HomeMy WebLinkAbout1987-02-17; City Council; 8429-2; Economics Research Associates GOLF COURSE MACARIO CANYON Presentation STUDYI ,
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-.. .. ,- CIT~F CARLSBAD - AGEND~ILL
DEPT. 1 AB# a429-2 TITLE GOLF COURSE FEASIBILITY STUDY
CITY A MTG. 2/17/87 PRESENTATION
DEPT. P&R CITY M
RECOMMENDED ACTION:
Accept Economics Research Associates Golf Course Feasibility
Study and direct staff to include the study findings for consj
tion in the revised Macario Canyon Master Development Plan.
ITEM EXPLANATION:
On June 10, 1986, the City Council approved the selection of
Economics Research Associates (ERA) to conduct a Golf Course
Feasibility Study in the Macario Canyon Park area. The Counci
also requested that the Parks and Recreation Commissidn act as
the Citizen Review Committee. The Review Committee was represented by Commissioners Wright, Popovich and Lawson.
To insure the RFP was being adequately addressed, several conferences and site visitations were held between staff and ERA'S project team. ERA'S preliminary findings were presented
to staff and the Commission subcommittee for further review in September 1986. After addressing the concerns of the subcommi a draft document and presentation was made to the Parks Commis
in October.
After review of ERA'S draft presentation, the Commission recommended to table any decision on the Golf Course Study pending the outcome of the November election as it pertained
to Proposition H.
In November, 1986, the Parks and Recreation Commission reviewe
an updated Executive Summary and unanimously voted to accept t
Golf Course Feasibility Study as meeting the requirements of t.
RFP. The Commission deferred any other decisions on the study
until all information regarding Macario Canyon Park has been
reviewed - i.e., the theatre proposal and sports complex.
The key findings are briefly summarized as follows:
._
O A market demand currently exists for a municipal or
higher quality fee course at Macario Canyon.
O Three (3) golf course design alternatives have been presented. Alternative I11 is preferred for its advantages in design, environmental, capital and operational costs.
O Alternative 111 will require successful negotiations
with environmental agencies prior to development.
O The development of a resort quality golf course is
recommended. Based on its income-producing potential,
the value of the golf course exceeds the cost of development.
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AB# 84/27 - 2,
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0 Alternative I11 would displace recreational uses
currently depicted in the Macario Canyon Master
Plan - i.e., sports fields and picnic areas. Proposition H, the proposed sports complex
initiative, could not have been accommodated with
development of Alternative 111.
in the Macario Canyon Master Plan could be relocated
east of Faraday Road and/or to the "Hub" area. The
development cost of the sports fields would be
significantly higher primarily due to grading
requirements.
0 Development of a golf-oriented hotel site would
provide a basis for City revenue generation and
substantially increase the privitization concept
of the golf course itself.
depicted in the Macario plan could be integrated
with the hotel site. This integration could create
additional land availability for recreational
development.
for the golf course development is 4.6 million with
an annual operation cost of 1.1 million. Estimated
annual revenue potential to the City of Carlsbad is
$973,000 with the resort quality course and hotel.
0 The displaced recreational uses currently depicted
o The conference center and restaurant currently
o Based upon ERA'S recommendations, the estimated cost
FISCAL IMPACT:
On June 10, 1986, Council authorized the transfer of $25,000
from the Parks and Recreation operating budget to pay for the
study. Under terms of the contract with ERA $15,000 has been
paid to date. Council acceptance of this feasibility study
will result in a final payment of $10,000.
$100,000 is currently available in the 86-87 CIP budget for a
Macario Canyon Master Plan revision.
EXHI3ITS:
1. Executive Summary/Economics Research Associates
Development Feasibility of a Public Golf Course
at Macario Park.
1/2/87
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Section TI
EXECUTIVE SUMMARY
This section presents a brief summary of our findings regarding
the feasibility of constructing a golf course at Macario Park.
tiation and documentation of these findings are contained in Sections I11
through VI11 of this report.
a more detailed summary of the major results.
