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SGA Featured Article
The Hurdles in Repurposing Golf Courses: What Appraisers Need to Know
by Stephen Hughes, MAI, SGA
Addressing valuation concerns of an operating golf course which can theoretically be redeveloped. Key points need to be considered, integrating insights from land use regulations, legal precedents, and appraisal practices.
A member-owned, self-managed golf club hired an inexperienced tax representative to lower real estate taxes. The representative appealed the county-assessed value, which was already set at 40% below market value, claiming the market value was even lower. This appeal resulted in the county reassessing the land’s value as redevelopment property, increasing it fourfold. I was then called in to provide an expert opinion.
The 18-hole golf course, built over fifty years ago, was not part of a modern “golf course community.” It features a traditional core design with surrounding homes and is zoned for single-family residences. The key issue now is determining the highest and best use not the market value of the operating golf course.
Issues Ignored in Hearing
The county hearing panel overlooked several critical issues specifically related to redevelopment of golf courses. They are noted in a paper entitled Taking the Mulligan: The land use regulatory hurdles in golf course repurposing, November 2020 by Arthur Anderson, an attorney with Winstead PC. Mr. Anderson outlines numerous obstacles facing developers beginning with the entitlements process:
- City comprehensive plan
- Zoning
- Platting
- Site improvement engineering and approvals
- Building permit
- Certificate of occupancy
The article states “Even if a proposed land use is allowed under the municipality’s zoning ordinance, the technical engineering standards contained in the subdivision regulations may be applied to defeat a proposed golf course repurposing. Engineering criteria are sometimes interpreted or manipulated in different ways to achieve a desired result. Virtually every reuse will have considerably greater effects on nearby infrastructure than the golf course use”. Examples are given of legal permission being denied due to extra traffic loads and water runoff worries.
The article goes on: “In addition, the governing body is required to find that the proposed development will not have a materially adverse effect on existing single family property values. The neighbors will obviously claim an adverse effect and the temptation will be for the city to deny the replat [or new plat] for political reasons”. A lot that has adjacent views of a golf course is worth considerably more than an otherwise similar lot. If the golf course goes away the adjacent home goes down in value.
The Mulligan paper goes on to note several instances where a golf course redevelopment plan is ultimately approved but it is generally with negotiated settlements with neighbors where the development is less dense and entitlement costs are higher than expected. The higher costs include legal expenses, expert studies for financial feasibility, valuation impacts, traffic, environment, etc. There also may be mandated common areas to help offset the loss of the golf course open space. These are typically costs for parks and walking trials. Loss of density may include greater setbacks adjacent to existing homes which may include landscaped berms.
Implied Covenants
In another article, Michael E. Buckley, Esq. states “In the absence of recorded restrictions, a golf course may be burdened by implied easements for the benefit of neighboring homeowners. Shalimar Assn. v. D.O.C.Enterprises (1984) affirmed a trial court’s decision that the purchaser of a golf course, developed as an integral part of the residential development, was prohibited from building homes on the golf course, finding an implied restriction based on, among other things, homeowners’ reliance on plats and sales materials.” It was from Nevada Lawyer in 2018. The Shalimar case was in Arizona. I have also reviewed seven other implied covenant cases to prohibit golf course redevelopment in six states. One was in 1967 and the other five were between 2008 and 2021. Six of those cased were judged in favor of an implied covenant so redevelopment was prohibited. In one case the prohibition of redevelopment was limited to 15 years. Typically, the cases involved situations where the original developer for the lots and the golf course was the same and whether there were representations in marketing materials or HOA documents or on subdivision plats regarding the golf course. This issue really only applies where the original lot development was the same developer as the golf course.
Entitlements can be denied based on neighbor complaints. For example, Deer Creek in Overland Park, Kansas, proposed redeveloping part of its golf course into 220 apartments. Despite approval from city staff and the planning commission, the city council ultimately denied the plan in 2022, demonstrating the risks posed by neighbor opposition. The redevelopment is now held up by a lawsuit related to implied covenants to adjacent homeowners.
Understanding Entitlements and Land Value
According to Subdivision Valuation by Don Emerson, a text book published by the Appraisal Institute in 2008, entitlement is defined as “In the context of ownership, use, and/or development of real property, the rights to receive governmental approvals for annexation, zoning, utility extensions, construction permits, and occupancy/use permits. The approval period is usually finite and may require the owner and/or the developer to pay impact and/or user fees in addition to other costs to secure the entitlement. Entitlements may be transferable, subject to covenants or government protocols, may constitute vested rights, and may represent an enhancement to a property’s value.” The book discusses entitlements in connection with valuing land at two different stages:
Raw Land Value – “The raw land value reference point would typically indicate an as is value for vacant land that has not gone through a subdivision review or entitlement process and therefore has not achieved a final site plan approval. Vacant sites at this point in time typically do not have any entitlements and are not ripe for development.” “Appraisal assignments undertaken at the raw land value point in time are usually very difficult because actual use densities and stipulations required by local authorities for future development may be unknown, which may add variability to the value conclusion.” [emphasis mine]
Land Value with Entitlements/After Permitting – “Depending on the development environment surrounding the project, land values can significantly increase at this point.” The Uniform Standards of Appraisal Practice (USPAP 2021) also notes that entitlements should be considered in valuing land. An example is Frequently Asked Question 159, where the answer states “The value of the site, with its entitlements …”.
Subdivision developers typically place a tract of land under contract for six months or more, while they get the appropriate entitlements before closing at the agreed sale price. In this case the subdivision land sale is closed at the agreed sale price after appropriate entitlements are received according to the developers’ requirements. The agreed price basically assumes all entitlements will be received. If they are not, the buyer/developer typically has the right to cancel the contract.
In estimating land value, the appraiser must review each land sale to determine if it is a entitled subdivision land sale or a raw land (speculative) sale. Redevelopment buyers are keenly aware of the importance of entitlements, especially golf course redevelopments.
Methods to Address Entitlement Risk
- Discounting the estimated entitled market value of the land.
- Adding a premium to the operating golf course value for redevelopment potential.