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Home My WebLink About20162227.tiffAugust 5, 2016 Petitioner: COLORADO NATIONAL GOLF CLUB LLC 2700 VISTA PKWY ERIE, CO 80516-7954 CLERK TO THE BOARD PHONE (970) 400-4226 FAX (970) 336-7233 WEBSITE: www.co.weld.co.us 1150 O STREET P.O. BOX 758 GREELEY CO 80632 Agent (if applicable): CATALYST PROPERTY TAX CONSULTANTS, LLC 2291 ARAPAHOE AVE BOULDER, CO 80302 RE: THE BOARD OF EQUALIZATION 2016, WELD COUNTY, COLORADO NOTICE OF DECISION Docket #: 2016-2227 Appeal #: 2008211172 Hearing Date: 8/4/2016 10:00 AM Dear Petitioner: On the day indicated above, the Board of County Commissioners of Weld County Colorado convened and acting as the Board of Equalization, pursuant to C.R.S. Section 39-8-101 et seq., considered petition for appeal of the Weld County Assessor's valuation of your property described above, for the year 2016. The Assessment and valuation is set as follows: Actual Value as Actual Value as Account # Decision Determined by Assessor Set by Board R8942769 Deny - Administrative Deny $3,494,435 $3,494,435 A denial of a petition, in whole or in part, by the Board of Equalization must be appealed within thirty (30) days of the date the denial is mailed to you. You must select only one of the following three (3) options for appeal: 1. Appeal to Board of Assessment Appeals: You have the right to appeal the County Board of Equalization's decision to the Colorado Board of Assessment Appeals. A hearing before that Board will be the last time you may present testimony or exhibits or other evidence, or call witnesses in support of your valuation. If the decision of the Board of Assessment Appeals is further appealed to the Court of Appeals pursuant to C.R.S. Section 39-8-108(2), only the record of proceedings from your hearing before the Board of Assessment Appeals and your legal brief are filed with the appellate court. All appeals to the Board of Assessment Appeals filed after August 10, 2016, MUST comply with the following provisions of C.R.S. Section 39-8-107(5): (5)(a)(I) On and after August 10, 2011, in addition to any other requirements under law, any petitioner appealing either a valuation of rent -producing commercial real property to the board of assessment appeals pursuant to section 39-8-108(1) or a denial of an abatement of taxes pursuant to section 39-10-114 shall provide to the county board of equalization or to the board of county commissioners of the county in the ot9/o- d....2 -a-7 case of an abatement, and not to the board of assessment appeals, the following information, if applicable: (A) Actual annual rental income for two full years including the base year for the relevant property tax year; (B) Tenant reimbursements for two full years including the base year for the relevant property tax year; (C) Itemized expenses for two full years including the base year for the relevant property tax year; and (D) Rent roll data, including the name of any tenants, the address, unit, or suite number of the subject property, lease start and end dates, option terms, base rent, square footage leased, and vacant space for two full years including the base year for the relevant property tax year. (II) The petitioner shall provide the information required by subparagraph (I) of this paragraph (a) within ninety days after the appeal has been filed with the board of assessment appeals. (b)(I) The assessor, the county board of equalization, or the board of county commissioners of the county, as applicable, shall, upon request made by the petitioner, provide to a petitioner who has filed an appeal with the board of assessment appeals not more than ninety days after receipt of the petitioner's request, the following information: (A) All of the underlying data used by the county in calculating the value of the subject property that is being appealed, including the capitalization rate for such property; and (B) The names of any commercially available and copyrighted publications used in calculating the value of the subject property. (II) The party providing the information to the petitioner pursuant to subparagraph (I) of this paragraph (b) shall redact all confidential information contained therein. (c) If a petitioner fails to provide the information required by subparagraph (I) of paragraph (a) of this subsection (5) by the deadline specified in subparagraph (II) of said paragraph (a), the county may move the board of assessment appeals to compel disclosure and to issue appropriate sanctions for noncompliance with such order. The motion may be made directly by the county attorney and shall be accompanied by a certification that the county assessor or the county board of equalization has in good faith conferred or attempted to confer with such petitioner in an effort to obtain the information without action by the board of assessment appeals. If an order compelling disclosure is issued under this paragraph (c) and the petitioner fails to comply with such order, the board of assessment appeals may make such orders in regard to the noncompliance as are just and reasonable under the circumstances, including an order dismissing the action or the entry of a judgment by default against the petitioner. Interest due the taxpayer shall cease to accrue as of the date the order compelling disclosure is issued, and the accrual of interest shall resume as of the date the contested information has been provided by the taxpayer. Appeals to the Board of Assessment Appeals must be made on forms furnished by that Board, and must be mailed or delivered within thirty (30) days of the date the denial by the Board of Equalization is mailed to you. The address and telephone number of the Board of Assessment Appeals are: Board of Assessment Appeals 1313 Sherman Street, Room 315 Denver, Colorado 80203 Telephone Number: 303-864-7710 Email: baa@state.co.us Fees for Appeal to the Board of Assessment Appeals: A taxpayer representing himself is not charged for the first two (2) appeals to the Board of Assessment Appeals. A taxpayer represented by an attorney or agent must pay a fee of $101.25 per appeal. OR 2. Appeal to District Court: You have the right to appeal the decision of the Board of Equalization to the District Court of the /county wherein your property is located: in this case that is Weld County District Court. A hearing before The District Court will be the last time you may present testimony or exhibits or other evidence, or call witnesses in support of your valuation. If the decision of the District Court is further appealed to the Court of Appeals pursuant to C.R.S. Section 39-8-108(1), the rules of Colorado appellate review and C.R.S. Section 24-4-106(9), govern the process. OR 3. Binding Arbitration: You have the right to submit your case to binding arbitration. If you choose this option, the arbitrator's decision is final and you have no further right to appeal your current valuation. C.R.S. Section 39-8-108.5 governs this process. The arbitration process involves the following: a. Select an Arbitrator: You must notify the Board of Equalization that you will pursue arbitration. You and the Board of Equalization will select an arbitrator from the official list of qualified people. If you cannot agree on an arbitrator, the District Court of the county in which the property is located (i.e., Weld) will select the arbitrator. b. Arbitration Hearing Procedure: Arbitration hearings are held within sixty (60) days from the date the arbitrator is selected, and are set by the arbitrator. Both you and the Board of Equalization are entitled to participate in the hearing. The hearing is informal. The arbitrator has the authority to issue subpoenas for witnesses, books, records documents and other evidence pertaining to the value of the property. The arbitrator also has the authority to administer oaths, and determine all questions of law and fact presented to him. The arbitration hearing may be confidential and closed to the public if you and the Board of Equalization agree. The arbitrator's decision must be delivered personally or by registered mail within ten (10) days of the arbitration hearing. c. Fees and Expenses: The arbitrator's fees and expenses are agreed upon by you and the Board of Equalization. In the case of residential real property, the fess may not exceed $150.00 per case. For cases other than residential real property, the arbitrator's total fees and expenses are agreed to by you and Board of Equalization, but are paid by the parties as ordered by the arbitrator. If you have questions concerning the above information, please call me at (970) 400-4226. Very truly yours, 1+c,A Esther E. Gesick, Clerk to the Board Weld County Board of County Commissioners and Board of Equalization Cc: Christopher Woodruff, Weld County Assessor Esther Gesick From: Sent: To: Subject: Jason Flynn <flynn@catalystpropertytax.com> Thursday, August 04, 2016 6:43 AM Esther Gesick Colorado National - R geiYa744 Esther, I have decided to bypass the BOE hearing and file for the BAA regarding Colorado national golf course. Is this most easily done with an administrative denial? Thank you Jason Flynn Catalyst Property Tax Consultants, LLC 720-744-3237 Sent from Outlook 1 AN,- 07.2.27 Aso°gy Christopher M. Wood ru ff Weld County Assessor 1400 N 17th Ave Greeley, CO 80631 NOTICE OF DETERMINATION RECEIVED JUL 13 2016 WELD COUNTY COMM!SS ONERS Date of Notice: 6/30/2016 Telephone: (970) 353-3845 Fax: (970) 304-6433 Office Hours: 8:00AM — 5:00PM I ACCOUNT NO. TAX YEAR r TAX AREA LEGAL DESCRIPTION! PHYSICAL LOCATION R6942769 12016 3520 TRACT 7A & 7E3 & 8 & 9 & 10A & 108 8.10O & 13&14A&14B& 15&20 VISTARIDGEA LSO PT VAC WCR 5 ADJ & TRACT 11A & 12A V ISTA RIDGE MASTER AMD 1 2700 VISTA PKWY ERIE . CO PROPERTY OWNER COLORADO NATIONAL GOLF CLUB LLC 2700 VISTA PKWY ERIE, CO 80516-7954 PROPERTY CLASSIFICATION ASSESSOR'S VALUATION ACTUAL VALUE PRIOR TO REVIEW ACTUAL VALUE AFTER t REVIEW COMMERCIAL. 3,494,435 3,494.435 TOTAL $3,494,435 $3,494,435 The Assessor has carefully studied all available information, giving particular attention to the specifics included on your protest. The Assessor's determination of value after review is based on the following CM05 - The law requires that data from Jan 2013 to June 2014 be used to establish current values. We have considered all three approaches to value and we have denied your appeal based upon this data. If you disagree with the Assessor's decision, you have the right to appeal to the County Board of Equalization for further consideration, § 39-8-106(1){a), C.R.S. The deadline for filing real property appeals is July 15, The Assessor establishes property values. The local taxing authorities (county, school district, city, fire protection, and other special districts) set mill levies. The mill levy requested by each taxing authority is based on a projected budget and the property tax revenue required to adequately fund the services it provides to its taxpayers. The local taxing authorities hold budget hearings in the fall. If you are concerned about mill levies, we recommend that you attend these budget hearings Please refer to last year's tax bill or ask your Assessor for a listing of the local taxing authorities. Please refer to the reverse side of this notice for additional information. Agent (If Applicable) CATALYST PROPERTY TAX CONSULTANTS, LLC 2291 ARAPAHOE AVE BOULDER, CO 80302 ',Whet 16-DPT-AR PR 207-08/13 R8942769 1061 0221 2016-2227 Sigh =ture APPEAL PROCEDURES County Board of Equalization Hearings will be held from August 1st through August 5th at 1150 O Street To appeal the Assessor's decision, complete the Petition to the County Board of Equalization shown below, and mail, file online, or deliver a copy of both sides of this form to: Weld County Board of Equalization 1150 O Street, P.O. Box 758 Greeley, CO 80631 Telephone: (970) 356-4000 ext, 4225 Online: http;//www.co.weld.co.us/apps/cboe/ To preserve your appeal rights, your Petition to the County Board of Equalization must be postmarked or delivered on or before July 15 for real property — after such date, your right to appeal is lost. You may be required to prove that you filed a timely appeal; therefore, we recommend that all correspondence be mailed with proof of mailing. You will be notified of the date and time scheduled for your hearing. The County Board of Equalization must mail a written decision to you within five business days following the date of the decision. The County Board of Equalization must conclude hearings and render decisions by August 5, § 39-8-107(2), C.R.S. If you do not receive a decision from the County Board of Equalization and you wish to continue your appeal, you must file an appeal with the Board of Assessment Appeals by September 10, § 39-2-125(1)(e), C.R.S. If you are dissatisfied with the County Board of Equalization's decision and you wish to continue your appeal, you must appeal within 30 days of the date of the County Board's written decision to ONE of the following: Board of Assessment Appeals 1313 Sherman Street, Room 315 Denver, CO 80203 (303) 866-5880 www.dola.colorado.govlbaa Binding Arbitration For a list of arbitrators, contact the County Commissioners at the address listed for the County Board of Equalization. If the date for filing any report, schedule, claim, tax return, statement, remittance, or other document falls upon a Saturday, Sunday, or legal holiday, it shall be deemed to have been timely filed if filed on the next business day, § 39-1-120(3), C.R.S. District Court Contact the District Court in the County where the property is located. See your local telephone book for the address and telephone number. PETITION TO COUNTY BOARD OF EQUALIZATION What is your estimate of the property's value as of June 30, 2014? (Your opinion of value in terms of a specific dollar amount is required for real property pursuant to § 39-8-106(1.5), C.R.S) $ 3-.. / 9';',./ 55 ro Whit is the basis for your estimate of value or your reason for requesting a review? (Please attach additional sheets as necessary and any supporting documentation, i.e., comparable sales, rent roll, original jnptallecl cost, appraisal, etc. ' - � .._,.;rs it) ie' , ac it Lhh6 l'k Color C,,.�r "erre- On-ei"t 4? no tC' o. 4 etc. y'# ft "•,(e . 144( f.1? .o ..,a1 a:° -tick r;, .ealitr,-M...,df,�'•F VASt.+�E �' "'i&n 64 ' - c...,c.6 / tv A Co •w -4- Co.,,c4f ;, NJ ,r C ,,pr r'i-- i - rcf dcir ?Morel ,-r#-.'- ATTESTATION I, the undersigned owner or agent' of the property identified above, affirm that the statements contained herein on any = hrnents hereto are true and complete. 7 -`WV 3137 Telephone Number -Fa; C Aril/ iisr Kopek trriTerx . C v Al Em i Address 1 Attach letter of authorization signed by property owner. Dat --7/CS/ 16 -DPI -AR PR 207-08/13 R8942769 10610221 ti Catalyst Property Tax Consultants July 13, 2016 Dear officials of the Weld County Board of Equalization, RECEIVED JUL 182016 WELD COUNTY COMMISSIONERS Thank you for your time to discuss the appeal of Colorado National Golf Club. I am filing an appeal to the Board of Equalization in response to the notice of determination dated 6/30/16. Due to the number of pages of documentation, I am faxing the petition along with this letter today and sending the close to 200 pages of supporting documentation via mail. The appeal is based on the fact that Weld County has improperly valued the Going Concern Entity that is Colorado National Golf Club. Colorado Board of Assessment Appeal precedence along with Colorado Department of Taxation Course APR 230 have been ignored. For a daily fee golf club, such as Colorado National Golf Club, the most accurate method of valuation per APR 230 and CBOAA is the Income approach for the reason that all financials for the subject have been supplied. Furthermore, the county has failed to remove the personal property and the intangible value (as documented on IRS form 8594) from the total business value to arrive at the land and improvement value. Per Colorado statutes 39-3-118, "Intangible personal property shall be exempt from the levy and collection of property tax". The intangible value at Colorado National Golf Club was documented in IRS form 8594 but has not been removed from the total business value along with the personal property. Please call or email with any questions that you might have. Sincerely.. Jason Flynn Catalyst Property Tax Consultants, LLC 2291 Arapahoe Avenue Boulder, CO 80302 Jason Flynn 720.744.8237 Flynn@Catalystpropertytax.com COLORADO NATIONAL GOLF CLUB 2700 VISTA PARKWAY ERIE, CO WELD COUNTY 2016 Protest of Valuation May 23, 2016 Prepared by: C.) Catalyst Property Tax Consultants, LLC 2291 Arapahoe Avenue Boulder, Co 80304 (720)744-3237 Phone (877)635-0070 Fax flvnn lcatalvstnronertvtax.com r COLORADO NATIONAL GOLF CLUB TABLE OF CONTENTS Section A 1. Protest of Valuation Form (2016) 2. Statement of Agency 3. Petitioner's Issues and Concerns Statement 4. Parcel Value Summary 5. Summary of Salient Facts 6, Revenue and Expense Summary 7. IRS Form 8594 Declaring Intangible Value at purchase 8. Income Approach (Typical) 9. Income Approach (Actual) 10. Colorado Board of Assessment Appeals Golf Course Cases 11. Realty Rates Q1 2014 Survey 12. NGF 2010 Operating and Financial Performance Profiles of 18 -hole golf facilities 13. Club Benchmarking 2014 Gross Profit and KPl Report Section B — Defining the Market Value of Golf Courses 14. The Appraisal Journal — Appraising Golf Courses for Ad Valorem Tax Purposes, Stephen R. Hughes, MAI 15. Article: Future of Golf Sits in Deep Rough, The Washington Post, 3/8/2015, Drew Harwell 16. Article: How Much Is a Golf Course Worth Today? Bruce Buckley — Golf Business Magazine 17. Article: Measuring Up - The True Value of a Course is Seldom Worth the Sum of Its Investments, Steve Eubanks - Golf Business Magazine 18. Article: The Valuation of Golf Courses, Stephen R. Hughes, MAI, SGA 19. Study of Economic Obsolescence on 3 Colorado Golf Courses (Cost vs. Market Value) Section C — Going Concern Valuation 20. Article: Going Concern Property Transactions: The Necessity ofValue Allocations, Valuation Strategies (WG&.L), Thompson Reuters 21. Golf Courses and Tax Assessments — Just One Right Way -Laurence Hirsch CRE, MAI 22. IRS and FASB Guidelines on Intangible Property Section D — Additional Information 23. 2010-2015 Financial Statements Account Number R8942769 & R1 Parcel Number Owner Name Colorado National Golf Club LLC Phone Number 720-744-3237 e-mail flynn@catalystpropertytax.com REAL PROPERTY QUESTIONNAIRE Attach additional documents as necessary. MARKET APPROACH This approach to value uses comparable sales from the appropriate time period to determine the actual value of your property. The following items, if known, will help you estimate the market value of your property. If available, attach a copy of any appraisal or written estimate of value. Have similar properties in your immediate neighborhood sold within the 18 -month data gathering period? DATE SOLD PROPERTY ADDRESS SELLING PRICE Based on these sales and accounting for differences between sold properties and your property, state the value of your property. $ N/A COST APPROACH (For Non -Residential Properties Only) This approach to value uses replacement construction costs from the appropriate time period to determine the value of your property. The following items, if known, will help you estimate the replacement cost of your property. YEAR BUILT ORIGINAL BUILDER CONSTRUCTION COST List all changes made to your property prior to January 1 of the current year, i.e., remodeling of storefront; expansion of storage area; addition to parking, service or manufacturing area. DATE DESCRIPTION OF CHANGE COST Is your structure in typical condition for its age? If not, why? Based on the replacement cost of construction and of any changes, including depreciation, state the total value of your property. $ N/A INCOME APPROACH (For Non -Residential Properties Only) This approach to value converts economic net income from the appropriate time period into present worth. If the property was rented or leased, attach operating statements showing rental and expense amounts for this property. Indicate square foot rental rate for all tenants. (Attach rent and lease schedule) If known, list rents of comparable properties. If available, attach operating statements showing rental and expense amounts for comparable properties. If an appraisal using the income approach was conducted, please attach. FINAL ESTIMATE OF VALUE State your final estimate of the property's value. $ 2.142,556 15-A R- D PT ARL VOL 2 1-84 Rev 10-09 soti Catalyst Property Tai. Consultants STATEMENT OF AGENCY This agreement made on May 12, 2016, by and between Colorado National Golf Club, LLC 2700 Vista Parkway Erie, CO 80516 (Hereinafter "Taxpayer") Catalyst Property Tax Consultants, LLC 2291 Arapahoe Avenue Boulder, CO 80302 Telephone: 720.344.3237 (Hereinafter "Catalyst") Hereby appoint Catalyst Property Tax Consultants, LLC as its representative and agent for assessment years 2014-2016 in connection with the valuations for assessment of Taxpayer's real property in Boulder County known as: Colorado National Golf Club Erie, CO (Hereinafter "the Property") Catalyst shall have full authority to: 1. Review all applicable records relating to the valuation for assessment for the Property; 2. Discuss the valuation for assessment of the Property with the County Auditor/Assessor, or any of his representatives, as to the amount of valuation which Catalyst deems appropriate in the circumstances; 3. Accept on behalf of the Taxpayer any valuation for assessment; and 4. Pursue any statutory remedies which Taxpayer may possess, before the County Auditor/Assessor, County Board of Equalization, State Assessment Appeals Board, or in binding arbitration, in the Taxpayer's nark and on Taxpayer's behalf with regard to the Property. This appointment of agency shall remain in effect until revoked in writing by both parties. COLORADO By: 5nth lee Date: eniebtee:at +a -art /s -o ee STATE OF U13, LLC (Signature) (Printed Name) (Title) COUNTY OF In , on the day of , 20 , before me, a Notary Public in and for the above state and county, personally appeared , known to me or proved to be the person named in and who executed the foregoing instrument, and being first duly sworn, such person acknowledged that he or she executed said instrument for the purposes therein contained as his or her free and voluntary act and deed. (SEAL) NOTARY PUBLIC My Commission Expires: Catalyst Property Tax Consultants, LLC 2291 Arapahoe Avenue Boulder, CO 80302 Jason Flynn 720.744.3237 Flynn@Catalystpropertytax.com WELD COUNTY STATE OF COLORADO COLORADO NATIONAL GOLF CLUB Petitioner's Issues and Concerns Issues and Concerns for Colorado National Golf Club's Current Valuation for 2016: I . The subject property is a public course that operates as an amenity to the surrounding development and community. 2. The Income Approach yields the most supportable value for any revenue producing property, and is the ONLY approach which would be considered by a potential purchaser or investor. Actual revenue and expense data has been provided and the valuations have been calculated utilizing actual financial data as well as "typical" industry data. 3. The Colorado Board of Assessment Appeals has documented the validity of utilizing the income approach for golf courses in Colorado. We have determined the "going concern" value of the entire business entity by removing disallowed expenses to arrive at an NOI. The NOI is then capitalized with a loaded cap rate to account for property taxes to arrive at the entire going concern business value. Once the total assets have been calculated the declared value of the personal property has been removed. Additionally, the declared value of the intangible component as documented on IRS form 8594 has been removed to identify the Land and improvement value. • Value of the Land & Improvements using actual financials - $2,505,380 • Value of the Land & Improvements using "typical" financials - $1,779,733 Average of Industry typical and actuals - $2,142,556 I have included a handful of articles regarding the valuation of golf courses as well as intangible personal property. All of these articles point out the income approach being the most appropriate method of valuation. The cost approach is not relevant because it is far more expensive to build a course that it would ever be worth. I have included a study of economic obsolescence for golf courses demonstrating the cost to build and the sale price a few years later. The sales comparison approach is not applicable because not two courses are the same and major adjustments are required, rendering it an ineffective method. These articles support the method (Income approach to arrive at a business value then removing the PP and IPP to arrive at a Real Estate value) in which I have arrived at the recommended value for the golf course. The national brokers that I keep in touch with are always quick to state that the revenues are the only thing that a prospective buyer looks at. They see golf courses with giant clubhouses change hands for less than a course that has a much smaller clubhouse but has a stabilized positive NOI. The clubhouse comes in to play when an official is using the cost approach (with a large discount for economic obsolescence) but the golf market no longer places any weight on it. In reality, the larger the clubhouse, the larger the potential capital expenditures and expenses involved that will deteriorate the Net Operating Income. Finding efficiencies on the expense side is the primary way that management companies and owners are evolving in order to keep more of the gross revenue in a declining market. I have spent a considerable amount of time compiling as much golf data as possible in an effort to know as much as possible and to be able to share this with the Counties where I have clients. The data is applicable to all states and counties for Golf is a national marketplace rather than a local one. BACKGROUND DATA ON GOLF The golf industry has been in a negative trend for some time and it has been well publicized that it has been due to the cost, time required, and the overabundance of courses that were built over the last 20 years. Colorado National Golf Club has suffered like the majority of clubs nationwide with play stagnating or decreasing, revenues flat, with expenses increasing. These factors all play in to the strategy of a golf course buyer thereby affecting the market value of a golf property. Purchasers of golf courses are valuing a property based on two scenarios. 1.) The first is as land only and redeveloping it for a different use. Often times this is not a possibility due to prohibitive zoning or platting that is long term or permanent that establishes a course as the open space amenity for the surrounding community. Colorado National Golf Club is part of the surrounding IUD thereby limiting its potential uses. Additionally, Colorado National Golf Club operates in a state that looks at the "Value in Use" for Ad Valorem Tax purposes. 2.) The second option for a golf course is to continue operating as a golf course and buying the "going concern" entity. The courses that are bought and will continue to be operated as the going concern business are being valued according to the income statement. In the past, "going concern" was the term used to describe the three elements requisite in defining market value, which today are said to comprise the total assets of the business, i.e. — Real Property, Tangible Personal Property, and Intangible Personal Property. For the purposes of our opinion of value, we recognize that Colorado National Golf Course is a business property containing the following elements and components: The first element, Real Property, includes: 1.) Land 2.) Buildings 3.) Fixtures The second element, Tangible Personal Property, includes: I .) Furniture and equipment (F&E) 2.) Business Fixtures The third element, Intangible Personal Property, includes: 1.) Contracts 2.) Lease Agreements 3.) Licenses (liquor, etc.) 4.) Tournaments Booked in Advance 5.) A specially trained workforce 6.) Real property rights (mineral and water) 7.) Course architect's name recognition 8.) Connection / Tap Fees USPAP points out that "An appraiser must analyze the effect on value of any personal property, trade fixtures, or intangible items that are not real property but are included in the appraisal. (Standard Rule 1-4 (g))". Without intangible personal property a golf course cannot operate. If the market value of a golf course is what the buyers are currently paying for it to continue to operate, a concession for the Intangibles must be made. The Rushmore and Business Enterprise Methods are well known calculations nationally that were originally developed for the Hotel industry due to the "Going -Concern" nature of that business. These methods can and have been used as guides for other going -concern businesses including golf courses. I have included some articles relating to the valuation of Intangible Personal Property for your review. Thank you for your time! Jason Flynn Catalyst Property Tax 720-744-3237 Ph. Flynn(apcatalystpropertytax.com Colorado National Weld County C Eff. Tax Rate Annual R.E. Tax Assessment V hi rovements o "0 0 0 00 ct re) rn m Les NI L No o' - H w c C � «i co 4 LA ri L r1 (NJ r1 o r1 N N N' 1/40 L ri 1/41)1 N t/1 -1/4/1, i!? if). Q O 0 Ui N ri 3,494,435.00 3,494,435.00 O O O O o a 0-1 VI 00 00 m 3,496, 625.00 3,496,625.00 in in it in- 2,498, 800.00 0 0 0 0 0 O M O b N I-- LD M 00 ri I r; r= rn a) Cr) Cl") �!} -1/1- ih V> ih h CPI m N 00 O tia O O M (N N m N r1 N O 00 in If) 00 O opo Cr) L) m Cl 4 00 N r+ CC CC CC CC Q. COLORADO NATIONAL GOLF CLUB SUMMARY OF SALIENT FACTS Property Description: Property Address: Owner of Record: Property ID: Acres: Interest Valued: Land Use/ Zoning: Highest and Best Use: The subject property is a golf course known as Colorado National Golf Club. The club is woven into the Vista Ridge. The club offers 18 holes of golf with a restaurant pro shop, and practice facility. 2700 Vista Parkway Erie, WA Colorado National Golf Club LLC R4841207, R8942769, R2550303, R1388702, P0906438 199.57 Fee Simple Estate Planned Development Amenity For ad valorem purposes, the current use is assumed to be the highest and best use COLORADO NATIONAL GOLF CLUB Reconstructed Revenue and Expense Summary Colorado National Golf Club, LLC and Vista Ridge Catering, LLC 2013 2012 2011 2010 OPERATING INCOME M canbcrsh ip Golf Shop (;&C.A (Does not include VRC Concessions Rental Income to CNNIGC, LLC from VR Catering) I4andscaping rood Sales Beverage Misc. F&B Rev. Total LESS COST OF GOODS Gall Food I3cvcragc Total Effective Gross Income General Expenses & Payroll Food and Beverage (Does not include VRC Concessions Rental Expense to CNGC,1.I.C) Membership Golf Shop Course Maintenance Clubhouse Maintenance General and Administrative* Landscaping Practice Facility Operating Expenses Total Percent Expenses & Payroll to Revenue Percent COGS to Revenue Total Expenses to Revenue * Net Operating Income Percent NOI to Revenue 422,716 1,611,057 12,633 34,826 $ 649,567 $ 450,624 $ 48,817 $ 3,230,240 $ 105,261 $ 225,592 $ 112,963 $ 443,816 $ 2,786,424 403,149 61,112 345,223 669,380 106,264 401,096 13,983 5,539 464,206 1,914,013 156,876 23,610 $ 637,888 $ $ 448,424 $ $ 41,424 $ $ 3,686,441 486,071 1,677,503 562,456 $ 396,811 $ 34,965 $ 504,974 1,599,040 560,062 367,780 37,590 $ 3,157, 806 $ 3,069,446 141,485 $ 267,543 $ 125,612 $ 534,640 $ 3,151,801 97,358 $ 239,219 $ 109,699 $ 108,096 249,820 104,485 446,276 $ 462,401 $ 2,711,530 $ 2,607,045 469,584 $ 405,103 $ 399,189 34,580 343,703 816,404 111,453 481,074 $ 675,670 $ 636,999 23,135 78,400 $ 883;860 $ $ 2,005,746 $ 2,358,333 $ 1,964,633 $ 1, 62.09% 13.74% 75.83% $ 780,678 $ 24.17% 63.97% 14.50% 78.48% 793,468 $ 21.52% 746,897 $ 892,716 928,904 62.22% 62.84% 14.13% 15.06% 76.35% 77.91% 678,141 23.65% 22.09% Property Taxes Amortization Depreciation $ 173.382 $ $ 95,441 $ $ 332,462 $ 172,754 $ 112,843 358,476 $ 206,016 $ 187,617 412,922 $ 412,306 * Expenses do not include amortization, depreciation, reserves, debt service, property taxes. trust life insurance premiums, or interest expense Fw,8594 Rev, Ft 'ay MOM Depotn ant of I$o team hand Rove nuo Son** Name as shown on return Asset Acquisition Statement Under Section 1060 ► Attach to your income tax return. COLORADO NATIONAL GOLF CLUB, LLC OMB No. 1545.1021 Atlathmont Sempence No. S1 Identifying number as shown on return 26-3297148 Check the box that identifies you: [5O Purchaser [J Seller Pottle General Information 1 Name of other party to the transaction IN PLAY MEMBERSHIP GOLF. INC. Address (number, street, and room or suite no.) 2405 S. YOSEMITE STREET Other party's identifying number City or town, state, sad ZIP code DEN'�TE. CO 80231 2 Date of sate 11413/08 Original Statement of Assets Transferred Pert II 9 Total sales price (consideration) 7,85©.004. 4 Assets Aggregate fair market value (actual amount for Class I) Allocation of sales price $ 0 . Mani $ 0 • Class II $ 0 . $ 0 , Class Ill $ t1. $ o . ClasaIV $ 49,525. 49,525. Glass $ 6,758,164. $ 6,758,164. Ora $ 1,042,311. $ 1,042,311. $ 748504000. $ 7, 850, 000.. Total 5 Did the purchaser and seller provide for an allocation tithe sales price in the sates contract or in another written document signed by both parties? . If 'Yes; are the aggregate fair market values (FMV) listed far each ai asset Classes I, II, III, IV, V, VI, and VII the amounts agreed upon in your sales contract or In a separate written document? Fl Yes DE No Yes D No D In the purchase of the group of assets (or stock), did the purchaser also purchase a license or a covenant not to compete, m enter into a lease agreement, employment contract, management contract, or similar arrangement with the seller (or managers, directors, owners, or employees of the seller)? If'Yes; attach a schedule that specifies (a) the type of agreement and 0) the maximum amount of consideration (not Including Interest) paid or to be paid under the agreement See instructions. Yes Ill No LMA For Paperwork Reduction Act Notice, see separate instructions. Farm 8594 (Rev. 2-2000J $2OQOtr 04.25-Qe 09330706 138895 COLO714 8 2008.03041 COLORADO NATIONAL GOLF CLUB COLO7141 ncome Approach ndustry Typical Expenses so Q) z coo }1 V Q E 0 O 75 0 tU E i..) 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X 4 a. r'V tb CC CU t3 • 4) Q 41) t~ c E b � O C .v fl CC ti * * BOARD OF ASSESSMENT APPEALS, STATE OF COLORADO 1313 Sherman Street, Room 315 Denver, Colorado 80203 Petitioner: LAKEWOOD COUNTRY CLUB, v. Respondent: JEFFERSON COUNTY BOARD OF COMMISSIONERS. Docket No.: 60588 ORDER THIS MATTER was heard by the Board of Assessment Appeals on January 11, 2013, James R. Meurer and MaryKay Kelley presiding. Petitioner was represented by Richard a, Olona, Esq. Respondent was represented by David Wunderlich, Esq. Petitioner is requesting an abatement/refund of taxes on the subject property for tax year 2010. Subject property is described as follows: 6800 West 10th Avenue, Lakewood, Colorado Jefferson County Schedule No. 110117 and 051401 The subject property is a private 18 -hole native -soil golf course on 120.98 acres. It was originally constructed in 1908, and five greens were rebuilt in 1961. Membership is capped at 450. The course is heavily treed with narrow fairways and small tee boxes and has insufficient room for expansion. Improvements include a clubhouse built in 2006 (dining and meeting rooms, pro shop, offices, locker rooms), cart barn and maintenance building, pool and fitness complex built in 2008, and a parking lot. The club owns water rights in the form of 88 shares in the Rocky Mountain Ditch Company. Respondent assigned a value of $8,226,520 for tax year 2010 but is recommending a reduction to the appraised value of $7,600,000. Petitioner is requesting a value of $4,684,500. 60588 1 Mr. William Lazzeri, Club's Treasurer and former President and Mr. Troy Sprister, Club's General Manager, presented the history of the Club, physical characteristics, membership, and financial data. Petitioner presented the following indicators of value: Market: Cost: Income: Reconciled: $3,630,100 - $4,531,100 $4,120,340 $4,684,500 $4,684,500 Petitioner's witness, Tom McElhinney, Certified General Appraiser, testified that the Lakewood Country Club was a "going concern" and that based on industry standards, the income approach to value should be the primary indicator of value for the real property associated with the subject. Relative to the income approach, Mr. MeElhinney used the actual income from the facility and industry typical expenses to arrive at a net operating income (NGI) of $1,204,959. The NOI was capitalized at a 13% overall rate to arrive at the total assets of the business (Vtab) of $9,268,912. Declared personal property in the amount of $1,444,925, intangible assets in the amount of $1,639,400, and atypical income attributed to equity memberships and to special assessments for a new sprinkler system in the amount of $1,500 were subtracted from Vtab to arrive at a real property value of $4,684,500 rounded. Mr. McElhinney also presented cost and market approaches but placed little weight on either. Respondent presented the following indicators of value: Market: Cost: Income: Reconciled: N/A $11,000,000 $7,655,000 $7,600,000 Respondent' witness, Randall Brenimer, Certified General Appraiser, presented an income approach with Petitioner -provided income and expenses for 2006, 2007 and 2008, arriving at a three year average net operating income of $1,225,145, which he capitalized at 13%. He declined to deduct intangible personal property or atypical membership equity figures and special assessments. Mr. Brenimer presented a cost approach but considered it less reliable due to external obsolescence reflecting the industry at whole. Petitioner presented sufficient probative evidence and testimony to prove that the tax year 2010 valuation of the subject property was incorrect. After careful consideration of the testimony and exhibits presented at the hearing, the Board concludes that the income approach best represents value for a property of this type and that the income approach developed by Petitioner should be given the most weight in the final conclusion of 60588 2 value. The Board concludes that estimating the total assets of the business and subtracting the appropriate asset classes resulting in the value of the real property is a preferable valuation methodology. Considering this conclusion, Petitioner's appraisal is more persuasive; actual income and expenses were used, intangible assets were deducted, and atypical income was deducted. The Board concludes that the 2010 actual value of the subject property should be reduced to $4,684,500. ORDER: Respondent is ordered to cause an abatement/refund to Petitioner, based on a 2010 actual value for the subject property of $4,684,500. The Jefferson County Assessor is directed to change his records accordingly. APPEAL: If the decision of the Board is against Petitioner, Petitioner may petition the Court of Appeals for judicial review according to the Colorado appellate rules and the provisions of Section 24-4-106(11), C.R.S. (commenced by the filing of a notice of appeal with the Court of Appeals within forty-five days after the date of the service of the final order entered). If the decision of the Board is against Respondent, Respondent, upon the recommendation of the Board that it either is a matter of statewide concern or has resulted in a significant decrease in the total valuation for assessment of the county wherein the property is located, may petition the Court of Appeals for judicial review according to the Colorado appellate rules and the provision of Section 24-4-106(11), C.R.S. (commenced by the filing of a notice of appeal with the Court of Appeals within forty-five days after the date of the service of the final order entered). In addition, if the decision of the Board is against Respondent, Respondent may petition the Court of Appeals for judicial review of alleged procedural errors or errors of law when Respondent alleges procedural errors or errors of law by the Board. If the Board does not recommend its decision to be a matter of statewide concern or to have resulted in a significant decrease in the total valuation for assessment of the county in which the property is located, Respondent may petition the Court of Appeals for judicial review of such questions. Section 39-10-114.5(2), C.R.S. DATED and MAILED this 17th day of January, 2013. 60588 3 BOARD 0F,t1SSESSMENT APPEALS I hereby certify that this is a true and correct copy of the decision of the Board of Assessment Appeals. James R. Meurer LAY r4t,:‘*A1614 at, 4 ,Adt..bk_ Milla +Crichton MaryKay Kelley 60588 BOARD OF ASSESSMENT APPEALS, STATE OF COLORADO 1313 Sherman Street, Room 315 Denver, Colorado 80203 Petitioner: LAKEWOOD COUNTRY CLUB, v Respondent: JEFFERSON COUNTY BOARD OF EQUALIZATION. Docket No.: 59196 ORDER THIS MATTER was heard by the Board of Assessment Appeals on March 30, 2012, Debra A. Baumbach and James R. Meurer presiding. Petitioner was represented by Richard G. Olana, Esq. Respondent was represented by James Burgess, Esq. Petitioner is protesting the 2011 actual value of the subject property. The property is described as follows: Lakewood Country Club 6800 W. 10th Avenue, Lakewood, Colorado 80214 Jefferson County Schedule Nos. 110117 & 051401 The property consists of the Lakewood Country Club including a private l8 -hole regulation parkland golf course, clubhouse, an aquatics and fitness center, swimming pool complex, and miscellaneous support buildings. The golf course is supported by a driving range and practice green. The Club was originally constructed in 1908 with five greens rebuilt in 1961. The main clubhouse building was constructed in 2006 and the aquatics and fitness center was constructed in 2008. Site size is 120.98 acres consisting of a 120.012 acre primary parcel and a 0.97 acre parcel used as an employee and overflow parking lot. The club owns water rights in the form of 88 shares in the Rocky Mountain Ditch Company. Petitioner is requesting an actual value of $4,332,000.00 for the subject property for tax year 2011. Respondent assigned a value of $9,975,000.00 for the subject property for tax year 2011; however, is recommending a reduction to the appraised value of $9,000,000.00. There was no dispute among the parties relative to the land value of the subject. 59196 1 Mr. William Laneri, Treasurer and past President of the Lakewood Country Club, Mr. Troy Sprister, General Manager of the Club, and Mr. Thomas F. McElhinney testified on behalf of Petitioner. Mr. McElhinney presented the following indicators of value for the real property associated with the subject: Market: Cost: Income: Reconciled $6,459,215.00 $4,500,000.00-$6,300,000.000 $4,332,000.00 $4,332,000.00 Mr. McElhinney testified that the Lakewood Country Club was a "going concern" and that based on industry standards, the income approach to value should be the primary indicator of value for the real property associated with the subject. Relative to the income approach, Mr. McElhinney used the actual income from the facility and industry typical expenses to arrive at a net operating income (NOI) of $927,180.00. The NOI was capitalized at a 13% overall rate to arrive at the total assets of the business (V tab) of $7,132,154.00. Declared personal property in the amount of $1,884,905.00 and intangible assets in the amount of $1,261,470.00 were subtracted from V tab to arrive at a real property value of $3,985,779.00. The amounts of personal property and intangible assets were not disputed by Respondent. The difference between the $3,985,779.00 and the $4,332,000.00 results from a math error in Petitioner's model. In order to further support the value derived from the income approach, Mr. McElhinney developed a cost and market approach, but placed little weight on these approaches in the final opinion of value. Mr. MeElhinney testified that the facility suffered from functional obsolescence due to its size and age and that this obsolescence directly impacted membership. Relative to the comparables in Petitioner's market approach, Mr. McElhinney pointed out that the subject was valued significantly above similar clubs in the metropolitan area. Mr. McElhinney further testified that the costs and sales used in Respondent's approaches to value were flawed and should not be relied upon to conclude value. Respondent's witness, Mr. Randall K. Brenimer, a Certified General Appraiser with the Jefferson County Assessor's Office, presented the following indicators of value for the real property associated with the subject: Market; Cost: Income: Reconciled: $9,200,000.00 $9,980,000.00 $7,800,000.00 $9,000,000.00 Mr. Brenimer testified that for a special purpose property such as the subject, the cost approach based on Marshall and Swift Cost Service is considered to be the most reliable indicator of value. This approach was given the most weight in the conclusion of value, and according to the witness, depreciation and obsolescence were properly deducted. 