email : Webview : ShowTime, RE Tax Case Law and the Practice Tee

THE GOLF INDUSTRY & PGA SHOWS

During the past few weeks, I had the opportunity to attend the annual PGA Show in Orlando and the Golf Industry Show (GIS) in San Diego, sponsored by the NGCOA and GCSAA. One thing I like is the opportunity to check the pulse of the golf industry from those who toil in the trenches of operations, management and other facets of the golf industry.

2015, by most accounts was an improved year, if only because of favorable weather in many regions of the country. It seemed however that the challenge of growing the game (and industry) was front and center on the minds of many, and I was even interviewed by one publication about that topic. Golf still has trouble keeping players.

A few months ago in this space, I wrote about how my 22 year old daughter avoids playing golf because of the many rules and restrictions that make the game "uncool" to millenials. Dress codes, cell phone bans and other rules at many clubs discourage new golfers from taking up the game. The way I see it, golf's "establishment", led generally by the private club segment seeks to maintain tradition often to the point of discouraging growth. Just last week, Charlie Rymer mentioned on The Golf Channel that the average age of private club members in the United States is 59 years old. As a 60 year old, I'm not saying 59 is old, but younger families are the future of those clubs and they need to be encouraged.

The golf industry is now touting "outside the box" ideas like Golf Boards , FootGolf and for many years SNAG Golf as ways to enhance enjoyment, better use the facilities and teach the game to kids. These are all positive steps, but the leadership of private clubs and the USGA is needed to truly make golf attractive to the next generation.

During my interview, among the questions I was asked, was if I owned a golf facility or club what is the one thing I'd do to try to enhance operations and profitability. Obviously, this is a broad question and the specific answer isn't the same for all courses. My response was to have a fresh set of eyes take a look and do a SWOT Analysis. Every club has room for improvement, and sometimes it's right under your nose. We've done several such analyses recently and identified ways clubs can improve and enhance their performance and member/player satisfaction. That means more members and more customers.

SWOT can lead to understanding how to reposition a club, which I perceive as a never-ending process. Few, if any clubs can avoid modifying their operations from time to time and still remain successful. The guys in my group (at the NGCOA outing) who tried GolfBoards found them to be fun. Is it GolfBoards, Rickie Fowler-like High Top Golf Shoes, relaxed dress codes (allowing cargo shorts) and more liberal cell phone use that will help golf grow, or simply allowing kids to play for free to get them hooked on golf? Try them all. Too many courses are closing and golf property values aren't increasing. That's not good.

THE GPA PRACTICE TEE

Some of our recent assignments have included:

VT - Appraisal of Ski Resort

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 eminent domain action

NJ - Appraisal of Daily Fee course for possible acquisition

VA - Appraisal of Daily Fee Course for estate settlement

REAL ESTATE TAXES
It's that time of year again when clubs need to take a look at their real estate tax liability and a good time to consider some of the developments in how golf properties are assessed. One interesting recent case is Forest Hill Golf Club v. Townships of Belleville and Bloomfield, in New Jersey.

The full opinion, which can be read by clicking the link, demonstrates why clubs need to retain experts with a keen knowledge and understanding of golf properties when appealing assessments.

As in most cases, the burden of proof is on the taxpayer. In this case, it is clear that the judge found ultimately that the plaintiff failed to overcome the (typical) presumption of correctness by virtue of the appraiser (not a golf specialist) not adequately supporting his opinion of value. Further, the judge also found that the defendant's expert (also not a golf specialist) also failed to support his opinion of value, but the defendant (taxing authorities) did not have the burden of proof. Of particular interest in this case is that on two occasions the judge cited the 2011 Bear Brook case ruling that "the cost approach has been accorded great weight in the valuation of a golf course because [they] are considered special-purpose property that were not frequently exchanged in the market", taken from a 1980 text that is no longer valid. However, the judge further indicated that "the court has not determined whether the approach (income) is inappropriate in this matter. As discussed below, the issue of whether the club in this matter generated sufficient income for return on investment, such that the application of the approach would have been appropriate, was not explored and therefore the court makes no ruling in that regard.”

The last statement strongly suggests that the judge was begging for a well supported income analysis and had someone demonstrated that (unlike what was suggested in the 1980 text), that there is in fact a market for investors to buy non-profit clubs, that the income approach would have carried the day. Both appraisers in Forest Hill were correct in abandoning the cost approach, however neither supported their income analyiss sufficiently for the judge to determine value.

The judge appropriately recognizes that even though both appraisers determined the highest and best use to be a golf course, that the plaintiff's appraiser determined it to be as a private, not for profit club while the defendant's appraiser concluded it should be a daily-fee course. Again, the judge relies on an outdated, 1980 text which suggest that an analysis (for valuation purposes) of a not-for-profit private club differs from for-profit clubs and courses. Though that may have been true in 1980, it is no longer true today as the buyers of most (if not all) not-for-profit clubs are for-profit operators who plan to continue operations as private clubs, albeit for profit. As such, the income approach is useful and relevant.

The sales comparison approach may also have been relevant and useful in this case had the appraisers not relied on a potentially misleading and irrelevant price per hole analysis and instead acquired more income informationon the sales and evaluated them as market participants would.

While we haven't reviewed the property or performed an appraisal thereof, it seems clear that the judge was seeking qualified guidance and didn't get it. The loser here was the taxpayer (club) because of the burden of proof and their appraiser's failure to assist them in overcoming that burden.

FOR SALE - Carnegie Abbey Club (RI)

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