Commentary: Assessors can tee off on golf courses’ worth
But for the first time in several decades, more golf courses are closing than opening. The Journal surmises the golf business may have peaked because boomers have gotten older and the game has become increasingly more difficult for them.
What are the implications for those who own golf courses or golf clubs? The market value of their properties has, or will, decline – both as an investment and for property tax purposes. So what is a golf course worth?
If, indeed, the business of golf is declining, that fact will become immediately apparent from a declining revenue stream.
An Oregon Tax Court case involving the Broken Top Club in Bend illustrates how determining real market value of golf course property for property tax assessment purposes actually reflects the same considerations and methods employed by buyers and sellers in the marketplace.
The Broken Top Club, a Tom Weiskopf/Jay Morrish-designed 18-hole golf course, was part of a larger planned real estate development. Golf memberships were limited to the owners of lots in the gated subdivision surrounding the golf course. The clubhouse was about 26,000 square feet with practice greens and a putting course. The golf course and clubhouse were owned by a different limited liability corporation than the real estate development.
For a variety of reasons, including competition from other area courses, both sales of lots and, consequently, golf memberships were slow. As a result, the golf course and clubhouse experienced significant net operating losses.
The first issue the tax court tackled in determining the real market value of the golf course and clubhouse was the highest and best use of the golf course and clubhouse as a project separate from the real estate development. The court determined that limiting membership only to owners of lots in the Broken Top subdivision was a negative influence on value. The court found that the best method for operating the golf course and clubhouse that would produce the highest return to a prospective buyer was as a high-end, open- membership course, open to anyone with sufficient money to join.
The tax court next considered which of the three valuation approaches would produce the best approximation of market value. The court considered the cost to construct the course and the clubhouse. The problem with the cost approach is the difficulty in measuring economic obsolescence – external factors attributable to market dynamics, such as declining demographics that have a negative effect upon the value of property. Next the court considered the sale prices paid for golf courses of a similar quality. However, golf courses, particularly high-end ones, have their own unique characteristics. Finding a sale of a golf course and clubhouse with those same unique characteristics is difficult.
Therefore, based upon the evidence offered in this case, the tax court found a prospective buyer would give the most weight to the income approach in valuing a golf course and clubhouse that was transitioning from a restricted membership limited to lot owners to an open-membership affair.
Using the discounted cash flow income approach, the tax court relied upon the cash-flow projection that reflected expected increased revenue resulting from an open membership along the lines of similar golf courses such as Crosswater, Awbrey Glen Golf Club and Bend Golf & Country Club, adjusted for an eight-year sellout period to reach full membership.
Using a 15 percent discount rate (this was in 1997) and an 11 percent reversion rate to the income, the court found the real market value of the real and tangible personal property golf club and clubhouse to be $6 million as of the assessment date. The value was 30 percent below the county assessor’s opinion of value.
Author: David L. Canary