Golf 5-18-17

Communities with Golf Courses, Don’t Forget the Greens on Your Reserve Study

Have you been wondering how having a golf course in your community affects your reserve study? Should you include it in your master study? Or should courses be treated as a separate entity? For this topic we reached out to Peter Miller, RS of Miller+Dodson Associates, Inc., a nationwide consulting firm based out of Annapolis, Maryland. Miller has been working with reserve studies since the 1980s. 

Miller explained that community associations that have golf courses as part of their amenities package can opt to have it included in their regular reserve study, or they can perform a “parallel” study viewing it as if it were a separate entity. Which option do associations typically go with? “It’s all going to depend on how the governing documents are written,” said Miller. “If the community is responsible for budgeting for that golf course, then it should be done as part of the reserve study. There are some communities where membership to the golf course isn’t mandatory. If that’s the case, then you do a separate reserve study for the facilities of that golf course.” 

Miller explained that it is not significantly different from a community that has a master association and sub-associations. “They have single-family townhomes and they have garden-style condos. In that case you do a general common reserve study for all the amenities. Then those townhomes may have their own parking or alleys that service their garages. Then you do a separate reserve study for those amenities that are only the responsibility of the townhome owners. Then you do a separate study for the garden-style condominiums. It’s not uncommon to have a master and then sub-associations that have their own reserve studies,” said Miller. 

According to Miller, what differs in a golf course community is that this particular amenity is structured to be a source of income. “A country club or golf course depends on their membership for their income. The members want to avoid being hit with special assessments. They are depending on the general manager or the board of trustees to adequately plan their budgets so when items come up in the future they have enough money to do the replacement,” he said.

Miller pointed out that association budgets for a golf course are not just limited to bringing out a PGA consultant and a hiring a landscaper. “You don’t want to get hit with a special assessment and you don’t want to see your dues starting to rise precipitously simply because somebody forgot to do the budget for redoing the bunkers, redesigning the greens, putting money aside for the irrigation system or dredging the water features and ponds,” said Miller. 

Nobody wants to sip an Arnold Palmer at their own house when they come in two under par. They want to brag about it at the clubhouse. The costs of that golf course amenity has to be factored in as well. “The same can be said for the clubhouse. Roofs have to be replaced. Kitchen equipment needs to be replaced. The interior furnishings are replaced and redecorations are done. Those are all projects that they should be budgeting for,” he said.

As a golf club is its often a separate business entity, upkeep is key. According to Miller, if golf course upkeep is not budgeted for, the place could start to look shabby. “The course starts to look run down, members start losing interest in playing that course, and you have a hard time attracting new members to replace the old ones,” said Miller.

How should golf course communities approach their reserves for the golf course? “By nature, if you have a golf course that is part of a community association, you are looking at both the golf side of things and the community side of things,” said Miller. “In each case there are only three ways to get the money. You can raise assessments; you can have a special assessment; or the community association can get a commercial bank loan. Or you employ a combination of these tools.  The board of directors is charged with making these prudent business decisions.”

What elements should be inspected when doing the reserve study for the golf course? Miller advised that “there are questions you have to ask. That’s part of the beauty of reserve studies. It brings a lot of questions to the forefront. So we take into account what they have budgeted for the course itself. When were bunkers redone and fairways improved? When have they changed out their irrigation system? Do they need a PGA inspection to say ‘here is what meets the standard and what doesn’t?’”

Although a PGA certification is not necessary, Miller said you should want it. “Most courses want to be able to market themselves. Remember they are counting on membership. They want to market that membership,” he said.

You also have to look at the needs of older and newer members and come up with a compromise that meet the needs of both groups. Miller gave an example. “A lot of time you have a dichotomy in the membership, where the old members say ‘I’ve been a member for 25 years and I like everything the way it is. There’s no reason to spend any money to change it.’ And then the new guards come in and say ‘This doesn’t provide for as much family stuff as we would like. We have a clubhouse, but no place for the kids. We don’t have a pool and tennis court we can enjoy.’ So the planning has to be done on a more cohesive basis.”

Should a golf course ever be omitted from the reserve study picture of a community entirely? “No,” he said, and reiterated that it is a question of what is in the bylaws of the association. “If that is something that is in the bylaws, that is the responsibility of the association for maintenance and upkeep, then it is up to the association to budget for major repair, remodeling and eventual replacement.” 

What does your company do if an association refuses to include it? “We don’t include it in the reserve study. But we put a nice big note on the inventory page saying ‘these elements are being excluded at the direction of the board of directors,’” explained Miller. “The pitfall is they are going to realize in three to five years that they should have been putting money aside.” Unless, he added, the board decided early on that projects for the golf course are to be funded by other means, such as a commercial bank loan.

As a rule of thumb, how often should the reserve study for a golf course be updated? According to Miller “industry standard is every three to five years. Most of the states that have laws requiring that you do a reserve study say you have to do one every five years.”