Substan-
Key findings are outlined below, followed by
KEY FINDINGS
o Market demand currently exists for a municipal or higher
quality daily fee course at Macario Canyon.
changing demographics in the north county region will further
increase golf demand levels such that even if other proposed
courses are developed, sufficient market support will exist.
Three golf course routing alternatives have been developed.
Alternative I11 (Macario Canyon) is the preferred alternative
as it has substantial design, environmental, and capital and
operational cost advantages over the other alternatives.
Market growth and
o
o Alternative I11 is not in conformance with current
environmental policy. Approvals will require successful
negotiations with the environmental agencies having
jurisdiction in this area. Note that the play fields shown in
the existing master plan also are not in compliance with
current environmental policy.
o Development of a "resort quality" golf course is recommended.
A high-quality course has the following advantages:
- Creates the opportunity to develop a golf-oriented
hotel/conference complex.
- Gives Carlsbad residents the opportunity to play a high-
quality course at an affordable greens fee structure.
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- Has a positive impact on the city's image.
- Generates more revenue for the city than other
alternatives.
o The resort quality golf course design is economically feasible.
Based on its income producing potential, the value of the golf
course exceeds the cost of development, and generates positive
residual underlying land value.
forms the basis for ground lease payments to the city.
o The preferred design alternative would displace the other
The underlying land value
recreational uses proposed within the canyon area, as depicted
in the Macario Canyon master plan. This includes Frimarily
play fields and picnic areas. The proposed athletic center
initiative (five play fields and athletic center) could not be
accommodated with development of a golf course.
The displaced master plan uses potentially could be relocated
east of Faraday Road in the vicinity of the Artisans Village/
Conference Center or to the "HZrB" area. Although a number of
environmental and physical design issues need to be investi-
gated, it appears possible that a limited number of play fields
could be accommodated on property east of Faraday Road; how-
ever, a complex of the scale proposed in the athletic center
initiative could not be accommodated in either location. The
HUB area could not accommodate a full scale athletic complex
with multiple play fields; however, perhaps one or two play
fields could be developed in this area.
The cost of developing play fields east of Faraday Road or in
the HUB area would be significantly higher than in the canyon,
primarily due to much higher grading requirements.
o
i.
o
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o Development of a golf-oriented hotel site east of Faraday Road
is a means to capture value which is created by development of
the golf course.
revenue generation and substantially increase the potential for
privatization of the golf course itself.
Development of a hotel site would further displace uses in the
Macario Canyon plan, but by integrating other uses such as a
conference center and restaurant with the hotel, additional
land area could be available for recreational development.
This site would provide a basis for city
o
GOLF COURSE MARKET SUPPORT
The San Diego County and Carlsbad local market areas can be
characterized as follows:
o Overall, the county inventory of public golf facilities is in
balance with market demand.
golf courses for San Diego County compares favorably with other
urban areas and the state as a whole:
The ratio of population to public
Number of Population
Public per Public
Population Golf Golf
Area (thousands) Courses Course
San Diego County 2,135 25.5 83.7
Orange County 2,130 15.5 137.4
Los Angeles County 7,891 42.5 185.7
State of California 25,998 301.0 86.4
o County residents generate approximately 1.8 million rounds on
public courses annually, an average of 72,000 rounds per course
per year. Municipal courses, with a lower greens fee
structure, accommodate 90,000 to 100,000 rounds per year
(80,000 to 90,000 18-hole equivalents), while daily fee public
courses typically receive 60,000 to 75,000 rounds annually
(55,000 to 70,000 18-hole equivalents).
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o San Diego County municipal course greens fees generally are $8
to $9 on weekdays and $10 to $13 on weekends.
courses charge $12 to $13 on weekdays and $14 to $18 on
weekends.
