Public-private joint development of public golf courses is not really a new phenomenon. In fact, a number of public-private ventures involved private course development on property leased from public agencies. One of these courses, Mile Square, is highlighted as a case study presented later in this paper. Between the mid-1970s and the early 1980s, escalating costs and a reluctance to increase prices at public courses resulted in a deterioration in public golf economics and decreased interest in private participation. Public agencies often subsidized golf operations, passing along these subsidies to taxpayers. 

With the passage of Proposition 13 in California and similar tax-revolt legislation around the nation, public agencies were no longer able to subsidize inefficient operations, and golf operations were targeted in particular.  Public agencies began to evaluate ways either to reduce their role in providing these services, to improve the economics of public golf courses or to convert non-performing assets (i.e., public property) into income-producing ones. 

Impetus Behind Privatization of Public Golf Course Operations and Development 

One of the most significant approaches identified in an effort to improve the economics of public golf is the privatization of operations and, more recently, the privatization of development. There are several fundamental factors which have led to the trend toward privatization, but the driving force behind the private sector’s interest is the improvement in the economics of public golf courses, which is generally attributable to the following factors. 

• Increasingly favorable demographics, resulting from the aging of the population, increasing household income, increasing participation by women and increasing interest by younger age groups. 
• Rapidly increasing revenue potential, resulting from greens and cart fees escalating faster than operating expenses, and from increasing demand for carts and tournament play. 
• Increasing awareness of profit potential, improved marketing and increased use of outside professional management. 
• Constraints on the supply of golf, due to high land and construction costs and obstructions at the local level. 
• Increased receptiveness on the part of public agencies to private participation. 

• Most communities are experiencing strong demand for recreation, including golf. Relative to other forms of recreation, golf is perceived as a “rich man’s game” and so receives relatively low priority in budgeting decisions. 
• Many public agencies have surplus land currently undeveloped, but lack the financial resources or experience to develop and operate a golf course. 
• Most public agencies have become more fiscally cautious and hesitant to incur risks with public funds.  The general public is increasingly accepting privatization of services that were once regarded as being in the public domain. There is a consensus that private firms should be allowed to generate a fair profit on such projects. 
• Private operation of a public golf course is often more efficient than public operation, particularly since civil service wages and employment practices are more costly than those in the private sector. Even after management fees are subtracted, savings from private operation ranging from $100,000 to $250,000 per year are possible. 
• The growth in the number and sophistication of private corporations capable of building and operating public golf courses has resulted in a more competitive development environment. 
• The economic and political environment is now more conducive to public-private ventures of this sort than before. Also, as more ventures are established, they will play an increasing role in the future development of public courses.

Economics Research Associates has identified four basic approaches to public-private joint development of public golf courses. Naturally, there are numerous variations on each approach, but the basic concepts are similar. 

Ground Lease of Public Land 

The traditional approach to a public-private joint venture is a ground lease of public land to a private entity for development and operation of a public golf course. In this situation, the public agency typically has surplus land available and leases the land to a private developer for the development and operation of the course. The developer is responsible for the construction and operation of the public course but circumvents one of the major impediments to golf development, namely; land availability and cost. The land is leased for a term sufficient lengthy to obtain financing, during which the private developer pays rent, typically a minimum base rent against a percentage of gross revenue. Once the term of the lease expires, the course reverts in its entirety to the public agency. 

While the terms of a ground lease vary, some of the typical lease characteristics are as follows: 

• A 30- to 50-year lease term. 
• Minimum fixed annual rent, which typically starts at less than $100,000 and increases over the early years of operation. Depending on the course economics, minimum ground lease payments could increase to $250,000 or more per year. 
• Percentage lease payments ranging from five to fifteen percent of golf-related gross revenues (greens fees, cart fees and range sales). 
• Percentage lease payments ranging from three to five percent of food and beverage gross sales, and five to ten percent of pro shop gross sales. 

Disadvantages 
The major limitation to this approach is its dependence on a strong golf market, capable of generating sufficient revenue to cover operating expenses, the cost of capital and a reasonable return on investment. The public agency also loses some control over operations. Clearly, a working relationship of mutual trust must be established for this type of venture to succeed. An additional disadvantage is that, under most circumstances, low-interest tax-exempt bonding cannot be used to finance the improvements. 

Land Dedications 

As part of a golf-oriented residential development, a private developer may dedicate land for a public golf course to a public agency in exchange for the rights to develop residential uses around the course. This situation can occur when a public agency may not have sufficient land of its own, yet desires a course open to the public.  Generally, a developer’s willingness to dedicate 120-150 acres of land increases with the size of the overall landholding. A large portion of the dedicated land is often located in a non-buildable flood plain zone. Normally, the development and operation of the course is the responsibility of the public agency, although this is not always the case. 