59196 2 Mr. Brenimer further testified that the income approach was considered but given minimal weight and that the market approach was used primarily for a test of reasonableness for the cost approach. Within Respondent's income approach, the necessary deduction for personal and intangible property was purportedly netted out of the total gross income resulting in no line - item deduction for these asset classes. Only three comparables were employed in the market approach with minimal discussion and support for the adjustments. The primary difference between Petitioner's and Respondent's concluded values involved which approach (e.g. income v. cost) was most appropriate and should be given the most weight, how the asset classes of personal property and intangible assets should be addressed in. the analysis, and whether age and size of the facility resulted in significant obsolescence. After careful consideration of the testimony and exhibits presented at the hearing, the Board concludes that the income approach hest represents value for a property of this type and that the income approach developed by Petitioner should be given the most weight in the final conclusion of value. The Board concludes that estimating the total assets of the business and subtracting the appropriate asset classes resulting in the value of the real property is a preferable valuation methodology. The Board concludes to the value of $4,332,00.00, equating to $240,667.00 per golf hole, which is bracketed and further supported by Petitioner's sale comparables. ORDER: Respondent is ordered to reduce the 2011 actual value of the subject property to $4,332,000.00. The Jefferson County Assessor is directed to change their records accordingly. APPEAL: If the decision of the Board is against Petitioner, Petitioner may petition the Court of Appeals for judicial review according to the Colorado appellate rules and the provisions of Section 24-4-106(11), C.R.S. (commenced by the filing of a notice of appeal with the Court of Appeals within forty-five days after the date of the service of the final order entered). If the decision of the Board is against Respondent, Respondent, upon the recommendation of the Board that it either is a matter of statewide concern or has resulted in a significant decrease in the total valuation of the respondent county, may petition the Court of Appeals for judicial review according to the Colorado appellate rules and the provisions of Section 24-4-106(11), C.R.S. (commenced by the filing of a notice of appeal with the Court of Appeals within forty-five days after the date of the service of the final order entered). .59)96 3 In addition, if the decision of the Board is against Respondent, Respondent may petition the Court of Appeals for judicial review of alleged procedural errors or errors of law within thirty days of such decision when Respondent alleges procedural errors or errors of law by the Board. If the Board does not recommend its decision to be a matter of statewide concern or to have resulted in a significant decrease in the total valuation of the respondent county, Respondent may petition the Court of Appeals for judicial review of such questions within thirty days of such decision, Section 39-8-108(2), C.R.S. DATED and MAILED this 10th day of April, 2012. BOARD OF ASSESSMENT APPEALS !4dLA a S *Atli NCal,,l Debra A. Baunibach I hereby certify that this is a true and correct copy of the decision of iffir e Boa of Assessment App 591% Milla Crichton 4 Jame≤`R. Meurer -•\'`,�r 0c Cc, 4 t; lr ••...-.•r s • it ii •I•' • r. y N t'e_lis'f R 1 r:.4.cCari1 - investor Survey NV t'1k.4 %mmll' to Illy I 1/44 Qua ict 3H 4 111111t'!i l Itli { hi.II tci }{ `1 ' ball,, I t'I tht: Rt'.Ik\ i'i.11t's.1/4t'MTf1Suric; Hit. Inn 1'1'11 11W'IY't ftt"\t'tit' till' IC t1It` 4'1 'ttli 1'1/2 ''41 12 apprai-sal and I>!''tlit'1411't' 1111:1`_ 4.Jt'lt I'Vers. 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Equity Dividend Maximum _•plead CIcer I0•Yeit 1rea5urq Det" Co v,.•a.ge Fiaric. taro;M's' Rate Amorti: ah�_•rr RealtgRatessaom INVESTOR SURVEY - 1st Quartet 2014" GOLF COURSES h COUNTRY CLUBS - ALL TYPES Input Mot (gage Constant Loan -to -Value Ratio Equal) Dividend Rare Avenge Spread OveI t0 -Year Treasury [tent Cc average R•;tic Irderest Sate Amarti:orlon ;viol tga ge Constant Loaretc'-Value Ratio Equity Dividend Fate '4th ou:I ter 201; t7at: Item Minimum Spread Dyer 10 -Year Treasury Debt Coverage Ratio Interest Fate Amortization Mortgage Constant Lcarl-to -Value Ratio Equity Dividend Rate Maximum Spread Over 10 -Year Treasury Debt Coveter Ratio Interest Fcate Amorti: ation Mortgage Constant Loan -to •'tlalue Ratio Equity Dividend Rite Average Spread Over 10 -Ys at Treasury Debt Coverage Ratio Interest Fate Arnarti; titian Mortgage Constant Loan-to-V'alui Ratio Equity Dividend Rate Is-.• . t tit 40 r:r 0J48557 1150% es ,►- S: 14.2' ' • .. 4 016587 50% °1.05`. 160 7.52!". 22 9 0$3285 66 3; . 1i .66% rtg age Equity Surveyed Rates OCR Technique I : ri 0 il4 tF-55? r:: C3end of Investment Technique E:t i104 9557 iI t1 -A91:•41; 20t; o fry€ 10. 0 ttt'+::2G OCR Technique 2 25 0 161587 Band of Investment Technique Mortgage Eq u'tt OAR Surtreged Rates it 50 50% 01615# 00t't17`.a_= 54'. 0224239 011,111e, OCR Technique 16O 0 09328; Band of Investment Technique Nik Itaa9e Equity OAR Su rveyed Rates 0.61• 8E.;: 0 093285 u Ur• 1t1•i1 34'-. 0166577 0 9562Z0 OAR 4 76 5.8$ 5.59 18.18 19 29 18 33 9-85 1180 12.95 Copylrpr,t 2014 FctaltyVatcc cum ReaitgRates.com INVESTOR SIIHYLY - 1st Quintet 2014 - GOLF COURSES t} COUNTRY CLUBS - PUBLIC DAILY FEE COURSES "4 tit Qsns It: 2O13 ❑at; fi fl fi ,fl • ; 1 "1 Input 1.30% 136 4 02> 20 0.072944 BJi: 9.61z 10.86. 180 13 68% i15 0156437 &r/ 21 82'x. 6 +]8? ,: 14€ 8Sa 18 01121Sf; 58% 1591^: Mortgage Equity OAR Surveyed Rates I. OCR Technique 1.% 0072544 Band of Investment Technique Mortgage Equity OAR Surveyed Rates 6E% 0 65 0,072,E44 0047349 3F.,;-. 0 096102 0 03363E OCR Technique 180 0156437 Band of Investment Technique Mo ttgage aUX Equity 50 OAR Suivejed Rates 0.50 0 1564 37 007821$ 0.218238 0.105115 OCR Technique 148 0.112186 0.58 Band of Inuestme nt Technique 5ii% 0.112186 u:064507 43?. 0-151063 0.064202 OAR 8.45 8.10 7.83 14.08 18.73 17.80 3.56. 12.87 12.38 Cop.yrtWht 201* Rt4Ityftatt tom I of Reaitrates.com INVESTOR SURVEY -11st Quarter 20W GOLF COURSES la COUNTRY CLUBS - SEMI -PRIVATE GOLF CLUBS Item Minimum S plead over 10.year Ti'- is'Jru Cieta C•o .'erage F ;tin Irdeies+ Fiarr Arnow; anon Mortgage COn;t an. Loan•4C'•Value FRanc' Equity Dividend Fare Masimum Spread Dom 10 -Year Treasury Debt Coverage Ratio intetear Rate Amour: atior Mortgage C:an_ t ant Loan•to-Value Ratio Equity Dividend Rate Aun age Spread Over 10•Yt3' Treasury Debt Cover age Ratio Intsrtst Rate Arnorti: anon. Mortgage Constar'. loart•tc'-Value Ratio E Dividend Rate •4(p,C,+4art4r 2013 DSt; n em Minimu i+n Spread Over 10•Yeaa Treasury Debt Coverage Ratio Interest Fiat,* Amore: atierr, Mortgage Constant Loan -to Naive Ratio Equity Dividend Rats Mas$surta Spi tad Over 10 -Year T reatu ry Debt Coverage Ratio Interest Rate Arnorti: ten Mortgage Constant Loan -to -Valve Ratio Equity Dividend Rat* Await Spread Over IC -Year Treasury Debt Coverage Ratio Interest Rate Amortization Mortgage Constant (.Gbn•tONaha Ratio Cquity Dividend date Input 40'. 1 C^ Si.).. 4r} LIA151(j52 65% 9€1'; OC R l echnique 1F. Band of Investment Technique Mc rtoac' €F,% Eq uay 0c.,R Surveyed Rates 1150. UCH Technique ..J• V I - 2t Band of Investment Technique 14 22:.; 1E. 0.1E;15?.7 y 50'•: 4s. 12:1 917:: Lei 0 09'37.92 cv,; 15.3(1%. h.1a rtgag4 Eq uity OAF: St,rveged Rates OCR Technique Band 01 Investment Mortgage Equity G A F; Su rveled Rates 0 (' 105: 065 (t 051Q 2• 0 U3310t4 U OS(102 0 033f•3E G 161! €;7 0.50 01615,E: 0 080793 224 238 0112119 1,69 009979_ Technique 52%. 00S 9792 43% 058 11057381 U 153763 0.065349 OAR 5 06 6.GS 6.35 18.18 19.29 18.33 10.83 12.27 13.34 40pyrs.hr 2O14 h aMSFtaec: 46n.'" RealtlRates.com INVESTOR SURVEY • 1st thwarter 2014" GOLF COURSES h COUNTRY CLUBS - PRIVATE CLUBS Input 120•x. 120 3.92. 40 0 04957 80% 9.61!: 19>.: 4.4 15 0.15135€ 60:. 21.22 5 21z 1.59 7.93.4 28 0 089480 70.7, Mortgage Equity DAR Su lunged Rates Mo ttgaop Equity OAR Surer►red Rates OCR Technique 1.20 0.04 9557 band at Investment Technique Mortgage Equity CZAR Su curled Rates 0.80 80% 0.049557 0039646 2C%: 00%102 0.019220 OCR Technique U$ 0.15135£ 0.60 Band of Investment Technique 60% 0151356 0 090$13 40% 0-212238 0 0848$!1 OCR Technique 159 0.089480 0.70 Band of Investment Technique 70> 0 08 9480 0.062636 30% 0146363 0044309 OAR 4.76 5.88 17.98 17.57 18.63 9.96 10.71 12.26 '4tf, Diem tar 201J t}aea Copyright 2011 RcaIrykats: cons fi f1 ._ fi M I I ri i Public, Frostbelt, Total Revenues $1.3 million or more NGF/Golf Datatech Operations Profits 2010 21 Public, Frostbelt, Total Revenues $1.3 million or more \s, _ REVENUES (Average) 2008 Percent Change Green tee & golf car revenue Other golf revenue Food & beverage revenue Merchandise revenue All other revenue 2009 $1,087,200 $110,900 $415,000 $123,200 $144,300 TOTAL OPERATING REVENUE $1,880,700 $1,140,000 $111,800 $432.400 $134,500 $1.23.000 $1,941,700 -4.6% -4.0% -8.4% 17.3% -3.1% Green fee & golf car revenue 57% Total Revenue $1.3 -- under $1.4 mm $1.4 - under $1.7 rnn, $1.7 -- under $2.0 mm $2.0 mm or more Percentage of 2009 Total Revenues Range of Values - 2009 25.6% 28.2% 19.2% 26.9% 100.0% All other revenue 8% Merchandise revenue 7% Food & beverage revenue 22% Other golf revenue 6% Golf Revenue (fees, carts & ether) Under $1.0 mm $1.0 - under $1.2 mm $1.2 - under $1.5 mm $1.5 mm or more 20.6% 26.8% 33.0% 19.6% 100.0% Food & Beverage Revenue Under $250,000 $250,000 - under $500,000 $500,010 or more 30.2% 36.0% 33.7% 100.0% Merchandise Revenue Under $75,000 $75.000 - under $125,000 $125,000 - under $200,000 $200,000 or more 19.3% 31.8% 27.3% 21.6% 100.0% NGF/ Golf Datatech Operations Profile 2010 22 Public, Frostbelt, Total Revenues $1.3 million or more EXPENSES t Avera :i Total maintenance expenses All other operating expenses TOTAL EXPENSES 2009 Porcant 2008 Change $746,300 $773,300 -3.5% $873,000 $923,700 -5.5% $10819,300 $1,697.000 AO% ofV047;eseuet3 RanoOf 'dallies - 2009 Total Expanses Under $11. mm $1.1. -, under $1.5 mm $1.5—under$2.0mm $2.0 mm or more 21.8% 30.8% 26.9% 20.5% 2.00.0% Maintenance Expanse* Under $400,000 20.9% $400,000 — under $600,000 27.9% $600,000 — under $1.0 mm 30.2% $1.0 mm or more 20.9% 100.0% CAPITAL EXPENDITURES 2009 Percent of courses with expense 81% Average $228,670 Percent 2008 Change 78% $169,790 35% CAPEX Range of Values - 2O09 Under $30,000 30.3% $30,000 - under $100,000 39.4% $100,000 or more 30,3% 100.0% ME/Golf Oatatech Operations Profile 2,0310 23 Public, Frosthelt, Total Revenues $1.3 million or more REVENUES PER ROUND (Averagei Total RPR Golf RPR * Food & beverage APR Merchandise RPR 2009 $66.67 $43.73 $15.52 $5.14 2008 $68.26 $46.83 $16.62 $5.58 Percent Change -2.3% •6.6% •6.6% •8.0% * Green fees, golf cars and other golf revenue R.-oige of V;itucs -- 2009 Total RPR Under $50 $50 - $74 $75 or more 32.2% 38.9% 28.9% 100.0% Goff RPR* Under $35 $35 - $49 $50 or more 35.6% 38.9% 25.6% 100.0% FHB RPR Under $8 $8-$19 $20 or more 33.3% 39.5% 27.2% 100.0% Merchandise RPR Under $3.00 $3.00 - $5.99 $6.00 or more 31.0% 38.1% 31.0% 100.0% Play Days jAver;0 Play days Percent 2009 2008 Change 269 269 0.1% NGF/Go$f Detateoh Operations Prot% 2010 24 U O z U Z W U ndicator Report Key Performance Gross Profit and Report Generation w C) N 1% Created On: U) cv a3 cu co ci) LL Private - For Profit Club Tax Treatment r Total Operating Revenue and Total Capital income P -•- 4A $20,0002000 - $15,0a0,©o0- O) 0 3 A Q+ CO Q� r 0 co Cn T. Ili 1 o§ 0 o 8 0 0 0 0 6 Id !" up V CC:14t( M.."'� Z )id Uw m Operating Revenue and Gross Profit 0, co a en r) rid I. a 1 1 0 0 o o 0 0 o o 0 0 er404 VI" Vt $20,000,000 X15,000,000 $10,000,000 $5,000,000 - co rtat C w esi F2 r a 4111 Gross Margin to tn N f Fixed Expenses as a Percentage of Operating Revenue tn be U, U Z IMMM GA ui des e CFI CL E en 41 %LE. in at tl!its E1.= 11 2 Q N N N Buildings a Maintenance Qi W a in% 41 C fa .C U U C fir tir CO la '^ C 1 1 Sports Et Recreation Course Maintenance 1 Net Operating Result 0 ri a N r M 03 r i r0 0 0 0 0 0 0' S w R Q o 0 o 0 O in o iei a a o, irk es O, v S yg 8 M U 3 C cu ce Dn C 4411 imp a) 0. O c L icu it on lea Disc 4.' Lam.. CU Om am O IA lea as 1 Z in 0 ce on a Tas z a) Cl O .citra DI= W I m ir; r r Q; 0 La kin r‘ The Appraisal Journal 471 Limited -Scope Appraisals: A 'Time for Reform 476 Privatization: The Sale of the Century 433 The Quality Appraisal Report 409 Marketing/Exposure Time and Market Value Estimates 494 Trap for the Unwary: The Scope of an Appraisal 500 identifying a Welt -Founded Market Analysis 509 Assumptions Underlying the Retail Gravity Model 519 House Sizing: A Cooperative Venture 524 Computer -Assisted Real Estate Appraisal: A California Savings and Loan Case Study 533 Adjusting House Prices for Intla-Neighborhood Traffic Differences 539 Stein Rule Estimation in Real Estate Appraisal 545 Supply -Saturation -Induced External Obsolescence: Two Techniques for Quantifying Value Loss 553 Three Approaches? 565 Market Value: Does One Size Really Fit All? 570 Adjusting Overall Rates and Gross Income Multipliers: A Fresh Perspective 576 Linear Regression Analysis of Economic Variables in the Sales Comparison and Income Approaches OCTOBER 1993 APPRAISAL INSTITUTE 587 Effects of Asbestos on Commercial Real Estate: A Survey of MAI Appraisers Published quarterly by Appraisal Institute 600 A Survey of Appraisers Regarding Factors in Discounting Partial Interests 1 DEPAITMINTS Notes and Issues Myths about Hotel Business and Personalty Values Stan F. Hennessey .Appraising Gaff "Courses_ for Ad Valorem Ttut Purposes Stephen R. Hughes, MAI, and. Kcuin_ K. Mouth*.: MAI Professionalism and the Role of the Appraisal institute Thomas A. Dorsey, MAT, SPA 643 616 Financial Views Fail -1993 fames E. Gibbons, MAI 649 Construction and the Appraiser Wall Systems Thomas C. Richard, Alai 622 Cases in Brief 626 Book Review 629 Letters to the Editor 631 Appraisal institute Publications 637 Manuscript Guide 639 About the Appraisal Institute 641 Index 643 MOON i sTAT'EMEM the Apiprtstrd Journal b putiterted to pnwlde a forum for Wdocrnd on and duos on the practice and theaty at real Sale combat A c cn bincallon at No Odor ApgdWCU noise macaws, The AS ilia APPIOS acid fie frattabal &batna& the new jtx+trtai OWNS ter needs at nrsitien%tai and Qefl*rd opproisers The opinions old M iernerrh S totlh herein do not neccersan& WW1 the viewpoint cA the Ityprdeol OM* at the twrre of oxecom n. While a great Sat al owe nets been tartan t0 txa4re oo«tate aid current informant % neither the Apprcitot NILS nor Ms edton and 5ket carne responsibility to the accuracy yr of the dater comb:Med hewn+. Fislhcet, the weal principles and oorciuio s presented In the tern a1O abed to local. stale, aid Saud fatas and reQialiont. cat C0eee. and any reMrcons of the some. This publication is sold tor educational pats SW IS unelereandl o that tt+e pubti trey is not engaged In tenaenne legal. a000rfaci Or one other Apra serrk*. the Ppprollot Irate adw0aot*s ieVif o©portanity and ncan'etwairrk atla+ in 1s appraitai prole on and atinivakt th cacilymet witthout record to rage, Prior. tleK, Solon. national air a roam* * Mats Re Appeal° .Pound 86SN 00033-7OQ7i is Named Quarts* (flaary/r /MM/ 01993 by Ito AIN:taloa ttdtuie. on tok Not-FooProlla Corpo(rOn at 875 Math ti iehia n firer Sin 2MOiD. Chimp, Swab 846ii-14b0. AM tlpl^b moaned. Second ciaee posioge pdd tai Chtoago, Mlnde and at additional wrote ofliata 9rraeaipNon noise: $30 par year; foreign. S36: Ap-reeol Mute mikes n n t^,en and : ril:Slates $20 per year Iollocated horn dose ma ignite Ituesi: fntxduclab caw year student rats, 3ZS tlorie+iin. $4. Sinter copy Om $10. telephone c ea i312J 3354427. 7. APPRAISAL Posht+acrMer: send cairn chaps to circulation Department, 113 Arooneat ,Format 1176 N. Wham An. suits zego, INSTITUTE citioopo. t. 43611-1veo, Ain six weeb for change. i a separate expense to be funded by the owner. A separate replacement allowance for short-lived assets is rarely included or even mentioned among the expenses in hotel pro forrnas.. Therefore, while current ho- tel valuation technique double counts FF&E, it doesn't count at all the necessary cost of replacing short-lived building components. CONCLUSION The technique described by Lesser and Rubin does not isolate the land and build - Appraising Golf Courses Tax Purposes Stephen R. Hughes, MAI, and Kevin A significant expense for any golf course — and an expense that seems to be on the rise —is the real estate tax,_ Real estatellin are ad valorem taxes, which are basedbrn the_value of the golf course as to the real estate ,alone. As with many special -use properties, such as racquet dubs, hotels and motels, restaurants, and convenience stores,:_there _ is a significant component of tangible personal property (e.g., furniture, fix- tures, and equipment [FF&Ef) and intan- gible personal property (e.g., business_ Muse or going -concern value) associated +yth a golf course. The taxing authority, whether the county, city, of school, is Akely to overvalue the real estate for a golf _course by overlooking these components IA value, which should be deducted from ,e.,t,�.tal_s,letiprice. Further, county ap- praisers may lack the staff, budget, or data necessary to properly value a golf course. ,Most jurisdictions will rely primarily on tee cost:approa'h in valuing a golf course. ing. An additional deduction must be made to remove the value of personal property. Further, if anyone could agree about what business value is, it would need to be subtracted out as well. The preceding observations fall far short of a comprehensive treatment of the subject. Cautious baby steps arc sometimes more prudent, however, than a comprehen- sive, yet insupportable, theory. for Ad Valorem K. Nunnink, MAI This appsoactealsailut least iivh.kause golf courses are usually sigatinuch_ less than what it costs to corauclebeent useful ap- THE HIGHEST AND BEST USE APPROACH The first step in appraising a golf course for ad valorem tax purposes is to estimate the highest and best use of the subject property.+Generaily, a golf course is ap- praised according to its value in use as a golf course Redevelopment to other higgeEdensity uses is often limited by zoning, restrictive covenants, configura- tion,_ and master plans or land use plans that designate the site as recreational or open apace. This issue is also important to recognize when analyzing comparable golf course sales. If a golf course is sold for redevelopment to single-family resi- dential, it is a land sale with a change in use and therefore not useful in estimating Stephen P. lischeal, MM, Is prekdenf 01 Mures & Company, fnc.. of Leawood, Kansas. He is a member of The Scatty of Gott ApPw sera anti hew appraised several county dubs and gad count foc a voxtaty of puxposes. inducing ad valorem talc appeal. Mr. Hughes receisved an MM Neel the Unhorse,/ of Kansas and has been active in commercial real seta* wlucflon since 1984. Kew K. Nunnink. MM, is president ot Kevin K Nunnink & Associates. Inc.. in Westwood. Kara. He hos been an active opxaksr since 1976, appraising all types of resioenn4cdi and carnmerc d property, including golf and rrtaxl- use properties, Mir. Nunnink Is also Involved in commercial red estate development and management. He re - c ved a Masters Of public administration degree tram the University of Kona, and is o marmot of ins vaklalton Network, Inc. Hennessey: Note* a t issues 614 Residential lots adjacent to a quality golf course typically sell for 20% to 60% more than similar lots not on the golf course. the value of a golf course. Golf courses are often acquired by government entitles in order to maintain the area as open space or green space, avoiding redevelopment. Ln some instances these entities will pay a premium over the golf course value to maintain the open space. Some states have noted that tax rates are getting so high that it is difficult for golf courses to pay real estate taxes, forc- ing them into redevelopment. In re- sponse, certain states have passed "green space" legislation to lower the tax bur- dens for golf courses. THE COST APPROACH A common oversight by some county ap- praisers is to estimate a land value based on land sales that are used for develop- ment to a higher density use, such as sin- gle-family residential tracts. When add- ing the improvement value to the land value, it is necessary to use a low -density land value based on comparison to lower density use tracts such as parks and golf courses.' Even tracts that have been pur- chased for development adjacent to a golf course would be inappropriate as a land comparable without significant adjustments. Cost services such as Martha!) Valua- tion Service, published by Marshall and Swift, tend to understate the replacement cost for a modern golf course with irri- gation and proper drainage under the greens. Current construction costs can range from $75,000 per hole to over 3300,000 per hole, depending on the suit- ability of the ground before development and the extent of grading, shaping, and landscaping required. Entrepreneurial profit should be added and then backed out based on the business value adjust- ment, which is discussed later. While sod, shrubs, and trees can mature with age (i.e., maintain value or appreciate), a par- don of the golf course improvements, such as the greens, sand traps, and irrigation equipment, depreciates. in addition to the physical deterioration, one must consider the sometimes significant external obso- lescence that affects a golf course. For ex- ample, a championship golf course de- signed by Pete Dye, a nationally recognized architect, -sound $8400.0, 090_ tO build a mid -1980s yet sold. for $k3,500,000 _ - 98o$k _Total accrued depreuliaevare63. Of this, approximately 12% can be attributed to physical deterioration. The remaining ac- crued depreciation is attributable to ex- ternal obsolescence, based somewhat on soft market conditions, but mostly based on the value transfer to adjacent residen- tial lots. Residential lots adjacent to a quality golf course typically sell for 20% to 60% more than similar lots not on the golf course. This can result in millions of dollars of value being transferred to the surrounding residential property as a re- sult of the construction costs of the course. This unique value transfer in real estate is also referred to as the "imparted value."' Using this terms, _l-leuer and McKay imply that the imparted value to the residential ground surrounding the course would be an adjustment to the land value. Since it is created by the construction of the golf course, however, it seems more appro- priate to allocate this to the external ob- solescence of the improvements. Generally, the first step in the con- struction of a golf course subdivision de- velopment is the planning and zoning process. Typically, a developer will pur- chase a site and design an upscale sub- division around the proposed golf course. The burden of a substantial portion of the land cost is generally borne by the sub- division. In fact, residential developers often donate the golf course land to get the course built. To illustrate this value transfer, one only has to examine zoning controversies surrounding golf courses that have been contracted for sale subject to a redevelopment plan. In almost all cases the adjoining property owners have objected, primarily because of the im- mediate loss in value to their property. Thus, the zoning of the development coupled with demand usually triggers the value transfer. Value transfer can be quantified by counting the lots on the course and esti- mating the gulf front value increase. Fig - 1. Arthur B. Gimpy and Martin E. Benson, God! Courses arid Country Clubs: A Guide so Appraisal, Market Analysis. Death upturns, and Financing (Chicago; T e Apprairali rrutitute, 1992), 69. 2. Karla L Harmer with Cecil McKay, Jr., Colt Caur+es, A Culls Su Analysis awl Valuation (Chicago: American lnstitute of Kell Estate Appraiser", 19&0), 30. 612 The Appraisal Journal October 1993 prestigious we I is an example from a country club in an upscale neighborhood in the Midwest. This analysis presumes that value transfer is attributed to adjacent lots and not improvements on those lots. Further, it should be noted that other, less ob- vious value transfers may occur to sec- ond -tier lots or to the entire golf course community. External obsolescence from over- building, which has happened in some markets, can be measured by capitalizing the revenue loss based on a comparison of current levels of initiation fees and monthly dues to former levels. The same method can be applied to daily fee courses if green fees and rounds of play have dropped. SALES COMPARISON APPROACH The sales comparison, or market, ap- proach is similar to any other commercial real estate analysis. In addition to inter- viewing golf course owners and man- agers, it is sometimes helpful to check with local officials of the Professional Golfers Association to see what golf courses in the area or region may have been sold re- cently. It is important to ascertain as much data as possible about a golf course that has sold. Because of a limited number of sales, significant adjustments are usually necessary and, with more information, these adjustments are more easily quan- tified. One component that is very im- portant to identify is how much FF&E, or personal property, was included in the sale RUIN 1 Golf Owns Was Trainer price. If an operating corporation is sold, cash reserves, deposits, liquor, inven- tory, and licenses may be included in the sale price. All non -realty items should be deducted from the sale price. A green -fee multiplier can he used for daily fee courses. A per -hole analysis for adjust- ments is appropriate, but the following items should be noted for comparative purposes and adjusted if necessary: • Property rights, including water rights where applicable • Terms of sale (e.g,, favorable fi- nancing, motivated seller) • Market conditions (e.g., inflation over time, deflation as a result of overbuilding) • Location • Age, quality, and condition • FF&E (i.e., personal property) and other non -realty items (i.e., intan- gible assets or business value) • Contributory value of other im- provements (e.g., different club- house sizes, recreation amenities such as pools or tennis courts) • Length of the course (if signifi- cantly different) • Course signature (e.g., Tom Fazio, Robert Trent Jones, Jack Nicklaus, Pete Dye) Because of the limited number of golf course sales, it is usually appropriate to analyze sales throughout an entire region that may span several states. Care should be taken, however, to make sure the mar- ket is similar. For example, golf courses Lots fronting golf Caine: Some lots without god frontage: Lot value increcsa from god course: Avows Lot Size Number of Estimated Estimated Golf Front (square feet) Lots Value/Lot Total Value Premium 1QAoo 10,000 20.000 22000 10,000 10,000 20.000 22.000 12 s 25 15 12 8 25 15 $ 50,000 $ 60,000 $135.000 $165,000 Subtotar $ 40,000 $ 40,000 $ 40,000 $110,000 Subtotal $ 600.000 $ 450,000 33,375.000 $2A75,000 $6,930,003 S 480.000 S 320.000 $2,250,000 $1.650.000 54.700.000 $2.230,000 25% 5496 5096 50% None None None None Hughes/Nunnink &totes and issues 613 with year-round play in Florida or Cali- fornia cannot be used for comparison to Midwest courses where there is seasonal play. If golf courses in other metropolitan areas are utilised, an analysis should be undertaken to determine local market conditions for each sale. It is sometimes helpful to use supply and demand statis- tics, which can be obtained from the Na- tional Golf Foundation. INCOME APPROACH: ,ifrenagrprivate. for-profit course, e-•4se:ah�:btstat aLPN1n-entd-loss state- - ��. inents spa_ very -b ;pi LFcr a member - ammo. country club There the pnrnag motive is tu=set fees and duewio cvv - pensea,_ the not operate_income ( I) nay notbg in .A. acct iturvey should e the . e If the course is pri- vate, initiah©n ees, monthly dues, and rounds played should be noted. If it is public, green fees, rounds played, and cart fees should be noted. In some markets, published data is available through business newspapers or golf -related associations. .In adjusting the historical income -and - expense statement provided by the op- erator of the property being appraised, the appiaer would back out any interest in- te,. interest expense, debt service, and depretatic_Q amortization. In addition, sperm! cons 'on must be given to capitai'nt items. These should be correlated from historical statements. In some country dub operations the ini- tiation fees from new members are allo- cated to capital replacements. A reserve for the real estate items would include funding for short-lived items such as a roof, a parking lot, a pool, tennis courts, certain heating, ventilation and air-con- ditioning systems, irrigation equipment, and interior finish such as carpeting and wall treatment. Greens, ponds, and sand traps need periodic renovation as well. Replacements of personal property should be left in the reserve because the personal property is valued separately and de- ducted from the total property value. The personal property reserve includes re- placement of all FREE. Replacement of case goods and inventory items are in- cluded with the other expense items. A typical replacement reserve may range m-=3% to 7% of total revenue. The next step is to deduct the real es- ,a#ead valorem taxes from fixed expenses (gigeSsure 2). The NO!. excluding real estate taxes_tbut including the replace-_ menta ent , is then capitalized based on a..capitalt Clan rate that is adjusted for thee - ad valorem tax. The ideal source for cap- italization rates is the overall rate, de- rived from the market by noting the pur- chaser's expectation of the NO1 in the following year, divided by the sales price. Alternatively, mortgage -equity tech- niques for building an overall capitaliza- tion rate can also be used. The tax capi- talization rate is then added to the overall capitalization rate. It is calculated by not- ing the tax levy per dollar multiplied by the assessment ratio. Care should be taken to review the subject profit -and -loss statement for non - stabilized items, such as leases for golf carts, and adjustments should be made to stabilize those figures. This is necessary because capitalizing an NCO with a Mg- nificant deduction for a lease that may pay out in less than -five years would under- state the NO1 and understate the capital- ized value of the property. In some in- stances where leases are simply financing arrangements, the lease should be treated as debt service and disregarded. PERSONAL PROPERTY VALUATION ADJUSTMENT The next step in the analysis is to cSU mate the contributory value of the per- sonal property, which is also generally..._ describe as furnituret_fixbieesranciequip, meet. Technically, the term fixtures ap- plies to real estate, but it has become long entrenched by usage that will continue for our purposes. Two figures that should be noted are e Jayd ty valuation of the per property as well as the book value of the MIMI 2 Indicated osoll rate, inCludIng rave Red Sale lax a*s rr*nt Assesses ratio Tact rote/$'I . 29.00% 0.100434 Indicated arerdt rote tot od vokxam to( anotols 1250% 614 The Voralsol Journal. October 1993 personal property on the balance sheet. Replacement costs for the FF&E should be noted from interviews with owners and from cost manuals such as Marshall Val- uation Service. FF&E costs for mainte- nance equipment for an 18 -hole golf course can range from $200,000 to $500,000. FF&E for a large, high -quality country club can exceed S750,000. Care should be taken to make sure that the county does not as- sess as personal property any equipment that is assessed with the real estate, in- cluding certain kitchen, pool, and irriga- tion equipment. The next step in the analysis is to re- view the age of different components of the FF&E against the estimated useful life. The personal property should be based on a value in use (i.e., depreciated cost) and not based on a salvage value. If a sig- nificant external obsolescence is applied to the improvements, a proportionate external obsolescence factor should also be applied to the personal property so the value of the personal property relative to the real property improvements and land is not overstated. Some appraisers of properties with significant FF&E, such as hotels and motels, discuss the impor- tance of estimating the return on and the return of the personal property. This is appropriate, but the value of the personal property relative to the entire value esti- mate must not be overstated. Personal' property should be excluded from each approach to value_ BUSINESS VALUE ADJUSTMENT The final step in the analysis -is to esti- mate a business value or going -concern value that should also be deducted from the value estimate from each approach. Business value is an important compo- nent of any real estate that is an end -user property where operation of the real es- tate is intertwined with the real estate it- self. This includes hotels and motels, golf Couz tis, and other recreational properties such as bowling alleys and tennis, rac- quetball, and health clubs. in "Golf Courses —Valuation and Evaluation," Laurence Hirsh notes that "The valuation .of a golf course is - . - the combination of business and real estatea Further, Cammy and Benscrt note tour me hods.of estimating the valueof the business orinl tangible assets: the excess profits tech- nique, the sale of a golf business (a rare transaction), the residual/segregated _value technique, or the management tee technique.' The management tee technique is particularly popular, but It assumes that all business value is related to the man- agement of the operation, which is not necessarily true with a golf course (es- pecially a country club). For example, a country club that is owned in fee arid managed by an independent manager still has business value related to the exis- tence of a membership and resulting mar- ket recognition. The dub membership (i.e., individuals) can greatly influence the mottfhly dues acid initiation fees the country club can command. This influ- ence comes from social and prestige fac- tors that exist apart from the location and quality of the real estate, that is. some people join a club for social or business purposes that are not related to the real tstate itself. This type of business value Sncludes the following elements: mem- ership or customer lists, arse bled hysical plant, management, employs, eveloped procedures, methods and sits - items. rflaricetingApci adyertising RV - rams (i.e:, name fecognition), start-up 'expenses and operating losses, sources of Wsupply, permits and licenses, and tour- tnament contracts. Inventories and work- ing capital may be included as well: Another method to estimate the busi- ness value is to estimate pre -opening or organizational expenses based on a sur- vey of operators and developers. The ideal way to estimate business value is to es- timate a market -rate lease payment based on a triple net lease of the real estate (land and improvements). We have noted golf course net leases from municipalities where the lease rates range from 10% to 15% of green fees and cart fees, plus 5% to 7% of gross sales (e.g., food, beverage, merchandise), and the lessee manages the entire operation and owns all the per- sonal property. Whatever method is used, it is important to identify this component of value and make sure that it is consid- 3. tiurenct Hirsh, "Golf Courses —Valuation and Evaluation," The Applaud" Journal (January 1991): 3a-47. 4. Gamy and Denson. 81. HugheRs/Nunnlnk: Notes ond issues The management fee technique is particularly popular, but it assumes that all business value is related to the management of the operation, which is not necessarily true with a golf course. 615 eyed in each approach to value, In the cost approach, start-up costs, permits and li- censes, and entrepreneurial profit should be included to be offset by the business value deduction. Business value can be quite significant for an upscale, member - Man country dub be use. no manage - 'Orient fee is v included in the expenses for ' tslunteered by members. CONCLUSION In sum, important issues that must be considered in an ad valorem tax analysis of a golf course include the following: e Land value should be based upon low -density uses such as golf courses and parks or flood -prone areas_ • External obsolescence can be quan- tified by noting value transferred to adjacent residential lots and also by total accrued depreciation analysis of golf course sales. e All comparable sales should be con- firmed to identify the amount of FF&E and intangible assets (i.e., business value) included in the transfer. Golf courses rarely sell as real estate alone. ED All three approaches should be ad- justed to exclude personal property and business value. Professionalism and the Role of the Appraisal Institute Thomas A. Dorsey, MAI, SRA Objects have always been assigned some value by society, value based on either trade or status. Order required the exis- tence of a level of agreement as to the rel- ative value of an object. This led, invari- ably, to the "What's it worth?" question. But who answered it? Everyone and any- one. Yet, while acting as independent and self -trained appraisers, our ancestors managed to build and maiiitatn—as we continue to do today —a fairly structured and effective market economy. In 1993, who answers the valuation question? We all do. People determine value. Supply and demand consider- ations aside, each individual ultimately decides the value of an object, which is then quantified as value in exchange for a common denominator: money. In the more complex society of the twentieth century, however, a need for profession- alism when measuring value has evolved. It is no longer sufficient for buyer and seller to agree on value, and thereupon consummate their business transaction. Often, one of the parties seeks advice. And, especially in a real estate transac- tion, there is a need to convince another party —a lender —that society agrees with the value the individual buyer and seller have assigned to a particular object or property. The lender is concerned that its loan be secured, and that concern re- quires an objective and supported esti- mate of market value. This concept of professionalism in the appraisal of real estate is fundamental to modern principles of real estate lending. Most recently, three significant events have worked to better define and secure the role of a professional appraiser: 1. The formation of The Appraisal Foundation and the introduction of the Uniform Standards of Professional Appraisal Practice (LISPAP) in 1987. 2. The passage of Financial Institu- tions Reform, Recovery and En- forcement Act of 1989 (FIRREA) legislation, including a demand- ing -and for the most part uni- form —set of agency appraisal standards and a program of state certification for appraisers throughout the United States. 3. The merger of the American lnsti- T mes A. Dorsey, MM *A. b senior vice president at kne►iar Staines et Rends, F.S.B. Ho reposer* Rolm X ca a member of the AsOrircred ins fute'S Wirt of Directors. s. and Ftos published articles In The Rea Estate Ap- praiser and AncHy*r. 616 The Appraisal Journal, October 1993 Future of golf sits in deep rough By Drew Harwell The Washington Post Posted: 03/08/2015 12:01:00 AM MST DenverPost.com A A round of golf offers participants some magnificent views, but the game — with its drivers, clubs, shoes and tee times &rndash; is expensive to decade ago, when the golf course was a de facto playground for the professional set and a young Californian named Tiger Woods was the world's best player, golf looked like an unassailable national undertaking, and corporate players were champing at the bit to get in. But the business behind one of America's most slow -going, expensive and old-fashioned pastimes has begun to fall apart rapidly. TaylorMade, the world's biggest maker of golf clubs and clothes, saw sales nosedive 28 percent last year, its parent company, Adidas, said last week. "A decline in the number of active players ... caused immense problems in the entire industry. And, as a market leader, this hit us particularly hard," Adidas CEO Herbert Hairier said on a call with analysts. The sporting -goods giant has taken "some painful measures to restructure and stabilize" its golf division, Hainer said, including listing its slow -selling golf gear at deep discounts and postponing new launches. The coming years, Hainer had previously warned, present even more "significant negative headwinds" for the game_ It has been years since the increasingly unpopular sport of golf plunked into the rough, and the industry is realizing that it may never be able to get out. All the qualities that once made it so elite and exclusive are, analysts say, now playing against it. The game — with its drivers, clubs, shoes and tee times — is expensive to prepare for and to play. The sport is difficult, dissuading amateurs from giving it a swing, and time- consuming, limiting how much fans can play. Even what loyalists would say are strengths — its simplicity, its traditionalism — can seem overly austere in an age of fitness classes, extreme races and iPhone games. Even Jack Nicklaus, perhaps the greatest golfer in history, makes a strong argument for why new players aren't flocking to golf. "I'd like to play a game that can take place in three hours," Nicklaus told CNN in January. "I'd quite like to play a game that I can get some reasonable gratification out of very quickly and something that is not going to cost me an arm and a leg." The number of Americans who said they played golf at least once last year has fallen to one of its lowest points in years, Sports & Fitness Industry Association data show. Even worse for the sport's future: The number of people ages 18-30 playing the game has sagged nearly 35 percent over the past decade. "Every macro -indicator that we've been looking at for the past 20 years ---- rounds played, number of minorities playing, women coming into the game — all of these things that we tracked says that there's less people playing," Mark King, a former TaylorMade president and current president of Adidas North America, told HBO's "Real Sports" last year. "I don't like where the game looks like it's going." Even the golf business' biggest heroes have fallen out of grace. Tiger Woods sliced through a set of disappointing tournaments, including the worst round of his career, before declaring last month he would take a much -needed break. That drop-off has hit America's greens and links hard. More golf courses closed than opened in 2013 for the eighth straight year, according to the National Golf Foundation. And the number of course closures has sped up, averaging 137 closings every year since 2011, data from golf -industry researcher Pellucid show. But it's not just TaylorMade or the courses that are struggling. Dick's Sporting Goods, which bet big on golf in 2006 by buying specialty retailer Golf Galaxy for more than $200 million, has repeatedly acknowledged its bogey, shuttering stores and ending one experiment staffing a PGA professional in the golf sections of more than 500 stores — by firing all of them. "Golf from a participation standpoint, and how it translates to retail, is in a structural decline," Dick's CEO Edward Stack said in August. "And we don't see that changing." The golf industry has made overtures at "growing the game," some of which have pinned hopes on another superstar like Tiger reinvigorating the game. But some are calling for the great game to prepare for even tougher times ahead. "There's nobody out there who's going to save us," said Pellucid president Jim Koppenhaver at a Professional Golfers Association of America gathering in January. "We have to save ourselves." Sales & Finance How much is a course worth today? With so many troubled courses on the market, it's almost impossible to determine course value. But the one thing that is known is that values are dropping. BY BRUCE BUCKLEY 1 n the end, the most precarious crossing at The Bridges at Black Canyon in Montrose, Cola., turned out to be the one that bridged the expectation gap between the seller and a buyer. here's no confidence in running (income) numbers out into the future. How many years will it be until we're confident that things are heading in a positive direction? JEFF WC O SON 14 l -- Following the death of the course's owner in 2008, three years after the par - 7] Nicklaus Design course opened, the lender, New Frontier Bank, foreclosed on the property and put it up for sale at $25.5 million, As it turns out, The Bridges wasn't the only troubled asset in New Frontier's portfolio. In April 2009, the FDIC took aver the bank and looked to unload The Bridges at $7 million. In December 2010, the course, the clubhouse, the restaurant and all other facilities sold to Lew Thompson Properties LLC of Arkansas for $3 million — just under 12 cents on the dollar. In an environment where troubled properties are trading et deep discounts, many analysis say the industry has yet to see course values hit bottom. Although some courses are starting to see rounds and revenues level off, observes warn that even stable owners could an their assets continue to lose value in the market for years to come. "Values are falling like a rock," says Ron Carders of Golf Market Advisors in Auburn, Calif. "We haven't seen a bottom. Every month it shocks me how low they are getting. 