While the demand-supply conditions in the San Diego County golf
market are roughly in balance, the Carlsbad primary and second-
ary market areas are significantly underserved. There are no
regulation length golf courses available to the public in the
primary market area (within 6 miles of the subject property)
and only one (Oceanside Municipal) in the secondary market area
(extending to 10 miles). There are two daily fee regulation
courses just beyond the secondary market area.
Daily fee
o
o In a suburban community such as Carlsbad, it requires about
80,000 full capture population to support a public regulation
length golf course.
population of 158,000, with 1990 population forecast at
181,000.
211,000, and a projected 1990 population of 280,000.
Carlsbad residents currently are served primarily by the
Oceanside Municipal course and to a lesser degree by daily fee
courses outside the secondary market area, such as San Luis
Rey, Circle R, and Whispering Palms. The capacity available to
Carlsbad residents at Oceanside is artificially limited by the
preferential greens fees policies accorded Oceanside
residents.
Based on the local market area population and the existing
inventory of golf courses (including courses just outside the
secondary market area), we believe that an additional 1.5 to
2.0 courses are supportable in the primary and secondary market
areas today, with 2.5 to 3.0 supportable by 1990.
The primary market area has a current
The secondary market area has a current population of
o
o
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o There are a number of golf courses in some stage of planning
proposed in San Diego County. The most significant of these
include a municipal course in San Marcos and a daily fee,
resort quality course at Lake Hodges. Even if these courses
are developed, sufficient demand will exist for either a
municipal or daily fee golf course in the Carlsbad primary
market area.
GOLF COURSE DESIGN FEASIBILITY
Within the 288-acre study area, three golf course routing plan
alternatives have been formulated which meet the basic design criteria for
a regulation length golf course.
number of other alternatives have been analyzed but discarded because they
either did not meet basic design criteria or would have created severe
environmental impact.
In addition to these alternatives, a
The Alternative I routing plan uses most of the western portion of
the property, including the HUB area and some of Macario Canyon. Most of
the property is owned by or leased from San Diego Gas & Electric (SDG6rE).
Alternative I1 is a meandering plan which uses both the HUB area and parts
of Macario Canyon. Alternative I11 is concentrated in the Macario Canyon
area, with a small portion of the course on property owned by SDG6rE.
There are a number of environmental constraints which affect each plan, as
well as other issues such as cost, access, and compatibility with the
Macario Park master plan.
Alternative I11 is the preferred golf course routing plan. The
principal advantages of this alternative include:
o The plan relates to a well designed course which will provide a
high quality golf experience for area golfers.
The plan requires substantially less grading than the other
alternatives.
o
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o Environmental impact relating to the lagoon would be limited
with this plan.
o The cost of the course would be $500,000 to $1 million less
than with the other alternatives.
o Fewer holes would be affected by the transmission lines; also,
because of the height of the lines, holes on the preferred
alternative would be less affected than holes on the other
alternatives.
o This layout would encounter fewer wind problems, thus improving
playing conditions and reducing irrigation requirements.
o All but a small portion of the site is owned by the city;
ground lease of 5 to 10 acres from SDG&E would be necessary.
Alternative I11 relates to a compact, well-designed golf course which will
be much less expensive to construct and operate. Moreover, while there
remain significant environmental impacts with this alternative, they are
substantially less severe than with the other alternatives. The principal
impact involves infringement upon riparian areas in Macario Canyon.
Development of the course (Alternative 111) would conflict with current
policies of the environmental agencies having jurisdiction. It is impos-
sible to categorically determine whether the agencies would permit devel-
opment of the course with appropriate mitigation of the impacts, but there
appears to be some likelihood that through proper design and compensating
measures the city could secure necessary approvals.
PROJECTED CARLSBAD GOLF COURSE PERFORMANCE
There are a number of golf course alternatives (course orientation,
quality, fee structure, volume) which would be supportable from a market
perspective. We have formulated two operational alternatives which
respond to the city’s objectives.
fee golf course designed to accommodate high levels of play, with an
affordable greens fee structure.
