SHARE:
In The Rough
But things haven't worked out quite as expected. For every successful luxury golfing community in Florida, several others have performed below expectations or failed - foreclosed by lenders, sold off at fire-sale prices or simply ignored by the marketplace.
What happened? Higher land costs, stricter environmental and growth management rules and the recession of the early 1990s all share some of the blame. But the biggest factor undoubtedly was overbuilding. Too many developers, abetted by accommodating lenders, had unrealistically high expectations and ignored the fiercely competitive nature of the marketplace. Common errors included poor location, ho-hum housing, too much dependence on high-priced golf memberships and weak marketing.
Many developers were so busy trying to build a better mousetrap that they forgot to count the mice. By taking the "Field of Dreams" approach ("build it and they will come"), Florida developers in the late 1980s laid the foundations for failures and marginally performing golf communities.
Slow play
"Florida has two primary attractions," says Richard Cope, chief executive officer, Prudential Florida Realty, Clearwater. "The first is waterfront, and the second is golf. Add in the affordability factor, because you can get more in a luxury Florida home than you can in Arizona or California, and you can see why golfing communities continue to be developed throughout the state."
From an easy-to-maintain condominium for under $200,000 to a custom estate home for more than $2 million, Florida's luxury golf community developers strive to attract four types of buyers: affluent business executives and professionals and their families, empty nesters seeking a different lifestyle, second-home purchasers and retirees.
The vast majority of projects on the market today were introduced in the second half of the 1980s, the peak years for golf community development. Then, a combination of strong demand and readily available capital had developers flocking to build luxury golf communities.
Some of those who got into the business didn't have a strong background in real estate. Consider the case of avid golfer Gino Paulucci, who earned a fortune in frozen pizza and Chinese food. He decided to create a new golfing community called Heathrow in northeast Orlando and proceeded to make numerous housing and marketing mistakes. Finally, realizing that being a successful entrepreneur didn't guarantee a successful golf community, Paulucci sold his troubled development to Arvida.
By the early 1990s, the party was over. The overbuilding and the double whammy of a recession and the failure of numerous savings and loan institutions combined to slow the pace of golf community development. The recession cut into demand for luxury golf course lots. The S&L crisis led to a stiffening in government banking and thrift regulations that forced foreclosures on non-performing projects.
Even the developers who did their homework and made good decisions were stung. E. Llwyd Ecclestone Jr., a highly successful community developer with many projects to his credit, brought Ibis Golf and Country Club, a 1,900-acre golfing community in West Palm Beach, into the market at the depth of the recession. After several years of slower-than-expected sales, the development was turned over to a subsidiary of his lender, Michigan National Bank, and is currently owned by Ibis West Palm Partners LP.
Soon, many developers and investors were focusing on buying bargain-priced foreclosed golf course properties from private lenders and government agencies rather than starting new projects. With banks, thrifts and the federal Resolution Trust Co. busy selling off real estate, private investors and the so-called opportunity and vulture funds could buy prime residential land or active golf communities for less than 50 cents on the dollar. This allowed them to achieve a far better rate of return than was possible under the original cost structure.
Faced with a glut of low-cost property, it is little wonder that developers and lenders were reluctant to undertake new golf communities. In fact, many of today's new golf communities are being developed on land purchased at distress-sale prices from the RTC or lenders.
Although golf communities continue to be built throughout Florida, the pace of development today is only about one-third of what it was during the 1980s. According to the National Golf Foundation in Jupiter, only 68 new residential and residential-resort golf communities have been started in Florida since 1990, far below the pace of the 1980s when more than 260 were built.
Development costs
It is probably more difficult to create a new luxury golf community today than at any time in the recent past. Although capital is readily available, land costs have climbed steadily throughout the state, and a more restrictive regulatory environment has increased the cost and lengthened the time involved in bringing a new community - particularly those located on scarce waterfront land - to the market. The 653-acre Addison Reserve in Delray Beach, introduced in 1995, is the only major new golf community to be launched in golf-crazy Palm Beach County after 1991.
Luxury golf course communities carry a much higher overhead than non-golf developments, leaving developers with a smaller margin for error or for downturns in the marketplace. Ron Garl, a well-respected Lakeland golf course architect, estimates today's developers will typically pay $300,000 per hole to build a high-quality golf course. One new project slated for the Naples market has budgeted $6.7 million for an 18-hole course, $8 million for club facilities, and another $1.5 million for design fees and equipment. A new community in Palm Beach County spent $7.5 million on 27 holes of golf and almost $15 million on a clubhouse and other recreational amenities.
