CITY OF PACIFIC GROVE
Community Development Department – Planning Division
300 Forest Avenue, Pacific Grove, CA 93950
T: 831.648.3183 • F: 831.648.3184 • www.ci.pg.ca.us/cdd ARCHITECTURAL PERMIT (AP), USE PERMIT (UP), AND VARIANCE (VAR) 22-0284 FOR A PROPERTY LOCATED AT 773/775 OCEAN VIEW BOULEVARD TO ALLOW THE REMODEL
OF AN EXISITNG DUPLEX, INCLUDING INSTALLATION OF AN ELEVATOR AND CONSTRUCTION OF A ROOF DECK.
FACTS
1. The subject site is located at 773/775 Ocean View Blvd, Pacific Grove, APN 006-071-007.
2. The subject site has a designation of Medium High Density Residential (10-20 du/ac) on the City’s adopted Land Use Plan Map.
3. The project site is located in the R-3-PGB zoning district.
4. The property is located within the City’s Coastal Zone, Area of Special Biological Significance (ASBS), and within an archaeologically sensitive area.
5. Due to the limited scope of the proposed project, submittal of an archaeological report is not required or warranted. The proposed ground disturbance for the elevator shaft will occur in a previously-developed area. Conditions of approval have been added to address inadvertent discovery of cultural resources.
6. The subject property is not listed on the City’s Historic Resources Inventory (HRI). A Phase I Historic Review prepared for the property by a qualified historian (Seavey, October 17, 2022) concluded the property is ineligible as a historical resource.
7. Pursuant to Pacific Grove Municipal Code (PGMC) Sections 23.90.050, City CDP Determinations, and 23.90.040, CDP Exemptions, Community Development Department (CDD) staff determined the project to be exempt from the requirement to obtain a Coastal Development Permit (CDP).
CDD staff forwarded this determination to the Coastal Commission on December 15, 2022.
8. The subject site is approximately 1,491 square feet in size, and currently developed with a 2,343 square foot two-story duplex.
9. The proposed development would include the remodel of an existing 2,343 square foot two-story duplex, including installation of an exterior elevator and construction of a roof deck. The resulting duplex would have an 888 square foot lower unit and an 1,170 square foot upper unit with a 398 square foot two-car garage.
10. This project has been determined to be Categorically Exempt per California Environmental Quality Act (CEQA) Guidelines, Section 15301, Class 1, Existing Facilities, and the exceptions to the exemptions in Section 15300.2 of the CEQA Guidelines do not apply.
FINDINGS
For an Architectural Permit per PGMC Section 23.70.060(f)
1. The architecture and general appearance of the completed project are compatible with the neighborhood.
The proposed project includes the remodel of an existing 2,343 square foot two-story duplex, including installation of an exterior elevator and construction of a roof deck. As designed, the project would be compatible with other residences in the neighborhood. The surrounding streetscape is comprised of residences with varying architectural styles, alignments, and scales. The proposed exterior materials will match the existing structure and include a tile roof and clear glass with stainless steel railing for the roof deck.
The elevator shaft and enclosed stairs would be constructed on the rear elevation opposite Ocean View Boulevard. As designed, the project would not result in adverse visual impacts along Ocean View Boulevard.
2. The completed project will neither be detrimental to the orderly and harmonious development of the city nor impair the desirability of investment or occupation in the neighborhood.
DocuSign Envelope ID: C8C9F990-CEE1-45A4-9ACD-EB3CFDC356D5
There is no indication or evidence that the proposed project would either negatively affect the orderly and harmonious development of the city or impair the desirability of investment in the neighborhood.
The proposed development would increase the value of the property and contribute to the desirability of investment in the Beach Tract neighborhood, and would provide accessibility to the proposed roof deck.
3. The commission has been guided by and referenced applicable provisions of the architectural review guidelines in making its determinations on single-family residences.