1've seen things that would have sold for 5)2 million in the late 1990s that would have gone for $5 million five years ago and now are at $1 million. la's in freefali" Ultimately, the value of courses today are driven less by a property's financial performance and more by the willingness and ability of buyers to close a deal Operationally, some courses are starling to see signs of stabilization, Through October, rounds nationally were down slightly al l.8% below the same period in 2009, according lo the National Golf foundation, as many courses saw rounds begin to flatten out. Meanwhile, the inventory of golf courses is beginning to shrink, meaning no new competition is entering the market. But despite any improvements in golf count balance sheets, considerable issues remain on the buyers' side of the equation. Chief among the concerns is the general lack of financing. Golf -specific lenders are gone and traditionalbanks remain skittish, especially n they iry to work through troubled assets in their own portfolios. As a result, the field of potential buyers has shrunk considerably. "There are plenty of potential buyers out there, but they just cans get financing," Corriere said, "The deals you sec now are cash deals. In the past, 10 to 1S percent were cash transactions and the rest were financed Today, the reverse is true. Once you eliminate time financed transact ions, you're down to maybe 20 percent of the buyers that used to be in the market. And those cash deals tend to be in the Si million to $2 million range" Even among those buyers with the means to close deals, the long-term outlook for the golf business remains fuzzy. "Anyone looking at the golf market today is having trouble quantifying the risk of golf course income," says Mi. Mastalir of Real Estate Capital Corporation, "it has been trending down for ten years. In very difficult to say how reliable a Iproperty's) income stream will be when you try to project that out over several years." As a result, buyers are reigning in 17— I Sales & Finance lg. :.16..• • frir Slag! AIL" ite Y r r . .w. Sr' -__ r Kra ^. - ca. '"'.+`f.' a i'r aria • -- • • - +/• s 4�/�i•��. _ '• t. .. .. •. a1• . 1 _1 Ne..i•J 7 • .• . B1dd9L . at Block Canyon risk. In the late }tows when course financials were trending up, courses with positive cash flow commonly traded at capitalization rates of 8 1O 10 percent, In 201]9, capitalization rates averaged 12 percent, according to the Society of Golf Course Appraisers - More often than not, courses on the market are financially i n the red, and buyers are applyingmultipliers to gross income to determine value. Jeff Woolson, managing director and senior vice president of CD Richard Ellis' Golf 6r Resort Properties Group in Carlsbad, Calif., says that while 5roperties might have seen multipliers >ewren 2 to 2.5 in the past. today they ire at roughly half that level. "I've seen people break it out and ply, 'We'll pay ] times gross on the golf, nil the food and beverage won'l make nosey, so we'll value that al i)-i limes,"' at said. 'There's no confidence in running income) numbers out into I he future. low many years will ii be until were onfident that things are heading in a 'ositivt direction? Three years! No one Wows. What many analysts can predict is that it volume of properties on the market likely to balloon in the coming years, !though some lenders have started to ireclose on properties, observers say tat most banks are staying patient with ilinquent borrowers. Once the supply of iopertirs gots up; value's could go down. "If you have seven bankrupt properties 1� a in a market and 10 buyers now, what happens next year when there are twice as many bankrupt courses liar sail}?" says Chris Charnas of Links Capital Advisors in Evanston, 111, "'Those buyers are just waiting for prices to drop" Even those courses that aren't for sale could fee) the impact, Mastalir says, "When we get to the end of the cycle and the properties that fail get brought to market by lenders, that is when you'll see the devaluation occur at golf courses," Mastalir said. "Mose courses] will have an impact in the local market where they are situated. A $12 million count that charged S 120 greens fees, but was bought sal 11.8 million can now charge 325, That impacts everyone in that market' Although the looming tsunami of foreclosures could be painful for owners, Corriere says it's a necessary next step to recovery for the market. "We need banks to get out of the ownership of golf courses, he sap. "Until then, we won't be at bottom, The good news is, once that inventory is gone we can start to improve again, but that could be a three- to five-year proeese \LtEDD Ku�) S \I I It ',Ii IN., I Edition Golf Club & Real Estate - Alpharetta, GA POD th I.T7 IER Dt�TAILS FOIL BIDDING: wwwa mpsoac arnpiny. oam Click an ••SEALED BID SALES" • 343+1. Acres Taut • Rees Jones 3$ Flak Active Golf Course • Tutu Facility Designed By Stag &milk ▪ Phu u One: 11 Planted Residential Lots • 10 Acres • PMse Two: 71 Atres For Estimated 56 Lou Appease' Mara: WJ•3,000,aoc Asking Price:ISI%S,a00 Cooties lerornattoa: M r• Frank N. Simpson, CCIM S l IVI P S O N Thu S ►mason Company 4f till,, Inc - COMPANY- 770.532.9933 •• • • PO Box 292 'Gainesville GA • 30503 1;11' 1' .' C(l'r ` Rt t'i i c.+CC t-, I. Uut( t�KIV I A. NV ti 1 nisi• 'GCS! I r TCRCST$ ARC VV I 4 A T C OI IN IS' ._ •r•P T'.a� • .. ' =-4-, w.rlfi•%� w�• •:!ate_.' "_ . •in - -- a •• zr.- • ,.,a • SOLD & CL*SED Closed more than 550 Golf Courses since 1991 $850 Million 5850 Million in Sales cy (07THE ere TODAY 888-324-5020 • Hilda -Allen :'yd11 l3-,. ! r . -r , . 'J! f=v I/jr 4r.ti 17.r e.. r e r. I in Measuring Up Page 1 of 3 JANIIAHY 2(llti GOLF BUSINESS �H I tI t'1't+'. Ii ::(n *It t>, •:1 , It):, -`.I Ci, ( a' �1p::; k.tit.t.)1 I IJ . Current Issue Vital Signs For close to a decade now, pundits of all stripes have prodded and probed the golf industry trying to diagnose Its ailments and devise cures. r Water Works As California's historic drought stretches Into a fifth year, it's indeed become challenging times for the state's 900 -plus golf courses. r Paving A Different Road It hasn't been easy, but Terry Smith Is using the fruits of labor from a separate business to solidify the foundation of Rock Hollow MORE CONTENT Online Exclusives MORE EXCLUSIVES Programming For Profits From wine and nines to junior leagues to fitness, savvy operators understand that creating a golf experience that appeals to the masses requires much more than a pristine course. t• Related Articles In the Flow In the Zone Commentary: Regaining Popularity for the Game Eye to ire Future How to Negotiate a Better Lease SUDSGRIPTLONS February 2010 Measuring Up By Steve Eubanks ADVERTISE EDITORIAL The true value of a course is seldom worth the sum of its investments Legendary investor Warren Buffet once quipped, "Price is what you will pay Value is what you get " That's a quote worth remembering, especially for golf course owners trying to put a value on all the sweat, fear, love, anxiety and effort they've poured into the ground at their facilities While it's human nature to wonder what your life's work might be worth, it's also scary, especially during times of economic hardship. The sad reality for most owners is that the fair market value of a golf course isn't what they thought. And in many cases, it doesn't equal the money, time and effort they've invested in it "Cost has nothing to do with value," explains Larry Hirsh, president of Golf Property Analysts, a Pennsylvania -based golf appraisal firm "That's a hard fact, but it is a fact " Splitting Hairs In its simplest form, "value" is what a buyer agrees to pay and what a seller agrees to take. Everybody understands that, but the most elementary principles sometimes get lost in the jumbled emotions of a complicated transaction Consider the number of times you've heard a salesperson state, "I can't sell it for that price I've got more than that in it " While that's a perfectly acceptable reason for rejecting any offer, what you have in something has nothing to do with what that something is worth. Think about it this way: Picasso had about $20 invested in paints, brushes and canvas for any given work he produced, but his paintings routinely sell for millions of dollars In fact, a collector so valued his work that one of his masterpieces, "Garcon $ la pipe," fetched $104 million at Sotheby's in 2004 Meanwhile, only one of Vincent van Gogh's works ("The Red Vineyard") sold during his lifetime, despite his enormous investment of blood Some might scoff at these comparisons, but a lot of owners view their golf courses as works of art, a blend of man and nature with intrinsic value that cannot be quantified on an income statement No one can look at The Yellowstone Club in Montana, for example, without being moved And what kind of value could be placed on Peachtree Golf Club, a Bobby Jones - designed course in the middle of Atlanta's trendy Buckhead district that has, as its clubhouse, the home General William T Sherman used as his headquarters during the Atlanta Campaign? These are golfs equivalent of Rembrandts No valuation formula can quantify their true worth Problem is, investors, tax assessors and potential purchasers take a more black -and -white approach "The concept of market value is not tied to what it costs to produce something or the amount of sweat equity someone has invested, but rather what a knowledgeable buyer and knowledgeable seller would pay and accept for a properly," Hirsh says Key word: knowledgeable Equipped with objective data, buyers can make informed decisions that are sometimes to the chagrin of developers, builders and owners "They (owners) only see the cost because that's what they spent, and in most cases, they don't want to admit they spent too much," Hirsh notes. "I've rarely seen a golf course where somebody got the value out of it commensurate with what they put into it." To underscore this point, consider that the National Golf Course Builders Association estimates the average cost of golf course construction to be $7 7 million Meanwhile, the average course sale in the last year has been $2 million, creating more than a $5 million discrepancy between what an owner has in a course and what he or she can potentially get out of it "The typical appraisal process -although golf courses are more complicated - is based on the land's highest and best use," says Bob Gorman, president of the Gorman Group, a Chicago -based appraisal and consulting firm that specializes in golf course valuations "That means the value of a course falls into one of a couple of categories: what the value of the property would be Search GolfRusiness.com ARCHIVES LOGIN a St all (A-! 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Connect With Us 000 http://www.golfblusiness.com/articie.aspx?id=1212&bq=6yfv%5Eg433$ 1/13/2016 Measuring Up Page 2 of 3 as raw land, if it were redeveloped for housing or as a commercial area, or on the low end, letting it return to farmland; or, a value based on the economics of the course as an ongoing business The quickest way to evaluate the latter is to look at the net income and determine what someone is willing to pay for this business as a going concern " A Variety of Variables Regardless of the method, countless variables factor into the valuation of any golf course For example, a course might encompass 300 acres of land in a high -end residential area where lots are priced at $100,000 or more But how much of that land value is attributable to the fact that the golf course exists? And how much would the per -acre value plummet if the golf course went away? Then there are situations where an alternative use is impossible. With today's environmental laws, there's no way Pebble Beach could be developed for anything other than the golf course that currently sits there And if Sand Hills Golf Club in Nebraska were not one of the best golf courses in America, the highest and best use of the land would probably be as a cornfield. "In Chicago, we have a number of golf courses built on top of dumps," Gorman notes "So, there might not be any value to the underlying land because of the remediation costs You might have a golf course that looks like a multi -million -dollar course, but its only worth a couple hundred thousand dollars because there's nothing you can do with the land and it's not throwing off enough cash to have any value " To complicate matters further, governments typically restrict how property can be used. So, for instance, a golf course might be viewed as acceptable green space, while any residential or commercial development tied to the project may not be so readily accepted "Zoning laws and impact fees play a huge roll," Gorman admits "In some cases, if you change zoning from low density or even agricultural to higher density residential, some governments will bill you for 20 years worth of back taxes under the new zoning The assumption is that the land could have been developed as lots all along " Therein lies the rub If the land cannot be convened to homes or condos, the value of a golf course is simply a multiple of the cash it generates as a business, minus physical, functional and economic depreciation That cash multiple is usually pretty easy to calculate.. Six- to eight -times net earnings has been a good rule of thumb historically, assuming there are any buyers showing interest However, the inexact part of the equation -and the one that causes so much angst among golf course operators -is depreciation. What sort of encumbrances are on the property? Is the state about to condemn two holes to expand a highway, as they did with a Bobby Jones -designed course in Canton, Georgia? Is the owner engaged in a dispute over chemicals seeping into a nearby aquifer? Has a dog drowned in one of the lakes, leading to a lawsuit and expensive judgment? Don't laugh -that's just what happened at Isleworth, the exclusive club in Windermere, Florida, where Tiger Woods, Mark O'Meara, John Cook, Stewart Appleby and J.8 Holmes reside. "This is where due diligence can get tedious," Hirsh says. "Physical depreciation is what you think it would be: the property's normal wear and tear and stuff that hasn't been done because the owner is cutting back to take as much cash out as possible But it's also the things that are under the ground like deteriorating irrigation pipes and poor drainage." At a course in Myrtle Beach, South Carolina, for instance, mounds were created by burying everything from old stumps and brush to car tires and other waste, creating a biological stew and potential nightmare for any potential purchaser, a fact that was discovered through an exhaustive due diligence process "There's always something," Hirsh says. "Functional depreciation is a little easier to see -it's when lime has passed the place by. If a course can only be stretched to 6,200 yards, for example, it will have some functional depreciation. "Then there's economic deprecation, which is the stuff the owner has no control over, like the city building a noisy road next to your property or the fact that you're now in the glide path for a major airport," he adds "Your property hasn't changed, but outside forces have diminished the value " It's a harsh way to put a price on a Rembrandt, especially when a course owner receives his or her tax bill and realizes the assessor is valuing the property based on replacement costs. But, as most any appraiser familiar with golf course valuations will attest, it's common practice because it's the easiest for appraisers "For the mom-and-pop operator, its especially tough," says Gorman, who estimates that more than 90 percent of all privately owned golf courses and country clubs in the United States are being overvalued and overtaxed by their county authority "They're dealing with two negatives: declining rounds and income, which can put them in a negative cash -flow position, and a declining underlying value of the land because of this deep, deep real estate recession Throw in increasing tax burdens, and it's a tough pill to swallow." http://www.golfbusiness.cam/article.aspx?id=1212&bq=6yfv%5Eg43 3$ 1/13/2016 Measuring Up Page 3 of 3 The solution, if there is one, is to suck it up and press forward "I recommend that an owner in today's market hang on for awhile [until surrounding real estate values pick up, even if the gotf does not, before thinking of selling]," Gorman says. "It's better to wait it out and hope that this market turns around " Steve Eubanks is an Atlanta -based freelance writer and former golf course owner. 0 Share / Save f3 w 1 Leave A Comment January 2016 Contents Digital Flipbook Home SUIMl1 C0MM$tK1 Subscriptions Subscribe Renew Address Change Customer Service Advertise Media Kit Contact Us Editorial Editorial Calendar Article Submission Editorial Policy Contact Us Archives Contact Us Advanced Search GB Staff Request Back Issues Customer Service Golf Business - The Official Publication of the NGCOA © 2015 ngcoa,org http://www.golfbusiness.cam/article.aspx?id=1212&bq=6yfv%5Eg433$ 1/13/2016 VOLUME 2, NUMBER 1 • JANUARY/FEBRUARY 2004 The Valuation of Golf Courses By Stephen R. Hughes, MAI, SGA Hughes & Company, Inc. SCOPE Valuing a golfcourse tin be more challenging than playinggolf in addition to the real estate then is a significant component of tangible personalproperty, such as furniture and equipment, and often intangible personal property such as businejs value. Golf cows es have several departments that operate very differently horn each other. No twu golf facilities are ever alike, therefore o deep understanding of the departmental operations. including their potential_ needs to be in place to re.]i bly estimate the valut of the entire property. 'Ibis issue will examine the data and methodology used to value golf course facilities using all three appnaaches to value INTRODUCTION Golf course apppra,isalprinaples aresimilar to those for valuing other camn,ernal praper-ry, However, with this special use, an additional body of knowledge is needed which includes course design/playability, quality, turf maintenance, irriga- tion, golf carts, and course maintenance equipment, The market analysis is uni gr c to the golf industry. Because private clubs include a variety of membership rights and privileges, ownership and use rights become important. The valuation process is generally looked upon as an or- derly procedure involving various steps in order to arrive at a value canclusaon.It specdficafy deals with first identifying the type of appraisal problem that the appraiser or assessor is faced with, and then gathering available pertinent data. Once the daises obtained and properly analyzed. it is utilized as the basic ingredient for estimating value front each of the three approaches to value -the income approach. the sales comparison approach, and the cost approach. Buyers tend to focus on the income potential of a cow -se, therefore, the income approach is the most important to an appraiser_ 1 GOLF COURSE MARKET Before the appraiser or assessor gathers physical data, it is important he/she thoroughly understands the features of the property being appraised and how it fits into the com- petitive golf course market environment. A good source of this type of data is the Internet. Following are some areas that need to be researched concerning the subject property being appraised: Types of Golf Courses 1. RF,outAnorr: These courses are ]8 holes with multiple tees ranging hum 5.200 to 7.100 yards and have a par of 66 to 72 2. Nerve-rroi :This course covers aver 2,6CD yards with a par over 33. 3. Warms This course is 4.00[1 to 5,200 yards in length with a par of 58 to 66. tar s I.AAO SUBSCRIPTION SERVICE • ISSUES IN APPRAISAL AND ASSESSMENT 4_ PAR 3: This type of course is less than 4,000 yards for 18 holes with a par of 54. Types of Golf Course Operations 1. DAILY FEE: The most popular type of operation Golf revenue is generated by acharge for each round of golf and in sonic cases by an annual pass. Many are municipal but must are under private ownership and operate for pro6t. The termissomewhat out of date in that nearly all courses charge for each round but, few still allow all day golf fora single fee, 2. ?MATE 01135: These account for 35 percent of the market, but this ratio has been shrinking in recent years. They are the most difficult to value because of the variety of member rights. They can be for-profit operations. not -for-profit, semiprivate. or a combina- tion thereof. A combination of entry fees and monthly or annual dues generate revenut 3. RESORT COMM: A resort course can also be a daily fee or private course, or a combination of both. Destina- tion facilities. such as second home area or resort, arc assodated with these courses. 4_ Lamm & PRArrrct CoimsEs: These would be short courses ranging from Pitch -N- Putt to Par -3 to Execu- tive length, It would also includepractice holes at driv- ing ranges and courses with a non-standard number of holes, Charge would be like a daily fee course, Course Design Configurations for Regulation Facilities 1. CORE The oldest and most basic design. Holes share common rougk, reducing the land requirement, which is typically 125 to 140 acres for 0l -length course, 2 SINCL : EktincAlr This course is built primarily for maximum golf lot sales, Requires between 165 to 195 ears. These can be either continuous fairways or returning nines 3. DoueaE FAIRWAY: This course offers less frontage for real estate development. Requires between 140 to 175 acres. These courses can also be either continuous fairway or returning nines. Table], shows the various performance ratings forseleded characteristics for each type of configuration 2 ROLE 1: Parfprmance parings for selected C1}bradertsiics for each ranuloticn courses detain type C?�pn Land Ftontape Flerdsldy Maintenance rip riAn Conavmptton Dwarur8ueg ceneclt — Y Got, Low High High Medium Medium Low ►Mgh High Medium Medium Medium Low low H* High High Low Median High Medrurn PROPERTY DESCRIPTION Property description includes more tlan just desuibing the buildings and typical site improvements such as parking a nd perhaps a pool or tennis COUrt.'Ihe more significant asset is the golf ratusc, trot the buildings, A detailed description of the golf course is oftentimes overlooked by inexperienced appraisers. Golf course improveme - u,, including the count yardage. layout/design. type and condition of grass (for e tarnple. ban spots or poor drainage areas). size of greens, number and con diti on of sand traps. length and condition of cart paths, and qL" litylagc/rondition of the irrigation system Inducting wills, pumps. valves, pipes and sprinkles heads, are all important in estuuiatingthe value oh golf course Follows ing is a golf property description ch eddist 1. COURSE DESIGN: Things to consider are layout. aesthet- ics and designer (If applicable)_ Signature architects such as Jack Nicklaus, Tom Fazio, Pete Dye, and Arnold Palmer can command design fees of $750,0D0 to 37,000,000 or more. Other qualified architects typi- cally charge S200,000 and up_ 2. AGE OF THE GOLF COURSE AND IMP ROVEMENTS 3. LAND AN.4Ln1s: Things to look at during this Analysis are items such as location. topography, flood plain, water source, size/shape. utilities, xnninglmas t er plan, and excess land. 4. CLIMATE Arnouat of precipitation. golfing seaman length, prevailing wind etc. 5, Gg.usiNG: Costs to consider here are tee areas, greens, fairways, and rough 6. HAZAPs,s: Burdcers, sand trips. water. etc VOLUME 2, NUMBER 1 • JANUARY/FEBRUARY 2004 7. COURSE DESIGN FLAWS: important to look for hare are pos- sible functional problems (greens or tees that are too snail, erosion, poor soils, areas that are not playa bl e danger of getting hit by stray golf balls, etc). Some of these items will be curable and others will not 8. IRRIGATION SYSTEM Many older course and low cost course have manual irrigation around the greens only. Inexpensive irrigation systems have manual loses or couplings that require higher labor costs. Modern irrigation systems are typically computer operated Automatic top -of -the -line systems measure water saturation, wind speed, and temperature around the course. 9, lMfROVEEENI-ANALYus: Building improvements are of less importance than the golf course but they do contribute to value. The clubhouse typically ranger, from 3.000 to 6,000 square feet fora daily fee course to 20,000 to 30,000 square feet for a private clubhouse (some may be larger than 60.000 square feint). The main tat an ce facility is typically a metal building with a size of 4,000 to 8,000 square feet Cartstor- ageis usually in the basement murder the clubhouse outdoors, or in a nearby building with a typical size of 4,000 to 6,000 square feet. Other types of improve nreuts to consider an cart paths, tennis courts, pools, driving range_% and other recreational areas. 10. PFRRSONM. RROPFRTY—FURNJ11 R£, FIXIURfl, *34O eQIAPMEM (FF&$): Personal property items `are significant in all golf coursel. rte greatest cost is the count mainte- nance equipment, which typically will range between $200,000 to $500,000. Golf carts areanother signifi- cant cost. The typical number of carts is 50 to 70 with a cost of around 53,000 each Oftentimes the golf carts may be leased Areas in the clubhouse where personal property items are typically found are the kitchen, din- ing rooms, office security areas, locker room, etc 11. Quu.r rr Ate Memnesi ec This involves an estimation of the quality and amount of maintenance that has been performed on each of the golf course's assets. This will be useful in determining the amount of p hys tool depreciation in the cost approach and for sdecting com- parable properties in the sales comparison approach 12 ENVIRONMENTAL' Potential environmental problems can be fuel tanks, chemical storage, chemical usage, wetlands, source water quality, etc 3 111111am HIGHEST AND BEST USE ANALYSIS Assessors or appraisers typically estimate the highest and best use of thesubject propertydepending on luca) statutes. Generally,.a golf course is appraised according to its value -in - use as a golf Course. Redevelopment to other higher density uses is often limited by zoning, restrictive Covenants, con- figuratbon of the course, and master plans or land use plans that designate the site as a recreational area or open space. Theseissurs .are also important to recognize when analyzing c onrpanble golf count salts. A highest and best use analysis typically will consist of two parts: a golf market analysis idrmand and feasibility study) and a current or alternate use analysis (redevelopment). Market Analysis Supply and demand and feasibility of constructing new cours- es is usually beyond the scope of what an assessor or appraiser iscat edupon toprovitie Nevertheless, an overview should be useful This pros involves the following studies: 1. Pccvt.tnora MO GOLFER r ht0GRAPtttcs_ Th ere is a dear relationship between household income and golf participation. Approtoarnatefy 53 percent of golfers show h vsehold Mown es of more than 350.000 annually Up- scale courses will draw from households with incomes of 575,000 to 5150.000 phis. According to the National Golf Foundation's (NGF) 2000 Golf Par-tiopation,11.7 pertennt of the U.population over the age of 12 has played golf at least once. Of this percentage, 80 percent of golfers are malt Appropmna'tely 46 percent of the golfers an College graduates. The average U.S. golfer is 40 years old, has a household income of $59,970, has played 148 years, and plays ] 9.3 roun ds of golf each year. Facts such aS these reported by region can be obtained from the NGFs bVeb site at wwwngleog, 2 DEFINITION OF MARKET ARLC The market area for golf is wider than for most other real testate Golfers often drive 20 to 40 minutes to playa golf count When four to six hours are spent at the course. the drive time is not that significant. 3. COMPuII IE GOLF FAcarrtES tN MARKETDC AREA: Originally, golf courses were designed as stand-alone recreational facilities, usually either private or municipal in a care design. During the 1960!s, golf courses began to be incorporated as part of real estate developments. Par- IAAO SUBSCRIPTION SERVICE LSSUES IN APPRAISAL AND ASSESSMENT tidpation irti the game of golf and the number of new courses grew significantly in the 1980s, which led to a substantial amount of overbuildingand foreclosures. In the 1990s, golf courses opened in record numbers (mostly upscale daily fee count) even in the face of less rapid growth in the number of golfers and total rounds. As a result. the market started another down- turn in 200(1 and 2001 resulting in more foredosures and a decline in new construction. In the future, the golf market will continue to be cyclical 4. DEMOGRAPHIC AREA ataums; This analysis involves three basic steps: define geographic area for examination, es- timate population of trade area and course inventory, and conclude and forecast market variables. Identifying golf courses under coostructior and in the planning stages is important for all appraisers orassessors in all cart -urns tenet.Sou rces for this information include discus - sions with golf pros, Pellucid (a national golf database), the National Golf Foundation, local or state golf associations, golf magazines, newspapers, and golf industry analysts, Golf Course or Alternate Use in testing for alternate land use options, the appraiser or as- sessor must check such thb,gs as: zoning deed restrictions, promises to adjacent homeowners regarding limitations of redevelopment of the golf course site, etc, This will include analysis of the subjectprevere 5 land value as tfvacant, based upon an alternate use Redevelopment potea tial is related to the usability of the site, includingsuch factors as topography, frontage, amiss, utilities and general shape Tt r Foe ereaffsr AND amsr to The highest and best use needs to be deteruninedas if vacant and as incroved The four highest and bat use tests include physicallypossible (usually already known), legally permissible, financially feasible and maximally produc ova VALUATION TECHNIQUES USED ON GOLF COURSES There are three approaches to value that are employed when valuing conarnercial Teal estate such as a golf course, They are the income approach, the market approach, and the cost ap• proarh. Typically, the one relied on most often by investors in this type of property is the income approach The cost approach is more relevant for proposed or new courses. The market approach is used the least because of the general lack 4 of similar golf -course sales. Keep in mind that, for ad valorem tax valuation, only the real estate will be valued The Income Approach In the income approach, the whole property value may be estimated bycapitalizing the stabilized net operating incom and then taking lump sum deductions for the contributory value of the FF&E and intangible value. In adjusting the historical income and expense state- ment provided by the operator of the subject property, the appraiser or assessor would back cut any interest income, interest expense, debt service, and deprecation or amor- tization This results in net operating income. In addition, special consideration must be given to capital items and a reserve for replacement amount should be correlated from historical statements. In some country dub operations, the initiation fees from new members are allocated to capital replacements. An alter- nate calculation, which is more complicated, is to estimate and exclude income and expenses attributable to non -realty property and capitalize only the real property income. The ideal source for capitalization rates is the overall rate, derived from market sales by noting the purchaser's expecta- tion of NOI in the following year, divided by the sale price. Alternatively. mortgage -equity techniques for building an overall capitalization rate can be used. The effective tax rate (tax capiralr ation rate) is then added to the over-all rate to find the overall capitalization rate. Cart should be taken to review the subject property's income and expense statement fornon-stabilizeditems, such as leases for golf carts. When these types of items are found adjustments should be made to stabilize those figures, This is necessary because capitalizing an NOt with a significant deduction for a lease that may pay out in a year would under- state the capitalized value of the property. In some instances where leases are simply hnanang arrangements, the lease should be treated as debt service and disregarded Following are some additional considerations to keep in mind when using the income approach to value golf courses: 1. GRciss INCOME £STIMArE: The grass income figure will typically include green fees, dues, and initiation fees, A market survey should always be undertaken to de- termine if the fees reported by the subject property's owner is reflective of the competitive marketplace. If the course is private then the initiation fees, monthly dues, and number of members should be noted Ili t is a public course, green fees, rounds played, and cart fees should be noted In some markets, published data is available through business newspapers orgolf•related associations. Other income sources that maybe reported are: cart rental. food and beverage sales (ham /a ay VOLUME 2, NUMBER 1 • JANUARY/FEBRUARY 2004 2 snack shops. on -course beverage carts, dining rooms, and banquet facilities), pro shop merchandise. driving range fees, and fees from other recreational arms. ExnEruEs: Typical expense items will include:mainte- nancc, adrninutxatjon (including payroll), cost of goods sold fixed expenses (insurance), management feet ad. wincing, etc. When appraising property for ad valorem purposes. the real estate ta,)xes are not considered a valid operatingerpense because they are handled in the effective tax rate component of the capitalization rate. 3 CAPITAL LMPRQVEMFN S/RrsERVFS FOR RLPL&CEMIry-: A replacement reserve for the real estate sterns would include funding for short-lived items (those items that have an economic life less than the life of the main structure). Examples of reserve items would be: a roof, a parking lot, a poet tennis courts, certain heating, ventilation and air-conditioning systems, cart paths, irrigation cquipnrenL and interior finish items such as carpet and wall treatments. Items such as greens, ponds, and sand traps (brunkers) need periodic renova- tion as tveA and should be treated as a reserve item_ Replacements of personal property should be left in the reserve amount if the personal property is valued separately and deducted from the total property value. The personal property reserves include replacement of all FF&E items. The replacement of case goods and inventory Items are included with other eepensr sterns. 4. JusnncAT,QN Or INCOME ANI' DPENSE FSSlMAm :Income and expense estimates can be verified through published sources such as the NGF, the Golf Course Superintendents Association (GCSA). and other state and national associations. They can also be verified by the use of comparable property data. 5. Tv ADJU5714ENr5:As noted earlier. the overall capital- ization rate may need to be adjusted for the effective tax rate, Following is an example of how the adjust- ment can be handles} Indicated overaff rate, after reserves 11,00% Reel estate lax adjustment (essm, ratio x tax rare): .29x1.11659 zja% indicated overall raete for ad veJorem tax analysis: 14,35% The Sales Comparison Approach In the sales comparison approach the first step is to research rind analyze all the available sales of golf courses. There are 5 over 16,000 golf courses it the United States but when the municipal or member -owned facilities are removed (3S to 45 Percent). there are a limited number of courses that might sell. When looking for sales, a regional or statewide search will probably be necessat}'.This approach to value has limited usefulness in the valuation of golf course property unless a recent comparable golf Course Sale(s) can be confirmed_ Generally, this approach is used to seta reasonable range in value for the property being appraised Golf courses rarely sell as real estate alone- Therefore, it is very important when analyzing sales to identify how much personal property was included in the sale price. Intangible asserts must alsobe deducted when estimating only the real estate component of a sale. If an operating corporation is sold, cash Teservr:, drpnsits. liquor, inventory, and licenses maybe included in the sale price. All n on -realty items should be deducted from the sale prise. Property rights, including water rights where applicable, or partial interests (leasehold) 35 well as tenor of sale (favorable Financing. n) o twat ed seller) should also be investigated Sources of data include local gall professionals, golf appraisers and published sotucec such as industry newsletters and journals. Developing a unit of comparison is oftentimes difficult when using the sales comparison approach to value golf count -s. They are diff nit to determine because of the wide variation in the size and type of improvements. Sonic typical units of comparison are price per hole, revenue multipliers, price per round price per acre, and price per yard PRICE PER MOLE: Th a price per 18 hales is probably the most useful of the various units of comparison. This adjustment can only be used however. if the golf counts sales and the subject are similar in all characteristics (quality, location, improvements. etc.). REVENUE MULTFLIFJ 5: Thesmultipliers are useful for daily fee cruises_ A green fee revenue multiplier can be used when the macs revenue is unknown. A green fee multiplier is calculated by dttrieling the sale price by a stabilized rounds estimate times the weekend green fee (sale price/stabilized rounds estniate x weekend green fee). This multiplier can be utilized without any income data oil the subject property or the comparable properties because green fees and approximate rounds can always be ascertained Consideration shouldbe given for 9 -hale rounds, discounting and member play. PRICE PER ROUND (rncE PER MFIERE ): This unit of comparison has limited usefulness because of the la.dt of sufficient data PRICE PER ACRE: This unit of comparison is useful to detemune if the golf cours a sale being analyzed was perhaps really a land sale. Many golf course buyers state that their mativatioji was to keep the golf course but that they felt the land could be redeveloped for about the same value. By the same token, many governmental agencies have overpaid fora golf course for the express purpose of maintaining open space. 1 � r IAAO SUBSCRIPTION SERVICE .ISSUES IN APPRAISAL AND ASSESSMENT PRICE PER YARD: This unit of comparison has no real value in valuing golf courses. Variations in yardage, unless hugely significant, are inconsequential. Another part of the sales comparison approach is the process of adjusting sales for difference in physical characteristics. Some common adjustments that should be considered when looking at golf course sales include; LcxATION:This adjustment involves looking at the distance the course is from the playing populace, its interrelationship with subdivisions, access (ingress and egress), and available parking. Cum/on Factors looked at here are the le ngth o f the play nog season the wind direction and velocity. and the frequency of storms that stop play on the course RATABILITY Tlisadjustrnent considers how challenging the course is, the playe r appeal of die cvu rse, the steep] tdrss of the fairway's, aesthetic design, size of the greens, the condition of the course surface drainage, width of the fairways, s hru b and tree maturity, etc IRRIGATION sY5t2.ai Consider the reliability of the water sourtr; water costs (pumping costs or vendor costs), water quality, system type (may automatic, etc,), water rights, etc Soli TYPE MJt7 T©cruse' Items considered are salinity, alkalinity, drainage. percolation capadty, etc TooLs, EQUITtaNT, AND RENTALITEM: This adjustmen t looks a I the type and condition of these items along with the income produced from the rental of golf carts, dubs, etc. PRACnCE tt,wc, Income produced from and quality of the driving range_ SIZE: Number of acrL-, and the number holes. IMPROVEMENTS; Looks at the size and condition of improvements such as the clubhouse, bar, restaurant. clubroom, locker rooms, pm shop, pool. tennis courts, etc. FINANCIAL FACIDRS This adjustment considers items such as outstanding debt, number of members, monthly dues. minimums required to be spent at the bar or restaurant, green fees, history of special assessments, annual operating costs, rounds played annually, etc. SALE TERMS AND coNOflIONS: Items analyzed include sale price. type of deed (bust deed mortgage including chattels), interest rates, terms of loan, leases, options, mineral rights, liquor license etc. The Cosi Approach Typically reproduction cost is used when valuing golf courses using the cost approach The cost estimate can 6 obtained from talking to architects, contractors, national costing manuals, etc. The reproduction costs for the course must include golf specific items such as grading and grassing bunkers. irrigation, tees, greens. cart laths, driving range. bridges, etc. The reproduction costs on the buildings will be based on square footage for finished building area and any u of n fished storagearea, Also included should be the podand Ceara% courts if they exist. PERSONAL PROPERTY: Even though the personal property is not part of the real estate valuation, it should still be valued for use in the adjustment process for the other approaches to value If the subject property's financial statements are available, the actual cost of the FF&E can be noted on the balancesheet. If the equipment isolder, however, that number will likely understate current replacement cost It should be depreciated far physical wear and tcir and oftentimes for economic obsolescence like the improvements. There is minima! demand for used FF&E. lake an automobile, it suffers a significant value loss even a month after first bean g putinto use. Further111OTe, with a short life span of S to 15 years. the physical deprecation is much higher than real estate improvements. SOFT con's: Soft cans include such things as interest and other i nancMgcost�lega) fees, pennitnag fees, rruinterhar►ce of the golf course during the gxo.w•in period managranent of the facility during construction. pre -opening marketing casts. etc. Entrepreneurial profit should he added to the cost figure and then backed out based on the business value adjustment ifappropriate Dtanrhors A deduction for depreciation should also be considered, Physical depredation to the buildings and site impmvernents would be handled like other commercial appraisals. On the course itself the sod shrubs and trees mature over time and tend to maintain their value or even appreciate in value H owe vex, items 1 due the green s, sand traps, tee areas and irrigation equipment do have a loss in value due to wear and tear which must he accounted for through the physical depreciation. Functional obsolescence isacorrunon factor in golf course appraisal. Relative to the buildings, functional obsolescence might result from a poorly designed clubhouse or one that has had various additions over the years. I t can be evidenced in poorly placed kitchens, inadequate circulation patterns for guests or for kitchen personnel in relation to food service areas, inefficient energy usage, inefficient and/or inadequate parking, an oversiaed or over -improved clubhouse, lath of inside storage for golf carts, etc. Some typical functional problems found on golf courses include_ a poorly designed course resulting in dangerous intersectionswhereplayera can behitbygolfhalls, incomplete rrt imprope r imgat ion design, flooding and Pros ion problems which cause excessive replacement ant! cleanup costs. poor soil drainage, inadequate green or sand trap drainage, continuous single Fairway design, anything that causes extra maintenance, etc. Functional obsolescence can beaddressed as a deduction to the reproduction cost or as an increase in operating costs in the incomeapproa ch. 1 f the problem is curable, the cost to VOLUME 2, NUMBER 1 • JANUARY/FEBRUARY 2004 cure may he the way ED estimate the appropriate deduction in the cost approach. External or economic obsolescence may also be a factor when a ppratsing golf courses, This could be a result of negative neighborhood influences or more often over building For private dubs, it can be measured by capitalizing the revenue loss based on a comparison of current levels of initiation fees and monthly dues to fanner kvds. The same method can be applied to daily fee courses if green fees and rounds of play have dropped VALUETRANSFE& Another cost approach deduction is value transfer which is related to the value of the golf course improvement cost being transferred to adjacent residential lots. Residential lots adjoining a golf course are worth 30 to 90 percent more than the same lot without the golf amenity, Therefore, the burden of a staIntailLiat portion of the golf course land cost is generally borne by an associated subdivision. In fact, residential developers often donate the land for the golf course to get the count built. The total lot value increase is directly related to the golf course improvement cost on the adjacent site. When development of the course is not feasible without adjacent residential development, avalue transfer adjustment may be appropriate to offset the golf course replacement cost. Value transfer can be considered a component of external obsolescence an d/or a negative land value. To quantify value transferone must know the number oflotson the course and estimate the present value of the total gulf front premium, Typically, this lass in value is only attributable to the adjacent residential lots, However, value. rrainkrs may also occur on second -tier lots or to the entire golf course community. SUMMARY 1. There are several types of golf courses and golf course operations, Knowing what type is being appraised Is important to arriving at fair market value. For example, private equity dubs are not motivated to make a profit. They set dues to cover only expenses, replacement of reserves, and debt service. Their fees can come in a variety of forms such as initiation fees, equity fees, or stock purchase fees, The higher the entry fee, the more developers can receive during the initial sell-out Private equity dubs' operating states merits typically do not reflect market -based Not, 2. hit pre ccss of listing Or describing a golf Course property involves mote than just describing the buildings and rypi- 7 cal site iinprov ementsitisvery irrnpcn-taut to adequately describe the golf course itself (i,e. yardage.size ofgreens, type and condition of grass. irrigation, etc). This step is oftentimes overlooked by inexperienced appraisers. 