Another factor affecting developers' cost structure is that well-located land is rapidly becoming more expensive. Florida has only a limited number of prime coastal community locations, which traditionally command the highest prices and offer the most appeal to affluent buyers. Aside from the Panhandle, the Atlantic coast south of Jacksonville, Vero Beach and the Naples-Fort Myers area, most golfing community development has moved inland. Many buyers who want both golfing and waterfront are opting to purchase resales in built-out coastal communities or closer-in locations.
Then there's the additional acreage that must be dedicated to environmental requirements for wetlands, animal habitats, water retention and open areas. Impact fees, planning and design services, and amenities are other costs that have climbed considerably in the 1990s. As a result, a number of the most luxurious communities that attract wealthy purchasers are, in fact, substantially in the red and are, or will be in the near future, for sale.
Rising costs
Faced with rising cost pressures, major developers have dramatically cut back on new golf communities. Arvida, one of the state's leading community developers, has not launched any new golf projects in the past few years. "We didn't find land that allowed us to get the return we needed," says Richard L. Larsen, vice president marketing and sales, who adds: "Although we haven't done any for several years, we're actively looking and are considering broader areas now."
In numerous market studies, our firm, Goodkin Research Corp., has found that only a few proposals can generate a high enough return to the developer to justify the project. Indeed, developers today are taking a more realistic view of pricing, sales volume potential and club operations. Many developers in the 1980s had overblown expectations of the profit to be gained in selling club memberships and relied too much on memberships as a source of total revenue. Today, the market is returning to real estate profits rather than amenity profits as the true test of project feasibility.
Thanks to the baby boomer demographic "bulge," the 45- to 60-year-old age bracket grows every year, adding to the pool of affluent buyers who can afford a $200,000 to $2 million primary, second or pre-retirement home in Florida.
"We are seeing a different kind of golf community buyer than we did historically," says Cope. "They are younger and more entrepreneurial - not just doctors and lawyers. In the past, it was almost exclusively retirees. Now, more people are buying second homes and more are planning ahead for retirement."
Still, studies by our firm indicate that demand for new golf community homes in Florida thus far in the 1990s is only about two-thirds that of the peak years of the late 1980s. Surveys of buyers and prospects indicate several reasons for the lower-than-expected demand:
• Consumer recognition that, with inflation in check, residential real estate is no longer the best investment vehicle. As a result, buyers are not "overbuying" or speculating that the home will double in value in a few years. They don't ask, "Where can I make the most money?" but, "Where is my investment most secure?"
• In contrast to the high-flying '80s, consumers don't feel compelled to own a luxury golf course home. They are more selective and conservative.
• Job stability, income, bonuses and pensions concern buyers. When even senior executive positions are no longer secure, people are less eager to commit to a hefty monthly payment or an all-cash purchase.
• Increased competition is coming from other retirement destinations, particularly skiing resorts that offer golf in the non-winter months. The Carolinas, Colorado and Arizona, in particular, are a growing competitive threat to Florida.
• More empty nesters are electing to stay in their current homes rather than move to a new community that perhaps offers smaller lots and fewer or more costly amenities in a less convenient location.
Older, built-out golf communities are upgrading their amenities and increasing their marketing efforts to compete more effectively. More associations are seeking to improve their marketability and appreciation once the developer has sold out. This helps broaden the appeal of an older community - which may have older residents - beyond one age group. "The resale market around the state is very strong," Cope says.
What buyers want today
Many buyers today purchase homes in a golf community for the security, the social atmosphere and the prestige of living in a luxury community - not necessarily for the golfing. Residential lots in golfing communities are generally among the most valuable pieces of property in Florida. For example, at Burnt Pine, a private community in the Panhandle oceanfront resort of Sandestin, home sites alone range up to $500,000, and completed homes are priced up to $1.3 million.
At Marsh Landing Country Club in Ponte Vedra Beach east of Jacksonville, the average new home sale in 1996 was $639,000. "Our buyers are mostly 40- to 60-year-old entrepreneurs who work hard all week and want to enjoy their weekends," says Robert L. Holland, general sales manager. More than 800 home sites have been sold to builders and individuals, and completed homes range up to $1.6 million.
Privacy, security, a waterfront setting on the Intracoastal and convenience to downtown Jacksonville are as important to Marsh Landing buyers as the 18-hole golf course or amenities like a tennis center, fitness center, clubhouse and beach club, according to Holland.
