Article

By Ed Getherall*

Feasibility Studies

The idea of devoting precious funds to an “expert” consultant for a feasibility study can be unappealing to some golf course developers. After all, these funds could be going toward something productive, such as the purchase of the land on which the course will sit. Many potential developers of golf course projects are so convinced that their project will work that they are incredulous when third parties recommend a market and financial feasibility study. It is often the case that a feasibility consultant is retained only when a study by an independent expert is required in order to interest potential lenders or investors.

However, there are many reasons, other than simply obtaining financing, to commission a study by a qualified expert, not the least of which is removing the project from the emotional/subjective realm and analyzing it within a rational/objective framework. Determining the feasibility of a golf course development project is a matter of determining the "acceptability" of a project with respect to: 1) the market; 2) the land; 3) government; 4) environmentalists; and 5) lenders/investors.

Market demand

Whether your development concept is a stand-alone daily fee course, a private club or a new golf real estate development or resort, today’s ultra-competitive golf markets necessitate taking a very objective look at the existing, and expected, dynamics of supply and demand. Who is currently winning and/or losing? What potential market changes (population growth/decline, demographic shifts, new golf course developments) are likely to impact future operations? No matter how spectacular the site, how well-designed the golf course or how strong the customer service, the project will fail if there is insufficient demand.

Suitability of the Land

What is the necessary size and configuration of the land for the recommended golf course concept? Will the costs to acquire and prepare the land for development be prohibitive, given the expected ROI? If the site is already chosen, is the location conducive to high golf demand? Will you have access to the water you will need at a reasonable cost?

Entitlement

Can the land be entitled, or will legal, regulatory and/or governmental hurdles preclude you from obtaining the necessary permits to build the golf course and support amenities in a reasonable period of time?

Environmental mitigation

How stiff is any environmental opposition likely to be, from either private groups or government? How much is it likely to cost, in terms of both time and money, to resolve this opposition and to mitigate specific site issues (wetlands, wildlife, ground water contamination, etc.)?

Financing

Your debt and equity sources are likely to want to see a comprehensive business plan, including evidence that you have properly assessed the issues discussed above. Be prepared to accept significant personal financial risk, as the bloom is off the rose when it comes to golf course development financing.

A thorough feasibility study by a qualified golf industry expert will answer all of the above questions and many more, likely resulting in significant savings of both time and money if it comes at the beginning of the process. The ultimate goal of the study is to project market acceptance of your project, therefore determining the degree of operating risk (ROI not meeting expectations).

Of course, operating risk will vary greatly based on the type of project. A real estate developer who is most interested in generating significant lot premiums will have a high tolerance for risk (as well as an exit strategy) with respect to the golf course. Conversely, an individual putting his or her life savings into a stand-alone daily fee golf course may be extremely grateful that they invested in a feasibility study before borrowing from their daughter’s college fund.

The results of a feasibility study will invariably change some, if not all, of the preconceived ideas that a developer may have about the type of facility that the market would support, as well as the potential ROI. Aside from general issue of market acceptance and potential operating risk, a good feasibility study will identify / address issues such as:

  • Product concept/positioning likely to have greatest market impact
  • Identifying who your customers will be and how you will reach them
  • Projecting revenues from all sources
  • Estimating the expense to operate and maintain the facility
  • The expected ROI (and, in turn, the level of investment that is warranted)
  • Barriers to entry for potential competitors
  • Site factors, both negative and positive
  • Marketing strategies
  • Management alternatives
  • Initial capital cost estimates (construction, grow-in, soft costs, buildings and equipment)

In addition to addressing these “macro” issues, a good study will provide answers at the “micro” level. For example, a feasibility consultant will provide insight about membership policies, the recommended scope of practice facilities, the market-justified extent of banquet space, and whether or not it is appropriate to operate with a temporary clubhouse for the first few years after opening. Just as important, the market feasibility study will identify the next steps in the development process. These steps generally entail further study with regard to site selection, land acquisition, legal issues and entitlement.

When choosing a consultant, a developer can either segregate the market and financial feasibility from other necessary processes, (such as determining site suitability, dealing with entitlement issues and seeking financing), or have a full-service company manage the entire pre-development process. In any case, there will be a plethora of specialists and experts who will be needed at various stages. Expect to retain a golf course architect, a civil engineer and other experts such as environmental scientists, hydro-geologists, geotechnical specialists, building architects, surveyors and irrigation specialists.

Conclusion

Of course, if there is no market justification for the new golf course, much of this trouble and expense can be avoided by retaining a qualified feasibility consultant at the beginning of the process, preferably prior to site selection. Selecting consultants is not difficult - do your own research and speak to colleagues in the industry to narrow down the choices to a short list, from whom you will ask for proposals. Choose a consultant based on the breadth of experience that he or she offers, and check references. Then, give the consultant the time (6 to 10 weeks for market and financial feasibility) and the money (from as little as $10,000 to as much as $25,000 for a typical project) to do the job right.

Many prospective developers fail to look objectively at their golf project strictly from a business point of view. Rather, they look at their project through the proverbial "rose colored glasses" and fail to do contingency planning and anticipate what can go wrong. Resist the impulse to "Just Do It." Measure twice, cut once. A feasibility study can save you a ton of money and a bucketful of hurt.


Credits

Originally posted by EdGetherall on 14 Aug 2008.
All contributors: EdGetherall, JimKass, LynnwoodBrown, MarleneStone, MichaelBrezin,
hand

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