golf courses selling these days as operating businesses, rather than speculative real estate investments, successful operators keep tight control of their operations.
"You have to watch everything," Duncan said. "You question everything."
With its ownership of Wolf Run Golf Club, LakeRidge and Dayton Valley Golf Club, and its management of courses in Tahoe City and Fallon, the company achieves economies of scale in purchasing, marketing and other operating costs.
The company operates with a core staff of about 30, a number that swells to 150 during peak seasons.
The company may add another course or two to its regional portfolio.
"We continue to look for new opportunities, and the opportunities seem to be growing in number," said Duncan.
But the company wants to make sure that it can add value to any acquisitions.
"We're not growing just to grow," Duncan said. "We're growing responsibly."