Another super-luxury community catering to primary home buyers is Isleworth in Windermere, in the southwest part of Orlando. Homes surrounding the 18-hole private course start at $1 million, says Lisa Richards, managing broker. "Our buyers are younger and have more children," she says. "They want larger lots and bigger houses." Most of the 180 homes completed in Isleworth are on average about 6,000 square feet. "Recently, we replatted our remaining lots and made them larger. We know this is going against the trend, but we found a market."
Buyers in general are more conservative, typically purchasing less than they can afford - a big change from the high-flying '80s. At Lake Nona in southeastern Orlando, for example, buyers are opting for smaller homes with all the upgrades, says Robert E. Anderson, broker. "Everyone wants to make sure they've made a good investment," he says. Currently, Lake Nona has sold about half of its 200 single family lots at prices from $320,000 to several million and plans to offer other types of homes in the coming year.
The same move toward smaller houses is occurring at Marcus Pointe in Pensacola, where home prices range from $140,000 to $500,000. "We've found that our more mature buyers like our single-family detached patio homes," says Scott Jennings, sales associate. "They provide comfortable living quarters, and they're easy to maintain." Other popular options include a home office, or private cottage, rather than a den, and fitness centers. In communities that cater to younger buyers, playgrounds, child care facilities or teen social programs are a must. Woodfield in Boca Raton has instituted a seven-day-a-week supervised children's center.
Active social programs are also important to buyers. "Clubs in residential communities have increasingly become the center of the family's activities," says Dennis W. Hillier, principal, Hillier & Associates P.A., a Boca Raton law firm that is an authority on golf membership programs. "People don't have time to organize family-related activities because of the many demands upon their time."
Today's hot markets
While the pace of golf community development has slowed, there is still a diversity of new projects. Buyers looking for a close-in urban location can choose communities like Deering Bay, a bayfront enclave in Coral Gables, or Marsh Landing in Jacksonville. Then there's the super-luxurious Fisher Island off Miami Beach, which has attracted clients worldwide. Get-away-from-it-all locations include Amelia Island Plantation on a barrier island north of Jacksonville and The Villas at Harbor Links at ultra-private Ocean Reef Club in Key Largo.
Historically, the strongest market in the state has been Palm Beach County, which has 159 golf courses, more than any other county in the U.S. But the pace of development is slackening. Ecclestone's PGA National, a 2,340-acre community in Palm Beach Gardens with five championship courses and one of the largest and most established developments, is nearly completed. In Boca Raton, where there's no land left for golf courses, Woodfield Country Club is the last major active golf community, with only about 225 of a planned 1,250 residences remaining.
Today, the Collier-Lee County area leads the state in new golf community development, although activity stretches northward to Sarasota and the rest of the "Golf Coast." Projects like Gulf Harbour Yacht & Country Club in Fort Myers, Grey Oaks, Audubon and Collier's Reserve in Naples focus primarily on second-home buyers and retirees.
"We've been getting second-home buyers, primarily from the Midwest and Northeast, since 1985," says Dick Plowman, chief executive officer of Bonita Bay Properties, which has sold more than 2,000 homes priced from $180,000 to more than $1 million at Bonita Springs. "About 50% of our buyers are active members in the country club. We're constructing a fourth course that's designed by Tom Fazio, because our buyers tell us they want more golf."
Under CEO Alfred Hoffman Jr. [FT, Dec. 1996], Florida Design Communities has been one of the state's leaders in golfing developments. In 1995, Hoffman acquired the WCI property portfolio from Westinghouse at a price that was several hundred million dollars below Westinghouse's book value.
Hoffman is now developing such well-known golf communities as Pelican Bay and Pelican Marsh in Naples and Pelican Landing in Bonita Springs, and his companies are established as the state leaders in golf communities.
Orlando is a fertile area for golf community development. The largest golf facility in Florida is the Walt Disney World Golf Complex in Lake Buena Vista with 99 holes, and Disney's massive Celebration development includes golf amenities by Robert Trent Jones, Sr. and Jr. In Longwood, Alaqua Country Club has sold all but 21 lots in the 213-home community. Remaining homes are priced from $600,000 to $1.8 million.