3. in conducting the highest and best use analysis, it is important to perform an analysis of tliegolfing market- place by comparing area population features to golfer demographics and also to look at alternative uses for the course, 4, All three approaches to value should be used to value the golf course if data is available. All three approaches should be adjusted to exclude personal property (FF&E) and business value, if appropriate. 5. All comparable sales should be examined to identify the amount of FF$&E and business value included in the transfer. Golf -courses rarely sell as real estate alone. 6. Land value should be based upon low -density uses such as golf courses, parks or ft NAT roue a real. A large value transfer can result in a low or negative land value, Stew Hughes has valued hundreds o/,golfcoruses since the nuld-I98ds His 4 onrpany specializes in the valuation atoll courses and r dcnLialsuubdivsrons Neisamenthe, of.G'itIO National Coll Course Osjo3ets Association. National Coif Foundation, Society of CaffAppraisers and the Appraisal Las Irvin not his Web site atwcandatehesgalfram. :lib' •I � 1 •' .c h..i•h t h!i , yl I 11-7 Calculation of Economic Obsolescence By Cost of Construction vs. Actual Market Sales Redlands Mesa Golf Club — Queened in 2001 Cost to Construct: Land Improvement Buildings FF&E Total Sold in 2007 Net Difference % Loss Vista Ridge Golf Club — Opened in 2003 Cost to Construct: Land Improvement Buildings FF&E Total Sold in 2006 Net Difference % Loss Pradera Golf Club — Opened in 2005 Cost to Construct: Land Improvement Buildings FF&E Total Sold in 2007 Net Difference % Loss $5,058,000 $3,194,000 $522,000 $8,774,000 $ 2,500,000 ($6,274,000) 71.5% $4,283,000 $3,630,000 $1,272,000 $9,185,000 $3,350,000 ($5,835,000) 63.5% $9,900,000 $6,650,000 $2,000,000 $18,550,000 $5,625,000 ($12,925,000) 69.7% Average % Loss vs. Cost to Construct 68.2% Notes: 1.) Land was given NO value for all land was donated by the developer. % loss would be higher with an assigned cost included. 2.) All Figures are rounded to the nearest $1000 3.) All properties we developed as a centerpiece of a housing community 4.) All courses were designed by prominent golf course designers Valuation Strategies (WG&L) Going Concern Property Transactions: The Necessity of Value Allocations, Valuation Strategies (WG&L) The failure to allocate value components of a going concern purchase price generates significant risk for buyers and sellers, and denies buyers the opportunity to lawfully avoid some tax. Author: MICHAEL ALLEN AND CUTCHIN POWELL MICHAEL ALLEN is a principal, and CUTCHIN POWELL is a manager, in the Arlington, Virginia, office of Ryan, LLC, a tax services firm. It has long been accepted that the acquisition price of a "going concern" property includes both the tangible and intangible assets of a combined business operation. While the methodology for deriving the component values of a going concern has continued to evolve, both the fundamental necessity of valuing each portion and the underlying, significant financial benefits of value allocation have remained constant. Buyers and sellers of going concern properties who neglect to complete partitioned valuations not only risk potential negative tax consequences, but also they make themselves vulnerable to the corresponding adverse impacts to the profitability of those assets and investments. The Evolving Market The current commercial real estate market is in transition. The bad assets that were purchased in the "cheap money" -fueled economy between 2005 and early 2008 have not been fully flushed out, yet again there are the ominous signs of aggressive underwriting and rosy future assumptions as to increased performance. Investment capital and credit are slowly becoming more accessible to investors. Real estate investment trusts (REITs) and other publicly funded entities are awash in cash, as investors seek alternatives to other investments, particularly those susceptible to increases in inflation. The pressure (and requirement) to invest that capital is back, even when that investment is based on frothy assumptions that may not be realizable over the investment's intended holding period. Nowhere is this mixed tide of investor confidence and pessimism better observed than with going concern properties, including, but not limited to, hotels. More Than Just Real Estate All going concern properties serve as complex platforms for the business purpose and enterprise of their owners_ Going -concern values include a real estate base that is commingled with the value of the enterprise it supports. Examples include nursing homes, movie theaters, bank branches, regional malls, hospitals, hotels, resorts, casinos, and golf courses. These properties all have something in common —they require intensive and ongoing investments in working capital, management, marketing, staff, and licensing. And in each case, the value of the going concern is much greater than that of the underlying real estate alone. This fact may be illustrated by considering two identical buildings: one fully outfitted and functional as a flagged (i.e., part of a franchise) and operating hotel, the other an unequipped building without an operating business. Assuming that each of the properties has a uniform "highest and best use" and other comparative factors that are similar, which property would demand a higher purchase price? The latter property, with no furniture fixtures and equipment (FF&E), no staff in place, no "flag," no reservation system, no frequent flyer alliance with the major airlines, and no pre -sold or recurring banquet or convention business, among other potential intangible assets, would obviously not be as valuable to a prudent and knowledgeable investor. Such a buyer would typically pay a substantial premium for the established and functioning property over the property that is not stable or performing. The premium paid for the established property represents the non -real estate components of value for that going concern. This enterprise premium is comprised of tangible personal property (TPP), intangible personal property (IPP), and goodwill. The latter two components are sometimes collectively called "business enterprise value." They are considered an intangible benefit or asset that is transferred together with the real and personal property needed to house and sustain the operation. Intangible Personal Property When valuing IPP, prudent investors will expect not only a return of their original capital but also a profit on their cash outlay. An investor will pay a premium to shortcut the costs associated with the stabilization, or original startup, of the income stream to be acquired. On a subsequent sale, the owner who originally incurred those costs will expect a return on that initial investment; more precisely, the owner will expect to recoup not only his or her original investment but also an added premium on sale. Just as the original owner will recoup that principal and interest entirely from the next owner, the secondary owner will seek to recover those amounts from the third owner, and so on. The same consideration is true not only with each form of IPP but also with each tangible asset. A key concept for going concern properties is that rarely, if ever, are the land and building being purchased alone. Rather, the buyer is usually interested in acquiring the present value of the future income stream attributable to the business operation. In going concern properties, the presence and operation of the furniture, fixtures, and expenses (FF&E) and intangibles as a whole accelerate both the receipt and the quantity of the stabilized overall net operating income (NOI) being purchased. Further, it enhances the quality of that NOI. For instance, if there are two hotel properties of similar size located next to each other, one that is flagged and equipped to be a luxury international flag and the other is an obscure local flag or "mom and pop" operation, the revenue per available room that each property can generate will be different. As the NOI will vary, so too will the price at which each will sell. This does not mean that on a per -key basis the latter flag will be automatically less profitable or that the return on investment (ROI) for that hotel will be less, but it does mean that the size of the investment and the associated risk will be different. In each sale of a going concern property, different components of value (in different proportions to the whole) are commingled and embedded together in the final, combined purchase price. It is therefore vital to both identify and segregate those individual values for multiple purposes, including tax, accounting, and financial reporting. Ultimately, the allocations may impact: • Recordation or transfer taxes. • Initial (and in states that "chase" sales prices, such as California, subsequent) real estate taxes and personal property taxes. • Sales taxes. • Income taxes. • Fixed -asset accounting and ledgers. • The overall profitability of the investment. Each of the taxes listed may be levied at rates as high as 10%, with some, such as real estate and personal property taxes, occurring annually. This article will identify ways in which prudent investors can ensure that they pay no more than their fair share of property and transfer taxes associated with the acquisition of going concern properties, while remaining in full compliance for all other purposes. Uniqueness of Going Concern Properties Going concern properties always generate operating income from more than the underlying real estate that houses the embedded business. Often, such properties are specially designed or equipped for a particular use (e.g., a bank branch, hotel, golf course, regional mall, nursing home or hospital, movie theater, or sports complex). In many cases, the right to operate the business may require qualifying for and receiving a special license, without which the special use will cease and the real estate will return to a more generic use (i.e., nursing home to apartment building, or bank branch to drive -through pharmacy). Hospitals, assisted living facilities, surgery centers, nuclear power plants, and airports are also examples of such properties. For each, if the current license is not transferred to the new owner, the property's NOI would not justify the premium that the new buyer would otherwise pay over the more generic use of that real estate and the lesser income streams that it would generate. It has been suggested that the difference between "value in use" and "value in exchange" is the total business value or, perhaps, the value of all of the combined intangibles. Value in use is the value of property for a specific use, and there will generally be only a limited number of buyers. Consequently, it is considered a subjective measure of value. On the other hand, value in exchange is a more generic market value of real estate, in which the real estate is exploited based on its respective highest and best use. As such, it is a more objective measure of value. Understanding the nature of the premium being paid for any going concern property is crucial to identifying, extracting, and adjusting for non -realty values that need to be considered separately. There are typically four components to value in the acquisition of any going concern property: • Real estate land. • Real estate improvements. a Tangible personal property. • Intangible personal property., Each value component must be identified and its value separated depending on the purpose of the valuation. For example, raw land is not depreciable, and so for accounting and tax purposes it is important to accurately identify and record the value of raw land_ On the other hand, improvements to and on land are depreciable for tax and accounting purposes. Whether the real estate improvements consist of buildings or improvements to the land itself, such as site improvements, they must be correctly identified, their respective useful lives determined, and the corresponding depreciation computed. TPP is movable, breakable, and can disappear. It covers literally any assets not nailed down or permanently attached to the building or improvements. Verifying and valuing all of the TPP acquired in a transaction is critical to ensure that the buyer gets what he or she bargained for, and is not paying for any "ghost assets" on the fixed asset ledger. This is an important consideration, because if a seller's depreciated book values for these assets are corrupted by nonexistent assets or assets showing salvage values that are not attainable on the open market, then the values will be ignored for other purposes. Those purposes include preparation and filing of local business personal property tax returns and calculation of taxes thereon, as well as the accounting and income tax functions of determining accrued depreciation and useful lives. Finally, acquired IPP must be identified, at a minimum, on a global basis. If possible, it is also beneficial for IPP to be divided into assets that are depreciable and assets that are not. For example, under Financial Accounting Standards Board (FASB) 141/142, there are five established categories of depreciable intangible assets. Other items, like the value of "staff in place" and goodwill, however, are not depreciable, and so it is helpful to capitalize the associated income for each of the depreciable qualifying intangible assets and then assume the balance is nondepreciable. This will not bind the buyer's accountants or auditors to automatically treat the value allocations in the same manner for other purposes, but it does give them a road map to follow when they consider how to treat the assets for other purposes. Methodology The valuation of going concern properties requires the individual valuation of each of the four component assets —real estate land, real estate improvements, TPP, and IPP. First, the TPP is valued. This value can be derived using several methods. The approach chosen depends on how accurate and up-to-date the current fixed asset ledger i,s and what the seller is getting from the buyer as part of due diligence or at closing. If the review indicates that the ledger's depreciated book value is a reasonable estimate of the TPP's fair market value (FMV), then it can be used to prepare the TPP bill of sale and to represent the TPP value of the going concern allocation. Otherwise, an inventory has to be conducted, particularly if there is any concern about "ghost assets," if deletions were not previously fully made from the fixed asset ledger, or if additions were not completely broken down into their constituent parts. Another method is asset tagging or reconciliation. This permits a new FMV of the TPP to be established as of the closing date for use in post -closing renditions. Once TPP values are estimated, the real estate value is calculated separately by one or all of the three traditional approaches to value (income, cost, or sales comparison). The choice of method is based on the type of property. For example: (1) The cost comparison approach is usually not reliable if the buildings and improvements at issue are old, in poor condition, or subject to many functional or physical obsolescence issues due to difficulty in estimating accrued depreciation. Also, a lack of recent and vacant land sales that are similarly sized and zoned, and topographically laid out with similar permitted development potential (i.e_, floor -to -area ratio) to the subject property makes the cost approach extremely hard to use to extract a credible unit of comparison. (2) Similarly, the sales comparison approach does not work if there are insufficient recent arm's -length sales in the same market as the subject property for comparison purposes. This approach can be effective only when each transaction is adjusted to reflect differences between the comparison property and the subject property. If, in the adjustment process, it is necessary to make many adjustments or a large adjustment, the extracted unit of comparison will be unreliable and, in this event, it should not be given any weight. (3) The income approach is usually the best valuation method for commercial income - producing properties. If no actual income is being generated, as in the case of owner - occupied properties, then a pro forma NOI can be estimated. This is done by using a market -extracted rent for each of the uses at the subject property, less stabilized vacancy and collection costs, operating expenses, and building reserves. The resulting NOI is then capitalized into a value estimate using a market -extracted overall capitalization rate (R.). That base cap rate solves for the combined value of the land and its improvements, but it may need to be "loaded" with the local real property tax rate if property taxes were not deducted from the operating expenses to arrive at the stabilized annual NOI. (4) If multiple value indications are produced by these three methods, they must be reconciled into a single value. That does not mean that the values must be averaged. Rather, greater weight is to be placed on the value indication that is the most credible based on the market data available. Once the reconciled total real estate value is determined, it must be allocated between land and improvements. This is generally done by reference to recent and similar arm's -length land sales. More likely in today's transitional U.S. real estate market, in which sales are infrequent, land values can be better determined by reference to extraction methods under the income approach. These techniques are based on the principle that land is indestructible, and as a result, less risk is associated with land than with improvements, which will all wear out over time. The lower the risk, the lower the capitalization rate that should be applied to the stabilized annual NOI. Land capitalization rates are typically 200 to 500 basis points lower than those selected to value only improvements. By applying different rates to the same overall NOI for either land (RL) or buildings (RB), the separate values can be extracted and used to isolate their respective values. Case Studies To understand the benefit and use of pre -closing allocation studies, it is best to review how they are used by parties involved in performing the due diligence and executing the closing of commercial going concern property. The present authors considered the following three case studies: 6 Purchase of a single, full -service flagged hotel. • Purchase of a portfolio of multi -tenant data centers. • Purchase of a resort that includes golf courses, a conference center, and rental condominiums (but no traditional hotel). As with all transactions, each of the case studies has a unique fact pattern requiring customized consideration of the underlying assumptions, properties, and methods of acquisition. When reviewing each particular fact pattern, it is important to remember that the most common mistake made by the buyer, seller, or tax assessor is to equate the value of the going concern to that of tangible real estate. Assessors are typically tasked with discerning the value to the real estate only (VRE), but with going concern assets, assessors typically mistake the income of the going concern (Is) with the income of the real estate only (IRE). Therefore, assessors often mistakenly (and illegally) assess based on the value of the going concern (V0) instead of the VRE. In each of the following case studies, the present authors determined the VRE for recordation and real estate tax assessment purposes. In each case, the purchaser and seller recognized the significant potential benefits of arriving at an agreed -on price for each asset to be recorded. Case Study 1. The traded property was a single, full -service hotel in a major urban market, which was established, built, and operated as a hotel for more than 25 years and had a stabilized income stream. The property had approximately 500 guest rooms, onsite parking, an onsite "outside" chain restaurant, more than 75,000 square feet of meeting and conference space, two distinct buildings with public -space usage rights underneath, an onsite third -party rental car tenant with reduced rate agreements, existing airline preferred provider booking contacts, and staff in place. The property also offered various complementary services, such as airport shuttles. The property was transferred with all TPP and IPP, including a major flag and management agreement, in place. Key considerations. The transaction was an indirect acquisition. More specifically, instead of directly purchasing the going concern, the buyer acquired a 100% share of the stock of the entity that owned the operation. Specific intangible personal properties that were transferred included the flag or franchise, management operations, reservation systems, promotional alliances and agreements, customer lists and advanced bookings, assembled workforce, non -realty contracts, non -realty leases, start-up costs, and goodwill. Methodologies used. Never is it more evident that the acquisition of going concern properties includes significant non -real estate components than when a corporation is acquired (i.e., the realty is acquired through transfer of stock). A stock transfer is generally valued by the purchaser differently than a direct transfer of the underlying real estate, but the allocation of the purchase price will begin with valuation of the real estate. in this case study, the three traditional approaches to value were considered, but the cost approach was significantly discounted. Similarly, the sales comparison approach was given little weight due to a lack of recent, similar, and arm's -length sales in the sale market. The income approach —including both direct and yield capitalization —was given the greatest weight, using actual historic and pro forma future NOI. All incurred expenses of the business (including TPP and shod -lived real estate replacement reserves, management and franchise fee, and insurance) were considered, except real estate taxes.2 From the resulting NOI, the present authors capitalized the going concern value. Then, the returns on IPP and TPP, along with the value of required capital improvements, were capitalized and deducted from the going concern value. The intangible assets had to be more valuable than their capitalized costs, because a return on those investments was expected. The authors therefore considered various market sources, management circulars, and actual expenses to arrive at those values. (It is important to note that capitalization rates for intangible properties are typically 100 to 250 basis points higher than tangible properties to reflect the perceived additional risk associated with non -real estate.) Next, the TPP was valued by considering the seller's fixed asset ledger and prior returns, and market surveys, ultimately arriving at a replacement cost new less depreciation (RCNLD) value to be deducted from the going concern value. As a check, each of these three distinct valuations — real estate, TPP, and IPP—were added and confirmed to reconcile with the entire going concern value. Results. Based on the authors' study and its review by the buyer and seller, the going concern purchase price was determined to include the following allocations: 19% to real estate land, 52% to real estate improvements, 12% to TPP, and 17% to IPP. These results are of critical importance, as a combined 29% of the going concern purchase price acquired was determined to be from non -realty assets. Buyers and sellers not completing such an analysis often erroneously report the entire going concern value as a real estate (land and improvements) only value, resulting in flawed bookkeeping and significant overspend for various taxes. As a result, as much as 29% of the purchase price was not inappropriately taxed, of which 17% was not taxed at all. In this case, given the sale of stock, the local assessor may well have determined that the underlying real estate had sold at the full going concern purchase price, and used that as the sole basis for determining subsequent ad valorem taxation of the real and personal property. Since there was no deed or bill of sale recorded, refuting such an aggressive valuation would have been difficult and costly but for the authors' report and allocation of values. Case Study 2. The property included a portfolio of data centers located in various cities and states. Some of these properties were established (i.e_, built and operated in their current use for three to eight years), and had stabilized income streams. Other properties were currently used as commercial office or warehouse space and were in process of being converted to their highest and best use as data center space. The average site was a single structure having between 50,000 and 175,000 square feet of gross rentable area. Some sites included significant added land, however, which was intended for future expansion or was in the process of being expanded at the time of sale. The properties also offered various complementary services, such as engineering and IT support, as well as additional for -hire services. Most sites included electrical substations with contracts in place allowing for power sharing with the local community_ The properties were transferred with all TPP and !PP in place. Key considerations. The transaction was a direct acquisition of the going concern and underlying real property. As the portfolio being acquired included both industry and site name brands that were inseparable from the specific properties, the residual value of those intangible assets had to be considered even though this was not a stock acquisition. Methodologies used. The allocation process began with valuation of the underlying real estate. As in Case Study #1, the three traditional approaches to value were considered. The cost approach was significantly discounted for the established property, but it was used as a key indicator for property under construction. The sales approach was not used, because the sales were found to be unhelpful. The income approach —including both direct and yield capitalization —was given the greatest weight, using actual historic and pro forma future NO!. All incurred expenses of the business (including TPP and short-lived real estate replacement reserves, equipment rental, power generation, and insurance) were considered, excluding real estate taxes. From the resulting NOI, the present authors capitalized the going concern value. Returns on the IPP and TPP and the value of required capital improvements were capitalized and deducted from the going concern value. The intangible assets had to be more valuable than their capitalized costs because a return on those investments was expected. The authors considered various market sources and actual expenses to arrive at those values. Specifically, estimated hours and income from service contracts, and the expense and anticipated return on staff in place, were considered. (As noted earlier, capitalization rates for intangible properties are typically 100 to 250 basis points higher than tangible properties.) Next, the authors valued the TPP by considering the seller's fixed asset ledger and prior returns, and market surveys, and ultimately arrived at a RCNLD value to be deducted from the going concern value. Finally, each of these three distinct valuations —real estate, TPP, and IPP—were added and confirmed to reconcile with the entire going concern value. Results. Based on these independent valuations for each location, the combined going concern purchase price was determined to include the following (rounded) allocations: 6% to real estate land, 80% to real estate improvements, 1% to TPP, and 13% to IPP. These results are of critical importance, as a combined 14% of the going concern purchase price acquired was determined to be for non -realty assets. Separate allocations for each location were made, and the bulk sale was broken down into its constituent parts. A buyer or seller not completing this analysis might have erroneously reported the entire going concern value as real estate (land or improvements), resulting in flawed bookkeeping and higher taxes than required. As a result, as much as 14% of the purchase price was not inappropriately taxed, and 13% was not taxed at all. Of course, the allocations varied by location, but as is readily apparent from the base allocations, the risk of potential over -taxation prior to this allocation was significant. Case Study 3. The subject property was a resort with a conference center, golf courses, and rental condominiums in a suburban area with significant tourism draw. While select condominiums have been razed or built over the years, the primary property was established, built, and operated in its current use for 20 years and had a stabilized income stream. The site was encumbered by partial external ownership of some golf facilities and most condominiums by multiple third parties. Further, development rights of the significant excess land were restricted by the homeowners' association. The property also received unrelated income from off -site catering, videography and photography, and landscaping businesses. The property was transferred with all TPP and IPP in place. Key considerations. The transaction was a direct acquisition. The purchase included a significant name -brand acquisition, as well as the off -site businesses in place, along with intangible assets. Development rights were encumbered by easements and contracted association (and other third -party) agreements that were in place. As the resort boasted a myriad of property types, uses, and businesses, varied assumptions had to be considered for each business type and ultimately consolidated and reconciled with the combined going concern purchase price. Methodologies used. The allocation began with valuation of the underlying real estate using the three approaches to value and significantly discounting the cost approach for this established property. The cost approach was considered, however, for a single family residence, for select land, and for other non -income generating real estate. The sale comparison approach was also discounted due to the unique nature of the business operation and the absence of a suitable sample size. The income approach —including both direct and yield capitalization —was given the greatest weight, using actual historic and pro forma future NOI. All incurred expenses of the business (including TPP and short-lived real estate replacement reserves, management fees, and insurance) were considered, except real estate taxes.' From the resulting NOI to the going concern, the present authors capitalized the going concern value for each underlying business. Then, returns on the IPP and TPP, along with the value of required capital improvements, were capitalized and deducted from the going concern value. Again, the intangible assets had to be more valuable than their capitalized costs because a return on those investments was expected. Therefore, the authors considered various market sources and actual expenses to arrive at the values. Next, the TPP was valued by considering the seller's fixed asset ledger and prior returns, and market surveys, ultimately arriving at a RCNLD value to be deducted from the going concern value. Finally, each of the three distinct valuations —real estate, TPP, and IPP were added and confirmed to reconcile with the entire going concern value. Results. Based on these independent valuations for each location, it was determined that the combined going concern purchase price included the following (rounded) allocations: 17% to real estate land, 44% to real estate improvements, 10% to TPP, and 27% to IPP. That is, a combined 37% of the going concern purchase price acquired was determined to be for non -realty assets. As a result, as much as 37% of the purchase price was not inappropriately taxed, and 27% was not taxed at all. Conclusion Many buyers of going concern properties lament the lost opportunity they could have realized had they carefully considered pre -closing allocation of asset values. Months or years later, when they finally find time to address the myriad of governmental, legal, and tax accounting and auditor issues following the purchase, they find that they let their chance to lawfully reduce their tax liability pass. Simply put, buyers often wish that some value or asset classification had been made clearer or had been better supported when they find themselves responding to questions posed by an assessor, other government agent, or even their own accountants long after the acquisition is completed. By this time, attempts to reconstruct past assumptions and underwriting are difficult, if not impossible, as the buyer realizes that informed personnel have left, documents have been lost or misfiled, or the acquisition team handed the matter off to the operations team without a full briefing of the closing. Further, despite intensive due diligence, a buyer rarely gets from the seller all of the books, records, and supporting materials needed to prove every number on subsequent tax returns, the allocated assessment valuation, or accounting books and records. An allocation study is a useful tool to focus buyers and sellers on addressing and documenting the underlying valuation of the various interconnected assets while the deal is still being struck and the parties still have a joint motivation to memorialize the underlying elements of the total purchase price. Without this certainty, taxing authorities are much more likely to apply their subjective valuations for the different purposes and functions that they perform. More often than not, this will result in multiple valuations and allocations, each different from the other, with no rationale to explain the differences. Rarely does this result in a buyer paying less tax. Further, although pre -closing allocations are important for all buyers and sellers of going concern properties, they are particularly important for REITs. REITs are encumbered by a requirement and condition for their special income tax status to ensure that no more than 15% of revenue, or 25% of value, is derived from non -realty assets. Failure to respect these restrictions may result in the REIT losing its privileged tax status, which allows its shareholders to avoid double taxation. Accordingly, REITs must appropriately consider value allocations before closing to ensure compliance. If they are going to replace or enhance any non -realty after acquisition, it is especially important to empty the glass first before trying to refill, so as not to violate the REIT rules. Memorializing these buyer- and seller -agreed asset values and allocations within the closing documents, incorporating them into all filings, and using them as the basis from which taxes are computed, will ensure that the buyer and seller are not taken advantage of. It will also ensure that ad valorem -based tax of real or personal assets will not be distorted or inflated because non - realty assets are included in those assessments. In short, pre -closing allocation saves time and money, by allowing buyers to avoid challenging these ongoing values in post -closing years. ' Goodwill is included in PP. 2 Real estate taxes were accounted for by "loading" the capitalization rate. 7 As with the other case studies, this expense was accounted for by "loading" the capitalization rate. © 2011 Thomson Reuters/RIA. All rights reserved FEATURE Golf Courses and Tax Assessments: Just One Right Way? BY LAURENCE A. HIRSH, CRE INTRODUCTION THERE IS NO "ONE SIZE FITS ALL" APPROACH TO appraising golf course properties for ad valorem tax assessments. While this is acknowledged, there is concern about methodologies being employed that do not reflect the actions of market participants. The real problem inherent in the valuation of golf course properties for tax assessment cases is that there is a lack of consistency between jurisdictions in golf property valuation methodology. The purpose of this article is to provide guidance to attorneys, judges, assessors, appraisers and other interested parties on current practices in golf property valuation, and how best to achieve fair assessments based on methodology consistent with buyer and seller behavior for the particular property being considered. As clearly illustrated in "Segmentation of Golf Course Markets" by Stephen F. Fanning,' there are several distinct types of golf course properties, with the primary areas being private, public daily fee and resort. Each requires consideration of different data sets to understand and value accurately, though in some states, courts have dictated that all courses (even private clubs) be considered as daily fee, regardless of whether the property in question is a private, membership club with entirely different economics and operations, and may even be part of a gated, private community that is not open to the public. Taking such an approach not only distorts the actual property characteristics, but further ignores the fact that private clubs can be and are operated for profit, despite the sometimes present myth that they cannot. About the Author Laurence A. Hirsh, CRE, MAI, SGA, FRICS, is the president of Golf Property Analysts, a golf and club property consulting, appraisal and brokerage firm based in Philadelphia Hirsh has performed consulting and appraisal assignments on more than 2,500 golf and club properties in 45 I.T.S. states, Canada and the Caribbean, and has previously written two articles on golf and club property valuation in The Appraisal Journal, co-authored The Urban Land institute's Golf Course Development In Residential Communities, and authored articles for a variety of industry publications. Hirsb also has lectured a₹ seminars, meetings and universities, and is on the education faculty for the PGA of America. Afounder and first president of the Society of Golf Appraisers, he has developed a golf course and brokered more than Sion million in golf course and dub properties. Hirsh is a graduate of The Pennsylvania State University. Following are some facts about golf properties: • Private clubs, though often operated as not -for- profit are also very frequently acquired by investors and operated for investment income and growth; • Private clubs and daily fee courses have very different operating profiles and require considerably different management techniques; REA i . ESTATE ISSUES 48 Volume 38, Number 2, 2013 FEATURE Golf Courses and Tax Assessments: Just One Right Way? • The value of golf course properties is almost exclusively driven by their income -generating potential; • Golf course properties are typically bought and sold as going concerns and for ad valorem tax purposes; an allocation between real and personal property is required. When considering a valuation assignment for a golf course property, like any other appraisal assignment, it is necessary to consider the three traditional approaches to value. INCOME APPROACH Without question, the income approach is the method preferred by market participants. The income approach reflects the fact that golf courses are going concerns and that they are typically purchased for income investment. However, in tax assessment cases in many jurisdictions, valuations of golf courses are often forced into one type of operating scenario rather than acknowledging that there are several different types of operations, some of which are so dramatically different the only thing in common is that they are golf course facilities. As clearly noted in Fanning, there are multiple (as many as 12) types of golf courses and even five types of private clubs, each serving a different market segment and each targeting different clientele, often from different geographies. For instance, many private golf and country clubs are member -owned and operated as not -for -profits. As such, it is not uncommon to hear the comment from clubs that "it can't have much value because it doesn't make any money:' Conversely, taxing authorities claim that the only way to value such a "special purpose property" is by use of the cost approach. Neither of these arguments is correct. In addition to the many not -for-profit clubs, there are also many private clubs operated for-profit by companies and individuals in business specifically for the purpose of owning and managing private clubs for investment and income. Many not -for-profit clubs have been sold to these operators in recent years as member/owners have demonstrated limited ability to keep their clubs afloat financially. 'While some have become semi -private, or even daily fee facilities, many have simply become for-profit, private clubs that are now profitable or are on their way to becoming profitable through professional management. Since most member -owned private clubs have an economic value to for-profit buyers, and there is clear evidence of a market for these properties, it is logical to value these clubs based on their for-profit potential and assume the property is operated accordingly. The likely buyers are for-profit buyers and unless the club's highest and best use is for an alternative development, using the private, for-profit value model is the best way to develop an accurate and reliable value estimate. This assumes, of course, that the club has profit potential. If it does not and there is no economically feasible use, the appraisal problem becomes more complex, which is discussed later. Laymen seem more comfortable with the idea of daily fee courses (as opposed to private clubs) being valued by the income approach. Since most daily fee courses are operated for profit, that seems easier to understand. This can be misleading since some golf facilities are ill-suited for conversion (in the valuation exercise) from one type to the other. "Shoe horning" a private dub into a daily fee valuation model ignores the fact that private clubs have economic value and their own unique marketplace. The models for a private club are as different as are the facilities, and the appraiser should take care to and be able to synchronize the valuation exercise to the specific type of property and the characteristics of that club. In those jurisdictions where this practice is preferred, it is recommended to value as BOTH a private club and a daily fee facility in order to illustrate the differences and the difficulty in being accurate while trying to "fit a square peg into a round hole:' Depending on market dynamics, course characteristics, and the size and quality of infrastructure and buildings, a golf property may be more suited to either private or daily fee use, making use as the other unlikely, or at the very least challenging and costly to adapt. And, there is the potential issue of memberships, the rights of members and refund obligations with private clubs that can result in a variety of legal issues, and may or may not contribute to the value of the real property depending on the type of membership contract'and in which theory one believes.2. Many clubs have the element of membership deposit or initiation fee refunds as a liability; in many cases, the potential liabilities arc complex enough to discourage buyers from even considering the purchase of clubs with those obligations on their balance sheet. The income approach requires a deft understanding of the subject property, its relevant market characteristics and the ability to develop a value model consistent with the property and market. ibis can be accomplished through taking the time to fully comprehend the club's business model, its competitive environment, and the strengths and weaknesses of the specific club. REAL [STATE ISSUI?S 49 Volume 38, Number 2, 2013 FEATURE Golf Courses and Tax Assessments: Just One Right Way? SALES COMPARISON APPROACH The sales comparison approach is often applied by inexperienced golf course appraisers utilizing a unit of comparison of sale price per hole (dollars/hole). The problem is that the vast majority of golf courses are 18 holes, and the rest are some multiple of nine holes. Using this approach, the other elements of a golf course or club, such as the clubhouse, other sports amenities, infrastructure and economic characteristics, are ignored. 