Advantages 
This approach is advantageous to the developer, who benefits from land value enhancement created by development of an adjacent golf course without having to construct or operate the facility. The public agency benefits from getting the land at no cost and from the opportunity to provide a public recreational facility. 

Disadvantages 
There is a financial risk to the public agency in a major development of this type; they should be concerned with the suitability of the property to golf course development. 
From the developer’s perspective, a public golf course typically does not generate real estate premiums equivalent to a private country club. Recent cases, however, indicate that the premiums can still be quite substantial. 

Dedication of Land and Golf Course 

An extreme example of the above concept is the dedication of a “turnkey” public golf course in exchange for development rights for real estate around the course. As part of the development agreement, the private developer provides land and builds a public golf course, then dedicates the project on a turnkey basis to the public agency. The public agency may be responsible for off-site costs associated with the course, such as access road improvements, utility infrastructure and the like. This approach may only be realistic from a development standpoint in areas with strict growth controls and high residential values. 

Advantages 
The advantage to the public agency is in gaining the turnkey course at little or no cost. The advantage to the developer is in having more control over the design of the course, as well as in receiving real estate entitlements and residential premiums relating to golf course frontage and proximity. 

Disadvantages 
The developer makes a major investment, for which he receives only development rights and land premiums in return. In areas with tight growth controls, however, this may be the most expeditious means of obtaining development rights. The possible disadvantages to the public agency are 1) the quality of course design and construction may create high operating costs; and 2) the market may not be strong enough to generate revenue sufficient to cover operating expenses, necessitating long-term municipal subsidies. 

Public Financing of a Privately-Developed Public Course 

One of the most critical road blocks to developing public golf courses is the availability of financing. Golf courses have a long construction and “green-up” period, and may experience low levels of play in their initial years. With conventional financing, the course may not be able to both cover its debt service and generate an adequate return on investment in the early years of operation, except within very strong golf markets. 

Public agencies, on the other hand, do not have the same financing constraints as do commercial institutions. Since they can borrow funds at tax-exempt interest rates, they able to accept lower rates of return. 

In California recently, private developers and public agencies have joined together in the development and financing of public golf courses. In these cases, the public agency establishes a public development corporation, which contracts with a private developer for the design and construction of the golf course and clubhouse. The contract calls for a turnkey complex to be delivered at a guaranteed fixed price. The public development corporation uses its financing powers to sell tax-exempt “certificates of participation” (COPs) or similar municipal financing vehicles. Debt service is funded from the golf course’s net income. The public agency’s general fund provides additional security to the bond holders. A golf course management company is usually retained to operate the complex. In 20 to 30 years, when the bonds are fully repaid, ownership of the course reverts from the public development corporation to the sponsoring public agency. 

Advantages 
The primary advantage for the public agency is that financing can be secured at a lower, tax-exempt interest rate, while at the same time the development skills of the private sector can be utilized. Further, the financing terms, including up to five years of capitalized interest, are more flexible than with conventional financing. Through the use of COPs, the public agency is not required to use a “bid” competition in selecting the golf course developer; thus the developer can justify the time and cost of pre-development efforts. 

Disadvantages 
The public agency must ultimately assume the financial risk of the project with somewhat limited control over its development. The ability and procedure for public agencies to borrow funds varies from community to community, although the use of COPs is beneficial to the extent that the bonds do not count against the public agency’s federally mandated tax-exempt funding “cap”. 

Summary 

As previously mentioned, there are numerous variations on each approach, but land availability, development and operational control and financing are generally the key issues for each. There are numerous approaches to mitigating problems that hinder the development of public golf courses. However, in order for any joint venture to work, there must be sufficient market demand and a strong commitment by the public agency to have a golf course. 

Case Studies of Public - Private Joint Ventures 

Ground Lease Case Study #1: 
Mile Square, Orange County, California 
Mile Square opened in 1968 in the Fountain Valley area of Orange County, California. Mile Square is an 18-hole, par 72, 6,400-yard golf course of moderate quality and is one of the original public-private development joint ventures. The land is owned by Orange County and is leased to the Mile Square Golf Course for 30 years. The course was built by the developer / operator. 
 

Orange County has been one of the fastest-growing regions in the U.S. for many years, and the demand for golf continues to increase. Currently, Mile Square accommodates approximately 100,000 rounds annually and generates total gross revenue in excess of $2 million per year, of which Orange County receives more than $250,000 in lease payments. These lease payments go into the County’s General Fund. 

Lessons Learned 
Mile Square has among the highest ground lease percentage rents found. While the course struggled during the early years of operation, rising fees and rapidly increasing demand quickly moved the course into a profitable position. In strong golf markets, the ground lease approach is a viable development alternative. 