The architectural style, materials and site design are in substantial conformance with the City’s Architectural Review Guidelines. Specifically, Guidelines Nos. 7 and 9 relating to the second-floor balcony, roof deck, and neighbors' views were used in analyzing the proposed project to ensure compliance.
For a Use Permit per PGMC Section 23.70.080(a)(4)
1. The proposed use is allowed with a use permit within the applicable zoning district and complies with all applicable provisions of these regulations.
The proposed use is a continuation of an existing use (duplex) permitted in the R-3-PGB zoning district. Per PGMC Section 23.64.120, a Use Permit is required to allow the elevator shaft to exceed the maximum allowed height of 25 feet. The elevator shaft would rise to a height of 27 feet (i.e., 2 feet over the allowed maximum height) to provide access to the second story of the duplex and to the roof deck.
2. The proposed use is consistent with the general plan, the local coastal program, and any applicable specific plan.
The proposed use is consistent with the general plan and local coastal program. No specific plans apply to the subject property.
3. The establishment, maintenance, or operation of the use will not, under the circumstances of the particular case, be detrimental to the health, safety, or general welfare of persons residing or working in the neighborhood of the proposed use.
The proposed use will not be detrimental to health, safety, or general welfare because it is a continuation of an existing use permitted in the R-3-PGB zoning district.
4. The use, as described and conditionally approved, will not be detrimental or injurious to property and improvements in the neighborhood or to the general welfare of the city.
The proposed use will not be detrimental or injurious to property and improvements in the neighborhood because the remodel and construction of an elevator shaft and roof deck will improve the desirability of the property.
5. The location, size, design, and operating characteristics of the proposed use are compatible with the existing and future land uses in the vicinity.
The proposed project is compatible with other land uses in the vicinity, which consists primarily of oneor two-story single-family residences and duplexes on small lots.
For a Variance per PGMC Section 23.70.080(b)(4)
1. That there are exceptional or extraordinary circumstances or conditions applying to the land, buildings, or use referred to in the application, which circumstances or conditions do not apply generally to land, buildings, and/or uses in the same zoning district.
The subject property is small and nonconforming with regard to building coverage, site coverage, and setbacks. The Variance is required to allow a further reduction of the rear setback, and minor increases to both building and site coverage. As proposed and compared, the property would be similar to other DocuSign Envelope ID: C8C9F990-CEE1-45A4-9ACD-EB3CFDC356D5
properties in the neighborhood and the R-3-PGB zoning district.
2. That the granting of the variance is necessary for the preservation and enjoyment of substantial property rights of the petitioner.
Without said variance the property would be adversely affected by the strict implementation of the zoning regulations, where other properties in the R-3-PGB zoning would not be affected in the same manner. Granting the variance would allow use of the property at a level similar to the level of use of other properties in the vicinity.
3. That the granting of such variance will not, under the circumstances of the particular case, materially affect adversely the health or safety of persons residing or working in the neighborhood of the property of the applicant and will not, under the circumstances of the particular case, be materially detrimental to the public welfare or injurious to property or improvements in the neighborhood.
The proposed variance will accommodate the elevator shaft to provide access to the second story of the duplex and to the roof deck. Most of the elevator shaft would be placed over existing impervious surface site coverage. Granting said variance, under the circumstances of this particular case, will not be materially detrimental to the public welfare or injurious to property or improvements in the neighborhood.
PERMIT
Architectural Permit, Use Permit, and Variance (AP/UP/VAR 22-0284) to allow the remodel of an existing 2,343 square foot two-story duplex, including installation of an exterior elevator and construction of a roof deck.
CONDITIONS OF APPROVAL
1. Permit Expiration. This permit shall expire and be null and void if a building permit has not been applied for within two (2) years from and after the date of approval. Application for extension of this approval must be made prior to the expiration date.
2. Construction Compliance. All construction must occur in general compliance with the proposal as set forth in the application, subject to any special conditions of approval herein. Any deviation from approvals must be reviewed and approved by staff and may require Architectural Review Board and/or Planning Commission approval.