'there is no common denominator: Since almost all courses are purchased for economic reasons, even in the sales comparison approach, an economic unit of comparison such as a market extracted overall capitalization rate is appropriate. In the current environment, with many courses having limited or no cash flow, many buyers rely on gross revenue multiples (GRM) and typically have either a particular investment requirement, a minimum level of gross revenues, or both. It is critical to understand that GRMs vary with the level of profit (or loss) experienced, and can be misleading on non -stabilized properties. In today's market, many sales are distressed, or at the very least not stabilized,' and often to varying degrees. This makes analysis difficult and executing a classic sales adjustment grid virtually meaningless. If one has a sampling of stabilized sales considered adequate, the sales comparison approach is quite useful. Typically, it is the approach used to test the reasonableness of the income approach, and the sales comparison approach is done more subjectively than objectively. Many jurisdictions rely exclusively on the sales comparison approach despite its inherent weaknesses, yet often ignore its strong point, which is based on comparing the sales of different income streams. Most experienced and qualified golf course appraisal specialists advocate developing the sales comparison approach, even if the market data is fragmented and doesn't show strong trends. At the very least, it illustrates what is occurring in the marketplace and can often be used as a check on the income approach. COST APPROACH Some say the cost approach is a test of feasibility. Others say the cost approach provides an estimate of land value. Still others claim that the cost approach is the only appropriate method of valuation for "special purpose" properties such as golf courses. The short response to the last of these claims is "Nonsense." Without question, assessors are at a considerable disadvantage because of the sheer number of properties they have to assess and the limited amount of information they are provided. The simple fact remains that if the golf course or club is the highest and best use, the land value is not of particular importance in most cases. Feasibility is not usually an issue once the course is developed, and golf courses are not so "special purpose" that the other approaches cannot be developed. Most important, market participants completely disregard the cost approach. There is often considerable economic and functional obsolescence, which is very difficult to accurately measure; costs are difficult to estimate accurately and are not relevant to the value of an existing course. In assessment cases, the cost approach is often used by taxing authorities because: ■ it can be completed with limited market data; • assessors have computer models set up to do the cost approach; and • it typically yields the highest resulting value. A big challenge in the cost approach today is that few golf courses are being built, so cost comps are more difficult to find. If accurate costs can be estimated, depreciation can be estimated by the market extraction method, and this approach can be done with some degree of reliability, however reliant on the accuracy of the other approaches it might be. HIGHEST AND BEST USE What if the club has limited or no profit potential and alternative uses are limited or not economically feasible? As a club, the value may be intrinsic to the membership but have limited value in exchange. If there is no development potential, the club ceases to operate and there is no economic use for the property, the appraisal problem becomes more challenging. Because the value of "open space" can be a real challenge, the cost approach is often employed by assessors but really doesn't provide a market -based indication of value. Sometimes, there are sales of conservation parcels that could be analyzed, but the question as to the economic value remains unanswered. This is a challenging appraisal problem that could be the topic of another article. One thing is for sure: the procedures relating to the broader issue of highest and best use vary from state to state, and care must be employed to ensure that the appraiser understands those issues and how they are impacted by the Uniform Standards of Professional Appraisal Practice and by local jurisdictions. REAL ESTATE ISSUES 50 Volume 38, Number 2, 2013 FEATURE Golf Courses and Tax Assessments: Just One Right Way? ALLOCATION The issue of allocation of real and personal property value is one that has been debated by appraisers for a long time. For golf course properties, several methodologies exist, but there are no conclusive methods that adequately answer all the questions. The text Analysis and Valuation of Golf Courses and Country Clubs 5 offers allocation methodology ranging from the "excess profits" technique to the "management fee" technique, and others. Another technique that has been used recently is the "market rent" method, which converts golf course revenue sources into a rental rate for real estate only, which is then capitalized into a value conclusion. There is also the recent (2011) Appraisal Institute course on allocation that promotes a technique utilizing balance sheet assets and the following equation: Ii .TAB = RE + PP + BEV TAB: Market value of Total Assets of the Business (i.e., market value of the going concern); It',' RE: Real Estate assets to include land, buildings and other improvements; ' . PR Personal Property to include furniture, fixtures and equipment; BEV: Business Enterprise Value to include all intangible assets owned by the business. Each of these methods, however, has flaws. The excess profits and management fee techniques focus on the business value, but fall short on equipment. The market rent method, which is required in New York State by case law, suggests that even private clubs be considered as daily fee courses, and rental estimates are often derived from revenues for items not directly related to real property The best way to estimate market rent is from comps, and the author's extensive research of golf course rental comps over the years shows that they are not as common as one would like and that those that exist often lack tight enough trends to conclusively support the rental estimates. The method derived from the Appraisal Institute course using the equation (TAB = RE + PP + BEV), though logical, utilizes balance sheet values rather than real -world market values of the personal property assets.,. I'r„; rr . : ' a„r YZ�«,. c. r,i '• ALTERNATIVE USE Conventional thinking by laymen is that golf course properties are worth more if put to another use. Many times that is the case. However, alternative uses often are not available or feasible, creating a more complex issue. Recently, golf courses have closed at a more rapid rate than new ones have been developed and opened. During the past two years, approximately 300 golf courses have closed and between 30 and 35 have opened for play in the United States, according to the National Golf Foundation, Considering that most states require assessment valuations to be based on the highest and best use, it is critical to consider the potential alternative uses for golf courses and whether or not they represent a "higher and better" use. In many instances, and especially those where golf courses are an amenity to a residential development, alternative uses are limited either by zoning or restrictive covenants. Most of these will result in the golf course being the highest and best use. Where the golf course is not economically feasible, the use is usually restricted to open space or recreation and the economic value is often limited. In some states, such as New York, case law ° dictates that value must be developed based on the property's current use, which effectively eliminates the highest and best use question, even when the highest and best use is for alternative development. Even in those (most) states where property is to be valued based on highest and best use, during recent years, development slowed because of market and economic factors. The result is that some golf course properties with development potential still have a highest and best use for golf, at least for a period of time. As real estate markets improve, this could change or could be anticipated to change, resulting in the possibility of golf representing an interim' use. Not only do decisions vary from one jurisdiction to another but, in Ohio, for example, several cases were found that contradict each other. In one, all three approaches to value were rejected. Some states disallow the income or sales comparison approaches, or both. Some states require the property be valued based on continued present use, and others based on highest and best use. Still other states require certain, specific methodology be used in order to satisfy the apparent direction of recent decisions. In New Jersey, the recent decision in one case (Bear Brook') rejects the income approach as follows: The income approach is seldom appropriate in appraising a private nonprofit club or a municipal course Id. at 107; this court finds no distinction with semi -private courses such as Bear Brook, The Bear Brook Club was, in fact afur-profit, semi -private club, and yet the judge found no difference between it and REAL ESTATE ISSUES 5I Volume 38. Number 2, 2015 FEATURE Golf Courses and Tax Assessments: Just One Right Way? either a private not -for-profit club or a municipal course. Further, the court stated: While it is clear to the court that the Cost Approach is the most appropriate valuation method for Bear Brook, F'redons Cost Approach must nevertheless be rejected for the deficiencies delineated hereinabove. The appraisal deficiencies noted by the court related to comparable land sales that were judged to be inadequate and post-dated the valuation date. Of particular interest is that several golf course owners recently were awaiting a pending decision in New Jersey Tax Court that might have answered the question of whether the cost approach is judged to be the only acceptable way to value golf courses for assessment in that state, or if appraisers are encouraged to employ more market -based methods within the income and sales comparison approaches. After two years of waiting for a decision, the sides settled, mainly because of the onerous financial burden of continuing to pay the (excessive) taxes on the property. So the question —at least in New Jersey —is still unsettled. SOLUTION It is difficult to imagine that every judge, lawyer and assessor would have ample time to educate themselves on the unique issues of golf property valuation. However, when in litigation, a solution is to focus on the applicable theory both in the appraisal report and in the oral arguments before the judge. It is incumbent on the appraiser to be able to explain and justify his/her valuation theory and for counsel to present a concise and understandable case for proper valuation theory. As a state's rights issue on taxation, judges in each state vary on their decisions in tax court, so consistency nationwide on methodology is unlikely. However, working toward stipulations on methodology from both sides, or seeking guidance from the judge after presenting these issues relative to the specific property, can help clarify and lead to improved and consistent methodology. As part of the solution to this problem, it is advisable to consider the definition of market value. As offered by The Online Dictionary of Real Estate Appraisal, 9 the most widely used definition is: "The most probable price that the specified property interest should sell for in a competitive market after a reasonable exposure time, as of a specified date, in. cash, or in terms equivalent to cash, under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably, for self-interest, and assuming that neither is under duress:' Inherent in this definition is that any appraisal assumes a sale. While many states have different variations on the definition of market value, most are similar and (at least) imply that same assumption. Few, if any sales are based on a cost approach analysis. As such, it is incumbent on appraisers, assessors, attorneys and jurists to also consider value as if a sale were going to occur and analyze the • property as market principals would. There is no one "right way" to appraise all golf course properties. As stated earlier, there are at least 11 or 12 different types of golf courses and each operates with different revenue and expense profiles and trades with different motivations and economics. We can conclude that in almost all cases, exclusive use of the cost approach is rarely consistent with market behavior and that most golf course properties trade based on either their operating history or operating potential to generate cash flow. It's the appraiser's job to know and understand not only the applicable valuation methodologies, but also the jurisdictional specifics that sometimes complicate the valuation exercise. a ENDNOTES Fanning, Stephen F., "Segmentation of Golf Course Markets," The Appraisal Journal, January 2003, pp. 62-67. 2. Benson, M.E., "Challenges in Appraisal of Private Clubs," The Appraisal Journal, October 1, 1998. 3 Hirsh, Laurence A., "Private Golf Club Memberships— Real or Personal Property, " Journal of Property Tax Assessment and Administration, Vol. 4, Issue 3, 2009 4. Income at that point in time when abnormalities in supply and demand or any additional transitory conditions cease to exist and the existing conditions are those expected to continue over the economic life of the property; projected income that is subject to change, but has been adjusted to reflect an equivalent, stable annual income, 5. Gimmy, Arthur and Buddie Johnson, Ana/ysis and Valuation of Golf Courses and Country Clubs, The Appraisal Institute, 2003, 6. New Country Club of Garden City v. Board of Assessors, Supreme Court, Nassau County; Index No. 12696/88, June 4, 1991. 7. Interim use is the temporary use to which a site or improved property is put until it is ready to be put to its future highest and best use. 8. Gale & Kitson Fredon Golf LLC r. Township of Fredon, 007359-2008; 004341, 2009, Tax Court of New Jersey, December 22, 2011 9. The Online Dictionary of Real Estate Appraisal, 5th Edition, The Appraisal Institute, 2010. REAL ESTATE ISSUES 52 Volume 38, Number 2. 2013 INTANGIBLE ASSETS INTRODUCTION The Appraisal Institute defined intangible assets as "a claim, interest, right or other thing that has value but cannot be experienced by the senses" The uniform Standards of Professional Appraisal Practice (USPAP) require an appraiser to value all of the assets in a property: An appraiser must analyze the effect on value of any personal property, trade fixtures, or intangible items that are not real property but are included in the appraisal. (Standard Rule 1-4 (g)) TYPES OF INTANGIBLE ASSETS Amortizable In the accounting industry, intangible assets that have a finite life, a legal or contractual basis and are separable or transferable (that is, capable of being sold, regardless of whether or not the owner desires to sell) are amortizable for 15 years. Items in these categories have been identified and quantified as part of the task to value all assets owned by the club. Examples of these are: Internet Domain Name. Internet domain names are registered for a fee. If the course name is well - represented and known in the golf industry, it has a higher value. Since a domain name is capable of being sold, it qualifies as an amortizable intangible asset under the separability criterion. Lease Agreements. Lease agreements represent a contract to use equipment over a certain period of time in exchange for lease payments. As a contract for a right, they qualify as an amortizable intangible asset. The amortization time period would be equal to the term of the contract. Licenses. Licenses to operate a business are granted to a business on a contractual basis by a govern- mental entity. Typical business licenses required can include food service, liquor and sales tax licenses. Fees may be paid for an annual or hi -annual period. License fees can be amortized over the length of the license period. Management Contract. A management fee is based on gross revenues earned, which is one indication of management's success. Management fees may also include an incentive amount. Membership Contracts. At private clubs, members typically pay an initiation fee and monthly dues. When a private club is purchased there is an expectation that most members will remain and continue paying monthly dues. These dues can be expected to contribute to the future cash flow of the club and are, therefore, intangible assets. Dues paid currently and for the next year can be used to estimate future cash flows. They qualify as intangible assets under the contractual -legal criterion. Supplier Relationships/Contracts. The value of supplier relationships is created by a contract between the golf course and an organization supplying benefits. In our study the two golf industry organizations are the National Golf Course Owners Association (NGCOA) and the National Golf Foundation (NGF). The value received beyond the cost of membership is an intangible asset that can be amortized. Tournaments Booked in Advance. Tournaments booked in advance is the amount of business that has been contracted for the next 5 years, discounted to its present value. It constitutes the "production backlog" of the golf course industry. Because it is under a contract, this intangible asset can be amortized. Water Rights. Excess water rights are rights that exist in addition to those normally associated with the land. The value of them to a golf course is important to maintain the course, especially in times of drought. Non -Amortizable (Goodwill) Items that the accounting industry determines are `goodwill' are expected to contribute indefinitely to the business. These items are not amortizable or depreciable, but they do contribute value. Name Recognition / Reputation. Name recognition involves two facets: the name of the architect that attracts potential customers and the quality of the management team that retains the customers. Architect name recognition is expected to contribute to the course for an infinite period of time and, therefore, is considered part of goodwill. The reputation of the club is finite, depending on the management. Connection/Tap Fees. Servicing contracts for water and wastewater are intangible assets since they grant the right to obtain service from a provider. Specially -Trained Workforce. Employees who have skills specific to an industry are considered a specially -trained workforce. At a golf club, this can include the golf course superintendent, assistant course superintendent, director of golf, head golf pro, head chef, executive director, marketing manager and accounting manager. The value of these employees to the business is considered goodwill and cannot be amortized since their skills are expected to contribute to the club for an infinite period of time. METHODOLOGY To ascertain the intangible value, research was done on each asset type, and values determined for each of the asset types were derived using club data as well as data typical of the industry and area. Sources included state and county records, NEW, NGCOA and specific information from the club. FINANCIAL ACCOUNTING STANDARDS BOARD Authority Since 1973., The Financial Accounting Standards Board (FASB) has been the designated organization in the private sector for establishing standards of financial accounting and reporting. Those standards govern the preparation of financial reports and are essential to the efficient functioning of the economy because investors, creditors, auditors and others rely on credible, transparent and comparable financial information. These standards are officially recognized as authoritative by the Securities and Exchange Commission (Financial Reporting Release No. 1, Section 101 and reaffirmed in its April 2003 Policy Statement) and the American Institute of Certified Public Accountants (Rule 203, Rules of Professional Conduct, as amended May 1973 and May 1979). The Securities and Exchange Commission (SEC) has statutory authority to establish financial accounting and reporting standards for publicly held companies under the Securities Exchange Act of 1934. Throughout its history however, the commission's policy has been to rely on the private sector for this function to the extent that the private sector demonstrates ability to fulfill the responsibility in the public interest. Mission The mission of the FASB is to establish and improve standards of financial accounting and reporting for the guidance and education of the public. Statements of Financial Accounting Standards The Board's work is based on research, public participation, observation and solicitations to various constituencies on accounting issues all which help them develop a technical agenda. After receiving input from a constituency on any issue, the Board filters through an array of factors in its decision -making process and if the issue survives, then laborious meetings, discussions and processes ensue until an Exposure Draft is issued for public comment, which is collected and analyzed for further deliberations. After a final decision is made, the pronouncement is finalized as a Statement of Financial Accounting Standards (SFAS). Following are excerpts from two such Statements which are relevant to intangible assets. FASB STATEMENT No, 141 Statement No. 141, issued in June 2001, addresses financial accounting and reporting for business combinations. The Statement requires intangible assets to be recognized apart from goodwill under certain conditions. ...this statement requires that intangible assets be recognized as assets apart from goodwill is they meet one of two criteria -the contractual -legal criterion or the separability criterion. Paragraph 39 of the statement is the most explicit regarding how intangible assets are defined. It states that assets can be recognized as separate from goodwill if the asset is capable of being sold, transferred, licensed, rented or exchanged. This applies regardless of whether there is any intention to transfer the asset. The exception is an assembled work force, which is specifically stated as part of goodwill. An intangible asset shall be recognized as an asset apart from goodwill if it arises from contractual or other legal rights (regardless of whether those rights are transferable or separable from the acquired entity or from other rights and obligations). If an intangible asset does not arise from contractual or other legal rights, it shall be recognized as an asset apart from goodwill only if it is separable, that is, capable of being separated or divided from the acquired entity and sold, transferred, licensed, rented or exchanged (regardless of whether there is an intent to do so). For purposes of this Statement however, an intangible asset that cannot be sold, transferred, licensed, rented or exchanged in combination with a related contract, asset or liability. For purposes of this Statement an assembled workforce shall not be recognized as an intangible asset apart from goodwill. FASB STATEMENT NO. 142 Paragraph B37 Addresses a special class of intangible assets, the assembled workforce. Even though they do not meet the contractual -legal or separability criterion, they are bargained for and conducted at arm's length and therefore, qualify as intangible assets. B37,_.intangible assets that are acquired individually or with a group of assets in a transaction other than a business combination also may meet the recognition criteria... even though they do not meet either the contractual -legal criterion or the separability criterion (For example; specially trained employees or a unique manufacturing process related to an acquired manufacturing plant). Such transactions commonly are bargained exchange transactions that are conducted at arm's length, which the Board concluded provides reliable evidence about the existence and fair value of those assets. Thus, those assets should be recognized as intangible assets, Colorado National Golf Club Income Statement Yr vs Yr - December, 2011 Year To Date REVENUE Member Dues Initiation Fees Cigar Sales Green Fees Cart Fees Range Fees instruction Merchandise Sales Other Non -Golf Income Other Income TOTAL REVENUE COST OF SALES Mdse Cost of Sales TOTAL COST OF SALES TOTAL GROSS PROFIT OPERATING EXPENSE PAYROLL & BENEFITS Payroll & Benefits TOTAL P/R & BENEFITS Utilities Leases & Rentals Repair & Maintenance Soil, Seed & Fertlizer Fees Supplies Marketing & Promotion Travel & Entertainment General & Administrative Insurance Property Tax TOTAL OPERATING EXP 476,096 9,975 1,866 889,400 404,860 123,137 11,461 162,228 241,740 81,072 2,401,835 97,358 97,358 2,304,477 675,670 675,670 162,707 196,040 89,956 62,501 104,677 89,748 53,829 5,434 74,020 44,948 206,016 1,765,545 YTD Last Yr 494,224 10,750 0 875,112 368,817 116,670 12,149 180,906 235,687 42,172 2,336,487 108,096 108,096 2,228,391 636,999 636,999 166,968 236,554 102,846 53,348 71,209 84,706 49,478 322 84,507 42,778 187,617 1,717,332 TOTAL EBITDA OTHER INCOME/EXPENSE Non -Recurring Interest lnc/Exp TOTAL OTHER INC/EXP TOTAL EBTDA DEPR/AMORT EXP Depreciation Expense TOTAL DEPR/AMORT EXP TOTAL EBT TOTAL NET INCOME/(LOSS) 538,931 511,059 27,975 305,917 1,179 312,474 333,892 313,653 205,039 197,406 412,922 412,306 412,922 412,306 -207,883 -214,900 -207,883 -214,900 Vista Ridge Catering, LLC Income statement year vs year - December, 2011 Year To Date REVENUE Food & Beverage Sales Cigar Sales Liquor Sales Wine Sales Beer Sales Other Income TOTAL REVENUE COST OF SALES Food & Beverage Cost of Sales Cigar Cost of Sales Liquor Cost of Sales Wine Cost of Sales Beer Cost of Sales TOTAL COST OF SALES TOTAL GROSS PROFIT OPERATING EXPENSE PAYROLL & BENEFITS Payroll & Benefits TOTAL P/R & BENEFITS Utilities Leases & Rentals Repair & Maintenance Fees Supplies Marketing & Promotion Travel & Entertainment General & Administrative Insurance Rent Expense TOTAL OPERATING EXPENSE 562,456 3,479 118,442 51,586 226,783 34,965 YTD Last Yr 560,062 3,214 108,205 53,555 206,020 37,590 997,711 968,647 239219 249,820 3,112 2,921 28,669 26,763 17,780 17,594 60,138 57,207 348,918 354,306 648,793 614,341 two semi we, 296,110 299,687 296,110 299,687 0 200 5,342 6,845 6,972 10,815 16,694 17,924 43,858 38,306 3,589 1,354 5,485 6,271 20,022 12,003 7,032 5,784 222,000 228,326 627,103 627,515 TOTAL EBJTDA OTHER INCOME/EXPENSE Non -Recurring TOTAL OTHER INC/EXP DEPR/AMORT EXPENSE Depreciation Expense TOTAL DEPR/AMORT EXPENSE TOTAL EBT TOTAL NET INCOME/(LOSS) 21,690 -13,174 -8,579 1,019 ate -8,579 1,019 907 496 907 496 29,362 -14,689 29,362 -14,689 Colorado National Golf Club, LLC Statement of Operations (See Accountant's Compilation Report) For the Twelve -Month Period Ended December 31, 2013 2012 Revenues Member*, hip Golf Shop General & Administrative Landscaping Total Revenues Cost of Goods Sold Cost of Goods Sold - Golf Merchandise Total Cost of Goods Sold General and Administrative Expenses Membership Golf Shop Course Maintenance Clubhouse Maintenance General & Administrative Landscaping Practice Facility Total General and Administrative Expenses Income (Loss) from Operations Other Income (Expenses) Other Income Interest Income Interest Expense Trust Insurance Premiums Expense Depreciation Expense Amortizaion Expense Total Other Income (Expenses) Loss before Income Tax (Expense) Benefit Income Tax (Expense) Benefit Net Income (Loss) $ 422,716 17.0% $ 464,206 16.7% 1,611,057 64.9 1,914,013 68.8 414,633 16.7 378,876 13.6 34,826 1,4 23,610 0.8 2,483,232 100,0 2,780,705 100.0 105261 4.2 141,485 5.1 105,261 4.2 141,485 5.1 61,112 2.5 34,580 1.2 34$,223 13.9 343,703 12.4 669,380 27.0 816,404 29.4 106,264 4,3 111,453 4,0 826,463 33.3 942,978 33.9 13,983 0.6 23,135 (?.8 5,539 0,2 78,400 2.8 2,027,964 81.7 2,350,653 84.5 350,007 14.1 288,567 10.4 ►. o 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 (136,493) (5.5) 0 0.0 (332,462) (13.4) (358,476) (12.9) (954141) (3.8) (112 843) (4,1) (564,396) (22.7) (471,319) (16.9) (214,389) (8.6) (182,752) (6.6) 0 0.0 {I 0.0 $ (214,389) (8.6)% r See notes to financial statements $ _ (182,752) (6.6)%o Colorado National Golf Club, LLC Schedule of Membership Expense - Schedule I (See Accountant's Compilation Report) For the Twelve -Month Period Ended Budget Actual Variance December 31, Year -to -Date December 31, Membership Sales Member Dues Initiation Fees Cancellation Fees Finance Charges Total Membership Sales 2013 2012 Budget Actual Variance $ 411,659 97.4% $ 450,381 97.0% $ 476,096 $ 411,659 $ 64,437 8,750 2.1 10,800 2.3 10,000 8,750 1,250 0 0.0 500 0.1 t! 0 0 2,307 0.5 2,525 0.5 3,831 2,307 1,524 422J16 100.0% 464,206 100.0 489,927 422,716 67,211 Membership Expenses Pa. Bonus 0 0.0 510 0.1 500 0 500 Pa Commissions 16,258 3.8 14,110 3.0 10,255 16,258 (6,003) Etnptoyee Meals 0 0.0 996 0.2 1,152 0 1,152 Telephone 500 0.1 755 0.2 1,061 500 561 Constract Services 0 0.0 1,543 0.3 0 0 0 General Supplies 405 0.1 68 0.0 27 405 (378) Office Supplies 853 0.2 523 0,1 543 853 (310) Paper Supplies & Disposables 34 0.0 0 0.0 0 34 (34) Printing & Stationery 189 0.0 668 0.1 133 189 (56) Club Event Expense 28,070 6.6 534 0.1 0 28,070 (2₹1,070) it4arketing & Promotion 12,402 2.9 13,790 3M 22,570 12,4412 10,168 Member Relations 0 0.0 124 0.0 0 0 0 Membership Incentives 75 0.0 0 0.0 0 75 (75) Mileage & Fuel 60 0.0 64 0.0 0 60 (60) Travel, Meals & Entertainment 213 0.1 0 0.0 0 213 (213) Bad Debt Expense 2,003 0.5 790 0.2 583 2,003 (1,420) Human Resource Management 50 0.0 0 0.0 0 50 (50) Spoilage & Theft 0 0.0 105 0.0 0 0 0 Miscellaneous Income/Expense 0 0.0 0 0.0 0 0 0 Total Membership Expenses 61,112 14.5 34,580 7.4 36.824 61,112 (24,288) Depreciation Expense 105 (10 113 0.0 105 105 0 Net Income (Loss) from Memberships $ 361,499 85.5% $ 429,513 92.5% $ 452,998 $ 361,499 $ 91,499 Colorado National Golf Club, LLC Schedule of Golf Shop Expense - Schedule Ii (See Accountant's Compilation Report) Golf Shop Revenues Green Fees Tournament Green Fees Cart Fees Tournament Cart Fees Range Fees tournament Range Fees Golf Clinics & Lessons Golf March-Clubs/Bags Golf March -golf Balls/Gloves Golf March -Men's Apparel Golf March -Ladies Apparel Golf March -Golf Shoes Golf March -Outerwear Golf March -Accessories Golf March -Special Order Golf Match -Cigar Sales Golf March -Discounts Cigar Sates Club Rental Club Repair Club Storage Handicap Fees Locker Fees Expired Gift Certificates Other Income Other Non -Golf Income Total Golf Shop Revenues Cost of goods Sold Mach COS-Clubs/Bags Merck COS -Golf Balls/Gloves Merch COS -Men's Apparel Merch COS -Ladies Apparel Merch COS -Golf Shoes Merch COS -Outerwear Merck COS -Accessories Merch COS -Special Order Cost of Sales - Cigars Cost of Goods - Discount Total Cost of Goods Sold For the Twelve -Month Period Ended December 31, 2013 2012 $ 703,217 43.6% 125,736 7.8 366,675 22.8 40,680 2.5 111,258 6,9 14,440 0.9 18,425 1.1 13,346 0.8 45,596 2.8 32,434 2.0 10,969 0.7 12,986 0.8 22,168 1.4 31,806 2.0 17,593 1.1 1,420 0_ l (19,149) (1.2) 0 0.0 13,520 0.8 1,420 0.1 1,562 0.1 11,750 0.7 1,900 0.1 10,441 0.6 Z464 0.2 18,400 1.1 $ 856,529 44.8% 145,538 7.6 427,055 22.3 44,840 2.3 119,788 6,3 15,580 OS 14,256 0.7 23,105 1.2 50,443 2.6 36,955 1.9 9,839 0.5 14,203 0.7 28,709 13 38,503 2.0 43,014 2.2 3.587 02 (24,291) (1.3) 0 0_(1 14,560 0.8 1,743 0.1 571 0.0 12,200 0.6 942 0.0 9,834 0.5 4,810 0.3 21,700 1.1 1,611,057 54.8 1,914,013 53.8 9,265 0.6 24,475 1.5 18,534 1.2 5,452 0.3 8,062 0.5 10,172 0.6 16,123 1.0 12,832 0.8 816 0.1 (470) (0.0) 15,164 0.01 25,314 0.01 21,388 0.01 5,241 0.00 8,162 0.00 12,953 0.0I 17,697 0.01 33,979 0.02 1,603 0.00 (16) (O.OO) 105,261 6.5 141,485 0.07 Total Gross Profit and Other Income $ 1,505,796 Budget Actual Variance Year -to -Date December 31, Budget Actual Variance $ 767,974 121,426 359,215 45,645 108,459 14,678 11,461 9,221 42,510 31,069 10,769 8,380 26,567 2$,206 21,805 0 (16,998) 1,866 11,720 1,769 731 12,900 656 6,911 1,243 16,800 1,644,983 6,782 20,737 19,035 5,205 4,484 12,475 14,347 13,908 0 0 96,973 $ 703,217 125,736 366,675 40,680 111,258 14,440 18,425 13,346 45,596 32,434 10,969 12,986 22,168 31,806 17,593 1,420 (19,149) 4 13,520 1,420 1,562 11,750 1,900 10,441 2,464 18,400 $ 64,757 (4,310) (7,460) 4,965 (2,799) 238 (6,964) (4,125) (3,086) (1,365) (200) (4,606) 4,399 (3,600) 4,212 (1,420) 2,151 1,866 (1,800) 349 (831) 1,150 (1,244) (3,530) (1,221) (1,600) 1,611,057 33,926 9,265 (2,483) 24,475 (3,738) 18,534 501 5,452 (247) 8,062 (3,578) 10,172 2,303 16,123 (1,776) 12,832 1,076 816 (816) (470) 470 105,261 (8,288) 93.5% $ 1,772,528 92.6% $ 1,548,010. $ 1,505,796 $ 42,214 -14- Colorado National Golf Club, LLC Schedule of Golf Shop Expense - Schedule H (Continued) (See Accountant's Compilation Report) For the Twelve -Month Period Ended Budget Actual Variance December 31, Year -to -Date December 31, 2013 2012 Budget Actual Variance Direct Operating Expense P/R Salaries $ 66,923 4.2% $ 64,054 3.3'0 $ 63,958 $ 66,923 $ (2,965) FIR Hourly 50,123 3.1 52,144 2.7 43,861 50,123 (6,262) Mt Overtime 1,728 0.1 3,213 0.2 1,712 1,728 (16) Pitt Bonus 1,500 0.1 1,500 0.1 1,000 1,500 (500) WIZ Commissions 51 0.0 620E 0.0 0 51 (51) Golf Pro Lessons 11,647 0.7 10,752 0.6 6,894 11,647 (4,753) P/R ER Taxes 12,655 0.8 12,237 0.6 11,640 12,655 (1,015) Employee Insurance 1,873 0.1 2,641 0.1 3,976 1,873 2,103 Employee Meals 0 0.0 1,000 0.1 1,080 0 1,080 Telephone: 550 0.0 600 0.0 150 550 (400) Equipment Lease 154,611 9.6 138,604 7.2 118,272 154,611 (36,339) Equipment Rental 0 0.0 797 O0 4,458 0 4,458 Equipment Repair & Maintenance 1,917 0.1 32 0.0 199 1,917 (1,718) Building Repair & Maintenance 40 0.0 0 0.4) 0 40 (40) Cart Repair & Maintenance 3,730 0.2 7,457 0.4 7,831 3,730 4,101 IT Maintenance 230 0.0 31 0.0 1,543 230 1,313 Contract Services 350 0.0 0 0.0 0 350 (350) Cleaning/Laundry Supplies 0 0.0 30 0.0 0 0 0 Driving Range Supplies 5,421 0.3 10,027 0.5 7,759 5,421 2,338 Equipment Expense 550 0.0 0 0.0 425 550 (125) Gasoline& Lubricants 10 0.0 0 0.0 0 10 (10) General Supplies 421 0.0 641 0.0 859 421 438 Golf Club Repairs 1,206 0.1 1,172 0.1 698 1,206 (508) Office Supplies 1,359 0.1 2,300 0,1 1,721 1,359 362 Paper Supplies & Disposables 80 0.0 0 0.0 0 80 (80) Printing & Stationery 2,545 0.2 975 0.1 1,997 2,545 (548) Uniforms 719 0.0 1,459 0.1 599 719 (120) Club Event Expense 886 0.1 650 0.0 234 886 (652) Marketing & Promotion 1,975 0.1 3,484 0.2 584 1,975 (1,391) Membership Incentives 0 0.0 129 0.0 0 0 0 Mileage & Fuel 139 0.0 0 0.0 0 139 (139) Travel, Meals & Entertainment 93 0.0 448 0.0 0 93 (93) Dues & Subscriptions 626 0.0 626 0.0 1,047 626 421 Handicap Expense 7,132 0.4 7,955 0.4 7,970 7,132 838 Miscellaneous 41 0.0 50 0.0 0 41 (41) NSF Chargebacks 0 0.0 1,139 0.1 531 0 531 Postage 199 0.0 569 0.0 249 199 50 Pinance'Service Charge 68 0.0 0 0.0 0 68 (68) Spoilage & Theft 0 0.0 180 0.0 0 0 0 Tournament Expense 1,107 0.1 8{10 0.0 1,007 1,107 (100) Workers Comp Insurance 2:260 0.1 1,786 0.1 1,958 2,260 (302) Leased Property Tax 10,458 0.6 14,639 0.8 20,137 10,458 9,679 Miscellaneous (Income)/Expense 0 0,0 (1,038) (0.1) 170 0 170 Total Direct Operating Expenses 345,223 21.4 343,703 18,0 314,519 345,223 (30,704) Depreciaton Expense 548 0.0 245 0.0 117 548 (431) Not Income (Loss) from GoEf Shop $ 1,160,025 72.0% $ 1,428,580 74.6% $ 1,233,374 $ 1,160,025 $ 73,349 -15- Colorado National Golf Club, LLC Schedule of Course Maintenance Expense - Schedule CIY (See Accountant's Compilation Report) Other Income Other Income Total Other Income Direct Operating Expense PM Salaries PER Hourly FIR Overtime RR Bonus PfR ER Taxes Employee Insurance Employee Metals Utilities -Power Utilities -Water Waste Removal Telephone Equipment Lease Equipment Rental Equipment Repair & Maintenance Building Repair & Maintenance Cart Repair & Maintenance litigation Repair & Maintenance Roads & Path R&M Topdressing, Bunkers & Soil Sod, Turf& Seed Fertilizer Landscaping & Plants Pesticides Legal Fees Consulting fees Contract Services Outsnurvecl laundering Security Equipment Expense Gasoline & Lubricants General Supplies Gulf Course Accessories Office Supplies Printing & Stationery Small Tools Uniforms Club Event Expense Marketing & Promotion Mileage & Fuel Travel, Meals & Entertainment Dual & Subscriptions Gratis Beverage Permits & Licenses Postage Professional Development Workers Comp Insurance Leased Property Tax FinancefService Charge Miscellaneous Income/Expense Depreciator Expense Total Direct Operating Expenses For the Twelve -Month Period Ended December 31, 2013 $ 0 0 128,5199 141,581 11,894 375 29,264 1,391 0 43,010 71,917 3,290 850 64,371 944 27,147 1,048 0 26,375 0 5,247 22,229 18,396 2,377 9,584 0 3,336 4,025 236 0 0 28,456 1,353 4,427 102 69 2,352 2,518 0 0 220 40 325 0 49 19 405 5,042 6,142 75 2,000 669,380 8,074 $ 677,454 20[2 $ 25 25 108,985 213,160 21,603 1,375 35,368 3,013 320 48,059 39,256 2,197 450 63,183 3,567 48,385 1,531 194 36,442 1,534 11,696 945 54)33 7,227 18,008 1,570 10,560 3,950 244 245 21 41,121 1,033 13,884 129 0 4,357 2,432 114 900 197 715 660 42 99 210 270 4,238 7,735 4 843 816,404 6,695 $ 823,074 -16- Budget Actual Variance Year -to -Date December 31, Budget Actual Variance $ 0 $ 0 0 S 0 90,046 128,899 (38,853) 195,247 141,581 53,666 10,539 11,894 (1,355) 500 375 125 32,395 29,264 3,131 3,960 1,391 2,569 192 0 192 33,346 43,010 (9,664) 53,3'49 71,917 (18,518) 1,522 1,290 232 600 8511 (250) 55,348 64,371 (9,023) 4,099 944 3,155 21,889 27,147 (5,258) 1,824 1,048 776 5,676 0 5,676 19,852 26,375 (6,523) 3,389 0 3,389 13,389 5,247 8,142 2,129 22,229 (20,100) 34,214 18,396 15,818 8,818 2,377 6,441 16,712 9,584 7,128 0 0 0 5,000 3,336 1,664 4,066 4,025 41 429 236 193 315 0 315 8,440 0 8,440 42,376 28,456 13,920 762 1,353 (591) 7,612 4,427 3,185 218 102 116 0 69 (69) 6,034 2,352 3,682 1,969 2,518 (549) 0 0 0 0 0 0 0 220 (220) 177 40 137 500 325 175 0 0 0 0 49 (49) 76 19 57 125 405 (280) 5,494 5,042 452 10,360 6,142 4,218 6 75 (69) 4 2,000 (2,000) 703,044 2951 $ 705,995 669,380 8,074 $ 677,454 33,664 (5,123) $ 25,541 Colorado National Golf Club, LLC Schedule of Clubhouse Maintenance Expense - Schedule IV (See Accountant's Compilation Report) Direct Operating Expenses Utilities -Power Utilities -Water Waste Removal Telephone Equipment Rental Equipment Repair & Maintenance Building Repair & Maintenance Cart Repair & Maintenance Roads & Path R&M Contract Services Security Music Service Cable/Satellite Subscription Cleaning/Laundry Supplies Clubhouse Amenities Gasoline & Lubricants General Supplies Golf Course Amenities Office Supplies Towels & Amenities Club Event Expense Mileage & Fuel Insurance Depreciation Expense Total Direct Operating Expenses For the Twelve -Month Period Ended December 31, 2013 2012 Budget Actual Variance Year -to -Date December 31, Budget Actual Variance $ 49,881 $ 52,453 $ 47,170 $ 49,881 $ (2,711) 18,524 16,746 13,550 18,524 (4,974) 1,719 3,132 3,254 1,719 1,535 6,564 6,391 8,655 6,564 2,091 0 409 0 0 n 43 1,334 278 43 235 8,965 14,399 4,682 8,965 (4,283) 0 87 0 O 0 3,208 0 0 3,208 (3,208) 8,055 8,429 8,110 8,055 55 MO 3,123 2,400 840 1,560 661 624 597 661 (64) 3,082 2,405 2,843 3,082 (239) 82 347 506 82 424 194 0 0 194 (194) 146 100 0 146 (146) 1,848 984 1,587 1,848 (261) 46 47 0 46 (46) O 83 0 0 0 0 97 0 O 0 0 90 378 0 378 0 173 100 O 100 2,406 0 2,775 2,406 369 106,264 111,453 2,642 3,243 $ 109,507 $ 114,095 96,885 106,264 (9,379) 1,301 3,243 (1,942) $ 98,186 $ 109,507 $ (11,321 Colorado National GulfClub, LLC Schedule of General & Administrative Expense - Schedule V (See Accountant's Compilation Report) Revenues Rental Income VRC Concessions Other Income Management Fee Other Non Golf Income Total revenues (testers! & Administrative Expose PM Salaries P/It Hourly P/It Bonus P/Ct Commissions KR ER Taxes Employee Insurance Employee Meals Telephone Equipment Dose Equipment Repair & Maintenance IT Maintenance Legal Fees Consulting Fees Contract Services Outsourced Payroll Expenses Computer Supplies & Equipment Equipment Expense General Supplies Office Supplies Printing & Stationery Club Event Expense Marketing & Promotion Mileage & Fuel Travet, Meals, & Butertairauent Vehicle Allowance Bad Debt Expense Bank Service Charges Cash Overt Short Credit a Collections Credit Card Fees Donations Dues & Subscription Management Fee Expense Human Resource Management NSF Charges. Penults & Licenses Postage Professional Development Sales Tax Variance Finance/Service Charges Tournament Expense Website Insurance Workers Comp Insurance Property* Tax Expense Miscellaateous Income/Exposes Prior Year Corrections Interest Income Interest Expense Total General & Adminitrative Expenses Trust Insurance Premiums Expense Depreciation Expense Amortization Expense Net Income (loss) from General & Administrative For ilte Twelve -Month Period Ended December 31, 2013 2012 $ 402,000 $ 222.000 161 112 11,944 99,088 528 57,676 414,633 378,76 111,083 0 750 0 10,698 249 42282 11109 8,102 t55 17,538 8,985 11,795 37,162 4,087 1,409 2,836 4 1,441 0 0 0 1,036 4,567 1,254 21,118 1 0 66 45,084 750 915 18,000 10,761 (20) 418 1,071 0 0 45 0 4,875 71,069 2,211 173,382 (3,806) 0 0 251,985 826,463 136,493 320,492 95,441 552,426 $ (964,256) 143,444 1,960 1,489 1,405 13,395 1,747 2,088 2.184 8,470 190 5,096 15,280 6,446 37,471 6,107 0 0 15 2,378 653 27,550 73 1,261 1.023 1,479 10,247 31 (416) 1,573 52,163 1,000 0 0 8,793 0 63 1,025 350 483 122 22 4,176 27,676 1,983 172.754 1 90,297 (119) 289,150 942,978 0 348.781 112A43 461,624 Budget Actual Variance Year-to.Datc December 31, Budget Actual Variance S 222,000 521 0 2,940 225,4M 150,416 693 1,000 0 14,275 2,174 1,896 0 12,823 0 4,389 1,848 10,103 51,448 5,066 307 0 247 2,348 320 30,063 0 4154 3,048 1,255 57 38 3 200 52,264 100 833 0 0 0 673 1,167 0 667 321 0 3,928 32,430 2,292 175,5(9 27,805 0 0 305,917 598,787 0 1,595 0 1,595 $ 402,000 - S 161 11,944 528 18O,OO0 360 (11,944) 2,412 414,633 (189,172) 111,083 0 750 0 10,698 249 4.282 1,109 8,102 155 17,538 8,985 11,795 37,162 4,087 1,409 2,836 0 1A41 0 0 u 1,036 4,567 1,254 21,118 1 0 66 45,084 750 915 18,000 10,761 (20) 418 1,971 0 0 45 0 4,875 71,069 2,211 173,382 (3,806) 0 0 251,985 826,463 39,333 693 250 0 35?7 1,925 (2,386) (1,109) 4,721 (155) (13,149) (7,137) (1,692) 14,286 979 (1,102) (2,836) 247 907 320 30,063 0 (182) (1,519) 1 (21.061) 37 3 134 7,180 (650) (82) (18,000) (10,761) 20 255 96 0 661 276 0 (947) (.38,639) 81 2,137 31,611 0 0 53,932 72,324 136,493 (136,493) 320,492 (318,897) 95,441 (95,441) 552,426 (550,831) S 1023,?2b S 474,921 $ (964,256) $ _ 289,335 -18- Colorado National Golf Club, LLC Schedule of Landscaping Expense - Schedule VI (See Accountant's Compilation Report) 1 Landscaping Sales Other Non -Golf 'fatal Landscaping Sales Direct Operating Expense Pill Hourly Waste Removal Equipment Rental Irragtion Repair & Maintenance Sod & Turf Soil, Seed and Fertilizer Landscaping & Plants Pesticides Contract Services Gasoline and Lubricants Small Tools Workers Comp Insurance Miscellaneous Income/Expense Total Direct Operating Expense For the Twelve -Month Period Ended December 31, 2013 2012 Budget Actual Variance Year -to -Date December 31, Budget Actual Variance $ 34,826 $ 23,610 $ (1,196) $ 34,826 $ (36,022) 34,826 23,610 (1,196) 34,826 (36,022) 8,925 16323 26,301 8,925 17,376 457 0 0 457 (457) 336 483 1,039 336 703 348 572 990 348 642 1,035 0 4-43 1,935 (1,492) 333 1,759 1,562 333 1,229 0 1,720 0 0 0 986 0 0 986 (986) 425 0 0 425 (425) 22 (1) 0 22 (22) 216 2,173 915 216 699 0 106 0 0 0 0 0 0 0 0 13$83 23,135 31,250 13,983 17,267 Total Direct Operating Expenses $ 20,843 $ 475 $ (32,446) $ 34,401 $ (35,597) Colorado National Golf Club, LLC Schedule of Practice Facility - Schedule VII (See Accountant's Compilation Report) For the Twelve -Month Period Ended Budget Actual Variance December 31, Year -to -Date December 3 h 2013 2012 Budget Actual Variance Direct Operating Expense P/R Hourly Utilities - Power Utilities - Water Telephone Irrigation Repair & Maintenance Topdressing & Bunkers Sod & Turf Soil, Seed & Fertilizer Landscaping & Plants Legal Fees Consulting Fees Contract Services Security Cleaning/Laundry Supplies Driving Range Supplies Equipment Expese General Supplies Marketing & Promotion Workers Comp Insurance Miscellaneous Income/Expense $ 0 $ 5,094 $ 0 $ 0 $ 0 3,077 2,352 0 3,077 (3,077) 598 769 0 598 (598) 1,355 1,109 0 1,355 (1,355) 0 15,434 0 0 0 0 11,927 0 0 0 0 10,342 0 0 0 0 5,828 0 0 0 0 6,619 0 0 0 0 1,164 8,808 0 8,808 0 3,380 0 0 0 0 40 0 0 0 300 250 0 300 (300) 0 126 0 0 0 0 610 0 0 0 0 6,400 0 0 0 209 107 0 209 (209) 0 110 0 0 0 0 64 0 0 0 0 6,675 0 0 0 Total Direct Operating Expense $ 5,539 $ 78A00 8,808 $ 5,539 $ 3,269 Vista Ridge Catering, LLC Statement of Operations (See Accountant's Compilation Report) For the Year Ended December 31, 2013 2012 Food Saks Sales Revenue Less Cost of Food Sales Gross Profit on Food Sales $ 649,567 100.0% $ 637,888 100.0% 225,592 34.7 267,543 41.9 423,975 65.3 370,345 58.1 Bar sales Liquor - Revenue 140,737 100.0 134,419 100.0 Less Cost of Liquor Sales 29,984 21.3 34,594 25.7 Gross Profit on Liquor Sales 110,753 78.7 99,825 74.3 Wine - Revenue Less Cost of Wine Sales Gross Profit on Beer Saks 67,870 100.0 54,952 100.0 19,216 28.3 20,615 37.5 48,654 71.7 34,331 62.5 Beer - Revenue 242,017 100.0 259,053 100.0 Less Cost of Beer Sales 63,763 26.3 70,403 27.2 Gross Profit on Wine Sales 178,254 73.7 188,650 72.8 Other Income Room Rental Other Income Minimum Patronization Fees Total Other Income 20,866 42.7 18,060 43.6 17,919 36.7 17,435 42.1 10,032 20.6 5,929 14.3 48,817 100.0 41,424 100.0 Total Gross Profit & Other Income $ 810,453 70.5% $ 734,581 65.1% See notes to financial statements Vesta Ridge Catering, LLC Statement of O peratlo n s (Con ti rt u ed ) (See Accountant's Compilation Report) For the Year Ended December 31, 2013 2032 Direct Operating Expenses P/R Salaries $ 54,447 4.7% $ 75,268 6.7% FR hourly 88,595 7.7 102,655 9.1 Server PR -Hourly 67,254 5.9 92,130 81 P/It Overtime 11,809 1.0 5,492 0.5 Server Pa Overtime 7,611 0,7 7.268 0.6 Kitchen P/R Bonus 750 0.1 188 0.0 Kitchen P/R - Commissions 835 0.1 0 0.0 Kitchen P/R ER Taxes 14,348 1.2 22,730 2,0 Server Pitt Taxes 24,88f 2.2 23,461 2.1 Employee Insurance 155 0.0 1,564 0.1 e=mployee Relations 0 0A 37 0.0 Equipment Lease 0 0.0 0 0.0 Equipment Rental 2,756 0,2 S.630 0.8 Equipment Repair & Maintenance 6,211 0.5 1.3,090 1.2 Building Repay & Maintenance 1,928 0.2 1,417 0.1 Cart Repair & Maintenance 100 0.L1 0 0,0 Contract Maintenance 656 0.1 94 0.0 Professional Foss 337 0,0 321 0.0 Les] Fees 3,507 0.3 0 0.0 Consulting Fees 3,946 0.3 1,315 0.1 Contract Services 810 Q1 2,421. 