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CONSERVATION EASEMENT DENIED

Just this morning, I read with great disappointment an article in the Wall Street Journal about a conservation easement denied by Federal Tax Court for St. James Club in North Carolina.

Having experience with these cases and having seen first hand the havoc the IRS can bring, I question not the science of "native vegetation and wildlife" or the difference between "fairways and bird flyways" but rather the fairness of the IRS denying deductions for clear reductions in property value as a result of sacrificing development rights. While there is no doubt that abuses have ocurred, it is equally clear that preserving open space is a common goal, and that some form of compensation is appropriate.

Many golf courses and clubs sit on sites that could most certainly be put to "higher and better use". Accordingly, in order to preserve these courses as open space, one option to make it economically feasible to do so is the granting of a conservation easement. I'm not sure the characterization of the benefit as a "tax break" is appropriate given that the owner is sacrificing significant flexibility and both present and future value by giving up his or her development rights.

WHY CLUB DINING ISN'T A RESTAURANT

Last month, Private Club Advisor featured an article on club dining's differences from public restaurants.

Phil Newman, a partner with RSM US (formerly McGladery) appropriately points out that members expect exceptional value because they're already paying dues. RSM's Trends in Florida Clubs Report makes the following points:

Club dining operations represent the most popular member activity
F & B should NOT be viewed as a profit center
Clubs serve high quality products but need to charge competitive prices
The club must keep plentiful quantities on hand, which add up
Clubs can't control portion of alcoholic drinks like restaurants as members will resist
Labor costs are higher due to seasonal considerations and higher wages due to no tipping policies

According to Club Benchmarking, Inc., Labor at member-owned clubs is 53% for F & B compared to 48% at non member-owned clubs. This, combined with downward pressure on prices from dues-paying members and the desire for excellent service clearly demonstrates why clubs rarely make a profit on food & beverage operations.

I've observed many clubs that make sweeping cuts in F & B operations in order to make ends meet. Unfortunately, this often results in a declining use of the club and an expansion of fiscal problems. Conversely, it is not unusual for clubs to conclude that they will seek more outside functions and events, which creates two problems, one from disgruntled members giving up their club and needing facilities that aren't efficiently utilized and roll up operating costs, the other from potential income tax issues by having too much outside revenue.

In valuations, as well as the marketing of both private clubs, and daily fee golf properties, we have observed that those clubs that rely heavily (more than 50%) on food & beverage revenue often sell for lower multiples of gross revenue. This is because of the limited profitability of club F & B operations.

The bottom line is that if members desire a private club and all that goes with it, they have to pay for it. To access a copy of RSM's Trends in Florida Clubs Report, click below:

Trends in Florida Clubs 2015-2016

Hirsh Article in Board Room Magazine

GPA President Larry Hirsh, a regular contributor, was recently asked to author an article for Board Room Magazine on the state of the industry, entitled "Where does the future take us?".

The article can be accessed by clicking the button below:

Where does the future take us?

THE GPA PRACTICE TEE

If you're going to Orlando for the PGA Show or San Diego for the Golf Industry Show, click on the piture to the left to make an appointment to meet with GPA President Larry Hirsh.

Some of our recent assignments have included:

NY - Appraisal of Ski Resort for acquisition

NJ - Appraisal of Private Club for improvement financing

NJ - Consulting for homeowners association for future planning of HOA owned golf course

Mid-Atlantic - Consultation and advisory for member group pursuing club purchase

NJ - Appraisal of private club for tax assessment analysis and appeal

NJ - Condemnation Appraisal of Private Club related to avigation easement rights for nearby public use airport facility

VA - Appraisal of Daily Fee Course for matrimonial dispute

FL - Appraisal of multi-course resort property for internal asset valuation

FOR SALE - Carnegie Abbey Club (RI)

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