3. Terms and Conditions. These terms and conditions shall run with the land and bind to all future owners and possessors of the subject property, unless amended. Amendments to this permit may be achieved only if an application is made and approved, pursuant to the Zoning Code.
4. Public Works, Fire and Building. Review and approval by the Public Works and Fire Departments, and Building Division, are required prior to issuance of a building permit. Work taking place in the public right-of- way shall require an encroachment permit prior to issuance of the building permit.
5. Conformance to Plans. Development of the site shall conform to the approved plans for “Remodel and Addition for Bruno” dated August 8, 2023, on file with the Community Development Department and to the Building Code, with the exception of any subsequently approved changes.
6. Lighting. All exterior lighting must conform to LUP Policy DES-6.
7. Building Plans. All conditions of approval for the Planning permit(s) shall be printed on a full-size plan sheet and included with the construction plan set submitted to the Building Division.
8. Archaeology and Inadvertent Discovery. When human remains or artifacts are exposed, the Health and Safety Code § 7050.5 requires that no further excavation or disturbance occurs in the area and that the county coroner is called so that the coroner can verify that the remains are not subject to medical jurisprudence. Within 24 hours of notification, the coroner calls the Native American Heritage Commission DocuSign Envelope ID: C8C9F990-CEE1-45A4-9ACD-EB3CFDC356D5
if the remains are known or thought to be Native American. The Native American Heritage Commission selects the Most Likely Descendant (MLD) from a rotating list of MLDs. The MLD has 24 hours to respond. All work will halt with a 50-yard radius until an osteologist can examine the remains, and a treatment plan for any said remains has been provided according to the MLD.
9. Cultural and/or Archaeological Artifacts. If such artifacts are unexpectedly discovered during ground disturbing activities, work shall be halted until the item(s) can be evaluated by a qualified professional archaeologist. If the find is determined to be significant, appropriate mitigation will be formulated, with the approval of the lead agency, and implemented prior to recommencement of work.
NOW, THEREFORE, BE IT RESOLVED BY THE PLANNING COMMISSION OF THE CITY OF PACIFIC GROVE:
1. The Commission has determined that each of the Findings set forth above is true and correct, and by this reference incorporates those Findings as an integral part of this Permit.
2. The Planning Commission approves AP/UP/VAR 22-0284 as proposed and conditioned, pursuant to a Categorical Exemption for Existing Facilities (CEQA Guidelines Section 15301, Class 1).
3. This permit shall become effective upon the expiration of the 10-day appeal period.
4. This permit shall not take effect until the owner acknowledges and agrees to all terms and conditions and agrees to conform to and comply with those terms and conditions.
Passed and adopted at a regular meeting of the Planning Commission of the City of Pacific Grove on the 14th day of September, 2023, by the following vote:
AYES: Fredrickson, Kubica, Davison, and Lilley
NOES: Sawyer
ABSENT: Murphy and Nodzenski
ABSTENTIONS: None
APPROVED:
Steven Lilley, Chair
The undersigned hereby acknowledge and agree to the approved terms and conditions, and agree to fully conform to, and comply with, said terms and conditions. ______________________________ ____________________
Bartolo James Bruno, Trustee of the Date
Bartolo and Frances Bruno Living
Trust dated September 12, 2019
______________________________ ____________________
Frances Dianne Bruno, Trustee of the Date
Bartolo and Frances Bruno Living
Trust dated September 12, 2019
DocuSign Envelope ID: C8C9F990-CEE1-45A4-9ACD-EB3CFDC356D5 9/21/2023
9/25/2023
Permit No. AP 22-0284
CITY OF PACIFIC GROVE
Community Development Department – Planning Division
300 Forest Avenue, Pacific Grove, CA 93950
T: 831.648.3183 • F: 831.648.3184 • www.ci.pg.ca.us/cdd ARCHITECTURAL PERMIT (AP), USE PERMIT (UP), AND VARIANCE (VAR) 22-0284 FOR A PROPERTY LOCATED AT 773/775 OCEAN VIEW BOULEVARD TO ALLOW THE REMODEL
OF AN EXISITNG DUPLEX, INCLUDING INSTALLATION OF AN ELEVATOR AND CONSTRUCTION OF A ROOF DECK.