02 Outsourecd Laundering 16,232 1,4 18,763 1.7 Pest Control 1,989 0.2 2,094 0.2 Cleaning/Laundry Supplies 4,325 0.4 6,72(1 0.6 Computer Supplies & Equipment 133 O,CI 0 0,0 Dining Room Supplies 774 0.1 2,303 0.2 Equipment Expense 0 0.0 2,320 0.2 Gasoline & Lubiiants 25 0.0 40 0.0 General Supplies 1,716 0.1 4,604 0.4 Kitchen Supplies 2,481 0.2 3,697 Q3 Office Supplies 1,721 0.1 1,253 01 Paper Supplies & Disposables 20,761 1.8 26,768 2.4 Printing & Stationery 0 0.0 449 0.0 Uniforms 1,539 0.1 2,067 0.2 Club Event Expense 9,268 0.8 7,$35 0.7 Marixting& Promotion 1,543 0.1 525 0,0 lvlileage & Fuel 294 0.0 2.28 0.0 Entertainment 4,663 0.4 6,152 0.5 Bank Service Charges 129 0.0 117 0,0 Credit Card Fees 20,053 1.7 i 7,695 1.6 Dues & Subscriptions 110 0M 135 0.0 Gratis Beverage 598 0.1 429 0.0 Gratis Food 956 0,1 333 0.0 Human Resources Management 190 0.0 30 0.0 Miscellaneous 0 0.0 500 0.0 Permits & Licrnaes 1,579 0.1 1,183 0.1 Professional Development 40 0,0 200 0.0 Sales Tax Variance (1,267) (0.1) 0 OA) Vendor Rebates (1,782) (0.2) 0 0.0 Workers Comp Insurance 6,856 0.6 5,235 0,5 Rcpt Expense - Concession 402,000 35.0 222,000 19,7 Miscellaneous ([ncorne)1Gxpense 17,282 1.5 3 0.0 Depreciation Expense 2,153 0.2 1,336 0.1 Total Direct Operating Expenses 807,302 70.3 692,970 61.4 Income (Inv) from Operations 3.151 0.3 41,611 3.7 Other income (Expenses) Other Income Interest Income Interest Expense Total Other Income (Expenses) I.oss before Income Tax (Expense) Benefit Income Tax (Expense) Benefit Net Income (Loss) 0 0,0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 3,151 0.3 41,611 3.7 0.0 i) 0.0 0.3% $ 41,611 3.7% See notes to financial statements Vista Ridge Catering, LLC Schedule of Food and Bar Expense - Schedule I (See Accountant's Compilation Report) Food Sales Sales Revenue Less Cost of Food Sales Gross Profit on Food Sales Bar sales Liquor - Revenue Less Cost of Liquor Sales Gross Profit on Liquor Sales Wine - Revenue Less Cost of Wine Sales Gross Profit on Beer Sales Beer - Revenue Less Cost of Beer Sales Gross Profit on Wine Sales Other Income Room Rental Other Income Minimum Patronization Fees Total Other Income For the Twelve -Month Period Ended December 3I, 2013 2012 $ 649,567 100.0% $ 637,888 100.0%n 225,592 34.7 267,543 41.9 423,975 65.3 370,345 58.1 140,737 100.0 29,984 21.3 110,753 78.7 67,870 100.0 19,216 28,3 48,654 71.7 134,419 100.0 34,594 25.7 99,825 74.3 54,952 100.0 20,615 37.5 34,337 62.5 242,017 100.0 259,053 100.0 63,763 26.3 70,403 27.2 178,254 73.7 188,650 72.8 20,866 42.7 17,919 36.7 10,032 20.6 48,817 100.0 Total Gross Profit & Other Income $ 810,453 18,060 43.6 17,435 42.1 5,929 14.3 41,424 100.0 Budget Actual Variance Year -to -Date December 31, Budget Actual Variance $ 562,455 239,219 $ 649,567 $ (87,112) 225,.592 13,627 323,236 423,975 (100,739) 118,442 28,669 140,737 29,984 (22,295) (1,315) 89,773 110,753 (20,980) 51,587 67,870 (16,283) 17,780 19,216 (1,436) 33,807 4$,654 (14,847) 230,262 63,250 242,017 63,763 (11,755) (513) 167,012 178,254 (11,242) 14,950 13,259 6,756 20,866 17,919 10,032 (5,916) (4,660) (3,276) 34,965 48,817 (13,852) 70.5% $ 734,581 65.1% $ 648,793 $_ 810,453 $ (161,660 -11- Vista Ridge Catering, LLC Schedule of Food and Bar Expense - Schedule T (Continued) (See Accountant's Compilation Report) For the Twelve -Month Period Ended Budget Actual Variance December 31, Year -to -Date December 31, 2013 2012 Budget Actual Variance Direct Operating Expenses FIR Salaries $ 54,447 4.7% $ 75,268 6.7% $ 43,873 $ 54,447 $ (10,574) P/R Ilourly 88,595 7.7 102,655 9.1 111,628 88,595 23,033 Server P/R-Hourly 67,254 5.9 92,130 8.2 72,357 67,254 4,903 P/R. Overtime 11,809 1.0 5,492 0.5 19,435 11,809 7,626 Server P/R Overtime 7,611 0.7 7,268 0.6 5,217 7,611 (2,394) Kitchen PIR Bonus 750 0.1 188 0.0 800 750 50 Kitchen P/R - Commissions 835 0.1 0 0.0 0 835 (83 5) Kitchen P/R. ER Taxes 14,348 1.2 22,730 2.0 18,000 14,348 3,652 Server P!R Taxes 24,886 2.2 23,461 2.1 22,947 24,886 (1939) Employee Insurance 155 0.0 1,564 0.1 2,052 155 1,897 Employee Relations 0 0.0 37 0.0 0 0 0 Equipment Lease 0 0.0 0 0.0 420 0 420 Equipment Rental 2,756 0.2 8,630 0.8 4,922 2,756 2.166 Equipment Repair & Maintenance 6,211 0.5 13,090 1.2 6,972 6,211 761 Building Repair & Maintenance 1,928 0.2 1,417 0.1 0 1,928 (•1,928) Cart Repair & Maintenance 100 0.0 0 0.0 0 100 (100) Contract Maintenance 656 0.1 94 0.0 0 656 (656) Professional Fees 3.37 0.0 321 0.0 313 337 (24) Legal Fees 3,507 0.3 0 0.0 735 3,507 (2,772) Consulting Fees 3,946 0.3 1,315 0.1 2,156 3,946 (1,790) Contract Services 810 0.1 2,421 0.2 797 RIO (13) Outsourced Lacmdering 16,232 1.4 18,763 1.7 9,739 16,232 (6,493) Pest Control 1,989 0.2 2,094 0.2 2,269 1,989 280 Cleaning/Laundry Supplies 4,325 0,4 6,720 0.6 7,798 4,325 3,473 Computer Supplies & Equipment 133 0,0 0 0.0 33 133 (100) Dining Room Supplies 774 0.1 2,303 0.2 4,275 774 3,501 Equipment Expense 0 0.0 2,120 0.2 899 0 899 Gasoline & Lubicants 25 0.0 40 0.0 0 25 (25) General Supplies 1,716 0.1 4,604 0.4 5,263 1,716 3,547 Kitchen Supplies 2,481 0.2 3,697 0.3 0 2,481 (2,481) Office Supplies 1,721 0.1 1,253 0.1 1,245 1,721 (476) Paper Supplies & Disposables 20,761 1.8 26,768 2.4 22,993 20,761 2,232 Printing & Stationery 0 0.0 449 0.0 0 0 0 Uniforms 1,539 0.1 2,067 0.2 1,353 1,539 (186) Club Event Expense 9,268 0.8 7,835 0,7 2,336 9,268 (6,932) Marketing& Promotion 1,543 0.1 525 0.0 1,253 1,543 (290) Mileage & Fuel 294 0.0 228 0.0 60 294 (234) Entertainment 4,663 0.4 6,152 0.5 5,425 4,663 762 Bank Service Charges 129 0.0 117 0.0 173 129 44 Credit Card Fees 20,053 1.7 17,695 1.6 15,102 20,053 (4,951) Dues & Subscriptions 110 0.0 135 010 100 110 (10) Gratis Beverage 598 0.1 429 0.0 991 598 393 Gratis Food 956 0.1 338 0.0 293 956 (663) Human Resources Management 190 0.0 50 0.0 50 19"0 (140) Miscellaneous 0 0.0 500 0.0 0 0 0 Permits & Licenses 1,579 0.1 1,183 0.1 986 1,579 (593) Professional Development 40 OS 200 0.0 320 40 280 Sales Tax Variance (1,267) (0.1) 0 0.0 1,145 (1,267) 2,412 Vendor Rebates (1,782) (0.2) 0 0.0 0 (1,782) 1,782 Workers Comp Insurance 6,856 0.6 5,235 0.5 7,032 6,856 176 Rent Expense - Concession 402,000 35.0 222,000 19.7 222,000 402,000 (180,000) Miscellaneous (Incorne)fExpcnse 17,282 1.5 3 0.0 (8,581) 17,282 (25,863) Depreciation Expense 2,153 0.2 1,386 0.1 907 2,153 (1,246) Total Direct Operating Expenses 807,302_ 70.3 692$70 61,4 617,883 807,302 (189,419) Net Income (Loss) from Food and Bar Operations $ 3,151 _ $ 41,611 31% $ 30,910 $ 3,151 $ 7_ 7 -12- Colorado National GolfClub, LLC Statements of Operations (See Accountants' Compilation Report) For the Years Ended December 31, Revenues Membership Golf Shop Clubhouse Maintenance General & Administrative Landscaping Total Revenues Cost of Goods Sold Cost of Goods Sold - Golf Merchandise Total Cost of Goods Sold General and Administrative Expenses Membership Golf Shop Course Maintenance Clubhouse Maintenance General & Administrative Practice Facility Total General and Administrative Expenses Income (Loss) from Operations Other Income (Expenses) Interest Expense Trust Life Insurance Premiums Expense Depreciation Expense Amortization Expense Total Other Income (Expenses) Loss before Income Tax (Expense) Benefit Income Tax (Expense) Benefit Net Income (Loss) 2015 $ 575,151 1,765,591 127,749 355,846 2014 20.4% $ 562,651 21.1% 62.5 1,709,419 64.1 4.5 0.0 12.6 392,755 14.7 0.0 - 0.0 2,824,337 100.0 199,689 199,689 77,376 405,035 793,423 191,757 627,514 7,471 2,102,576 7.1 2,664,825 100.0 141,056 53 7.1 141,056 5.3 2.7 14.3 28.1 6.8 22.2 0.3 51,966 373,492 666,768 105,257 550,585 6,276 74.4 1,754,344 522,072 18.5 2.0 14.0 25.0 3.9 20.7 0.2 65.8 769,425 28.9 (265,356) (9,4) (244,055) (9.2) (110,102) (3,9) (94,049) (3.5) (322,795) (11.4) (353,938) (133) (77,997) (2.8) (84,497) (3.2) (776,250) (27.5) (776,539) , (29.1) (254,178) (9.0) (7,114) (03) $ (254,178) (9.0)% $ (7,114) 0.3 fo Sec notes to financial statements Colorado National Golf Club, LLC Schedule of Membership Expense - Schedule II (See Accountants' Compilation Report) Membership Sales Member Dues Initiation Fees Cancellation Fee Finance Charges Total Membership Sales Membership Expenses P/R Salaries P/R Bonus P/R Commissions P/R ER Taxes Employee Insurance Telephone Consulting Fees Equipment Repair & Maintenance General Supplies Office Supplies Printing & Stationery Club Event Expense Marketing & Promotion Travel, Meals & Entertainment Bad Debt Expense Human Resource Management NSF/Chargebacks Workers Comp Insurance Miscellaneous Income/Expense Total Membership Expenses Depreciation Expense For the Years Ended December 3 l 2015 $ 538,183 24,625 1,000 11,343 2014 Budget Actual Variance Year -to -Date December 31, Budget 93.6% $ 543,680 96.6% $ 525,970 4.3 10,850 1.9 10,850 0.2 - 0.0 - 2.0 8,121 1.4 8,329 Actual Variance $ 538,183 24,625 1,000 11,343 $ (12,213) (13,775) (1,000) (3,014) 575,151 1 {Nl_{ % 562,651 x 100.0 545,149 575,151 (30,002) 23,821 4,1 700 0.1 5,349 0.9 2,751 0.5 (421) (0,1) 150 0.0 4,250 0.7 0.0 - 0.0 0.0 468 0.1 29,367 5.1 9,466 1.6 0.0 0.0 0.0 0.0 512 0.1 963 0.2 77,376 13.5 105 0.0 Net Income (Loss) nom Memberships $ 497,670 6,875 1.2 0.0 2,009 0.4 912 0.2 0.0 325 0.1 0.0 97 0.0 31 0.0 463 0.1 316 0.1 27,351 4.9 13,405 2.4 16 0.0 (254) (0.0) 25 0.0 245 0.0 150 0.0 (!.0 51,966 x 9.2 6,875 2,009 912 325 97 31 463 316 27,351 13,405 16 (254) 25 245 150 51,966 23,821 700 5,349 2,751 (421) 150 4,250 468 29,367 9,466 (16,946) (700) (3,340) (1,839) 421 175 (4,250) 97 31 463 (152) (2,016) 3,939 16 (254) 25 245 512 (362) 963 (963) 77,376 (25,410) 113 0.0 113 105 8 86.5% $ 510,572 -14- 90.7% $ 493,070 $ 497,670 $ (4,600) Colorado National Golf Club, LLC Schedule of Golf Shop Expense - Schedule 18 (See Accountants' Compilation Report) Golf Shop Revenues Member Dues Tournament Green Fees Green Fees Cart Fees Tournament Cart Fees Range Fees Tournament Range Fees Golf Clinics & Lessons Junior Golf Program Golf Merch-Clubs/Bags Golf Merch-Golf Balls/Gloves Golf Merch-Men's Apparel Golf tvierch-ladies Apparel Golf Merch-Golf Shoes Golf Merch-Outerwear Golf Merch-Accessories Golf Merch-Special Order Golf Merch-Cigar Sales Golf Merch-Discounts Club Rental Club Repair Club Storage Handicap Fees Locker Fees Expired Gift Certificates Other Income Other Non -Golf Income Total Golf Shop Revenues Cost of goods Sold Merch COS-Clubs/Rags Merch COS -Golf Balls/Gloves Merch COS -Men's Apparel Merch COS -Ladies Apparel Merch COS -Golf Shoes Merch COS -Shoe Cleaning Mach COS -Outerwear Merch COS -Accessories Merch COS -Miscellaneous Merch COS -Special Order Merch COS -Special Order Merch COS -Discounts Merch COS -Cigars Total Cost of Goods Sold For the Years Ended December 31, 2015 2014 $ 125 0.0% $ 0.0% 149,990 8.5 141,363 8.3 713,132 40.4 726,205 42.5 373,543 21.2 392,717 23.0 50,325 2.9 46,455 2.7 117,552 6.7 113,057 6.6 16,180 0.9 14,925 0.9 18,729 1.1 15,843 0.9 0.0 (16) (0.0) 15,104 0.9 11,926 0,7 58,381 3.3 49,005 2.9 44,828 2.5 42,354 2.5 21,268 1.2 12,792 0.7 13,097 0.7 12,858 0.8 19,065 1.1 27,510 1.6 36,045 2.0 29,132 1.7 93,151 5.3 34,392 2,0 2,572 0.1 2,032 0.1 (37,050) (2.1) (28,205) (1.6) 16,040 0.9 13,000 0.8 866 0.0 1,963 0.1 1,679 0.1 1,882 0.1 12,630 0.7 15,200 0.9 1,663 0.1 2,181 0.1 7,276 0.4 9,620 0.6 0.0 278 0.0 19,500 11 20,950 1,2 1,765, 591 100.0 1,709,419 100.0 8,891 0.5 11,781 €101 3 0, 27 7 1.7 2 7, 76 8 0.02 26,464 1.5 26,078 0.02 11,994 0.7 7,208 0.00 7,694 0.4 8,652 0.01 0.0 48 0.00 9,703 0.5 12,884 0.01 11,360 0.6 15,401 0.01 0.0 137 0.00 5,226 03 - 0.00 86,365 4.9 30,017 0.02 - 0.0 (9) (0.00) 1,715 0.1 1,091 0.00 199,689 11,3 -liter0.08 Budget Actual Variance Year -to -Date December 31, Budget Actual Variance 141,363 726,205 392,717 46,455 113,057 14,925 15,843 (16) 11,926 49,005 42,354 12,792 12,858 27,510 29,132 34392 2,032 (28,205) 13,000 1,963 1,882 15,200 2,181 9,620 2 278 20,950 $ 125 149,990 713,132 373,543 50,325 117,552 16,180 18,729 15,104 58,381 44,828 21,268 13,097 19,065 36,045 93,151 2,572 (37,050) 16,040 866 1,679 12,630 1,663 7,276 19,500 1,709,419 1,765,591 11,781 27768 26,078 7,208 8,652 48 12,884 15,401 137 30,017 (9) 1,091 8,891 30,277 26,464 11,994 7,694 9,703 11,360 5,226 86,365 1,715 141,056 199,689 $ (125) (8,627) 13,073 19,174 (3,870) (4,495) (1,255) (2,886) (16) (3,178) (9,376) (2,474) (8,476) (239) 8,445 (6,913) (58,759) (540) 8,845 (3,040) 1,097 203 2,570 518 2344 278 1,450 1507 2,890 (Z509) (3 86) (4,786) 958 48 3,181 4,041 137 (5226) (56,348) (9) (624) (58,633) Total Gross Profit and Other income $ 1,565,902 88.7% $ 1,568,363 91.7% $ 1,568,363 $ 1,565,902 $ 2,461 Colorado National Golf Club, LLC Schedule of Golf Shop Expense - Schedule III (Continued) (See Accountants' Compilation Report) Direct Operating Expense FIR Salaries P/R Hourly RJR Overtime P/R Bonus P/R Commissions Golf Pro Lessons P/R ER Taxes Employee Insurance Employee Meals Telephone Equipment Lease Equipment Rental Equipment Repair & Maintenance Contract Services Clubhouse Amenities IT Maintenance Cleaning/Laundry Supplies Building Repair & Maintenance Cart Repair & Maintenance Professional Fees Computer Supplies & Equipment Driving Range Supplies Equipment Expense Gasoline & Lubricants General Supplies Golf Club Repairs Office Supplies Paper Supplies & Disposables Printing & Stationery Small Tools Uniforms Club Event Expense Marketing & Promotion Travel, Meals & Entertainment Cash Over/Short Donations Dues & Subscriptions Handicap Expense NSF/Cbargebacks Postage Prizes & Trophies Finance/Service Charge Tournament Expense Website Insurance Workers Comp Insurance Leased Property Tax Miscellaneous Income/Expense Total Direct Operating Expenses Depreciaton Expense For the Years Ended December 31, 2015 $ 75,917 4.3% 65,430 3.7 2,555 0.1 1,450 0.1 1,408 0.1 14,867 0.8 16,899 1.0 (1,522) (0.1) 12 0.0 550 0.0 154,611 8.8 411 0.0 3,186 0.2 190 0.0 0.0 769 0.0 205 0.0 80 0.0 9,300 0.5 0.0 112 0.0 7,674 0.4 3,187 0.2 3 0.0 1,232 {3.1 1,400 0.1 1,089 0.1 0.0 1,162 0.1 100 0.0 3,011 0.2 1,016 0.1 1,110 0.1 1,231 0.1 (1) (0.0) 0.0 1,054 0.1 7,517 0.4 0.0 91 0.0 1,579 0.1 14 0.0 1,290 0,1 0.0 5,423 0.3 2,330 0.1 14,656 0.8 2,457 0.1 Budget Actual Variance Year -to -Date December 31, 2014 Budget Actual Variance $ 72,091 4.2% $ 72,091 57,635 3,4 57,635 788 0.0 788 0.0 - 1,736 0.1 1,736 13,787 0.8 13,787 14,948 0,9 14,948 3,782 0,2 3,782 0.0 - 640 0.0 640 158,538 9.3 158,538 0.0 - 3,289 0.2 3,289 190 0.0 190 16 0.0 16 0,0 0.0 0.0 2,328 0.1 546 0.0 0.0 7,390 0.4 0.0 49 0.0 997 0.1 2,169 0.1 L666 0.1 40 0.0 2,018 0.1 0.0 288 0.0 125 0.0 1,988 0.1 103 0.0 (13) ({3.0) 929 0.1 350 0.0 7,770 0.5 180 0.0 232 0.0 0.0 0.0 1,182 0.1 1,500 0.1 0.0 2,494 0.1 2,494 10,517 0.6 10,517 1,204 0.1 1,204 405,035 22.9 373,492 21.8 373,492 708 0.0 767 0.0 767 $ 75,917 $ (3,826) 65,430 (7,795) 2,555 (1,767) 1,450 (1,450) 1,408 328 14,867 (1,080) 16,899 (1,951) (1,522) 5,304 12 (12) 550 90 154,611 3,927 411 (411) 3,186 103 190 16 769 (769) 205 (205) 80 (80) 2,328 9,300 (6,972) 546 - 546 112 (112) 7,390 7,674 (284) 3,187 (3,187) 49 3 46 997 1,232 (235) 2,169 1,400 769 1,666 1,089 577 40 40 2,018 1,162 856 100 (100) 288 3,011 (2,723) 125 1,016 (891) 1,988 1,110 878 103 1,211 (1,108) (13) (1) (12) 929 - 929 350 1,054 (704) 7,770 7,517 253 180 180 232 91 141 1,579 (1,579) 14 (14) 1,182 1,290 (108) 1,500 1,500 - 5,423 (5,423) 2,330 164 14,656 (4,139) 2,457 (1,253) 405,035 (31,543) 708 59 Net Income (Loss) from Golf Shop $ 1,160,159 65.7% $ 1,194,104 69.9% $ 1,194,104 $1,160,159 $ 33,945 -16- Colorado National Golf Club, LLC Schedule of Golf Course Maintenance Expense - Schedule IV (See Accountants' Compilation Report) Direct Operating Expense P/R Salaries P/R Hourly P/R Overtime P/II. Bonus P/R ER Taxes Employee Insurance Employee Meals Utilities -Power Utilities -Water Waste Removal Telephone Equipment Rental Equipment Repair & Maintenance Building Repair & Maintenance Topdressing & Bunkers Sod and Turf Soil, Seed and Fertilizer Landscaping & Plants Can Repair & Maintenance Irrigation Repair & Maintenance Pesticides Contract Services Outsourced Iaundering Security Equipment Expense Gasoline & Lubricants General Supplies Small Tools Uniforms Club Event Expense Golf Course Accessories Golf Course Amenities Office Supplies Printing & Stationery Marketing & Promotion Mileage & Fuel Travel, Meals & Entertainment Dues & Subscriptions Permits & Licenses Human Resource Management Postage Professional Development Finance/Service Charge Insurance Workers Comp Insurance Leased Properly Tax Miscellaneous Income/Expense Depreciator Expense Total Direct Operating Expenses For the Years Ended December 31, Budget Actual Variance Year -to -Date December 31, 2015 2014 Budge! Actual Variance $ 179,549 $ 145,209 121,424 128,490 5,300 3,081 650 32,820 29,536 (4,940) 41 115 37,114 108,761 1,740 900 5,593 38,476 853 8,378 12,766 34,895 9,800 16,328 20,638 9,880 389 18,856 2,073 4,549 3,454 1,048 8,954 128 241 100 239 73 643 362 98 255 12,019 4,762 8,616 (202) 793,423 10,212 39,959 79,482 1,209 1,100 2,102 35,527 170 4,452 6},707 22,577 4,071 300 22,259 8,092 3,433 448 875 5,194 27,581 1,459 4,111 2,717 5,533 • 259 156 110 177 32 1,060 149 24 780 11 4,811 10,478 185 666,768 $ 145,209 128,490 3,081 29,536 41 39,959 79,482 1,209 1,100 2,102 35,527 170 4,452 6,707 22,577 4,071 300 22,259 8,092 3,433 448 875 5,194 27,581 1,459 4,111 2,717 5,533 260 156 110 177 32 1,060 149 24 780 11 4,$11 10,478 185 666,769 8,747 8,747 $ 803,635 $ 675,515 $ 675,516 $ 179,549 121,424 5,300 650 32,820 (4,940) 115 37,114 108,761 1,740 900 5,593 38,476 R53 8,378 12,766 34895 9,800 16,328 20,638 9,880 389 18,856 2,073 4,549 3,454 1,048 8,954 128 241 100 239 73 643 362 98 255 12,019 4,762 8,616 (202) $ (34,340) 7,066 (2,219) (650) (3,2$4) 4,981 (115) 2,845 (29,279) (531) 200 (3,491) (2,949) (683) (3,926) (6,059) (12,318) (5,729) 3100 5,931 (12,546) (6,447) 59 875 5,194 8,725 (614) (438) (737) (1,048) (3,421) (128) 19 156 10 (62) (41) 417 149 (362) (74) 525 11 (12,019) 49 1,862 387 793,423 (126,654) 10,212 (1,465) $ 803,635 $ (128,119) -17- Colorado National Golf Club, LLC Schedule of Clubhouse Maintenance Expense Schedule V (See Accountants' Compilation Report) For the Years Ended Budget Actual Variance December 31, Year -to -Date December 31, 2015 2014 Budget Actual Variance Revenues Insurance Proceeds Total Revenues Direct Operating Expenses Utilities -Power Utilities -Water Waste Removal Telephone Equipment Repair & Maintenance Building Repair & Maintenance Contract Servies Security Music Service Cable/Satellite Subscription Equipment Expense Cleaning/Laundry Supplies Office Supplies General Supplies Dues & Subscriptions Uniforms Postage Miscellaneous Income/Expense Depreciation Expense Total Direct Operating Expenses $ 127,749 $ 0 127,749 $ 0 $ 127,749 $ (127, 749) 0 127,749 (127, 749) 50,401 51,486 51,486 50,401 1,085 3,075 15,205 15,205 3,075 12,130 (985) 1,049 1,049 (985) 2,034 7,178 6,912 6,912 7,178 (266) 5 1,269 1,269 5 1,264 88,141 14,123 14,123 88,141 (74,018) 11,542 9,760 9,760 11,542 (1,782) 958 840 840 958 (118) 183 503 503 183 320 923 1,114 1,114 923 191 - 801 801 - 801 154 P. E. 154 (154) 358 358 - 358 1,712 1,437 1,437 1,712 (275) 400 400 400 64 64 (64) 196 - - 196 (196) 28,210 28,210 (28,2 10) 191,757 105,257 105,257 163,547"(58,290) 3,740 3,703 3,703 3,740 (37) 195,497 108,960 108,960 167,287 (58,327) Net Income (loss) from Club Maintenance S (67,748) $ (108,960) $ (108,960) in $ (69,422) Colorado National Golf Club, LLC Schedule of General & Administrative Expense - Schedule VI (Sec Accountants' Compilation Report) Revenues Rental Income VRC Concessions Cancellation Fee Grille - Food Sates Other Income Finance Charges Management Fee Other Non -Golf Income Interest Income Total Revenues. General & Administrative Expense P/R Salaries P/R Hourly P/R Overtime P/R Bonus P/R Commissions Pa ER Taxes Employee Insurance Employee Meals Employee Relations Utilities - Power Waste Removal Telephone Equipment Lease Equipment Rental Equipment Repair & Maintenance IT Maintenance Legal Fees Consulting Fees Contract Services Outsourced Payroll Expenses Security, Cable/Satellite Subscription Computer Supplies & Equipment Equipment Expense General Supplies Office Supplies Printing & Stationery Uniforms Club Event Expense Member Relations Mileage & Fuel Travel, Meals, & Entertainment Vehicle Allowance Bad Debt Expense Bank Service Charge Credit Card Fees Discounts named Donations Dues & Subscriptions Gratis Food Management Fee Expense Human Resource Management NSF/Chargebacks Permits & Licenses Postage Finance/Service Charge Website Insurance Workers Comp Insurance Property Tax Expense Miscellaneous Income/Expenses Suspense Account Interest Income Net income (loss) from General & Administrative For the Years Ended December 31, 2015 2014 Budget Actual Variance Year -to -Date December 31, Budget Actual Variance $ 338,726 $ 369,878 $ 369,878 $ 338,726 500 . 500 (4,443) - - (4,443) 77 104 104 77 (4,442) (2,181) (2,181) (4,442) 25,342 24,604 24,604 25,342 273 273 - 86 77 77 86 355,846 122,250 27,024 135 20,700 2,200 13,056 (931) 4,987 (2,751) 3,940 990 8.386 762 1,853 10,58R 19,603 17,976 10,042 13,887 305 2,740 225 51 65 2,027 511 41 1,778 8,560 229 30,706 214 $4,760 (79) 1,500 266 20,052 6,387 (37) 66 619 220 2,700 47,405 2,570 170,291 (1,836) (88) 392,755 87,806 21,129 135 5,450 9,901 236 4,960 182 3,484 76 900 12,171 3,928 1,902 18,383 26,212 6,432 95 2,077 2,060 23 1,476 412 660 400 17,823 2,551 11 42,604 (19) 810 (20) 16,500 9,300 50 938 2,825 57,423 1,759 180,936 5,639 776 392,755 87,806 21,129 135 5,450 9,90! 236 4,960 182 3,484 76 900 12,171 3,928 9,902 18,383 26,212 6,432 95 2,077 2.060 23 1,476 412 660 69 400 17,823 2,55! II 42,604 (19) 810 (20) 16,500 9,300 • 50 938 2,825 57,423 1,759 180,936 5,641 776 (47) $ 627,514 $ 550,585 $ 550,587 -19- 355,846 $ 31,152 (500) 4,443 21 2,261 (738) 273 (9) 36,909 122,250 (34,444) 27,024 (5,895) 135 20,700 (20,700) 2,200 3,250 13,056 (3,155) (931) 1,167 4,987 (27) 182 (2,751) 6,235 3,940 (3,864) 990 (90) 8,3$6 3,785 762 (762) 1,853 (1,853) 10,588 (6,660) 19,603 (17,701) 17,976 407 10,042 16,170 13,887 (7,455) 305 (210) 2,740 (663) 225 1,835 51 (51) 65 (42) 2,027 (551) 511 (99) 41 (41) 660 69 1,778 (1,378) 8,560 9,263 229 2,322 30,706 (30,706) 214 (203) 54,760 (12,156) (19) - 1,500 (1,500) 266 544 (20) 20,052 (3,552) 6,387 2,913 (37) 37 66 (16) 619 319 220 (220) 2,700 125 47,405 10,018 2,570 (611) 170,291 10,645 (1,836) 7,477 776 (88) 41 $_- _627,574 $ (76,987)) , Colorado National Golf Club, LLC Schedule of Practice Facility - Schedule VII (See Accountants' Compilation Report) For the Years lrndeci Budget Actual Variance December 31, Year -to -Date December 31, 2015 2014 Budget Actual Variance Direct Operating Expense P/R Hourly Utilities - Power Utilities - Water Telephone Building Repair & Maintenance IT Maintenance Contract Services Security Driving Range Supplies General Supplies $ $ $ $ $ 2,673 2,986 2,986 2,673 313 710 586 586 710 (124) 1,313 1,385 1,385 1,313 72 219 256 256 219 37 402 402 (402) 326 420 420 326 94 275 300 300 275 25 1,114 - 1,114 (1,114) 439 343 343 439 (96) Total Direct Operating Expense $ 7,471 $ 6,276 $ 6,276 $ 7,471 1.i.12.911 -20- Vista Ridge Catering, LLC Statements of Operations (See Accountants' Compilation Report) For the Years Ended December 31, 2015 2014 Food Sales Food Revenue Less Cost of Food Sales Gross Profit on Food Sales Bar sales Liquor - Revenue Less Cost of Liquor Saks Gross Profit on Liquor Sales Wine - Revenue Less Cost of Wine Sales Gross Profit on Beer Sales Beer - Revenue Less Cost of Beer Sales Gross Profit on Wine Sales Other Income Room Rental Other Income Minimum Patronization Fees Total Other Income Total Gross Profit & Other Income $ 648,938 100.0% $ 653,521 100.0% 228,697 35.2 240,036 36.7 420,241 64.8 413,485 63.3 135,738 100.0 151,286 100.0 25,948 19.1 27,905 18.4 109,790 80.9 123,381 81.6 66,203 100.0 72,352 100.0 15,240 23,0 15,415 213 50,963 77.0 56,937 78.7 265,852 100.0 262,654 100.0 73,595 27.7 72,913 27.8 192,257 723 189,741 72.2 21,792 44.1 25,950 47.8 12,587 25.5 15,311 28.2 15,053 30.5 13,039 24.0 49,432 100.0 54,300 100.0 $ 822,683 70.5% $ 837,844 70.2% See notes to financial statements. -3- Vista Ridge Catering, LLC Statements of Operations (Continued) (See Accountants' Compilation Report) For the Year Ended December 31, 2015 2014 Direct Operating Expenses Advertising Bank Service Charges Cleaning/Laundry Supplies Club Event Expense Consulting and Contracting Fees Depreciation Expense Entertainment Equipment Leases Insurance Human Resources Landscaping Laundering - Outsourced Licenses, Taxes, & Permits Meals and Gratis Office Supplies and Expenses Rent Expense - Concession Repairs - Building Repair & Maintenance - Equipment Salaries Telephone & Utilities Travel Meals & Entertainment Vehicle Expense Total Direct Operating Expenses $ 916 0.1% $ 6,398 0.5% 20,056 1.7 19,805 1.7 3,815 0.3 6,873 0.6 11,039 0.9 13,587 1.1 9,566 0.8 7,253 0.6 0.0 1,152 0.1 180 0.0 1,450 0.1 1,355 0.1 2,035 0.2 9,494 0.8 8,807 0.7 967 0,1 542 0.0 2,303 0.2 2,439 0.2 18,787 1.6 17,361 1.5 1,146 0.1 (1,674) (0.1) 1,379 0.1 1,820 0.2 33,217 2.8 29,707 2.5 338,726 29.0 369,878 31.0 559 0.0 594 0.0 11,151 1.0 7,591 0.6 357,003 30.6 341,316 28.6 550 0.0 300 0.0 71 0.0 0.0 403 0.0 610 0.1 822,683 Net Income (Loss) $ 70.5 837,844 70.2 0.0% $ - 0.0% See notes to financial statements. -4- Vista Ridge Catering, LLC Schedule of good and Bar Expense - Schedule II (See Accountants' Compilation Report) Food Sales Sales Revenue Less Cost of Food Sales Gross Profit on Food Sales Bar sales Liquor - Revenue Less Cost of Liquor Sales Gross Profit on Liquor Sales Wine - Revenue Less Cost of Wine Sales Gross Profit on Beer Sales Beer - Revenue Less Cost of Beer Sales Gross Profit on Wine Sales Other Income Room Rental Other Income lvlinimum Patronization Fees Total Other Income For the Twelve -Month Period Ended December 31, Budget Actual Variance Year -to -Date December 31, 2015 2014 Budget Actual Variance $ 648,938 100.0% $ 653,521 100.0% $ 653,521 $ 648,938 $ 4,583 228,697 35.2 240,036 36.7 240,036 228,697 11,339 420,241 64.8 413,485 63.3 413,485 420,241 (6,756) 135,738 100.0 151,286 100.0 25,948 19.1 27,905 18.4 109,790 80.9 123,381 81.6 66,203 100.0 72,352 100.0 15,240 23.0 15,415 21.3 50,963 77.0 56,937 78.7 265,852 100.0 262,654 100.0 73,595 27.7 72,913 27.8 192,257 72.3 189,741 72.2 21,792 44.1 25,950 47.8 12,587 25.5 15,311 28.2 15,053 30.5 13,039 24.0 49,432 100.0 54,300 100.0 151,286 27,905 135,733 15,548 25,948 1,957 123,381 109,790 13,591 72,352 66,203 6,149 15,415 15,240 175 56,937 50,963 5,974 262,654 72,913 265,852 (3,198) 73,595 (682) 189,741 192,257 {2,516) 25,950 15,311 13,039 21,792 12,587 15,053 4,158 2,724 (2,014) 54,300 49,432 4,868 Total Gross Profit & Other Income $ 822,683 70.5% $ 837,844 70.2% $ 837,844 $ 822,683 15,161 Vista Ridge Catering, LLC Schedule of Food and Bar Expense - Schedule H (Continued) (See Accountants! Compilation Report) For the Twelve -Month Period Ended Budget Actual Variance December 31, Year"to.abate December 31, 2015 2014 Budget Actual Variance Direct Operating Expenses P/R. Salaries $ 104,803 9.0% $ 92,678 7.8% $ 92,678 $ 104,803 $ (12,125) Plat Hourly 107,564 9.2 98,799 8.3 98,799 107,564 (8,765) Server P/R-Hourly 76,070 6.5 75,364 6.3 75,364 76,070 (706) F/R Overtime 2,401 0.2 8,075 0.7 8,075 2,401 5,674 Server P/R Ovcttimc 6,784 0.6 8,751 0.7 8,751 6,784 1,967 Kitchen P/R. - Commissions 6,372 0.5 4,545 0.4 4,545 6,372 (1,827) Kitchen P/R ER Taxes 24,597 2.1 23,768 2.0 23,768 24,597 (829) Server PAIR Taxes 28,412 2,4 29,336 2.5 29,336 28,412 924 Employee Insurance (940) (0.1) 567 0.0 567 (940) 1,507 Employee Meals 0 0.0 821 0.1 821 0 821 Equipment Lease 972 0.1 185 0.0 185 972 (787) Equipment Rental 383 0.0 1,850 0.2 1,850 383 1,467 Equipment Repair & Maintenance 10,550 0.9 6,873 0.6 6,873 10,550 (3,677) Building Repair & Maintenance 559 0.0 594 0.0 594 559 35 Cart Repair & Maintenance 601 0.1 0 0,0 0 601 (601) Consulting Fees 8,468 0.7 5,868 0.5 5,868 8,468 (2,600) Contract Services 1,098 0.1 1,385 0,1 1,385 1,098 287 Outsuurced Laundering 18,787 1,6 17,361 1.5 17,361 18,787 (1,426) Pest Control 2,303 0.2 2.,439 0.2 2,439 2,303 136 Cleaning/Laundry Supplies 3,815 0 3 6,873 0.6 6,873 3,815 3,058 Clubhouse Amenities 0 0.0 35U 0.0 350 0 350 Computer Supplies & Equipment 91 0.0 0 0,0 0 9I (91) During Room Supplies 1,283 0.1 2,585 0.2 2,5.85 1,283 1,302 Equipment Expense 0 0.0 718 0.1 718 0 718 Gasolin.e & Lubicants 40 0.0 0 0.0 0 40 (40) General Supplies 2,481 0.2 2,006 02 2,006 2,481 (475) Kitchen Supplies 11,712 1.0 7,243 0.6 7,243 11,712 (4,469) Office Supplies 1,999 0.2 1,580 0.1 1,580 1,999 (419) Paper Supplies & Disposables 17,300 1.5 20,114 1.7 20,114 17,380 2,814 Printing & Stationery 1,181 0.1 129 0.0 129 1,181 (1,052) Uniforms 599 0.1 991 0.1 991 599 392 Club Event Expense 9,756 0.8 10,652 0.9 10,652 9,756 896 Marketing & Promotion (265) (0.0) 6,269 0.5 6,2.69 (265) 6,534 Mileage & Fuel 363 0.0 610 0.1 610 363 247 Entertainment 180 0.0 1,450 0.1 1,450 180 1,270 Bank Service Charges 2 0 0 27 0.0 27 2 25 Credit Card Fees 20,050 1.7 19,778 1.7 19,778 20,050 (272) Gtatis Beverage 661 0.1 84 0.11 84 661 (577) Gratis Food 718 0.1 915 0.1 915 718 197 Human Resources Management 110 0.0 477 0.0 477 110 367 Permits &Licenses 1,146 0.1 (1,674) (0.1) 1,230 1,146 84 Postage 61 0.0 0 0.0 0 61 (61) Professional Development 857 0.1 65 0.0 65 857 (792) Telephone 550 0.0 300 0.0 300 550 (250) Travel meals and entertainment 71 0.0 0 0.0 0 71 (71) Vendor Rebates 0 0.0 (590) (0.0) (590) 0 (590) Insurance 2,046 0.2 0 0.0 0 2,046 (2,046) Workers Comp Insurance 8,388 0.7 8,240 0.7 8,240 8,388 (148) Rent Expense - Concession 338,726 29.0 369,878 31.0 222,000 338,726 (116,726) Miscellaneous (Ineome)/Experise (1,026) (0.1) (1,637) (0.1) (1,636) (1,026) (610) Depreciation Expense 0 0.0 1,152 0.1 1,152 0 1,152 Total Direct Operating Expenses 822,679 70.5 837,844 70.2 692,871 822,679 (129,808) Net Income (Loss) from Food and Bar Operations $ 4 0.0% $ 0 0.0% $ 144,973 $ 4 $ 144,969 -12- APR 230 Valuation of Golf Courses Section 1: Introduction to Golf Courses APR 230: Valuation of Golf Courses (2013) Section 1— Introduction to Golf Courses Page 1.1 Section 1 INTRODUCTION TO GOLF COURSES I. PURPOSE OF WORKSHOP The purpose of this workshop is to: • Provide recommended procedures to assist county assessors in the valuation of golf courses for ad valorem taxation; • Encourage inter -county communication and sharing of information on golf courses; and • Promote statewide property tax equalization through the use of similar valuation methodology. IL HISTORY The name "golf," derived from the Dutch word kolf (club), was originated in Scotland during the 15th century. The game became so popular that in 1457 King James II decreed "golfe be utterly cryed down, and not to be used." This decree was needed because so many people were playing golf and not practicing archery, which was necessary for defense. Subsequent bans were equally ineffective and the game finally gained acceptance among the royalty. Golf is native to Scotland. St. Andrews, Scotland, is said to be the birth place of golf and Mary Queen of Scots played there in the mid -16th century. It was the first formal golf course and was a complete natural linksland course along the seashore. Linksland was formed by a receding ocean that left sandy dunes and hollows. These first golf courses had no tees, greens, or fairways as we know them today. Instead, the custom was to "tee one's ball within a club length of the previous cup." Natural conditions determined the sequence of play and the number of holes. In the mid -1700's, the Scots began to modify the courses' natural conditions by creating more permanent grass putting surfaces. State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 1.2 Section 1 -- Introduction to Golf Courses Most early courses were located on publicly owned land. Play was open to everyone. There were few standards. In fact, the 18 -hole length was not clearly established until 1764. Before then, courses ranged from five to 25 holes. Golf spread through the world as Scots emigrated from their native land and brought the game with them. The first permanent golf course in the United States was established in 1887 at Foxburg, Pennsylvania. Golf courses were developed by private clubs, colleges, and universities, mostly in the Northeast. By the end of the 19`h century, approximately 950 golf courses existed in the United States. In the 1920's, the pace of golf course development soared. More than 600 courses per year were built between 1923 and 1929. During this period, Pebble Beach was built and in 1932, Georgia's Augusta National was constructed. During the depression and World War I1, golf course construction virtually stopped due to bad economic times. In fact, there was a decline in the total number of facilities until 1946. Activity was slow in postwar years, but after President Eisenhower's play became widely publicized, golf course construction began to rise again. During the 1950's, golf began to take off. This was due to several reasons including scientific and technological advances in earth moving and irrigation equipment and turf management techniques. Golf carts were also introduced in the 50's. But more importantly television made golfing popular with stars such as, Ben Hogan, Sam Snead, Arnold Palmer, Jack Nicklaus and others. From 1960 to 1973, construction of new golf facilities averaged about 350 per year. Many of these courses were built as part of planned communities or resorts. New course development has continued, although at varying rates. Most recently, the robust economy of the late 1990s spawned a golf course building boom. Over 1,700 new courses were built between 1996 and 2000. This new development appeared supportable because rounds played continued to increase. This trend changed with the 2001 recession. A decline in rounds played combined with the rapid new construction resulted in a significant oversupply. Course revenues declined and new construction slowed dramatically. Rounds played did not again begin to increase until 2005 and remained below the levels of prior to 2001. The popularity of golf is expected to resume its growth trend. NGF is projecting improved golf course performance as the Baby Boomer generation retires. This is of course dependent on disposable income and the economy on a go -forward basis. State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 1.3 Section 1— Introduction to Golf Courses III. TYPES OF GOLF COURSES A typical course has either nine or 18 holes, each consisting of a tee, a fairway, and a green. The objective of the game, and the measure of the golfer's skill, is to move the ball from the tee into the hole on the green using the least number of strokes. Golf courses can be identified by their size, type of operational category, economic motivation, layout, topography, location, and difficulty, or by other characteristics. A general understanding of these characteristics is necessary before any type of analysis can be undertaken. A. SIZE There are three basic types of courses: regulation, executive, and par -3. 1, Regulation Courses These are the most popular. They typically have 18 holes and have par between 69 and 73, with par of 72 considered ideal. The standard length for such a course averages between 6,300 and 6,700 yards, while championship courses often exceed 7,000 yards. (The same course can have varying lengths because of multiple tee boxes.) Regulation courses range in size from 120 to 180 acres. In the regulation course, configuration affects not only the amount of acreage, but also the number of feet of residential lot frontage produced, flexibility of use, cost of construction, and maintenance expense. Par ranges from three to five strokes per hole. The basic mix of holes is ten par - 4's, four par -3's, and four par -5's. Ideally, these holes should be evenly distributed among the two sets of nine holes. The typical par -to -yardage relationship is: Men Women Par 3 Under 250 yards Under 210 yards Par 4 251 - 470 yards 211 - 400 yards Par 5 Over 471 yards 401 - 575 yards State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 1.4 Section 1— Introduction to Golf Courses 2. Executive Courses Executive courses are shorter than regulation courses. They usually contain four to six par -4 holes with perhaps one par -5. The rest of the holes are par -3. They usually have a length of 3,000 to 4,500 yards and range in size from 40 to 75 acres. Executive courses first became popular in the 1950's as a means to both conserve land and to allow for a round of play in about half the time it would take on a regulation course. 3. Par 3's As its name implies, in this type of course each hole has a par -3 rating for a total par of 54. The total length is 2,000 to 2,500 yards and, typically, the total area is 35 to 45 acres. These courses are popular with beginners, those wanting to practice their short game, and people with limited time to play. State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 1.5 Section 1— Introduction to Golf Courses B. OPERATIONAL CATEGORY Golf courses are developed for a variety of purposes. The most basic breakdown is between courses that are privately owned or municipally owned. There are three operational categories: private, daily -fee, and municipal. 1. Private Clubs Until 1962, most golf courses in the United States were built by groups of private individuals who organized to own and operate a club. Private clubs are usually closed to the general public and membership is usually limited and expensive. These clubs are typically composed of members who pay an initial fee and annual dues to support the capital and operating expenses. The initial fee can carry with it a portion of the club's equity ownership or simply may be an initiation fee required for membership, but not representing an ownership interest. Clubs are often organized as nonprofit entities. Martin E. Benson, MAI and a recognized authority on the valuation of golf courses, distinguishes between three types of clubs: a. Equity Clubs An equity club (also known as a proprietary club) is a golf course that restricts the use of its facilities to specific individuals called "members" who own the real estate. More specifically, the real estate is typically owned by a legal entity such as a corporation (the club), which in turn is owned by the shareholders (the members). b. Non -Equity Clubs In a non -equity club (also known as a non-proprietary club) the members do not own the real estate. Instead, another party owns (leases or otherwise controls) the real estate and grants certain rights to its use to others who wish to become members. Such rights are often called licenses. Effectively, they are rental agreements. But, as with a rental agreement, there is a conveyance of real property rights to the members of the club. c. Hybrid Clubs Many private clubs arc hybrids of the three basic structures (the two described above and daily -fee facilities) with various classes of membership and fee access. In many parts of Colorado, these are called semi -private clubs. State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 1.6 Section 1— Introduction to Golf Courses Parenthetically, Benson suggests that a hypothetical sale of an equity club could be used to establish a new revenue stream composed of the sale of memberships in the new club (the prior members being bought -out at time of sale). This new revenue stream could then be valued using discounted cash -flow analysis (DCF). This methodology likely would be prohibited by established ad valorem court case law. However, it is an intriguing concept which might be suitable if valuation was based on an annuity capitalization method, similar to that employed in the valuation of vacant land present worth. 2. - Daily -fee Courses Today there are more daily -fee courses than any other type. Many daily -fee courses arc associated with real estate projects. Daily -fee courses are open to public patrons who pay a fee to play. They can be owned by individuals, partnerships, or corporations as businesses. With a daily - fee course, owners receive revenue from greens fees, golf cart rentals, pro shop sales, driving range, and food and beverage operations. In many cases, rising costs and stabilized demand have made the daily -fee golf business less feasible in most areas without some sort of real estate operation to help generate revenue and offset expenses. 3. Municipal Courses These are operated on a daily -fee basis and are the fewest in number. Municipal courses are owned by tax -supported government bodies that operate them as recreational facilities for the people of the community. Most of these facilities are independent entities, but they are sometimes combined with tennis courts, community centers, or other public recreational facilities. They are usually operated by a city or county parks and recreation department. Sate of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 1.7 Section 1— Introduction to Golf Courses C. ECONOMIC MOTIVATION Golf course ownership can be profit -seeking or nonprofit. A course operated for profit is an investment that can be valued using accepted appraisal techniques and approaches. The typical characteristics of the course include availability to the public, maximization of rounds, and the inclusion of various departments for the profitable sale of goods. Nonprofit courses are operated mainly to provide their amenities and not for monetary returns; however, these non-profit courses may, in many cases, be valued using accepted appraisal techniques. D. LAYOUT In a regulation course, configuration affects not only the amount of acreage, but also the number of feet of residential lot frontage produced, flexibility of use, cost of construction, and maintenance expense. The choice of configuration in planning a golf course is influenced, at least to some extent, by the purpose of the course. If it is being built to attract purchasers for adjoining lots, a design that maximizes lot frontage will be selected. A regulation sized golf course may be designed in one of five basic configurations: 1. Single-Fairwav, 18 -Hole Course with Returning Nines This layout requires a large amount of land, but provides maximum frontage for other uses, This type of course also has flexibility since its figure -eight shape permits greater use of the course. Golfers who only want to play nine holes may stop and leave the course conveniently. Two groups of players may begin simultaneously, one on each nine. Typically, this course can be played in two to two -and -a -quarter hours for each nine holes. It requires about 175 acres and provides about 44,000 feet of lot frontage. Like any single -fairway course, maintenance costs are relatively higher than core- or double -fairway courses because tees and greens are dispersed over a larger area. State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 1.8 Section 1-- Introduction to Golf Courses 2. Single -Fairway, Continuous 18 -Hole Course This course is circular or oval in shape and also requires large amounts of land. This type of course is composed of individual holes strung more or less end -to - end, played in a long loop from the clubhouse. The single -fairway course consumes the greatest amount of land. This layout also provides a large amount of golf course residential lot frontage. The continuous configuration provides less flexibility than the "returning nines." Players on this type of course who want to stop play after nine holes will find themselves in an inconvenient spot for return to the clubhouse because there is only one place to begin play, rather than two as in the "returning nines." A continuous course will also limit the overall course capacity because only one foursome at a time can start on such a course. These courses may also be more difficult and slower to play because the golfer will be forced to avoid out-of-bounds areas on both sides of a fairway. 3. Dauble-Fairway., 18 -Hole Course with Returning Nines This layout has the same flexibility as the single -fairway course with returning nines. However, the double -fairway type requires somewhat less land, about 150 acres, and provides only about 24,000 feet of lot frontage. Like the single -fairway layouts, returning nines will mean faster, more varied play than play on a parallel -fairway course. Returning nines will also slightly decrease the amount of available frontage. Next to a core course, this layout is the most economical to maintain. 