How Covid may have saved the gated golf community

By: Jason Becker

It’s here. An outright surge from consumers of the North looking to escape big city life, cold winters and that dreaded tax bill. New member inquiries are up 50% (or more) at most Texas private clubs. Real estate sales are through the roof, up 40-50% compared to May of 2020. But how does this influx of buyers directly affect the health of private clubs? You may be surprised to learn that for many, this mad rush of demand may have just saved them from a detrimental situation that was not too far off, pre-Covid.

I can remember standing on a stage at Reynolds Lake Oconee in the fall of 2018. My presentation was going to be a direct warning to club officials from across the country that we had a serious problem on our hands. Buyers of private club memberships to the Sunbelt were trending in an aggressive direction to not live inside the gates of their future club.

At that time, 49% of prospective golf members who used our algorithms – to find their ideal golf club and membership – were saying they intended to live outside the gates and would be fine with a non-resident membership. So basically, one out of every two golf prospects had no intention of buying a home in the club they visited. The risk of possibly being portrayed as an “outsider” or “step-child” of the club did not seem to bother future buyers.

But then Covid happened. Within five months, we saw a complete shift in buyer demand for gated golf communities. Security, safe harbor and a controlled environment were all on the mind of buyers in this new world of pandemics and instability. By the end of 2020, the percentage of those looking to purchase outside of the gates had dropped 13%, down to 36% of the marketplace – with no signs of stopping.

How did Covid save so many clubs from a potential disaster? Capture rate.

On that stage in 2018, we walked through the steady decline of capture rate of most club communities when it comes to new home buyer (in the gates) who purchases a full golf membership. In the 1990’s, most club communities had capture rates of 70-80%. That meant, if the club had 500 homes, 400 or so residents were full golf members. This is important because the full golf member generates the majority of the revenue at the club.

For a deeper understanding of how a club operates financially, I asked Jim Butler, CEO of Club Benchmarking, his thoughts on the importance of full golf members to the balance sheet: “The dues income at a club with a golf operation generates 52% of the total revenues at the median. In addition, golf contributes 13% more revenue to the club making the full golf member the most significant factor to the club for both short and long-term financial sustainability.”

Let’s jump ahead to February of 2020, before the world changed. Many private club communities in Florida would tell you their capture rate was down to 30-40%. Quick math referencing our equation above. If the same 500 home golf community only had 175 residents who were full golf members, how can the club survive? It would need at least 350 full golf members to make ends meet financially.

So, the issue of capture rate was very much there and had club officials trying to figure out what direction to take. Open up the gates to non-resident members? Increase dues to our existing members? Try and get revenue from the other amenities? These were all questions boardrooms were facing as the trends were working against them – until mid-2020.

Today, 73% of buyers coming to the marketplace are planning to combine their search of club and home. In many markets, we are seeing up to 85% of buyers wishing to live inside the gates of a golf community and enjoy the access to all of the amenities. In all, this was a much-needed shift in demand for gated golf communities and quite possibly, may have saved clubs from financial peril.

Yes, a positive trend seems to be occurring for gated golf communities in their effort to increase the number of residents to full golf members, but this story should be read as a cautionary tale. Club’s absolutely need to have a pulse (if not management) of the real estate transactions that are occurring within their gates going forward. Although most clubs do not make a dime on the real estate transactions occurring in their gates, they still must monitor capture rate closely.

For buyers in the market who are learning as they read, ask the club what their current capture rate is. If under the tipping point we discussed earlier, you might inquire what the long-range plan is to increase capture rate. Just like any investment, you want to ask questions and conduct proper due-diligence so you make the best decision for you and your family.

Jason Becker, CEO
Golf Life Navigators

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