FACTS
1. The subject site is located at 773/775 Ocean View Blvd, Pacific Grove, APN 006-071-007.
2. The subject site has a designation of Medium High Density Residential (10-20 du/ac) on the City’s adopted Land Use Plan Map.
3. The project site is located in the R-3-PGB zoning district.
4. The property is located within the City’s Coastal Zone, Area of Special Biological Significance (ASBS), and within an archaeologically sensitive area.
5. Due to the limited scope of the proposed project, submittal of an archaeological report is not required or warranted. The proposed ground disturbance for the elevator shaft will occur in a previously-developed area. Conditions of approval have been added to address inadvertent discovery of cultural resources.
6. The subject property is not listed on the City’s Historic Resources Inventory (HRI). A Phase I Historic Review prepared for the property by a qualified historian (Seavey, October 17, 2022) concluded the property is ineligible as a historical resource.
7. Pursuant to Pacific Grove Municipal Code (PGMC) Sections 23.90.050, City CDP Determinations, and 23.90.040, CDP Exemptions, Community Development Department (CDD) staff determined the project to be exempt from the requirement to obtain a Coastal Development Permit (CDP).
CDD staff forwarded this determination to the Coastal Commission on December 15, 2022.
8. The subject site is approximately 1,491 square feet in size, and currently developed with a 2,343 square foot two-story duplex.
9. The proposed development would include the remodel of an existing 2,343 square foot two-story duplex, including installation of an elevator and construction of a roof deck. The resulting duplex would have an 888 square foot lower unit and an 1,170 square foot upper unit with a 398 square foot two-car garage.
10. This project has been determined to be Categorically Exempt per California Environmental Quality Act (CEQA) Guidelines, Section 15301, Class 1, Existing Facilities, and the exceptions to the exemptions in Section 15300.2 of the CEQA Guidelines do not apply.
FINDINGS
For an Architectural Permit per PGMC Section 23.70.060(f)
1. The architecture and general appearance of the completed project are compatible with the neighborhood.
The proposed project includes the remodel of an existing 2,343 square foot two-story duplex, including installation of an elevator and construction of a roof deck. As designed, the project would be compatible with other residences in the neighborhood. The surrounding streetscape is comprised of residences with varying architectural styles, alignments, and scales. The proposed exterior materials will match the existing structure and include a tile roof and clear glass with stainless steel railing for the roof deck. The elevator shaft and enclosed stairs would be constructed on the rear elevation opposite Ocean View Boulevard. As designed, the project would not result in adverse visual impacts along Ocean View Boulevard.
2. The completed project will neither be detrimental to the orderly and harmonious development of the city nor impair the desirability of investment or occupation in the neighborhood.
DocuSign Envelope ID: 13B6DC56-F9A3-4456-AC7C-515BB74F002E
Permit No. AP 22-0284
There is no indication or evidence that the proposed project would either negatively affect the orderly and harmonious development of the city or impair the desirability of investment in the neighborhood.
The proposed development would increase the value of the property and contribute to the desirability of investment in the Beach Tract neighborhood.
3. The Board has been guided by and referenced applicable provisions of the architectural review guidelines in making its determinations on single-family residences.
The architectural style, materials and site design are in substantial conformance with the City’s Architectural Review Guidelines. Specifically, Guidelines Nos. 7 and 9 relating to the second-floor deck/roof deck and neighbors' views were used in analyzing the proposed project to ensure compliance.
For a Use Permit per PGMC Section 23.70.080(a)(4)
1. The proposed use is allowed with a use permit within the applicable zoning district and complies with all applicable provisions of these regulations.
