Escondido Country Club has closed, and neighbors fret that real estate values will plummet. Join the — er, uh — club. Similar woes have afflicted courses in San Diego and all over the world. Course owners have taken a financial beating, as former San Diegan Jeff Silverstein can attest. Employees have been laid off by the score.
San Diego County has more than 90 golf courses, according to the tourism authority, and seemingly perfect weather all year, but that’s not enough. In recent years, Ramona’s Mt. Woodson Golf Club has been foreclosed upon and sold to a new owner. Chula Vista’s Salt Creek Golf Club was sold out of bankruptcy to a new operator. Rancho San Diego’s Cottonwood Golf Club went into bankruptcy but is operating. In Borrego Springs, one course is closed, another has been converted to a research facility, and a third has cut back from 36 holes to 18.
In anticipation of baby boomers retiring, golf courses got vastly overbuilt. But baby boomers aren’t retiring as fast as expected and may not have the attention spans required to play golf. According to National Golf Foundation statistics, there were 30 million golfers in the United States seven years ago. In 2011, there were 25.7 million. In that span, rounds of golf declined from 500 million to 463 million. Last year, there were 13.5 golf course openings and 154.5 closings.
The median sales price of a course last year was about $1.8 million, down sharply from $2.875 million in 2011. Meanwhile, the average price fell by around 45 percent from almost $4 million to $2.16 million, excluding posh courses going for $30 million or more. The number of sales above $3 million was only 27.2 percent of total sales, down from 47.8 percent in 2011.
No wonder golf course investors and their financiers are increasingly shouting the palindrome “Flog golf!” Indeed, one reason course sales have dried up is that primary lenders pulled out.
Former San Diegan Alan Fisher, consultant for golf expert Pellucid Corp., keeps track of inventory in pro shops — clubs, gloves, shoes, shirts, and the like. “I don’t see anything encouraging, although the weather this year has been pretty terrible. I’m not a naysayer, but the golf industry once had 30 million players, and it has lost 6 million. The best thing that could happen would be if 400 golf courses were plowed under. We’re way overbuilt.” Fisher points to demographics: younger generations are “more interested in instant gratification.” It takes an average golfer a minimum of four hours to play a round on a standard course. The game is difficult, cerebral, expensive, and frustrating. “You can play all your life and not be good.” These factors may not appeal to baby boomers headed into retirement.
“There is always a chance of [the industry] hitting bottom, but the real question will be, ‘Will it bounce back up and at what velocity?’” says Harvey Silverman, who is also with Pellucid. The apparent housing recovery has stimulated developments on golf courses, “but only 25 percent of people buying homes on a golf course play golf. We closed 150 courses last year, but that leaves us about 8 percent overbuilt.” He fears this year’s late spring “could affect some courses sitting on the edge.”
Chris Karamitsos, cofounder of the National Golf & Resort Properties Group within Marcus & Millichap, says, “The transaction market [in golf courses] is not in the free fall it was [in] some years ago. I think we are going to hit some stabilization. But when a market is at the bottom, you never know until six months past the time.”
As golf-course prices spiraled downward, onetime San Diegan Jeff Silverstein got a black eye, suffering deep financial reverses. He headed a limited liability company named IRI Golf Group that owned and managed courses. In 2010, 2011, and 2012, newspapers in Tucson and North Carolina, in particular, reported gross mismanagement at courses part owned by IRI. Three courses that IRI owned jointly with other investors went bankrupt. The city of Rockwall, Texas, acting on complaints about upkeep of a golf course there, filed a notification of instances of contract breach prior to the course’s bankruptcy.
Last year, the Arizona Daily Star reported that of four Tucson-area IRI-owned golf courses, two had closed because their water got shut off, a third had its water shut off because of $90,000 in unpaid bills, and employees at a fourth course complained they were not being paid. Other media latched on to the story, and Silverstein kept saying he was working to sell courses and restructure IRI’s debt. One water district’s president complained that his dealings with Silverstein had been “long and irksome.”
In North Carolina, employees of courses owned by IRI or Silverstein said they were not being paid. At several IRI courses, golfers complained of poor maintenance. Meanwhile, members expressed their beefs to Ripoffreport.com, which exposes alleged frauds. Among many things, writers complained of bunker drainage, dangerous cart paths, employees not being paid, and employees’ checks bouncing.
Silverstein says all IRI assets were sold last year and the company is no longer in business, but he personally owns ten courses. He says the most courses IRI ever owned was 23, although some media reported it owned more. He has been in course ownership for several decades. He made money in the early years but concedes that he has lost “a lot of money” in recent years. He won’t comment on a report that he lost $30 million in the last few years. He now bases his golf business in Charlotte, North Carolina, and La Quinta, in Riverside County.
“The crash, as painful as it has been, has let everything reset,” says Silverstein. A course built or purchased for $10 million, and that is now worth $4 million, “has a completely different pricing structure. Stability at a lower level is what we all are hoping for.”