Land Dedication Case Study #1: 
Rancho Solano, Fairfield, California 
As part of a 1,600-unit residential development called Rancho Solano in Fairfield, California, the developer dedicated 200 acres for the development of an 18-hole, par 72, 7,000-yard championship golf course. As part of the development agreement, the City built a championship golf course and provided partial funding for a clubhouse complete with restaurant, cocktail lounge and pro shop. The City invested $1.25 million for a one-quarter ownership of the clubhouse with the developer putting up the remaining portion. The clubhouse was dedicated to the City. The food and beverage elements were leased to an operator on a long-term basis. The City will share 25 percent of the profit or loss from all operations. 

The City recently retained CCA-Silband to operate the course and clubhouse, and also contracted with Rancho Solano Country Club and Resort, Inc., to operate the food and beverage facilities. This same management firm also operates the food and beverage elements. The City issued $7 million in bonds to cover the construction of the course and one-fourth of the clubhouse. The course was completed in 1989. 

Lessons Learned  
One of the critical lessons learned is the importance of the working relationship between the developer and the City. Although in this case the land dedication approach appears to be successful, a close working relationship to understanding of common goals is important. City staff cautioned that this approach may not work in other situations if the working relationship is not conducive. The selection and qualifications of the golf course architect by the City is also a key decision. Golf courses are very different from parks, and cities need to rely on a good architect to help manage the project construction and keep costs down. Prior to hiring an architect, detailed plans and objectives should be set to pick the right architect. Coordination and communication between the City, the architect and the developer is very critical. The City of Fairfield also brought in the golf operator at an early stage initially on a consulting basis and later on a maintenance and maturity basis and finally on an operating basis. The input from an experienced golf operator who will ultimately operate the course was very helpful. 

Land and Golf Course Dedication Case Study #1: 
Mountain Shadows Golf Course, Rohnert Park, California 
In 1977, two developers built the north course of the Mountain Shadows Golf Course in return for the right to build 120 homes per developer per year around the course. The City committed $100,000 for the irrigation system.  Once completed, the course was dedicated to the City for operation. In May 1978, the City contracted with a national golf course management firm to operate the course. The golf course generated $215,000 in revenue to the City for operation. The management contract was recently renegotiated and requires the operator to rebuild the clubhouse and provide a significant amount of other capital improvements. The new contract generated approximately $350,000 in revenue in FY 1989, with the majority of the City’s income reserved for construction of new recreational and golf facilities. 

Lessons Learned 
At the time, the City of Rohnert Park, which is located in the middle of fast-growing Sonoma County, had very restrictive policies. The dedication of a multi-million dollar golf course was the only way the developers were able to secure development rights. The golf course has been very successful for all parties. However, there were some problems in negotiating the contract and developing the course. One particularly positive aspect was the willingness and integrity of the developers. Another important aspect was that the course and residences were developed concurrently so that infrastructure was coordinated. Several holes had to be rerouted due to poor initial planning between homesites and the course. 

Land Dedication Case Study #2: 
Iron Horse Golf Course at North Richland Hills, Texas 
Richmond Bay Development Company is developing Meadow Lakes, a master-planned residential community in North Richland Hills, a suburb located about 10 miles north of Fort Worth, Texas. The developer elected not to enter the golf development business and was unsuccessful at attracting a private sector firm in developing the course. There were a number of apparent issues which concerned these firms, including the development cost estimates which reflected the tree cover, terrain and other land features, water cost and availability, and the limited land area (the 120 acres available was not sufficiently configured to allow construction of a regulation-length course). 

In April 1988, the City of North Richland Hills reached an agreement with the developer to construct a golf course, with the understanding that the course would be “upscale” in design quality. The city assembled three parcels - the 120 acres dedicated at no cost by the developer, a 35-acre parcel acquired for $5 from the FSLIC, and a 5-acre parcel leased from an adjoining city - for construction of a regulation-length course. Most of the land is in a flood plain. The city then retained Dick Phelps to design the course and Recreation Services Limited to operate the facility. The city acted in the developer’s role, coordinating the design and construction. The course - known as Iron Horse Golf Course at North Richland Hills - opened for play on April 2, 1990. 

The golf course construction cost was $2.0 million, with total turnkey costs at $4.5 million. Tax-exempt bonds totaling $4.25 million were sold to finance the course. In addition to the land dedication by a developer, a contribution toward construction of about $100,000 was made. Greens fees are $18 on weekdays (Monday - Thursday) and $23 on weekends (Friday - Sunday), plus cart. The developer has designed a subdivision with about 65 homesites fronting directly on the golf course. 

Lessons Learned 
This is an example of a public agency using its land assembly and public financing powers to accomplish what the private sector was unable to do. Further, with assistance from the golf architect and the selected golf management firms, the city served as the developer, constructing one of the highest quality municipal golf courses in the state of Texas, if not the country. 

