Members might bail out Federal Club
March 11, 2010 by Aaron Kremer
A group of members at an upscale golf club in Hanover County has started studying how to buy the golf course if the current owners/operators can’t turn the business around.
According to two members at the Federal Club who spoke on condition of anonymity because of the early stage of the negotiations, the members are hiring a lawyer and negotiating with the Bank of Essex, which is owed about $8 million and has asked the bankruptcy court to end the bankruptcy protection. If that happened, the bank would likely foreclose on the course and operate it until it can find a buyer.
The $9 million, Arnold Palmer-designed course opened three years ago and has never been profitable. It is currently not paying its loan to the Bank of Essex. On March 24, a judge will rule on whether the Federal Club can remain in bankruptcy protection and continue to stave off creditors. (You can read more on that in an RBS story here. )
“Hopefully the current owners can emerge from bankruptcy protection. But from what we see in the public filings, we are concerned they may not be able to do that,” said one member.
“The members as a whole have formed to ensure that, in the event it is necessary, we are able to purchase the course,” he said. “A lot of us have a large investment, and we want to maintain the course.”
Neither member would discuss what price the club might fetch, but golf experts previously told BizSense that distressed clubs generally get less than 50 percent of the initial cost to build them. That would mean the club could sell for less than $5 million.
The golf course is likely worth more with a stable base of dues-paying members.
Ray Tate, one of the investors and principals running the business, said that many of the members are working to help him fix the financial situation of the club and that business is improving.
The club has added 22 members since January, which was double the number they expected, Tate said. The club now has about 150 members.
It’s is also getting more public play, where non-members pay by the round. About 20 players a day have been paying to play so far this week, according to the course. And that number will likely rise with more nice weather.
“Right now we are doing things ahead of schedule, and we have an opportunity to keep this club,” Tate said.
“We are doing everything we’re supposed to do as far as cash flow and the 16-week plan, and so far it’s working.”
Aaron Kremer is the BizSense editor. Please send news tips to Editor@richmondbizsense.com.
I sympathize with the members of the Federal Club, but as a member of another private club in Richmond the following questions quickly come to mind….
1) How can a private club hope to remain solvent with 150 members? Our club would quickly go bankrupt with such a low number. Private clubs in Richmond are struggling for new members, and I would guess that Federal Club needs at least double what they have now. Those odds are long in this economy.
2) How does the membership committee deal with the very real prospect of a large assessment when pitching the course to new members?
3) How much are the current members willing to devalue their club by going the semi-private route? Public play ultimately means fewer tee times reserved for members and the introduction of golfers who have zero vested interest in maintaining the course. Public play also brings in golfers who play far slower because their skill level is generally lower and their ready-play etiquette lacking. There are fine semi-privates in Richmond, but there are differences. I have played painful five hour rounds at semi-privates.
4) Even if the debts are settled, how does the Federal Club deal with their ongoing cash flow problem? February brought in almost zero dollars at most courses because of the snow. Mother Nature may have blessed our fair city with several years of mild winters recently, but she also reminded us this year that Virginia is not Georgia. Winter golf in Richmond is always a hit-or-miss proposition depending on the weather.
Best of luck to the Federal Club. But truly, the market is demonstrating that there are too many private courses in Richmond. Perhaps a few need to go full-time public or even close outright.