American Society of Golf Course Architects | Designing and Building Your Course Step-by-Step

American Association of Golf Course Architects | Remodeling University

Step 6: Financing

Money makes the world go around, so the saying goes. This is all too true of golf courses. Without the proper investment, there are likely to be challenges. Your goal is to avoid challenges. Leave those to the golfers.

Golf Money Types of Financing Available

Financing is needed for three main items: land acquisition, consultant and permitting work and construction. There are many ways in which the necessary capital can be generated. Some of the more popular include equity loans; mortgages obtained locally, nationally or from insurance companies; seller financing; bond sales; offer memorandum and offer institutions.

Lenders Respond More
Favorably to Several Factors

There are several things lenders look at when deciding whether or not to approve a loan for the creation of a golf course.

First, it always helps if you already have money to put forth as a down payment. You also improve your odds if you have a proven track record. Having the experience of taking on a project of this magnitude in the past and succeeding indicates you’ll have good chances of succeeding again.

You also give yourself better chances of securing a loan when you work with an experienced developer and have a solid cash flow and portfolio. Having high assets in a strong golf market and being experienced in golf course operation is also a definite plus.

Loan Terms in General

Loans terms will likely vary depending upon a number of factors, some of which are listed above. But most of the time, you can expect loans for creating a golf course to have the following characteristics:

5 to 7 years
Loan balances amortize between 15 to 25 years
Commitment fee: 2 percent
Loan amounts: range between $2 million and $200 million
Good faith deposits: $20,000 to $25,000
25 percent equity of acquisition – 50 percent of new development
Historical debt service coverage ratio 1.3x - 2.0x

Financing Tips for Municipalities

Bonds

Financing municipal golf courses is generally done through a combination of recreational revenue bonds and general obligation bonds. In many states, the financing of municipal or government facilities is done through revenue bonds, whereas the debt service and operating overhead is covered directly by the fees generated by golfers.

Under this type of financing, interest on the bonds is tax free and the taxpayer doesn't have to pay for the construction. General obligation type bonds may or may not require a public referendum. For these types of municipal bonds, a Market and Financial Feasibility study is performed to determine the financial success of the proposed operation.

Installment Purchase Contract

Another avenue for financing is the Installment Purchase Contract. The municipality enters into an agreement with a contractor or developer who will build the course and all facilities. For example, a municipality agrees to pay a contractor $3.8 million over 20 years. The contractor then assigns the contract to a bank. The interest is tax exempt.

Enterprise Funds

Many communities that already have a course, but would like to build a new one, set up an Enterprise Fund. Under this arrangement, profits from the existing course go into a special fund to help finance a new course. Another way for a community with an existing course to finance a new one is to levy a surcharge on greens fees. Instead of raising the greens fees, the course adds a 50-cent or $1 surcharge to each round. This surcharge goes back into the golf course instead of the general fund. This money is then used for the development of a new golf course. Community golfers, in effect, are financing their own facilities.

Lease Mechanism Agreement

One community entered into a Lease Mechanism Agreement with a private developer to build and operate the golf course for a set number of years. At the end of the agreement, the course clubhouse and all other facilities on this property go back to the city. During the time of this agreement, the city is profiting from the lease and its residents have the use of a public course.

Real Estate Development Agreements

In some cases, real estate developers have donated land for a golf course in exchange for higher-than-normal density housing on the remainder of their land. This provides their customers, as well as the community, with both a golf course and an attractive green belt.

Next: Construction Documents