Eagle Harbor Golf Club can’t meet its debt payments, a problem sweeping the nation as fewer people play amid recession and changing priorities.
Like so many other developments in Florida, Eagle Harbor is built around a golf course. The 18 holes meander past the homes, across the bike paths, not far from the swimming pool and tennis courts.
It’s a nice course, rated well by golfers, but fewer of them played it last year than the year before, or the year before that.
So on April 1, when it came time for the community development district that owns the course to make its annual interest payment on bonds, about $150,000 this year, the debt went unpaid.
“The revenue,” said Steve Czajkowski, chairman of the CDD’s board, “is just not there.”
The finances are strong enough to keep the course going, he said, but not strong enough at this point to repay that debt.
But the situation at Eagle Harbor, a 3,200-home development in Clay County’s Fleming Island, is hardly unique. Golf courses all over are actually closing, and even more are in trouble.
“If every golf course’s books were public record, you’d see a lot of them.” said M.G. Orender, president of Hampton Golf, which manages the Eagle Harbor course and 17 others. The basic problem is that the number of rounds being played has dropped steadily for a decade. According to the National Golf Foundation, 475 million rounds were played last year, 43 million less than in 2000.
But golf courses have kept opening, and closing.
In 2005, NGF reports, the equivalent of 124 golf courses opened and 93 closed. Last year, 46 opened and 107 closed. The last few years have seen West Meadows and Pine Lakes close in Jacksonville, Pineview in Macclenny and the Ravines in Middleburg, among others.
And that doesn’t include the ones that the banks have taken over to keep open, Orender said.
The foundation predicts another 75 to 125 will close this year.
Bond debt
Eagle Harbor Golf Club is owned by a community development district called The Crossing at Fleming Island, a form of local government that’s also in charge of keeping the community’s streets and grounds in shape.
The semi-private course – open to residents and nonresidents – makes enough to pay for operating expenses itself, said Dave deNagy, who manages the district for Governmental Management Services. But it doesn’t make enough to pay its bond payments of about $500,000 year.
The course opened in 1993, and in 1999 the CDD purchased it from the developer, Eagle Harbor at Fleming Island Joint Venture, for $7.8 million, which it raised by issuing bonds. Five years later, it borrowed $1.9 million from the developer to pay down part of the bonds.
It still owes $4.5 million on the bonds, with an interest payment due each April 1 and a principal payment due each Oct. 1. It had been making those payments despite the fact that the amount of golf being played has been dropping steadily. Last year, about 15,000 fewer rounds were played than in 2006 and revenue was $846,000 less.
The district had the $150,000 it needed for the April interest payment, but deNagy said the trustee for the bondholders agreed to take the payment to make sure the course had enough cash to continue operating. The trustee, who works for US Bancorp in Los Angeles, said he was not allowed to discuss the case.
In October, the principal payment of about $350,000 is due and the $1.9 million borrowed from the developer will start accruing interest.
One of the problems is that the CDD bought the course at the height of its value. As with homes, golf course prices have dropped drastically. Orender said he’s seen courses that sold in late ’90s for $4 million to $6 million going for $1 million or $2 million today.
“At those prices,” he said, “they might have a chance of making it because they won’t be carrying that much debt. So it’s a good time for people in the golf business to go out and look at properties.”
Orender said he was actually offered a golf course for free last week. But it was part of development that had stalled, with only four houses instead of the hundreds planned. And it would require several million dollars to build a clubhouse. Orender passed on the course.
Fewer golfers
Orender said he remembers a time in the late 1970s and early ’80s that it seemed like every new course was successful. There was enough of an untapped market that each new course increased the number of rounds being played in a community.
By the late 1990s, that ended. The number of rounds played across the country flattened, then dropped.
Yet new courses kept coming, particularly as centerpieces of housing developments. And the number of rounds kept dropping.
Jim Kass of the National Golf Foundation attributed the decrease to two recessions and the 9/11 attacks, and said his organization expects golf to bounce back.
“We see a shift toward golf by baby boomers who, as they retire, will play more golf,” he said. “Average rounds increase dramatically as golfers age. There is some generational risk, however, with Gen Y who are participating at a lower rate than they did 10 or 20 years ago.”
Orender, who’s been working in the golf industry since the 1970s, isn’t so sure. Studies show men are less willing to spend time away from their family than they used to be. And, he said, they don’t look at golf as a form of exercise.
“I was out taking the trash cans in this morning and 40 guys went by me on bicycles in those skinny little clothes,” Orender said. “And not a one of them was under 50. In their father’s generation, they’d have been at the golf course and drinking gin afterward.”
So the golf industry is looking for ways to reach out to more women and minorities, as well as ways to bring the white male who has long been the heart of the business. One program, called Get Golf Ready, is a series of five lessons designed strictly to attract the person who used to play golf but gave it up. It’s available at dozens of courses in Florida, including Eagle Harbor.
The future
But all that still leaves the Eagle Harbor course with a debt that Czajkowski said he doesn’t see it paying anytime soon. Operating costs have been reduced, deNagy said, since Hampton has begun managing it.
The Eagle Harbor bonds are strictly based on revenue, similar to a signature loan. Since the course is not used as collateral, the bond holders cannot foreclose on it.
Their only recourse, deNagy said, would be to file a lawsuit claiming the course was being mismanaged and, if they won, bring in their own managers.
But deNagy said the course has been evaluated twice in the past three years by the National Golf Foundation, and each time NGF concluded it’s being run about as well as it could be.
He and deNagy have been talking with the bondholders since 2009 to restructure the bonds, either reducing the principal or the interest, currently at 6.6 percent.
But so far, deNagy said, they’ve gotten no response. But Czajkowski is optimistic and doesn’t see the course closing.
“I think we have an opportunity to bring all these people to the table and look at the numbers. Maybe we can resolve this so that the bondholders are fairly and absolutely treated, and at the same time we have a golf operation that will continue.”
roger.bull@jacksonville.com, (904) 359-4296
Source: jacksonville.com