Public Financing Case Study #1: 
Arvin, California  
In Arvin, California (a suburb of Bakersfield), a private developer (Golf West, Inc.) constructed a 6,000-yard regulation-length golf course and a 4,000-square-foot clubhouse. The Arvin Development Corporation contracted with Golf West for delivery of a turnkey facility at a guaranteed price of $3.8 million, excluding financing costs.  The Arvin Development Corporation issued $6.5 million in tax-exempt Certificates of Participation at 8.5 percent interest. The City of Arvin is using its general fund as additional debt service security. Golf Corp. (CCA-Silband) was retained to manage the course at an early date so that the design of the course reflected management and operational considerations. 

Lessons Learned 
The construction of COPs has proved to be the most popular funding mechanism for the construction of publicly-owned golf courses. This process appears to capitalize on both the efficiency of the private sector in developing a recreational facility, and the strength of the public sector in providing low-cost financing for the course. 

Land Trade Case Study:  
Castle Oaks Golf and Country Club, Ione, California 
A slightly more complicated version of a joint venture relationship involved the State of California, the City of Ione, and a private developer. In 1989, the City of Ione acquired a fairly large tract of land from the State of California through a land trade as part of an agreement which involved locating a new state prison in the community. The new prison, other regional business developments and development pressure from Sacramento have created a need for additional recreational opportunities in the community, and golf has been identified as the primary focal point. 

To facilitate construction of the course, the City has entered into a joint venture with a developer which calls for the city to lease the land for the course to the developer for a dollar per year for twenty-five years. The developer will construct and operate the course throughout the period and will receive all of the operating revenues. At the end of the lease period, the course will be turned over to the community. In the meantime, the developer may develop and sell the surrounding property. In order to facilitate the development, $12.5 million of Mello Roos bonds have been funded, all of which will be repaid by the home buyers. 

A unique aspect of this relationship is that the developer retains the right to transfer the public play to another course at any time during the lease period, and to convert the existing course to private status. The developer has optioned adjacent land sufficient to construct a second course, and is tentatively planning on constructing the second facility once the real estate nears sell-out. 

Lessons Learned 
In this example, there are clear benefits to both the public and private developer. First of all, the City is able to obtain a golf course, which will provide a recreational opportunity for local residents. Second, a golf-residential community within the city will help provide an incremental tax base. Third, the provision for bonding the infrastructure enables the developer to accelerate the recreational aspects of the development, which will include clubhouse and tennis facilities, by minimizing his financial exposure on the front end. Fourth, the developer gains a marketing advantage be being able to position the community as a future semi-private or private development, which should help early sales absorption and pricing. Lastly, the City may obtain a pure golf experience without surrounding real estate, should the developer exercise his option to transfer the public play to another course. 

Private/Public Participation:  
Rancho Palos Verdes (Marineland) Site - In-Process 
A major destination resort is proposed for the former 100-acre Marineland site, located on the Palos Verdes Peninsula Coastline in Rancho Palos Verdes, California. A resort quality 18-hole golf course is proposed as part of the resort development. However, there is not sufficient land area for an 18-hole course on the site, and off-site options involve significant problems. The golf course is viewed as an integral part of creating a successful resort, and the city stands to be a major beneficiary of the resort development through transient occupancy, sales and property tax revenues generated from its operation. 

The City of Rancho Palos Verdes has proposed a unique public/private joint participation concept whereby adjacent land owned by the city (where city administrative offices - converted from former military barracks - are located), additional coastal residential land under private ownership and a county-owned parcel designated for recreational use would be combined to provide the 150±acres necessary for the course. The assembled site would be suitable for a high-quality facility, and appears not only to be feasible from a market standpoint, but also in being able to generate substantial underlying land value. The golf course would be public and would be owned by the City, which would retain an outside operator to run it. The course design would place six holes on the original Marineland site, six holes on the city property, five holes on the private development property and one hole on the county property. The private property allocated for golf course use would be provided through either dedication, an easement with right to use or a similar vehicle. 

All parties would benefit from this proposal: The resort developer would have a spectacular 18-hole golf course available for hotel guests, the residential developer would retain his overall gross density, and gain homesite golf fairway frontage real estate premiums, and the City would have the opportunity to construct a golf course which provides public recreation, improves the resort hotel’s potential viability and thus the likelihood of receiving tax revenue, and affords construction of new city offices. 

The City is considering the use of certificates of participation in financing the course. Preliminarily, it has been determined that a percentage of the tee times - up to about one-third - could be allocated to the hotel without violating the spirit of the tax-exempt financing guidelines. 

Lessons Learned 
Although this proposal has not yet been consummated, it truly represents a unique example of participation between public and private sectors. As indicated above, all parties can potentially achieve their primary objectives at virtually no cost via this proposal. 

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