The proposed use is a continuation of an existing use (duplex) permitted in the R-3-PGB zoning district. The Use Permit is required to allow the elevator shaft to exceed the maximum allowed height of 25 feet. The elevator shaft would rise to a height of 27.75 feet (i.e., 2.75 feet over the allowed maximum height. The Planning Commission has purview to permit projects that do not meet the regulations of this zoning district, subject to the conditions of an approved use permit.
2. The proposed use is consistent with the general plan, the local coastal program, and any applicable specific plan.
The proposed use is consistent with the general plan and local coastal program. No specific plans apply to the subject property.
3. The establishment, maintenance, or operation of the use will not, under the circumstances of the particular case, be detrimental to the health, safety, or general welfare of persons residing or working in the neighborhood of the proposed use.
The proposed use will not be detrimental to health, safety, or general welfare because it is a continuation of an existing use permitted in the R-3-PGB zoning district.
4. The use, as described and conditionally approved, will not be detrimental or injurious to property and improvements in the neighborhood or to the general welfare of the city.
The proposed use will not be detrimental or injurious to property and improvements in the neighborhood because the remodel and construction of an elevator shaft and roof deck will improve the desirability of the property.
5. The location, size, design, and operating characteristics of the proposed use are compatible with the existing and future land uses in the vicinity.
The proposed project is compatible with other land uses in the vicinity, which consists primarily of oneor two-story single-family residences and duplexes on small lots.
For a Variance per PGMC Section 23.70.080(b)(4)
1. That there are exceptional or extraordinary circumstances or conditions applying to the land, buildings, or use referred to in the application, which circumstances or conditions do not apply generally to land, buildings, and/or uses in the same zoning district.
The subject property is small and nonconforming with regard to building coverage, site coverage, and setbacks. The Variance is required to allow a further reduction of the rear setback, and minor increases to both building and site coverage. As proposed and compared, the property would be similar to other properties in the neighborhood and the R-3-PGB zoning district.
DocuSign Envelope ID: 13B6DC56-F9A3-4456-AC7C-515BB74F002E
Permit No. AP 22-0284
2. That the granting of the variance is necessary for the preservation and enjoyment of substantial property rights of the petitioner.
Without said variance the property would be adversely affected by the strict implementation of the zoning regulations, where other properties in the R-3-PGB zoning would not be affected in the same manner. Granting the variance would allow use of the property at a level similar to the level of use of other properties in the vicinity.
3. That the granting of such variance will not, under the circumstances of the particular case, materially affect adversely the health or safety of persons residing or working in the neighborhood of the property of the applicant and will not, under the circumstances of the particular case, be materially detrimental to the public welfare or injurious to property or improvements in the neighborhood.
The proposed variance will accommodate the elevator shaft to provide access to the second story of the duplex and to the roof deck. Most of the elevator shaft would be placed over existing impervious surface site coverage. Granting said variance, under the circumstances of this particular case, will not be materially detrimental to the public welfare or injurious to property or improvements in the neighborhood.
PERMIT
Architectural Permit, Use Permit, and Variance (AP/UP/VAR 22-0284) to allow the remodel of an existing 2,343 square foot two-story duplex, including installation of an elevator and construction of a roof deck.
CONDITIONS OF APPROVAL
1. Permit Expiration. This permit shall expire and be null and void if a building permit has not been applied for within two (2) years from and after the date of approval. Application for extension of this approval must be made prior to the expiration date.
2. Construction Compliance. All construction must occur in general compliance with the proposal as set forth in the application, subject to any special conditions of approval herein. Any deviation from approvals must be reviewed and approved by staff and may require Architectural Review Board and/or Planning Commission approval.
3. Terms and Conditions. These terms and conditions shall run with the land and bind to all future owners and possessors of the subject property, unless amended. Amendments to this permit may be achieved only if an application is made and approved, pursuant to the Zoning Code.
4. Public Works, Fire and Building. Review and approval by the Public Works and Fire Departments, and Building Division, are required prior to issuance of a building permit. Work taking place in the public right-of-way shall require an encroachment permit prior to issuance of the building permit.