The first is a standard quality daily
Carlsbad residents would pay fees
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similar to those at other San Diego County municipal courses. The second
is a resort quality daily fee course designed to provide a higher quality
golf experience. A more moderate level of play would be accommodated, and
a two-tier differentiated fee structure is proposed. Nonresidents would
be charged a fee commensurate with other high quality daily fee courses,
while residents would be charged fees consistent with standard municipal
courses.
number of alternatives which would be supportable.
These alternatives are considered representative of the broader
A third alternative was formulated which consists of the profit
maximizing combination of play volume and fee structure.
maximizing operational alternative relates to a resort quality course
without any restrictions on greens fees to residents or other golf course
policies.
since it does not satisfy the basic objectives of the city.
reference to this alternative is made to provide perspective regarding the
economics of the other two operational alternatives.
The profit
This profit maximizing alternative was not seriously considered
Nonetheless,
The following utilization and. Tate,structure are proposed for the
two operating alternatives:
o Annual Play
Number of Rounds
Year Standard Resort
1 50,000 50,000
2 65,000 60,000
3 75,000 70,000
4 85,000 75,000
18-hole equivalents 81,000 74,000
-
5+ 90,000 80,000
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o Greens Fees
Greens Fee
(constant
1986 dollars)
Standard Resort
Resident
Weekday $10 $10 We e kend 14 14
Weekday 10 14
Weekend 14 18
Nonresident
o Carts
$14 $16 Fee
Percent of Players
Utilizing Carts
o Other Gross Revenue
40% 60%
Amount at Stabilization
(thousands of
constant 1986 dollars)
Standard Resort
Practice Range $100 $100 200 240
160 240
Food and Beverage
Pro Shop
PRO FORMA FINANCIAL PERFORMANCE
Stable year net operating income, before debt service and land
lease payments, is summarized below:
Annual Amount
(thousands)
Standard Resort
Net Operating Income
Golf Course $381 $422 122 2 14 Cart Rentals
60 60 Practice Range
27 62 Pro Shop
18 22 Food and Beverage
’ Total $608 $780
Less :
General & Administrative/
Management Fee 174 213
Total Net Operating
Income $434 $567
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The course "turnkey" development costs are estimated at $3.7
million for the standard quality and $4.6 million for the resort quality
alternatives. This does not include provision for off-site costs such as
access improvements or the cost of an environmental impact mitigation.
Based OR the income producing potential, a capitalized value for
each alternative is estimated.
of underlying land value for both alternatives, is summarized as follows:
The course value, along with an estimate
Amount
(thousands)
Standard Resort
Project Value $3,489 $4, a42
Less :
Development Costs (3,551) (4 , 447) Developer Fee (174) (242)
Residual Land Value ($ 236) $ 153
One measure of economic feasibility is whether project value, based on the
income producing potential of the course, exceeds the cost of development.
In this case, the resort quality course value exceeds cost and creates
positive underlying land value. Positive underlying value establishes the
basis for ground lease payments. It should be pointed out that the
project value under a profit maximizing combination of fees and value is
estimated at $5.4 million, creating an underlying residual land value of
$700,000. 1
IBased on $14 weekday and $20 weekend greens fees; 70,000 rounds at
st ab il iza t ion.
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Ground Lease Revenue
The potential for ground lease revenue is related to the value of
the underlying land. With the standard quality course, it is unlikely
that any ground lease revenues would be generated in the foreseeable
future. For the resort quality golf course alternative, minimum annual
ground lease revenue in the range of $15,000 to $25,000 at play stabiliza-
tion can be expected. Under the profit maximizing scenario, minimum
annual ground lease revenue of about $70,000 is estimated.
