Economy has many courses in deep rough

Golf courses in Greater Reno-Tahoe are becoming as well known for their red ink as their green grass.

Equity on privately owned golf courses has evaporated as real estate values have plummeted. In some cases, the water rights linked to a golf course are worth far more than the golf operation.

Courses across the region have struggled to remain solvent, and several have closed, victims of dwindling revenues attributed to reduced play, declining memberships and rising operating costs.

However, in an area saturated with golfing options, the courses remaining are in better position to draw from the region's small but rabid golf community - and investors interested in the golf business can purchase courses for a fraction of historical prices.

The most notable closure in the region was D'Andrea Golf Course in east Sparks, which folded in March. Once-lush fairways and greens now stand browner than the surrounding hillsides, and dog-walkers, jackrabbits and the occasional 4x4 pickup are all that's cruising the fairways today. Other closures include Northgate in northwest Reno. The Resort course at Genoa will close if a buyer isn't found by the end of September.

Additionally, Empire Ranch Golf Course in Carson City is reorganizing under a Chapter 11 bankruptcy filing in Reno.

Mario Antoci, owner of Genoa Lakes Golf Resort, which features two of the region's most pristine golf courses nestled in the shadows of the Sierra Nevada, has been trying to sell both 18-hole courses on more than 450 acres for several years.

Antoci, president of MDA Enterprises Inc., purchased the Lakes course for $7.5 million in October 2000 and invested $15 million more building a clubhouse, cart barn and other infrastructure. In March 2005, Antoci added the Resort course for an additional $5.5 million and invested $1 million in the course.

The Resort course will close Sept. 30 if a sale doesn't go through, Antoci says, although he said he expects to line up a buyer in the next few weeks.

Purchase of the Genoa Resort course included roughly 660 acre-feet of water rights, which in today's market is a more valuable asset than the course itself, Antoci says. The Genoa Lakes course has rights for more than 500 acre-feet of water from wells and the Carson River, but Antoci says that course should remain open because its revenues are covering expenditures.

All told, Antoci says, he's sunk more than $29 million into the two courses.

"The value of golf courses today is rock bottom. You cannot build a course for what they are selling for today. I am trying to sell both, but if I can't sell the Resort course, it will close, and when the time is right I will sell the water rights to someone else."

Like D'Andrea, much of the land surrounding the Genoa Resort course is home to modest semi-custom homes and luxury homes. The two housing developments at the Genoa Resort course encompass nearly 160 homes, though it was zoned for 395 home sites. Homeowners in Genoa who have enjoyed wide swaths of beautifully manicured green grass in their extended backyards now face the unpleasant possibility of fields of dry, dead grass much like homeowners at D'Andrea.

Jeff Woolson, managing director of CBRE's golf and resort properties group in Carlsbad, Calif., brokered the sale of D'Andrea to Synergy Golf Course Management in August 2004 for $5.4 million. The course once again is up for sale.

Woolson says that in his 22 years of experience, he's never seen golf courses sell so low - roughly 20 percent to 50 percent of their former value.

"We used to sell stand-alone golf courses for $4 million to $8 million - that was our bread and butter. Now they are selling for $2 million to $3 million or less," he says.

What's behind the plummeting values? The golf industry was hit by a perfect storm, Woolson says. As the recession deepened, cash for greens fees and pricey memberships to exclusive golf resorts was among the first thing cut from household budgets.

Second, land zoned for residential use surrounding golf courses was way overbuilt, and the correction in the housing market cleared out hordes of homeowners, many of whom were an integral part of a golf resort's revenue base.

Lastly, Woolson says, there's little to no financing available for investors to step in and purchase struggling golf courses such as D'Andrea.

"That was the final nail in the coffin for the golf industry," he says. "Up to September of 2008, there were many large lenders you could go to who would give you debt on a golf property, and you also had a whole slew of little banks that had financing. All that is gone. When you combine it with people playing less and properties that got way to overbuilt, you have a lot of (golf) properties on market with little or no cash flow. If something is losing money, you have to shut it down."

The solution for some courses, such as ArrowCreek in southwest Reno, has been to transition from a private members-only facility to a semi-public resort to increase revenues. After several years of financial difficulty, ArrowCreek began offering tee times to the public as well as hosting outside tournaments, which has helped offset operating costs, says General Manager Drew Yardley.

Yardley also says management took a hard look at its membership pricing structure and now offers membership comparable to other courses in the region.

"ArrowCreek prided itself on being elitist and having a membership at higher level," Yardley acknowledges. "But we realized we needed to be competitive. The economy was struggling, and we needed to basically match or beat any club in Reno.

"The long-term vision of ArrowCreek always has been to ride out any possible storm," Yardley adds. "No one foresaw this economic storm. But we have a good membership group, and we have two good courses and are able to offset revenues with tournament play."

So is a golf course still a good business model? Genoa's Antoci says at today's prices, investors can make purchases work financially. Woolson says golf is still a viable business - and total rounds played in the state in June were down just 2 percent from 2011, says PGA PerformanceTrak.

Like the housing market, Woolson says, the golf industry is in the midst of a sweeping reset of values.

"I think people got confused with golf courses, thinking that they are real estate," he says. "They are business opportunities that use a big chunk of real estate. They are deed-restricted on what you can do. If it's not going to be a golf course, it's going to be closed down."