4. Double -Fairway, Continuous 18 -Hole Course This course is similar to the double -fairway "returning nines" in land requirements, but lacks the residential lot frontage found in other types. The side -by -side fairways do provide some savings on maintenance costs. This type of course is particularly suited for long, narrow valley sites, such as Beaver Creek. State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 1.9 Section 1-- Introduction to Golf Courses 5. Core Course The "core" golf course is not strung out like the other four types of regulation courses. This type of layout is compact and is generally circular or oval in shape. It is seldom used as part of a real estate development. It requires the least amount of land and provides great flexibility, but produces less golf course residential frontage than any of the other layouts. It requires about 125 to 140 acres and provides only about 10,000 feet of lot frontage. Core courses are the most economical and the most efficient to operate but yield the fewest building sites. The core golf course requires the least amount of maintenance because it covers less land area and has shorter linear distances. The core golf course may be most feasible for a private country club not associated with any real estate development, since it maximizes flexibility and minimizes operating costs. Many municipal courses are also of a core design. Assuming all factors remain equal, continuous layouts offer maximum frontage, but minimal flexibility. Returning nines increase capacity and flexibility at a small loss of developable frontage. Single fairways offer greater design flexibility and maximum frontage, but require higher maintenance costs and, to some degree, provide a lower quality of play. Double or parallel fairways are more economical to maintain. State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 1.10 Section 1— Introduction to Golf Courses E. TOPOGRAPHY Golf courses can also be categorized by the type of terrain. 1. Flat courses laid out on valley land. 2. Gently sloping courses. 3. Hilly courses on gently rolling to moderately sloping hillsides and valleys. Flat courses have the lowest development costs, followed by gently sloping courses. Hilly courses are the most expensive to develop. F. LOCATION Golf courses are found in a variety of settings, each with its own characteristics. Suitable locations include, but are not limited to, residential subdivisions, resorts, country clubs, and parks and open space. G. DIFFICULTY Golf courses range from highly landscaped, fully turfed courses to rough links courses, with many variations in between these two extremes. The cost and playability of a golf course depends to a great extent on design factors. These design factors contribute to the difficulty of a course: tee placement, length, green size, hole visibility, contour, hazards, and climatic conditions. The difficulty of a course should match its market. Resort courses are usually more difficult to play than courses oriented to the general public. Resort courses are designed to challenge serious, accomplished golfers with greater length and more hazards, while courses designed for the general public are likely to be characterized by shorter distances, easier greens, and multiple -position tees. Course difficulty can be varied greatly by having multiple tee boxes. State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 1.11 Section 1— Introduction to Golf Courses IV. GOLF COURSE DESCRIPTIONS A. SITE FEATURES The process of appraising a golf course begins with a description of the raw land. This includes consideration of site size, shape, topography, utilities, accessibility, soils, vegetation and other characteristics. 1. Size Golf course sites vary in size. Regulation 18 -hole courses generally cover 120 to 180 acres. Core courses require the smallest amount of land, double fairways require more, and single fairways are the least efficient. 2. Shape Due to the various design options available, the shape of golf courses can vary greatly. The developer of a mixed project, consisting of a golf course and residential lots, generally tries to maximize the amount of developmental land along the fairways. 3. Utilities The basic utilities include electricity, domestic and irrigation water, and a sanitary sewer or septic system. B. COURSE CHARACTERISTICS Golf courses are designed to meet the requirements of a specific market or markets. Typical or desirable features for each design are described below. 1. Municipal Courses The simplest of courses, municipal golf courses, arc designed to accommodate heavy daily play throughout the year or season and to appeal to a wide variety of players. Typically a core design is used with emphasis on playability and enough complexity to challenge a wide range of players. Municipal courses are shorter than most and fairways are wide. They tend to be flat and have few rough areas, sand traps, and water hazards where balls can be lost. State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 1.12 Section 1— Introduction to Golf Courses Development and operating costs are typically low due to the concentration of the irrigation system, easy mowing, reduced landscape maintenance, and fewer obstacles. 2. Resort Courses Resort courses are usually the most complicated type of courses. They are designed to appeal to serious golfers, but also serve as a marketing tool to attract a broader market of group and convention business. Resort courses are distinguished by memorable holes, scenic beauty, a feeling of privacy or spaciousness, signature course architects, lakes and a variety of hazards, They usually feature a core- or double -fairway layout and have high construction and maintenance costs. 3. Retirement Community Courses The typical player at a retirement community course is older, but plays often, so the course is generally not situated in difficult terrain. These courses are shorter and have wider fairways for faster play. They are usually a single- or double - fairway layout to maximize frontage along surrounding land and for ease of. maintenance. Colorado examples include the Heather Gardens Executive Course and the Battlement Mesa Regulation Course. In addition to these three basic course types, desirable characteristics may be combined to produce hybrids and variations. State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 1.13 Section 1— Introduction to Golf Courses C. ELEMENTS OF A GOLF COURSE A typical golf hole consists of a tee, fairway, green, rough, and hazard. 1. Tees The tee is the starting point for each hole. This is the area from which the golfer first hits his or her ball. Typically a hole will have two to four sets of tees spaced over a distance of approximately 50 to 75 yards. Designing a tee requires careful consideration of a number of factors: proper soil and drainage, adequate exposure to sunshine and air movement, limited slope for mowing purposes, and appropriate orientation to minimize damage to adjacent property from errant drives. Tees are subject to a great deal of hard use and require constant attention. Tee areas are typically well defined, flat on top, well covered with closely mowed turf, and based on good soil that will take a tee easily and resist compaction. Tees are properly sized so tee markers can be frequently changed to allow for even distribution of wear and to preserve the turf. For drainage, tees should be sloped one percent in any direction. 2. Fairways The fairway is the playing area between the tee and the green. The width of fairways varies, but is generally between 45 and 60 yards. Fairways are usually surrounded by rough consisting of taller natural grasses and weeds or natural terrain. Fairway length determines par: up to 250 yards for a par -3 hole, up to 470 yards for a par -4 hole, and more than 470 yards for a par -5 hole. 3 State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 1.14 Section 1— Introduction to Golf Courses 3. Greens Greens are irregularly shaped areas, with as nearly perfect turf as possible, where the golfer finishes the hole by putting the ball into the cup. Greens are carefully manicured to provide an even surface. Greens usually have a slight slope for visibility and drainage purposes. The size of greens varies, but is typically 3,000 to 5,000 square feet. The size of the green is generally adequate to allow for frequent changes in the location of the cup so wear and tear on the surface is evenly distributed. The construction of greens requires careful subsoil and drainage preparation. The site is prepared to a depth of eight to 24 inches with layers of gravel, sand, and soil mix over drainage tiles. In preparing a golf course appraisal, considerable attention should be given to the quality and condition of the greens, since this is where golfers typically spend a large percentage of their time. Greens are a key item in the rating of a golf course. 4. Hazards Sand bunkers, lakes, rough areas, and trees are typical golf course hazards. Hazards can be natural features or man made. Their main purpose is to make a course more challenging and provide other functions such as water storage, boundaries, and visual beauty. Their placement is important and can greatly influence the speed at which the typical golfer plays. Hazards add to the development and maintenance costs of a course. Hazards also determine the classification of the holes. There are three classifications of golf holes: a. Penal: This type of hole requires play directly across hazards: sand, water, rough, woods, or a combination. Penal holes require long, accurate tee shots over hazards to a fairly small landing area. Greens on such holes arc often small islands protected by water or sand traps. Almost every errant shot is severely penalized, resulting in slower play. For this reason, penal holes are usually found on only one or two short holes on an 18 -hole course. State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 1.15 Section 1— Introduction to Golf Courses b. Strategic: This type of golf hole typically has wider fairways and provides alternate routes to a green, with each route offering a degree of risk. With the wider fairways, a player could, instead of carrying every hazard, opt for a longer, but safer, route to the green. Usually, hazards are located so a golfer who takes a risk with a tee shot will be rewarded with an easier shot to the green. These types of holes make up about half the holes on a modem golf course with fewer, but well -placed traps. The golfer can hit at full power, but must place the shot. c. Heroic: Heroic golf holes blend the characteristics of the penal and strategic types. Designed for long hitters, these holes also offer the golfer a choice of routes. Heroic holes often involve a water carry from the tee or to the green. The true heroic strategy, if successful, will reward the golfer. An unsuccessful heroic attempt will cost more than a stroke. 5. Irritation System Climatic conditions dictate the size and complexity of golf course irrigation systems. Irrigation lines typically are placed based on the terrain and design of the course. Automated systems are preferred because of the savings in labor costs. Carefully controlled, cost-effective irrigation systems are a necessity. Water is becoming an important economic issue. Aside from the availability and cost of land, water for golf course irrigation is fast becoming the most decisive factor in the future development of golf courses. When appraising a golf course, the appraiser should know each element of the irrigation system, i.e., linear feet of lines, number of sprinkler heads and valves, size and number of pumps and wells, and type and capacity of storage systems. An appraiser should also examine the irrigation system in order to estimate the amount of accrued depreciation. State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 1.16 Section 1 — Introduction to Golf Courses 6. Clubhouse The type of golf course and the objectives of the owner will dictate the size of the clubhouse and its facilities. All golf courses require a sheltered area for the collection of fees and for the start of play. The size of a pro shop or restaurant in a golf course is generally determined by studying competitive properties, the size and affluence of the membership, and the overall objectives of the management or owners. More mistakes are made in clubhouse design and sizing than in any other aspect of golf course development. Thus, it is possible that an adjustment for either functional deficiency or super - adequacy will be required when employing the cost approach to value. Additional clubhouse uses include: fee collection, administrative offices, pro shop, locker rooms, storage rooms, grill and snack bar, lounge, kitchen facilities, dining and banquet rooms, club repair, cart storage and maintenance, and employee lounge. 7. Other Improvements and Facilities A golf course and clubhouse cannot exist without a substantial number of ancillary land improvements and buildings. A course must have golf cart storage space, which is sometimes located on the lower or basement level of the clubhouse, and a maintenance building for the storage of equipment and supplies. Additional structures may include a repair shop, a guard shack, rest stations, and pump houses. Other recreational facilities frequently associated with country clubs, exclusive real estate subdivisions, and resorts, include tennis courts and swimming pools. If these facilities generate separate income, it must be accounted for, along with associated expenses, when employing the income approach to value. Site improvements on a golf course include golf cart paths, parking lots, driving range, landscaping, and outdoor lighting. A golf course will also usually have several other practice facilities such as a putting green and a chipping area. State of Colorado Department of Local Affairs Division of Property Taxation i APR 230 Valuation of Golf Courses Section 2: Golf Course Valuation Examples APR 230: Valuation of Golf Courses (2013) Section 2 — Golf Course Valuation Examples Page 2.1 Section 2 VALUATION OF GOLF COURSES As with most real property, the traditional three approaches to value can be applied in a golf course valuation. However, one approach may be more applicable than the others, depending on the type of course being appraised. Golf courses are so varied in characteristics that no single set of procedures applies to every appraisal. A course may be private, daily fee, or municipal. They are often part of a larger enterprise, such as a resort, country club or real estate development. Size and configuration of golf courses vary, affecting flexibility of use, cost of construction, and maintenance expense. Golf courses also differ in purpose. Some are built primarily to promote sales of adjacent land or to rent lodging rooms at the adjacent resort. Others are built to maximize the satisfaction that golfers receive from their use. These variations affect value and must be considered in an appraisal. If sufficient sales of comparable golf courses are available, the sales comparison approach may receive the greatest consideration. Unfortunately, there are often not sufficient sales of comparable golf courses in a local market making traditional sales comparison difficult. Where this is the case, sales in competitive markets may need to be considered. It may also be helpful to consider some type of income multiplier analysis. At a minimum, it will usually be helpful for the results of sales comparison analysis to be expressed as a likely value range, rather than a single -value estimate. Because private, non-profit courses are not sold as often as daily -fee courses, there likely will be insufficient data for a sales comparison approach for these types of courses. And, while daily -fee courses are primarily business ventures and the income approach may be the most applicable approach, many golf course facilities, such as country clubs, are not profit -oriented ventures and, therefore, income capitalization techniques may have limited applicability. In these situations, the cost approach may be the best indicator of value. In addition to the lack of profit motive and the scarcity of golf course transactions, which are needed in the sales comparison approach, the cost approach is often given more weight in the valuation of golf courses because golf courses are considered special- purpose properties. Information needed to estimate the market value of a golf course is basically the same as for other kinds of property. In addition to general data regarding the region, the city, and the neighborhood, specific data is required: land size and characteristics, comparable land sales, estimated replacement cost of the improvements, depreciation of the improvements, income, operating expenses, and sales of comparable golf courses. State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 2.2 Section 2 — Golf Course Valuation Examples I. FACTORS AFFECTING THE VALUE OF A GOLF COURSE In the appraisal of a golf course, the factors that should be considered depend on the appropriateness of each of the three traditional approaches to value for that particular appraisal. The factors will be affected by whether there are open market sales and whether the enterprise produces a net income. If there are insufficient golf course sales and if the operation produces little or no net income, then the appraiser is left with an estimate of value based on the cost approach. A. PHYSICAL FACTORS Physical factors affect the value of a golf course in any appraisal, regardless of circumstances. Such physical factors include: 1. Geographic Location This influences the market value of the land. 2. Soil This affects not only the market value of the land, but also the cost of golf course construction and maintenance which, in turn, has a significant affect on net income. 3. Topography In ways similar to soil, this affects the market value of the land and the cost of construction and maintenance. 4. Climate This is an important factor in operating costs and frequency of use of the course. State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 2.3 Section 2 — Golf Course Valuation Examples B. ECONOMIC FACTORS The value of a golf course may be affected by the following economic factors: 1. Demand for the site for more productive alternative uses. 2. Zoning or other restrictions on use of the site. If zoning precludes use of the site for other than golf course purposes, this eliminates consideration of the site for more productive alternative uses. The site must be valued consistently with the golf course use, not alternative or speculative uses. 3. Income characteristics of the population surrounding the golf course affect the number of people who are likely to play golf and the potential income from the course. 4. Construction costs, if value is to be based on market value of the land, plus depreciated costs of improvements. 5. Operating costs affect the net income produced by the golf course. C. SOCIAL FACTORS The presence or absence of social pressure against change affects the market value of the land under the highest and best alternative use. Social characteristics of the area surrounding the golf course may affect value by influencing the following: 1. Demand The demand for another golf course in the area may be increasing or decreasing. 2. Land Use Change Although there is a possibility of a change in use of the land, from its current use as a golf course to some alternative use, this possibility will be discarded for the purposes of this workshop. State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 2.4 Section 2 — Golf Course Valuation Examples D. DESIGN FACTORS The design of a golf course includes quality of construction, aesthetics of landscaping and the clubhouse, and factors affecting the difficulty or challenge of play such as placement of sand traps, lakes, trees, and other hazards. Design, especially the design of a "name architect" such as Nicklaus or Palmer, affects the value of a golf course because it influences desirability of the course for playing golf, as well as the cost of construction and operation, in the following ways: 1. Challenge The design of the course influences the degree of challenge offered to players of varying skills. This will affect demand for use of the golf course being appraised. If the course is too easy, experienced golfers will find it uninteresting. If it is too difficult, the novice will find it discouraging. 2. Construction Costs The design significantly affects construction costs in many respects, including earth moving and irrigation systems. 3. Maintenance Costs Design of a golf course also influences maintenance costs. As previously noted, other factors being equal, single -fairway configuration and, to a lesser extent, double -fairway configuration, increase maintenance costs as compared to a core design. As maintenance and other costs increase, a golf course may become unable to compete with others in the area. 4. Fast or Slow Play The design of a golf course may encourage fast or slow play and thus affect income. If reducing the time required for a round increases the speed of play, greater use of the course can be made. 5. Simultaneous Starts Designing a course with returning "nines" increases use by allowing simultaneous play on both "nines." State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 2.5 Section 2 — Golf Course Valuation Examples II. COST APPROACH Using the cost approach, the appraiser estimates land value under its highest and best use and then adds the depreciated replacement cost of improvements (land improvements and buildings) to arrive at a total estimate of value. In appraising a golf course, the first step in the analysis is to determine the land's highest and best use. The cost approach is a reliable indicator of value for most types of golf facilities. Potential problems in the cost approach arise in connection with the estimate of the cost to construct the golf course. This area offers a great possibility of error. Construction costs for golf courses vary greatly based on the type of course desired and the market for which the course is to be built. Costs per hole can range from below $100,000 to in excess of $850,000, depending on topography, hazards, the irrigation system, rock, and design. These costs do not include excessive grading, water features, or any structures. Adding these special cost features could increase the cost to as much as $2,000,000 per hole. A. LAND VALUE The primary consideration in valuing golf course land is establishing highest and best use. An erroneous or unsupported selection of highest and best use will lead to an incorrect final estimate of value. In many appraisals, the highest and best use of land is the existing use. When the continued operation of a golf course or country club is the highest and best use of the property, land value is derived from sales that have been approved or are to be used for golf course purposes. This is often difficult because these transactions arc scarce. It may be appropriate, in some circumstances as described below, to use transactions where undeveloped land is zoned or planned for low -density use, with proper adjustments, to estimate land value. In estimating the value of golf course land, the land is valued by comparison to other parcels that are available for similar use. It is critical to remember that the golf course cannot be valued on the basis of one use for land and another for improvements. A common oversight is to estimate a land value based on land sales that are used for a development for a higher density, such as single-family residential tracts. State of Colorado Department of focal Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 2.6 Section 2 — Golf Course Valuation Examples Since sales of golf courses are often scarce, and due to the difficulty of estimating the land value component of a golf course, the appraiser should consider a variety of techniques when local comparable sales are unavailable. Land sales for golf course developments in far -removed locations may be considered if the markets are similar and the sales prices can be adjusted without applying unreasonable assumptions. It may also be proper to consider older sales in locations that are closer to the subject course. If no sales of other golf course sites are available, then land sales of similar low -density use, such as recreational land, open space, or agricultural use, should be considered. Caution should be exercised when considering using open space or similar land sales as comparables. The subject's zoning should be carefully analyzed. Zoning that allows golf course development is an entitlement that may be difficult to obtain in some jurisdictions. Where this is the case, the subject may be worth far more than open space or similar land. B. IMPROVEMENT VALUE After estimating the land value the appraiser must then determine the value of the improvements. A difficulty encountered in applying the cost approach to unique properties lies in the estimate of the replacement cost. The problem is magnified by the technical nature of golf course improvements. The best source for this information is the actual cost to construct the subject of the appraisal. Where this information is provided, care must be taken to ensure that all soft (indirect) costs are included. 1. Unit Costs Where actual construction costs are not available, or as a cross check of the reasonableness of taxpayer provided actual costs, other cost sources can be checked. Other sources of golf course replacement cost estimates include published construction cost manuals, computer cost services, course builders and architects, and trade publications. Cost manuals with special sections on golf courses include The Boeckh Building Valuation Manual and Marshall & Swift Valuation Service. The Marshall & Swift Valuation Service lists unadjusted costs per hole in four quality classifications for regulation courses. These costs per hole include normal clearing of land, including incidental grading, complete irrigation and drainage systems, planting of trees in open land, greens, tees, service roads and cart paths, builder's profit and overhead, financing during construction, and architect's fees for all items except structures. State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 2.7 Section 2 — Golf Course Valuation Examples Note: A builder is defined as a person who contracts for and supervises the actual construction of a building. A builder could also be called a "general contractor." Excluded from these costs are extensive grading, such as that required for canyon and hillside courses, special drainage problems, all structures including bridges, and all manmade lakes, other waterscaping costs, startup costs, and developer's profit and overhead. All costs must, therefore, be localized when adverse terrain becomes a factor. Note: A developer is defined, for the purpose of these materials, as a person who oversees the development of an entire project, from inception to completion, in order to obtain a fee for the time, energy, and experience the developer invests in a project, as well as a reward for the risk the developer takes. The developer's fee is sometimes referred to as entrepreneurial profit. The following Marshall & Swift Valuation Service costs have been trended to the western United States for June 2012. Local multipliers have not been applied. It must be emphasized that a complex project with special engineering and a name architect can run twice the averages listed, with substantial topography problems adding even more: 1. Minimal quality, simply developed, budget course on open natural or flat terrain, few bunkers, small trees and greens. $66,915 - $91,660 per hole 2. Simply designed course on relatively flat terrain, natural rough, few bunkers, small built-up tees and greens, some small trees. $95,700 - $136,350 per hole 3. Typical private type club on undulating terrain, bunkers at most greens, average elevated tees and greens, some small trees moved in or clearing of some wooded areas, driving range. $138,370 - $204,020 per hole 4. Championship course on good undulating terrain, fairways and greens, large trees transplanted, driving range, named architect. $209,070 - $333,300 per hole State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 2.8 Section 2 — Golf Course Valuation Examples Marshall and Swift goes on to identify an Excellent Championship Course with Extensive Features ranging from $584,790 to $917,080 per hole. Appropriate location adjustments may need to be applied to costs from outside the local area. Also, as indicated above, time adjustment factors have been applied to the costs to ensure valuation as of the appraisal date for the current level of value. The appraiser needs to be sure that all improvements are accounted for in the cost approach. As indicated, unit costs or cost per hole do not include golf course structures, such as clubhouses, maintenance buildings, starter shacks, range buildings, bridges and waterscaping. For these improvements, the appraiser should refer to other sections of the cost manual in which component costs are given in various units, such as square feet. These and other items that are not included in the unit costs, as described in the cost service manual, can be valued and depreciated individually using other sections of the cost manual. In applying the cost approach to a golf course, the cost of development, i.e., fairways, hazards, greens, tees., etc., is added to the land value, The cost of replacement less depreciation of the buildings, irrigation system, and non -golf land improvements, e.g., driveways, fences, parking lots is also added. The result is a cost approach valuation of the land, the golf course improvements, the buildings, and the non -golf land improvements. 2. Detailed Cost Estimates Applying segregated costs rather than cost -per -hole figures may derive more accurate golf course cost estimates. This method is rarely used because the required information can be difficult to obtain and to apply. Because sources of published data on golf course reproduction and replacement costs are limited, appraisers could consult golf course maintenance superintendents, golf course architects, and contractors who specialize in the development of golf courses to obtain actual cost data, as of the appraisal date, for the current level of value. State of Colorado Department of Local Affairs Division of Properly Taxation APR 230: Valuation of Golf Courses (2013) Page 2.9 Section 2 — Golf Course Valuation Examples 3. Depreciation To derive a market value using the cost approach, depreciation must be deducted from the replacement costs of the site and building improvements, if appropriate. The depreciation can come from three forms, physical, functional, and external (economic). Market Exiraction of Total Depreciation; Basic appraisal theory defines total accrued depreciation as the difference between the sales price of a property and its cost of construction. It is most helpful to express this depreciation as a percentage. When analyzing sales of properties of different ages, depreciation should be expressed as an annualized percentage. For example, a course that cost $8,000,000 to build and sold for $5,000,000 would have total accrued depreciation of 38% [(8,000,000 — 5,000,000) _ 8,000,000]. If this course were ten years old the annualized depreciation would be 3.8% (38% : 10). (Remember, physical deterioration increases with age; however, external and functional depreciation probably do not. Therefore, if you are appraising a course with a significant amount of external obsolescence, it would not be appropriate to annualize the depreciation using the market extraction methodology.) External Obsolescence: External obsolescence would likely come from an oversupplied market. This type of obsolescence is incurable on the part of the owner, but may diminish over time as the market improves. The primary method of measuring this obsolescence is to capitalize the income loss. The appropriate comparison is the difference between the current income and the pro forma income. Other variations of this methodology include comparing actual rounds played versus pro forma rounds played, comparing memberships sold versus pro forma memberships sold, or comparing initiation fees and monthly dues versus pro forma initiation fees and monthly dues. If the value loss is expected to be permanent, direct capitalization of the loss is appropriate. On the other hand, if the value loss is only expected to be temporary, discounting the loss for its projected duration is the appropriate method. State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 2,10 Section 2 — Golf Course Valuation Examples Functional Obsolescence: Functional obsolescence is usually associated with course design. For example, improvements in golf equipment have resulted in players being able to hit a golf ball longer distances. Holes that were designed many years ago for shorter distances may no longer appeal to golfers today. The challenge to the golf course designer is to reconfigure the hole to improve its appeal. The measure of this obsolescence is the cost to cure less physical deterioration already charged. For a golf course the cost to cure would consist of the cost to remove the existing hole plus the replacement cost of the new hole. Physical Deterioration: In most instances, physical defects in golf course site improvements can be corrected. Physical depreciation factors unique to golf courses include constant exposure to the elements, application of chemicals, and extensive physical contact. The cost of reseeding greens and fairways is typically included as part of the ordinary maintenance budget. Additional physical depreciation should be considered with the cost to cure a special problem, such as a grass fungus. Items of deferred maintenance can be identified through on -site inspection, in consultation with the golf course superintendent. This type of depreciation is measured as the cost of replacing items such as worn-out sprinkler heads. Some golf course site improvements, especially the irrigation systems, will suffer from incurable physical depreciation and cost to cure should be considered in these instances, as well. Expected life and costs to cure can be established through discussion with the course superintendent. Also, cost service manuals have typical life expectancy guidelines based on the type and quality of sprinklers, controllers, and pumps. However, natural golf course enhancements, such as trees, turf, and shrubs, tend to appreciate as they mature under proper maintenance, although they may deteriorate if improperly cared for, and the extent of physical deterioration is represented by the cost to cure. All added value items, including golf course structures such as clubhouses, maintenance buildings, starter shacks, range buildings, bridges, and waterscaping must be separately depreciated. Appraisers need to be cautious when appraising golf courses with additional amenities such as tennis courts and swimming pools. These items may not increase the value of the property as a whole commensurate with their cost. State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 2.11 Section 2 — Golf Course Valuation Examples The IRS issued Revenue Ruling 2001-60 on November 29, 2001. This ruling changed the IRS position on depreciation of certain golf course property. The effect of this ruling is that "modern greens" that include substantial integrated drainage systems are now eligible for depreciation. As a corollary to this ruling, other items that have the same construction criteria of substantial underlying drainage systems such as sand traps and tee boxes arc also eligible for depreciation. Of course, this information is irrelevant if depreciation is being developed by market extraction. However, if the appraiser is estimating depreciation it would be appropriate to depreciate greens, sand traps, and tee boxes if they meet these criteria. State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 2.12 Section 2 — Golf Course Valuation Examples III. INCOME APPROACH The income approach to value is based on the economic principle that the value of an income producing property is the present worth of anticipated future benefits. The annual net income projection is then converted into a present value using capitalization. Capitalization is performed by dividing the net operating income by an overall capitalization rate. The theory, practices, and methodology of the income approach can be applied to most income properties, including golf courses. The most difficult task, typically, is acquiring the data required to make sound income and expense estimates and to determine the appropriate capitalization rates. The best source to obtain current, specific information that corresponds to the subject's unique characteristics is the facility manager or superintendent, However, if full income and expense data are not available, the appraiser should be able to determine the number of rounds played during the past year and the greens fee schedule from the clubhouse. If the appraiser is unable to obtain actual data on the subject there are secondary data sources available. For example: National Golf Foundation 1150 South US Highway One, Suite 401 Jupiter, FL 33477 561/744-6006 www.ngf org United States Golf Association P.Q. Box 708 Far Hills, N.J. 07931 908/234-2300 Colorado Golf Association 5990 Greenwood Plaza Blvd., Ste. 130 Englewood, CO 80111-4749 (303) 366-4653 www.cogoltorg State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 2.13 Section 2 — Golf Course Valuation Examples The income approach is often appropriate for estimating the value of a daily -fee golf course because this type of facility operates basically as a business. The income approach may not be appropriate for facilities that are not profit or income oriented. If an appraiser is to consider the income approach for a nonprofit course, the appraiser needs to remember that the nonprofit status is a business decision set up by the current owner. The facility's income potential may still be capable of being measured, using a profit -oriented analysis, to produce an accurate and appropriate value indication. For example, greens fees, rounds played, and expenses from the most closely comparable daily fee course could be used to value a nonprofit course. The income approach includes the following steps: • Estimate total annual gross revenue • Deduct all allowable annualized expenses • Divide the resulting Net Operating Income (NOI) by the indicated capitalization rate The above steps require collection of different information depending on whether the golf course is a daily -fee -course or a private equity or private non -equity club. A daily fee facility is a golf course where a player pays a fee each time they use the course. An equity club (also known as a proprietary club) is a golf facility in which the members share in the equity ownership. The use of these facilities is restricted to the members, who own the real estate, and their guests. In a non -equity club (nonproprietary club) the facility is owned by someone other than the members. The owner then grants certain rights to its use to others who wish to become members. Many private clubs are hybrids of these basic structures. State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 2.14 Section 2 — Golf Course Valuation Examples Valuation of Membership Courses (Equity and Nonequity) The income approach can be used to value this type of golf course by starting with the assumption that there are no members and all memberships are available for sale. A new revenue stream for this club must be estimated. This new revenue stream is composed of the sale of memberships in the "new" club. This "new" annual revenue stream could then be valued using annuity capitalization, with a "sellout" period based on the historical experiences of similar clubs. The cost to market and sell these memberships would have to be estimated and that amount would have to be deducted as a selling expense to establish the net income from the sale of memberships. The next step is to establish the appropriate discount rate to determine the net present worth of the income from sales of memberships. The following example illustrates this approach: Step 1 Determine Number of Memberships to be Sold Step 2 Estimate the Number of Years Needed to Sell these Memberships Step 3 Determine the Cost of a Membership Step 4 Determine the Total Revenue to be Received from the Sale of Memberships Step S Estimate the Expenses Required to Sell the Memberships Step 6 Calculate the Net Revenue to be Received from the Sale of Memberships Step 7 Annualize Revenues (Revenues = Years Required to Sell) Step 8 Determine Discount Rate Step 9 Determine PW of 1/Period Factor (Assume Level Annual Income) Step 10 Multiply PW Factor times the Annualized Revenues = Present Worth Step 11 Add Capitalized NOI from Property Operations to Determine Total Value State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Section 2 — Golf Course Valuation Examples Page 2.15 Example: Step 1 Step 2 Step 3 Step 4 Step 5 Step 6 Step 7 Step 8 Step 9 Step 10 Step 11 Max. No. of Memberships No. of Years to Sellout Cost of a Membership Total Revenue from Membership Sales Selling Costs Net Revenue Annualized Net Revenue Discount Rate PW 1/Period Present Worth of Membership Sales NOI from Property Operations Capitalization Rate Value of Property Operations Total Value 500 10 $20,000 $10,000,000 $500,000 $9,500,000 $950,000 12% 5.650223 $5,367,712 $100,000 -:- 10% $1,000,000 $6,370,000 (rounded) Although many private clubs attempt to equalize income and expenses, there may be some net income generated by the property operations. Where such income exists it could be capitalized and added to the present worth of the membership fee sales revenue for an indication of the total value of the property. Another potential source of income for these clubs is turnover membership fees that may be generated when memberships arc resold. A membership club typically sets the number of memberships it will sell. When this maximum is reached the only way to gain membership in this club is through the resale of an existing membership. If the membership is fully transferable with no transfer fee, the member may sell the membership personally and retain the proceeds. However, if the membership is nontransferable, or if there is a transfer fee, revenue will be realized by the facility upon transfer. Such turnover of memberships generating recurring annual revenues must be included when estimating net operating revenue. A rate of turnover of memberships can be determined based on the subject's history or the recent history of a similar newly developed club. State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 2.16 Section 2 — Golf Course Valuation Examples Valuation of Public Courses (Daily Fee.) A. GROSS REVENUE 1. Membership Fees (Nonrecurring) Typically, there are no, or only nominal, membership fees associated with daily -fee facilities. These would include such things as membership in the men's club. There may also be "membership fees" associated with other, additional facilities such as tennis courts and swimming pools. Only reciwring fees should be included. 2. Greens Fees Greens fees are the payment of a prescribed fee for use of the course a single time. There are usually several fee categories which may include weekend versus weekday play, seniors and local residents discount, twilight play, etc. Greens fee schedules are relatively easy to obtain with a visit to the clubhouse, viewing the course's web site or a phone call. Annual greens fees income is calculated by multiplying the number of rounds played by the average fee. A round played is defined as one person who tees off ff in an authorized start ©n a golf course. Example: If a course had a stabilized annual number of rounds played of 52,000 and the average greens fee was $26, the annual greens fee income would be $1,352,000 (52,000 x $26). State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 2.17 Section 2 — Golf Course Valuation Examples 3. Golf Cart Rental Golf cart rental income is often expressed as revenue per round. Revenue per round is calculated by taking the total annual revenue generated from cart rentals and dividing it by the number of rounds played. If cart rental income is unknown, the appraiser can estimate this income by applying a conversion percentage (the percentage of players who rent a cart) to the number of rounds played and multiplied by the cost of a cart rental. Example: 52,000 Rounds Played x 50%* Estimated Annual Cart Use 26,000 Cart Rounds x $10 Per Seat, each cart round is one person $ 260,000 (this assumes two per cart and a $20 cart fee) *This percentage can be obtained from the pro shop or the accounting department. The percentage will be higher for mountain courses and lower for short, flat courses. It is not unusual for longer courses with varied terrain to require cart usage. 4. Driving Range Revenue Driving range revenue can be affected by several factors such as number of rounds played, quality (mat or grass surface), price, and proximity to population centers (range revenue may be generated by non -players as well as players). If unknown, driving range income can be estimated in a manner similar to golf cart rental income. Example: 52,000 Rounds x 30%* Estimated Golfers Using Range 15,600 Range Rounds x $ 2.50 Average Expenditure * $39,000 Driving Range Income * The percentage and average expenditure can be obtained from the pro shop or the accounting department. State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 2.18 Section 2 — Golf Course Valuation Examples 5. Food and Beverage Revenue Practically all golf courses offer some food and beverage service, ranging from vending machines or snack bar to top quality restaurants. Food and beverage revenue may account for a large portion of total revenue, up to and over 50% in some cases. The unit of comparison for daily fee courses is usually dollars per round, while for private clubs it is usually dollars per member. This revenue source usually varies directly with the number of rounds played. 