Palm Coast, in Flagler County 50 miles south of Jacksonville, is another Mecca for golfers. ITT Community Development's Hammock Dunes is a planned 1,385-unit oceanfront golf community built around a Tom Fazio-designed course. More than 335 residential dwellings and condominiums have been built, and prices range from $240,000 to $2 million. Still, because home lot buyers are not required to build in a fixed period, the lavish club house and the picturesque Tom Fazio golf course are not heavily used. Indeed, it will be many years before Hammock Dunes fills up with residents. "Our buyers tend to be seriously involved with the golfing lifestyle," says Vicki DeLaughter, director of marketing and sales support. "Hammock Dunes tries to encompass a wide variety of housing products to meet the needs of today's prospects."
The largest golf community on the drawing board is the Saint Johns Project, a 6,300-acre development south of Jacksonville that will include the World Golf Village Resort, the Golf Hall of Fame, 7,200 residences, and retail and commercial buildings. "Every major golfing organization in the world is a participant in this project," says Jim Davidson, president, Davidson Development, master developers. "Golf is one of the few resort amenities that blends with a mixed-use community."
Joining the club
As part of the market evolution of the 1990s, many golf communities are offering a variety of membership alternatives to meet the needs of all residents - not just the golf addicts. Tennis, social and reduced-rate golf memberships, which allow casual golfers to play during off-peak periods, are becoming more common.
In many communities, golf has become a family activity. The percentage of women golfers continues to increase, and couples golf is a rapidly growing segment of the industry, according to Hillier.
Developers handle the golf membership program in several ways. Homebuyers may purchase equity or non-equity memberships in a club, which is added to the value of their homes. Equity memberships can add $10,000 to $100,000 to the cost of owning a home in a community, with a typical equity membership running between $35,000 and $55,000.
"Demand for equity clubs still exists in many areas, but non-equity clubs have become more popular because more property purchasers are concerned about the financial risk of assessments in equity clubs," says Hillier.
In the future, more golf communities will open their golf courses to the public for daily play, or provide semi-private facilities that offer membership programs for residents while allowing non-members to play. One reason is simple economics. The other is that golfers enjoy exploring new courses. "Many golfers would rather pay as they go than purchase an equity membership in one course," says Michael Y. Cannon, president, Appraisal Real Estate Economics Associates, Miami. "That trend may reduce the economic viability of a golf course for a developer offering it as an amenity."
The number of full golf memberships per 18 holes ranges from 250 to 525, according to our firm's research, with a typical cap of 350 to 450. Developments with a high ratio of golfing members may be able to reduce their membership fees - but the trade-off may be longer waits for tee times. Some golf communities, like 286-unit Deering Bay, include provisions to sell a limited number of memberships to non-residents when needed to support the amenity program.
Pelican Bay in Naples, for instance, enjoyed a strong demand for memberships because the ratio of golf holes available was low for a community of its size and pricing. It is a much greater challenge to sell $50,000 equity memberships to 80% of the buyers at a south Florida community with 650 units and 27 holes of golf.
A recipe for success?
One clear message from the market is that today's buyers want more diversity than in the past. A community where everyone is 55 is less appealing than one with a broad age range - unless it is positioned as a retirement community. In addition, a narrow-age-range population limits the market for owners who want to resell their units in the future, as those 55-year-olds turn into 70-somethings.
To achieve that diversity theme, successful developers must appeal to primary home buyers, as well as the traditional second-home and retiree markets.
Like everything else in real estate, correct location is essential for a golfing community to succeed. A suburban golfing development near a major airport, employment center, cultural and social activities will enjoy a faster sales pace than a community in the hinterlands. For example, the Palm Beach Polo Club in Wellington, well inland from West Palm Beach, has undergone three ownership changes in 19 years. Nearby Binks Forest in Wellington also has been hurt by competition with a preferred location.
Since the 1980s, developers have emphasized the prestige of living on a golf course designed by an Arnold Palmer, Pete Dye, Jack Nicklaus, Tom Fazio or Arthur Hill. While having a big name designer is still a valuable asset, it has never been essential for a successful residential community. More important is the design and appeal of the course itself - and the buyer's overall sense of whether or not the community is "right for me."
To succeed in the next decade, Florida's golfing community developers must pay attention to all the nuances of the changing market. Newness in itself is no longer a compelling attraction - each development must satisfy the needs of its particular niche. A carefully conceived product mix and marketing program, along with a strong location and perceived value are the foundations for today's successful golf course communities. The secret for developers is to outthink - not outspend- their competition.
Ultimately, the slowdown of the 1990s may be good news for the state, if it signals a better-balanced market in the future. Rather than chronic oversupply or a boom-and-bust cycle, the luxury golf course market now appears to be headed for sustainable growth over the long term.
Business Beat - Week of May 10th
