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October 2017

Let’s Make a Deal

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By Steve Donahue

Augusta Ranch Golf Club has worked out a unique arrangement with the facility’s homeowners association, as owner Don Rea has sold the course to the HOA, which then leased the course back to him

Don Rea may have just discovered a new approach for other single-course owners like him. Until May 16, Rea was part of the ownership group that operated Augusta Ranch Golf Club, a par-61 course in Mesa, Arizona, with a thriving real-estate component.

But Rea—a National Golf Course Owners Association and PGA of America board member—was also well aware that numerous residential golf course facilities fail, many in the Southwest. To protect that from happening to Augusta Ranch, which he’s owned since 2008, Rea worked out a unique deal with the facility’s homeowner’s association—he sold the golf course to the HOA, which then leased the course back to him.

“I truly think this could happen at courses across the nation in order for communities/HOAs to protect their home values,” says Rea, whose company is Community Course Rescue Services. “There’s no need to pay a management company to manage the golf course they buy. You select a lessee that will run the golf course as their own business and pay the HOA a monthly lease.

“It’s time to rescue those community courses, protect home values, grow the game and create entrepreneurial opportunities for individuals looking to own their own business,” he asserts. “It’s a very interesting situation. More deals like this are possible, and needed, in my opinion.”

Augusta Ranch’s residents and non-resident golfers have enjoyed Rea’s numerous unique programs over the years: “On Course for the Holidays,” an event where homeowners adorn their backyards with Christmas lights, folks tour the course and Santa makes a visit; “Water Days;” and spring movie nights on the driving range with “an amazing” inflatable 50-foot movie screen.

When Your Source Pacific Fund I, LLLP—a private equity fund owned by Ray DiMuro, who partnered with Rea—purchased Augusta Ranch from A.R. Development, LLC, on June 30, 2008 for $1.8 million, Rea and DiMuro knew it was “kind of” a 10-year deal, so, with the decade mark approaching, Rea contacted the HOA with the purchase option.

A spate of golf-course community failures in Arizona and neighboring states prompted Rea to act. He began educating Augusta Ranch residents and the HOA about the fates of some similar golf communities where buyers were demolishing golf courses and building houses contrary to promises.

“We said, ‘It’s bad out there,’” Rea recalls. “‘You don’t know who might want to buy the golf course and how they will run it.’ I always intended to buy the course from the investors outright, but Karen (Rea’s wife) and I couldn’t get a loan to buy a course, and I felt finding other investors would be problematic.
“So I said, ‘Hey, HOA, I think you guys should buy the course and I could lease it back from you. You don’t need to hire a management company,’” he continues. “We have a great relationship that we’ve built over years of me operating the golf course.”

It took 18 months for the HOA to get homeowner buy-in. Members wanted 66 percent to think Rea’s proposal was good. On May 16, Your Source sold the course to the Augusta Ranch Community Master Association for $2.2 million, with no money down.

“The HOA purchased the golf course and I leased it back,” Rea explains. “I seamlessly took over the next day. There were no investors, just Karen and me. The staff and everything remained the same.

“I’m 50 years old,” he adds. “I love the golf course, the people and community. Karen and I plan on being here a long time. However, whatever happens in the future, I know the model works and someone else could come in and be just as, if not more, successful than we will be. It’s all about relationships, trust, care and commitment.”

Rea can run the business however he wants. He actually subleases the club’s restaurant out to an ownership group that has several area high-end restaurants.

“I can operate the restaurant if I want,” says Rea, “but I elected two years ago to sublease it to another company because they’re a better food-and-beverage operator than I am. The profit/loss for a restaurant at a golf course is difficult, and it definitely wasn’t my strength. I’m very happy they can utilize their economies of scale to easily make their rent payment to me every month. It’s a headache-free situation for us and well worth it.”

The HOA didn’t want to run the restaurant, either, which is why Rea had a contract clause stipulating he can lease the entire property and sublease portions of it, whether it’s a restaurant or a golf school. “They just want to know their asset is being well taken care of, the relationship stays strong, and the homeowners are happy,” he notes.

Rea isn’t worried about disagreements with the HOA. “I’m running the course the same way I’ve been running it for nine years,” he boasts. “There wasn’t a lot of deferred maintenance because I always thought I was going to buy it from the investors. They were very nice to me and weren’t going to give me a clunker. That being said, it really is a win-win, but I don’t think there are too many unique wrinkles in this template that can’t be applied across the nation. I look forward to being able to consult with other communities that are facing a similar situation.

“Bottom line,” he adds, “we want to help rescue community golf courses from the bulldozers. The game and the homeowners deserve it.”

Steve Donahue is a Connecticut-based freelance writer.

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