PRIVATIZATION POTENTIAL
It is the intent of the city to solicit the private sector for
development and operation of the proposed golf course on a ground lease
from the city. Within recent years, the economics of golf have improved
substantially to the point where, in strong golf markets, private devel-
opers often are interested in developing courses on leased land.
improvement in operating economics has resulted from the following:
(1) greens fees have increased sharply over the past several years, much
more than the general cost of living; (2) demand for golf is increasing
rapidly as the population expands and ages; and (3) operating expenses --
particularly water costs -- have not increased as fast as was expected
several years ago.
This
Nonetheless, most golf courses still are constructed as part of a
real estate venture, where the course creates the opportunity to capital-
ize on residential site premiums. We believe that with limited restric-
tions applied to a developer, and if the city assumes responsibility for
all of the off-site costs, there is a reasonable likelihood that private
development/operation will occur. However, the probabilities would
increase markedly if a resort hotel site were created and integrated with
the golf course development.
peripheral land value, and thus development of a hotel site would allow
capture of this value. A 200- to 250-room hotel site (4 to 6 acres) has
an estimated value of $1.5 to $2.5 million. Therefore, while the standard
Development of a golf course creates
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quality and resort quality operational alternatives have negligible under-
lying land value and consequently will produce little, if any, ground
lease revenue, development of the hotel site offers an opportunity to
generate one-time front-end value or annual ground lease income for the
city.
ing times.
fourth to one-third of the golf course capacity.
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A golf course oriented resort hotel would require guaranteed start-
It is estimated that a ZOO-room complex would utilize one-
~ As the number of restrictions and policies increase with regard to
I greens fees, city resident discounts, reservation practices, and the like,
it will become more difficult to attract private sector participation.
OTHER ISSUES
Development of a golf course in Macario Canyon would create a
number of other impacts and issues. These are briefly summarized as
follows :
o Development of the course would displace the sports field
complex as depicted in the existing Macario Park master plan
and would be incompatible with the proposed athletic center
initiative. It may be possible to relocate the athletic
center, multi-use play flelds, and other uses on property east
of Faraday Road or in the HUB area.
o The environmental, physical, and economic feasibility of
relocating the displaced canyon recreation uses either east of
Faraday Road (or to the HUB area) requires investigation.
Based on a preliminary review of these issues, the potential
appears to exist for relocating a scaled-down version of the
athletic complex and sports fields to the area east of Faraday,
or substituting these uses for other uses in this area.
However, because of substantial grading requirements, the
development of these uses would be more costly than in Macario
Canyon.
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o The HUB area is a less likely relocation site for the athletic
complex uses. This area is much more environmentally
sensitive, has limited contiguous land area with less than 25
percent slope, and may not be compatible with SDG&E ownership
and electrical substation development plans.
o The recommended development of a golf-oriented resort hotel
site is a means to capture value created by development of the
golf course, and improves the probability of privatization.
The logical site for this complex is east of Faraday Road, on
the northern portion of the site. This use would displace
other Macario Canyon recreational uses, but the integration of
the conference center and restaurant uses with the hotel site
would free up other sites east of Faraday Road for development
of other recreational uses.
Both Faraday Road and Kelly Drive would require realignment.
There do not appear to be restrictions affecting the
realignment of these roadways.
Revenues accruing to the city would be generated from several
sources.
standard and resort quality courses, along with the profit
maximizing scenario, is summarized as follows:
o
5.
o
The annual revenue accruing to the city for the
Annual Revenue
( thousands )
Resort Resort L
Without With Prof it
Revenue Source Standard Hotel Hotel Maximizing1
Ground Lease
$ 15 $ 15 $ 70 Golf Course2 _-
Property Tax $4 Transient Occupancy --
Hotel* -- -- 150 150 6 30 30 -- 250 250
Sales Tax 4 5- 28 28
Total $8 $ 26 $473 $528
IAssume development of a 200-room resort hotel complex.
*Minimum ground lease revenue.
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