Without necessary funding and the proper investment, there are likely to be significant challenges to completing a new golf course development. The goal is to avoid these challenges and leave those to the golfers.
Types of Financing Available
Financing is needed for three core components: 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
- locally or nationally obtained mortgages
- mortgages through insurance companies
- seller financing
- bond sales
- offer memorandum
- 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 is helpful to have money to put forth as a down payment. Odds also improve with a proven financial track record. Having the experience of taking on a project of this magnitude in the past and succeeding indicates a good chance for success again.
Securing a loan is also easier when working with an experienced developer and possessing a stable cash flow and investment portfolio. Having high assets in a strong golf market and being experienced in golf course operation is also a plus.
Financing Tips for Municipalities
Bonds
Financing a municipal golf course 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
Some communities enter 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 the land. This provides their customers, as well as the community, with both a golf course and an attractive green belt.
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