6. Merchandise Sales Merchandise sales are generated through the sale of goods such as golf accessories including clubs, balls, golf bags, and other accessories. Retail business is influenced by factors such as the disposable income of the patrons, management skills and the character of the golf facility. 7. Other Revenue Other revenue is often generated through lessons, club rental and repair, pro shop services, tournament fees, and other miscellaneous sources such as locker rentals. State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 2.19 Section 2 — Golf Course Valuation Examples B. OPERATING EXPENSES After all of the revenue has been accounted for, the next step in the income approach is to estimate and deduct all of the allowable expenses. Deductible operating expenses are routine, annual expenditures necessary to produce the facility's gross revenue. When the direct capitalization technique is used, replacement expenditures are generally reflected in the reserve for replacement accounts. 1. Course Maintenance Course maintenance costs are nearly always one of the largest expenses of any golf facility. Maintenance costs depend on factors such as course location, climate, length of season, intensity of play, type of facility, size and quality of maintenance. The best source of information is usually the golf course superintendent. The cost of maintaining a course depends on its size and configuration. For single -fairway, continuous configurations, maintenance costs will be higher than for other layouts because of the greater acreage and linear distances involved. These courses are popular for real estate developments in which a significant motivation for the golf course development is to draw buyers for bordering land. 2. Personnel Personnel expense is usually the next largest expense. This category typically includes the cost of all personnel required for facility operations except for the personnel costs associated with course maintenance and food and beverage operations. 3. General and Administrative This includes administrative expenses for office operations, insurance, utilities, phone, postage, travel, accounting, legal consultations, dues, subscriptions, automobile use, and miscellaneous other costs. 4. Golf Carts Expenses related directly to golf cart rental operations include energy, maintenance, cleaning, and lease costs, if the golf carts are leased rather than owned. State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 2.20 Section 2 — Golf Course Valuation Examples S. Driving Range Driving range expenses are generally fixed. The most variable component in this expense is the replacement of golf balls. 6. Merchandise Merchandise expenses consist of the actual costs of the goods sold. This can be as high as 70% to 80% of gross sales. 7. Food and Beverage This expense is the cost of food and beverage goods and associated personnel expense. Food profit margins are usually low, while beverage profit margin can be quite high. Overall, this can be as high as 60% to 80% of gross sales. 8. Replacement Reserves In addition to normal operating expenses, a golf course facility will incur replacement expenses for both real and personal property improvements. Real property improvements include irrigation systems, and the clubhouse carpet, paint, roof, and parking lot asphalt. Personal property items can include restaurant personal property and golf carts, if owned. 9. Other Expenses Expenses may also be incurred for periodic promotional programs, for leases, and for other miscellaneous expenses. Deducting these costs from gross revenue, as expenses, considers the baseline business aspect of the golf course. State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 2.21 Section 2 — Golf Course Valuation Examples C. CAPITALIZATION RATE Capitalization rates are used to convert the resulting net operating income into an estimate of value. There are several ways to develop capitalization rates. Three of these methods are: derivation from market sales, the band of investment, and published surveys, 1. Market Comparison (Overall Rate, Except ETR) In order to develop a capitalization rate using this method, a sufficient number of qualified sales and the net incomes of these properties must be obtainable. The overall capitalization formula using the market comparison method is: Overall Rate = Net Income -:- Sales Price Points to consider in the market comparison method are: 1. The sold properties must be reasonably comparable to the subject. 2. Sales prices and net incomes must be reliable and from the same time periods. For golf courses the non -realty value (if' any) must be accounted for including personal property (sometimes called furniture, fixtures and equipment or FF&E) and intangibles (primarily business value). It is especially important in ad valorem appraisal that non -realty items be dealt with in a consistent manner. For example, the overall rate can be developed from a sales price that has already been adjusted for non -realty items. Another method would be to develop the overall rate based on an unadjusted sales price, then to deduct the value of the non -realty items from the individual value. What is not appropriate is to adjust the overall rate for non -realty items, then to make an additional adjustment for those items from the indicated value. Refer to V. BUSINESS VALUE to see how the non -expense remainder of business value is handled. State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 2.22 Section 2 — Golf Course Valuation Examples 3. There must be enough sales to reflect the market conditions as of the appraisal date. Example: Property Sales Price = $3,200,000 Net Income = $310,000 Rate = $310,000 -:- $3,200,000 = .097 = 9.7% (Overall Capitalization Rate) As with all real property, it would not be unusual to see a low overall rate if the buyer anticipated significant improvement in net income over the expected holding period. Examples of when this might occur are: i. The property was recently completed and is establishing market recognition and/or ii. Overall market conditions for this property type are at or near the low point of the economic cycle and improvement is expected. b. Effective Tax Rate (ETR) The development of the overall rate and its application must be consistent with respect to the deduction of property taxes. If property taxes arc not deducted as an expense in the analysis of the subject, the resulting NOI must be capitalized by an adjusted overall rate that includes the effective tax rate. 0 r • State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Section 2 — Golf Course Valuation Examples Page 2.23 2. Band of Investment - Mortgage -Equity Method Because most properties are purchased with debt and equity capital, the overall capitalization rate must satisfy the market return requirements of both investment positions (bands). Lenders anticipate receiving a competitive interest rate commensurate with the perceived risk of the investment or, typically, they will not make funds available. Similarly, equity investors anticipate receiving a competitive equity cash return commensurate with their perceived risk or they will likely invest their finds elsewhere. The overall rate developed by the band of investment is a composite rate, weighted in proportion to the total property investment represented by debt and equity. To develop an overall rate using the band of investment, the appraiser needs to research the cost of the debt component. One way to collect this information is by surveying lenders who are actively making golf course loans. Another source for this information is published surveys. The overall rate is computed as the weighted average of the returns required by the mortgage and equity positions. Example: If a lender is willing to make a loan for 75% of a property's value at 8.5% interest for 20 years, and the equity investor demands a return of 14% on the remaining 25% position, the indicated overall rate would be: (the annual mortgage constant for this loan is 0.106). Note: It will be necessary to add an effective tax rate (ETR) for ad valorem appraising. Position Weight Rate Weighted Average Mortgage .75 x .106 Equity .25 x .14 These are summed to produce an indicated overall rate: Local Effective Tax Rate (80% x 29%) These are summed to produce The Adjusted Overall Capitalization Rate: 0.080 0.035 0.115 0.0232 0.1382 or 13.8% State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 2.24 Section 2 — Golf Course Valuation Examples Capitalization rate selection is often the most difficult aspect of applying an income approach to value a golf facility. Market extracted overall rates are difficult to develop and mortgage and equity terms can vary greatly depending on the geographical area and the credit reputation of the borrower. Lenders typically want slightly higher interest rates and equity dividend requirements may also be higher than for most other types of real estate because of a perceived higher level of risk for recreation properties. 3. Published Surveys There arc third -party publications that publish overall rates for golf courses. One such publication is RealtyRates.com. They do investor surveys and have published second quarter, 2012 results for public daily -fee courses, semi -private golf clubs, private golf clubs, and "all types" of golf courses and country clubs, Overall rates are determined from the debt coverage ratio technique, the band of investment technique and from surveyed rates. They publish minimum, maximum and average rates. As with any type of published source, care must be taken that it is verified against local market information. After the capitalization rate has been established, the value can be estimated by dividing the net income by the capitalization rate. This will produce the total value for the golf facility, which will include the value of the land, the value of the improvements and, unless adjustments have been made, the value of the personal property and intangible items associated with a golf course. State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 2.25 Section 2 — Golf Course Valuation Examples D. Deduction of Personal Property Value The deduction of personal property value should not be confused with a replacement reserve account. A replacement reserve account is needed for future repair and replacement of a property as its wears out. (This includes both the real and personal components of a property.) Overall rates for golf course properties typically are developed from income statements that include a reserve expense. The details of this expense item were discussed previously in this class. Personal property is frequently referred to as Furniture, Fixtures, and Equipment or simply FF&E. These items are important to the operation of a golf course property and their quantity and quality often has a direct bearing on the overall quality of the property and the ability of'the property to produce income. In Colorado, personal property is reported and valued separately by the assessor.• Therefore, it must be deducted from the total property value so as to not be valued twice.. There are two methods that can be used to account for the value of the personal property in a golf course. 1. Adjustment of Income Attributable to Personal Property The first method is to deduct the income attributed to the personal property from the total income generated by the property. This technique can be used only when estimating value using the Income Approach. To calculate the amount of income attributed to the personal property you should multiply the value of the personal property on the appraisal date by the overall capitalization rate adjusted by the effective tax rate. Development of the overall rate was discussed previously in this section. The effective tax rate (E.T.R.) is computed by multiplying the assessment ratio times the mill levy. To convert mills to decimal equivalents, simply move the decimal point three places to the left (or divide by 1000). Effective Tax Rate Example: E.T.R. = assessment ratio x mill levy If the mill levy is 55 mills then the effective tax rate is: E.T.R. = 29% x 55 mills, or .29 x .055 = .016, or 1.6% The Adjusted Overall Rate is developed as follows: Overall Rate = E.T.R. = Adjusted Overall Rate = 10.0% 1.6% 11.6% Stan of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 2.26 Section 2 — Golf Course Valuation Examples The current value of the personal property is the market (actual) value of the property on the appraisal date. This value can be estimated in a couple of ways: a. A personal property appraiser could be hired to value each item. The disadvantages of this procedure are that it would take some time and would be costly. b. The assessor's actual value estimate based on the personal property declaration filed by the property owner is an alternative source for the value of this personal property. The personal property value is as of the same date or corresponding year of value as the real property appraisal date. The advantages of this procedure are that the work has already been done and the information is immediately available. Also, it is based on information provided by the taxpayer that should reduce protests about the results. (Important: If using this method, please refer to the discussion of consumable items at the end of this section.) Example: If the value of the personal property assigned to the subject were $275,000, the calculation for the income attributable to the personal property would be: Actual Value of Personal Property Adjusted Overall Rate Income Attributable to Personal Property is $275,000 x 0.116 $ 31,900 The total income attributed to the personal property is the combination of the return on and return of personal property. The procedure would be to deduct this income from the Net Operating Income (NOI) before capitalization. If this method is used, the overall rate should then be adjusted to reflect the different risk factors of a real estate only income stream. Because of the difficulty in estimating how this overall rate should be developed, this method is not recommended. State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 2.27 Section 2 — Golf Course Valuation Examples 2. Lump Sum Deduction of Personal Property Value The second, and preferable, method to account for the value of the FF&E is to make a lump sum deduction after total value has been estimated. This method can be used in both the Income and Market (Sales Comparison) Approaches to value. (It will not likely be appropriate in the Cost Approach because the RCN would not include the cost of the personal property.) When this method is used in the Income Approach, the income attributable to the personal property should not have already been deducted from the income stream. The final value when capitalized includes the real as well as the personal property value. The current market value of the personal property should be deducted after the total property value has been developed. The lump sum deduction for the FF&E is its current market value. Estimation of this value was discussed previously. The best source of this value is the assessor's actual value estimate based on the personal property declaration filed by the taxpayer. By Colorado law, 39-3-119, C.R.S., personal property held for consumption by any business is exempt from property tax. To fall under this definition, one of two criteria must be met: • The property must have an economic life of one year or less, or • The property has an acquisition cost of $250 or less. Exempt, consumable personal property is not reported to the assessor on the personal property declaration form and its value is not reflected in the assessor's personal property valuation estimate. A separate accounting for this exempt personal property should be requested from the taxpayer. The taxpayer should have an inventory of all the consumable personal property they own along with the acquisition cost and the date of acquisition. Once provided with this information, the appraiser should be able to estimate the current market value of this property. For many property types, the value of the consumable property is minimal; however, for others it may be high enough to be worth spending some time to estimate its value. Golf courses and hotels are two property types where an analysis of the consumable personal property may be required. In the lump sum deduction method, no deduction is made from the income stream in the Income Approach to reflect the income attributable to the personal property. The value of the personal property is removed only after the total property value has been determined. State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 2.28 Section 2 — Golf Course Valuation Examples Example: NOI Adjusted Overall Rate Total Property Value: Less Actual Value of Declared Personal Property: Less Actual Value of Consumable Personal Property: Actual Value of Real Property $553,395 1L6% $4,770,000 ($270,000) IS 5.000) $4,495,000 State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 2.29 Section 2 — Golf Course Valuation Examples IV. SALES COMPARISON The sales comparison approach is based on the assumption that an informed purchaser will pay no more for a property than the cost of acquiring an existing property with equal utility. The sales comparison approach estimates the value of a property by comparing it to similar properties sold during the data collection period. To obtain a supportable estimate of value, the sales prices of comparable properties must be adjusted to reflect any dissimilarity between the comparables and the property. This could include adjustments for tennis courts and swimming pools. The reliability of the sales comparison approach depends on three factors: • Availability of timely, comparable sales data, collected from the appropriate data collection period, and time trended to the last day of that data collection period. • Verification of sales data, to ensure that only qualified, arm's -length transactions are included. • Degree of comparability, i.e., the extent of adjustment needed to account for the differences between the subject's property characteristics and those of the comparable sold properties. The sales comparison approach provides a useful value estimate for simple forms of real estate, such as vacant land and single family residences, where the properties are homogeneous and the adjustments are few, relatively simple to compute, and supported by adequate market data. In the case of more complex investments such as shopping centers, lodging facilities, and golf courses for which the adjustments are numerous and more difficult to quantify and support, the sales comparison approach can be less reliable. Golf courses are a unique type of real estate. No two courses are alike in regard to their physical characteristics, playability, reputation, and other subjective criteria. Because of these differences, estimating the value of a course by comparing sales prices paid for other properties is difficult. State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 2.30 Section 2 — Golf Course Valuation Examples Since, unlike office buildings and warehouses, most golf courses are dissimilar to one another; numerous adjustments arc required to make a sale comparable to the subject. Market support for many of these adjustments is difficult to acquire because specific information on which to base adjustments for any of the previously cited differences is limited, at best. Even if some information is available, attempts to derive market supported adjustments are, in many instances, merely speculative. Since market support is often lacking, the appraiser should be very cautious in applying adjustments. Golf course investors typically do not employ the sales comparison approach in reaching their final purchase decisions. Various factors, such as the lack of timely comparable sale data, the numerous unsupported adjustments that may be required, and the general inability to determine the true financial terms and human motivations of comparable transactions often make the results of the sales comparison approach questionable. The sales comparison approach may, however, provide a range of values to bracket and support a final estimate of value. Because appraisers are obligated to mirror the actions of the marketplace, reliance on this approach, beyond the establishment of such a range, is generally not justified by the quality of available data. There are several units of comparison that can be used in a sales comparison approach for golf courses. A. PRICE PER ROLE The most common method of analysis is sales price per hole. For example, if a typical course with 18 holes sold for $3,600,000, the price per hole is calculated by dividing the sales price by the number of holes. In this example that would be $3,600,000 - 18 = $200,000 per hole. B. TOTAL REVENUE MULTIPLIER A total revenue multiplier is typically derived by dividing the sales price of a property by the total gross income produced during the most recent 12 -month period preceding the sale. The advantage of the total revenue multiplier is that it directly relates income production to a sales price. The problem with employing this technique is obtaining accurate revenue data. A second problem with this methodology is that for it to develop an accurate indication of value the comparable sale properties must have a similar Operating Expense Ratio (OER) to the subject. State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 2.31 Section 2 — Golf Course Valuation Examples Example: Greens Fee revenue Food & Beverage revenue Driving Range revenue Pro Shop revenue Miscellaneous revenue TOTAL REVENUE SALES PRICE TOTAL REVENUE MULTIPLIER (4,400,000 _ 1,902,656) $1,406,250 225,000 22,500 213,750 35,156 $1,902,656 $4,400,000 2.31 If a total revenue multiplier could be developed from several golf course sales, and if they indicated a narrow range, then it would be appropriate to reconcile a multiplier and to apply it to the total revenue for an estimate of the value of the subject. C. SALES PRICE PER ROUND Sales price per round is calculated by dividing the sales price by the number of rounds played. The source of the number of rounds played varies and an appraiser must be consistent in extraction and application. For example did the rounds played number come from the most recent 12 -month period preceding the sale, an average of several years preceding the sale, or from the buyer's projections for the year following the sale? If in the previous example of the course that sold for $4,400,000, it was learned that there were 22,500 rounds played during the twelve months prior to the sale, the sales price per round would be $196 ($4,400,000 = 22,500). On the other hand, if the buyer projected increasing the number of rounds played to 25,000 during the first year of the new ownership, the price per round played based on the "trailing" twelve months would be $176 ($4,400,000 _ 25,000). Also, it might be appropriate to develop this value indicator based on an average of rounds played over several years. This method could be used if the course is in a market where the number of rounds played varies dramatically because of weather conditions — for example a Colorado mountain course. The advantage of using a price per round unit of comparison is that it can be derived from data that is more easily available than a course's actual operating income. The weakness with this technique is that it does not provide for variances in a golf course's amenities such as the club house, driving range and other practice facilities, and restaurants. An inherent assumption in this methodology is that of a similar OER. State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 2.32 Section 2 — Golf Course Valuation Examples D. GREENS FEE MULTIPLIER Although most golf courses have 18 holes, a unit of comparison based on sales price per hole can be misleading. Obtaining income information on golf course sales is also difficult. Two items that are relatively easy to obtain on golf course sales are the number of rounds played and the greens fees charged at the time of sale. A round of golf is defined as one person who tees off in an authorized start, A round is not defined by the number of holes played. The greens fees charged is simply the average asking greens fee at the time of sale. For example, if a course is asking $80 to play 18 -holes on a week day, $50 to play 9 -holes on a weekday, $100 to play 18 -holes on a weekend, and $60 to play 9 -holes on a weekend, the average greens fee charged would be $72.50. This number is calculated as follows: $80 + $50 + $100 + $60 divided by 4. The greens fee multiplier is developed by multiplying the average greens fee times the number of rounds played, then dividing the sales price by that number. For example, using an average greens fee of $72.50 and a number of rounds played of 20,000, the product of those two numbers is $1,450,000, which represents the greens fee income. If this course sold for $5,000,000, the greens fee multiplier would be 3.45 ($5,000,000 = $1,450,000). The sales price used in this analysis can be either inclusive or exclusive of personal property. If the sales price has not been adjusted for personal property, then the value of the personal property must be deducted using the lump sum method described previously. On the other hand, if the greens fee multiplier has been developed based on sales prices adjusted for personal property value, it is not appropriate to make an additional lump sum personal property deduction. After a greens fec multiplier is determined, the greens fee income for the course being appraised can be multiplied by the greens fee multiplier to estimate the value for the subject. State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 2.33 Section 2 — Golf Course Valuation Examples Example: The subject has an average annual greens fee of $60 and 38,000 yearly rounds. What is its estimated value based on the application of a greens fee multiplier derived from the following adjusted sales? These sales were adjusted by deducting personal property value included in the sales prices. The indicated sales prices are for real estate only. Sale Adjusted SP/ # Sale Price -:- Rounds = Round -:- G Fees = GFM l $5,500,000 30,000 $18133 $50 3.67 2 $2,487,500 20,000 $124.38 $40 3.11 3 $6,700,000 33,000 $203.03 $55 3.69 Assumptions and Methodology_ The greens fee multiplier range is between 3.11 and 3.69. Sales #1 and #3 are most similar to the subject in term of greens fees, size, and other amenities. The range indicated by these two sales is narrow from 3.67 to 3.69. Therefore, the appraiser has concluded a greens fees multiplier for the subject of 3.68. The greens fee income for the subject is calculated by multiplying the average annual greens fee times the rounds played: $60 x 38,000 = $2,280,000. Multiplying the greens fee income times the concluded greens fee multiplier results in the value estimate for the subject: $2,280,000 x 3.68 = $8,390,400, rounded to $8,400,000. For profit -oriented golf courses, the greens fee multiplier can be an effective valuation tool. It provides a common denominator in the comparison of golf facilities and can be derived without access to financial statements. The greens fee multiplier is flexible because it automatically accounts for variations in annual rounds attributable to different pricing policies between courses that appear to be comparable. The greens fee multiplier accounts for both pricing and qualitative differences between properties and is based on data that can be obtained. It is important to stratify the golf course sales by type of course before greens fee multipliers are calculated and applied to similar courses. State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 234 Section 2 — Golf Course Valuation Examples V. BUSINESS VALUE A current debate in the valuation of almost every type of commercial real property is whether to recognize going -concern or business value and how to measure it. To support the notion that there is a business value component over and above real property value, the holders of this opinion point to low capitalization rates exhibited in many commercial sales and to sales prices thatexceed replacement costs. After reviewing research literature in business and economics case law, William N. Kinnard, MAI, SRA of the Real Estate -Counseling Group of Connecticut and Jeffrey Fisher, in papers presented to the American Institute of Real Estate Appraisers and the International Association of Assessing Officers, have concluded that a business value component does exist, at least with certain types of commercial property. They and other writers have cited many uses commonly thought to be combined with business value, including hotels, resorts, nursing homes, and private hospitals. These properties are characterized by a high degree of business managerial ability and entrepreneurial effort, which contribute to the success of the business and the value of the real estate. There seems to be a common understanding that properties such as hotels, motels, and various types of congregate health care facilities have a business value component. Stephen A. Rushmore, MAI, has written that it is important to separate the value of the business and the personalty from the real estate to produce fair real property valuations for property tax assessment purposes. He states that separating the business value of a hotel from its real estate value is a controversial topic because it is difficult to distinguish between business income and real estate returns. The Division believes golf courses to be in the same category as hotels, although toy a lesser degree. But, while the business viability of all types of golf courses is enhanced when design of the course is created by a signature golf course architect, unlike the business value which might be generated when a shopping center is built and operated by a nationally recognized developer, creating greater desirability and thus greater value, the signature of the nationally recognized golf course architect's name cannot be removed from the course design. Thus, this "intangible value" actually is reflected in the tangible physical characteristics making up each golf course's unique design. As with other commercial properties, even though the value of a renowned architect's design is captured in the physical attributes of an office building, no deduction for this business enhancing value would be appropriate. Nevertheless, for successful golf courses, a business value component probably exists above those business items allowed as expenses in the income approach. The Division recommends the CAPITALIZATION OF MANAGEMENT FEES method to establish the business value component of a golf course property. State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 2.35 Section 2 — Golf Course Valuation Examples CAPITALIZATION OF MANAGEMENT FEES Several methodologies have been proposed for the estimation of business value in golf courses, most notably the excess profits technique, the sales of golf course business opportunities technique, and various residual/segregated value techniques. Because each of these suffers deficiencies in the areas of data adequacy and market support, the Division recommends use of the following capitalization of management fees technique, when and if the deduction of business value is appropriate. By capitalizing management fees, established as a percentage of gross revenues, an estimate of the business value component of a golf course can be calculated. The theory underlying such an approach is that the fees paid by the owners of the golf course to manage the course, above and beyond staff managerial salaries, promotional activities, leases, and other allowable baseline business related expenses, represent the contribution of management to the property's value. The percentage range, in line with other commercial endeavors such as hotels and motels, is typically stated at 3% to 5% of gross revenues. The more successful the golf course, the more likely the higher end of this range would apply. If there arc actual contractual agreements regarding management fees and incentive arrangements between the golf course owners and the managers, contractual fees and earned incentives, calculated as a percentage of gross revenues, should be capitalized, in lieu of the 3% to 5% range, if they are reasonable. The business capitalization rates to he applied to the fees expressed as a percentage of gross revenue should, according to the literature, be in the 18% to 25% range. The more successful the golf course, the lower the capitalization rate that should be used, because as management is more successful, risk declines, net operating incomes increase, and the value of the property increases. Example: $1, 716,591 x 4% $68,664 21,0 $326,970 Gross Revenues Typical Management Arrangements Course is Mid Range (18%-25%) Successful* Business Value Deduction from Preliminary Value Indication *Based on appraisal judgment State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 2.36 Section 2 — Golf Course Valuation Examples Those instances in which a deduction of capitalized management fees would not be appropriate include: 1. A cost approach using Marshall Valuation Service unit costs. Since startup costs and developer's overhead and profit are not included in these per -hole costs, no deduction for these costs would be appropriate. 9. A cost approach using actual costs, for the same reason as stated above. 3. A sale of a golf course, when a properly developed cost approach exceeds the correctly adjusted sales price. If the property sold for below its cost service replacement cost estimate, it is difficult to argue that there is an enhancement to property value due to such items as marketing and management skill. 4. An income approach on a nonprofit course where no actual management fees are paid. Here the baseline business expense deductions would be allowable, but without profit motive an enhancement to value would be difficult at best. If there are actual management fees paid, above baseline expenses, these should also be treated as an expense rather than being capitalized and deducted from a preliminary value indication. For a successful daily -the course, the value estimates obtained by use of the income and sales comparison approaches could be similar, providing sufficient data are available, because this type of facility is basically a business. However, for private clubs, the income approach could indicate a lower value due to differing physical characteristics and fee structures which greatly affect income and expenses. State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 2.37 Section 2 --- Golf Course Valuation Examples VI. VALUE IMPARTED FROM THE GOLF COURSE TO SURROUNDING RESIDENTIAL PROPERTIES This issue is sometimes referred to as Density Transfer or Value Transfer. This concept is based on the premise that residential land located adjacent to a golf course has increased value and that this increased value was transferred from the golf course land. Proponents of this theory argue that land value is a zero sum game. The total development parcel is only worth so much. If portions of that parcel increase in value, other portions must decrease. These proponents argue that the value transfer is easy to measure. The theory is that if ten lots front a golf course and sell for $50,000 each, the total value of these lots is $500,000. If ten similar lots without golf course influence would sell for $40,000 each, the total value of these lots would be $400,000. The difference between these two totals, i.e., $100,000, represents the value transfer. This theory concludes that the golf course land is worth $100,000 less because of this value transfer. The general benefit of a golf course is especially noticeable in resort areas. The golf course affects the value of surrounding land which, in turn, affects the value of the golf course. Often the resort is created by golf courses. An example is Pinehurst, North Carolina, which has many championship golf courses, not justified by the relatively small number of permanent residents. Before the courses were built, raw land sold in the area for $200-$300 per acre. The current value of raw land contiguous to a golf course is 10 to 20 multiples or more than the original $2004300 per acre. In addition, the existence of golf courses has widened the types of adjacent and nearby land uses, which now include single family homes, condominiums, hotels, commercial use, and other recreational use. According to Paul K. Asabere, Ph.D., and Forrest E. Huffman, Ph.D., professors in the legal and real estate studies department at Temple University, a golf course that is near or part of a residential development can impart value to the residential development depending on the proximity to the golf course. Using both additive and multiplicative multiple regression models they found that residences within one - tenth of a mile to a golf course saw a market value enhancement of 7 to 8 percent compared to similar properties with non -golf course locations. State of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 2.38 Section 2 — Golf Course Valuation Examples Sound appraisal practice would suggest that the analysis of residential sales data surrounding a golf course, or other attractive recreational amenity, would proceed for similar properties in concentric rings, beginning with those properties which actually border the golf course and proceeding outward until the proximity effects on value appear to be negligible as viewed by the market. Appropriate location adjustments would be the result of such an analysis. The better appraisal theory holds that golf course development land value is not a zero sum game.Value imparted to residential property from a golf course does not represent a direct value loss to the golf course. Rather, this is new value that is created because of the golf course. The value of the golf course should be separately established using the cost, market (sales comparison method), and income approaches to appraisal as described in these materials. In a stabilized golf course market a reduction in land value for development of the cost approach would result in a value conclusion below the value indication by the Sales Comparison and income approaches. This would indicate that value transfer does not exist. State of Colorado Department of Local. Affairs Division of Properly Taxation APR 230: Valuation of Golf Courses (2013) Page 2.39 Section 2 — Golf Course Valuation Examples VII. SUMMARY If sufficient sales of comparable golf courses are available, a sales comparison approach may provide a reasonable estimate of value. The Greens Fees Multiplier would be a good unit of comparison in the sales comparison or market approach to value. In the absence of good market data (sales), one of the other approaches may be more appropriate. Because sales can be scarce for private, non-profit courses and because these types of courses may not generate sufficient income for return on investment, application of the income approach is often precluded. For these reasons, a cost approach or a pro -forma income approach, based on market analysis, may conclude a more reasonable estimate of market value. For a daily -fee course the income approach is usually the most applicable methodology to apply since this type of facility is basically a business. However, the greens fee multiplier method has also been shown to produce good value estimates for this property type. As with all real property, the traditional three approaches to value can be applied to a golf course. However, one approach may be more applicable than the others to the type of course being appraised. Slate of Colorado Department of Local Affairs Division of Property Taxation APR 230: Valuation of Golf Courses (2013) Page 2.40 Section 2 — Golf Course Valuation Examples VIII. BIBLIOGRAPHY Asabere, Paul K., and Huainan, Forrest E. "Negative and Positive Impacts of Golf Course Proximity on Home Prices." The Appraisal Journal, (Oct. 1996), 351-355 Benson, Martin E. "Challenges in the Appraisal of Private Golf Clubs." The Appraisal Journal, (Oct. 1998), 392-400 1998 Colorado Golf. Littleton, CO: Colorado Golf Association Directory of Private Clubs. Littleton, CO: Colorado Golf Association (Winter 1996) Gimmy, Arther E., and Bensen, Martin E. Golf Courses and Country Clubs: A Guide to Appraisal, Market Analysis, Development, and Financing. Chicago, IL: Appraisal Institute, 2003 Heuer, Karla L., and McKay, Cecil Jr. Golf Courses A Guide to Analysis and Valuation. Chicago, IL: American Institute of Real Estate Appraisers, 1980 Hirsh, Lawrence A. "Golf Courses -Valuation and Evaluation." The Appraisal Journal, (Jan. 1991), 38-47 Hirsh, Lawrence A. "Private -Equity Golf/Country Club Communities: Issues and Answers." The Appraisal Journal, (Apr. 1994), 181-188 Hughs, Stephen R., and Nunnink, Koren K. "Appraising Golf Courses for Ad Valorem Tax Purposes." The Appraisal journal, (Oct. 1993), 611-616 Golf Course Operations & Maintenance Survey Report. Jupiter, FL: National Golf Foundation, 1993 Philips, Patrick L., Developing with Recreational Amenities: Golf Tennis, Skiing, and Marinas. Washington, D.C.: ULI-the Urban Land Institute, 1986 Sampson, Ira. "Wall Street tees up on golf courses." The Wall Street Journal, 15, 1997. Tuck, Richard J., Jr. "Valuing Private Golf Courses: Where Did All the Value Go?" Assessment Journal, 5 No. 5 (Sept./Oct. 1998), 37-41 Vernor, James D., and Rabianski, Joseph. Shopping Center Appraisal and Analysis. Chicago, IL: Appraisal Institute, 1993 State of Colorado Department of Local Affairs Division of Property Taxation a °paeuesaal S'4u6r.a o !Haas iessod 'S'n . dtr3 'elBSO4 J0j 40U Si Su!Fe,aed 3P41. ,Acel le, apa; jo +JoueIo!A e sy Aeui isnsiw •swautdlgs UAew Awolld 'lulpiaas ut 8sr* 404 Aping paPIA04d sP pue tgeolmeS le2Sad 'S'41 S!4 40 Az.iscloal a.42 Si aulEmp f sl�lat f lane _ la UNITED STATES 1 POSTAL SERVICE a CliCIK'N'ShiP° usps.com $6.45 9405 8036 9930 0277 7158 05 0064 5000 0018 0631 US POSTAGE Flat Rate Env I 07/13/2016 !UWE= i Mailed from 60302 062S0000000311 PRIORITY MAIL 2-D►AYTM JASON B FLYNN CATALYST PROPERTY TAX CONSULTANTS 2291 ARAPAHOE AVE BOULDER CO 80302-8803 SHIP To. Expected Delivery Date: 07/15/16 0006 ER001 j • WELD COUNTY BOARD OF EQUALIZATION 1150OST PO BOX 758 GREELEY Co 80631-9596 III it i I IJSPS TRACKING # i i i i II 9405 8036 9930 0277 7158 05 Electronic Rate Approved #038555749 ii4 tin e0. 0 M x I I I I I I I C i C C C F N li/IInk RT I S,1 July 22, 2016 Petitioner: COLORADO NATIONAL GOLF CLUB LLC 2700 VISTA PKWY ERIE, CO 80516-7954 CLERK TO THE BOARD PHONE (970) 400-4226 FAX (970) 336-7233 WEBSITE: www.co.weld.co.us 1150 O STREET P.O. BOX 758 GREELEY CO 80632 Agent (if applicable): CATALYST PROPERTY TAX CONSULTANTS, LLC 2291 ARAPAHOE AVE BOULDER, CO 80302 RE: THE BOARD OF EQUALIZATION 2016, WELD COUNTY, COLORADO NOTIFICATION OF HEARING SCHEDULED Docket #: 2016-2227, AS0094 Appeal #: 2008211172 Hearing Date: 8/4/2016 10:00 AM Account(s) Appealed: R8942769 Dear Petitioner(s): The Weld County Board of Equalization has set a date of AUGUST 4, 2016, at or about the hour of 10:00 AM, to hold a hearing on your valuation for assessment. This hearing will be held at the Weld County Administration Building, Assembly Room, 1150 O Street, Greeley, Colorado. You have a right to attend this hearing and present evidence in support of your petition. The Weld County Assessor or his designee will be present. The Board will make its decision on the basis of the record made at the aforementioned hearing, as well as your petition, so it would be in your interest to have a representative present. If you plan to be represented by an agent or an attorney at your hearing, prior to the hearing you shall provide, in writing to the Clerk to the Board's Office, an authorization for the agent or attorney to represent you. If you do not choose to attend this hearing, a decision will still be made by the Board by the close of business on August 5, 2016, and mailed to you within five (5) business days. Because of the volume of cases before the Board of Equalization, most cases shall be limited to 10 minutes. Also due to volume, cases cannot be rescheduled. It is imperative that you provide evidence to support your position. This may include evidence that similar homes in your area are valued less than yours or you are being assessed on improvements you do not have. Please note: The fact that your valuation has increased cannot be your sole basis of appeal. Without documented evidence as indicated above, the Board will have no choice but to deny your appeal. If you wish to obtain the data supporting the Assessor's valuation of your property, please submit a written request directly to the Assessor's Office by fax (970) 304-6433, or if you have questions, call (970) 353-3845. Upon receipt of your written request, the Assessor will notify you of the estimated cost of providing such information. Payment must be made prior to the Assessor providing such information, at which time the Assessor will make the data available within three (3) working days, subject to any confidentiality requirements. Please advise me if you decide not to keep your appointment as scheduled. If you need any additional information, please call me at your convenience. Very truly yours, BOARD OF EQUALIZATION Esther E. Gesick Clerk to the Board Weld County Board of County Commissioners cc: Christopher Woodruff, Assessor Hello