5. Conformance to Plans. Development of the site shall conform to the approved plans for “Remodel and Addition for Bruno” dated October 7, 2022, on file with the Community Development Department and to the Building Code, with the exception of any subsequently approved changes.
6. Lighting. All exterior lighting must conform to LUP Policy DES-6.
7. Building Plans. All conditions of approval for the Planning permit(s) shall be printed on a full-size plan sheet and included with the construction plan set submitted to the Building Division.
8. Archaeology and Inadvertent Discovery. When human remains or artifacts are exposed, the Health and Safety Code § 7050.5 requires that no further excavation or disturbance occurs in the area and that the county coroner is called so that the coroner can verify that the remains are not subject to medical jurisprudence. Within 24 hours of notification, the coroner calls the Native American Heritage Commission if the remains are known or thought to be Native American. The Native American Heritage Commission selects the Most Likely Descendant (MLD) from a rotating list of MLDs. The MLD has 24 hours to DocuSign Envelope ID: 13B6DC56-F9A3-4456-AC7C-515BB74F002E
Permit No. AP 22-0284
respond. All work will halt with a 50-yard radius until an osteologist can examine the remains, and a treatment plan for any said remains has been provided according to the MLD.
9. Cultural and/or Archaeological Artifacts. If such artifacts are unexpectedly discovered during ground disturbing activities, work shall be halted until the item(s) can be evaluated by a qualified professional archaeologist. If the find is determined to be significant, appropriate mitigation will be formulated, with the approval of the lead agency, and implemented prior to recommencement of work.
NOW, THEREFORE, BE IT RESOLVED BY THE ARCHITECTURAL REVIEW BOARD OF THE CITY OF PACIFIC GROVE:
1. The Board recommends that the Planning Commission determined that each of the Findings set forth above is true and correct, and by this reference incorporates those Findings as an integral part of this Permit.
2. The Board recommends the Planning Commission deny UP/VAR 22-0284 as proposed, pursuant to a Statutory Exemption 15270 and recommend the Planning Commission approve the AP 22-0284 as proposed and conditioned pursuant to an Existing Facilities categorical exemption (CEQA Guidelines Section 15301, Class 1).
3. This permit shall become effective upon the expiration of the 10-day appeal period.
4. This permit shall not take effect until the owner acknowledges and agrees to all terms and conditions and agrees to conform to and comply with those terms and conditions.
Passed and adopted at a special meeting of the Architectural Review Board of the City of Pacific Grove on the 16th day of May, 2023, by the following vote:
AYES: Brooks, Boyle, Borstein, Eldridge
NOES:
ABSENT: Sutphen
APPROVED:
Sarah Boyle, Chair
The undersigned hereby acknowledge and agree to the approved terms and conditions, and agree to fully conform to, and comply with, said terms and conditions.
Bartolo James Bruno, Trustee of the Date
Bartolo and Frances Bruno Living
Trust dated September 12, 2019
Frances Dianne Bruno, Trustee of the Date
Bartolo and Frances Bruno Living
Trust dated September 12, 2019
DocuSign Envelope ID: 13B6DC56-F9A3-4456-AC7C-515BB74F002E 9/6/2023
9/6/2023
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October 25, 2023
To Pacific Grove City Council
Hello, I am Bart Bruno. I am the applicant for the modification to 773-775 Ocean View Blvd First of all I would like to thank you for your time and efforts to help the city deal with all its issues. I know, in part, the amount of work it can take. Subsequent to my retirement, over the years, I have participated in an Architectural Review Board, Land Use Advisory Board, a Property Owners Association and chaired a Roads and Traffic Committee, among others. And, again, I thank you for your efforts.
We lived in Pacific Grove for over twenty years, mostly within a few blocks of this area and during that time acquired this property with the intent of occupying it in our later years. It has been used as a rental income property during that time. We have become of that age and realized that our need for our large home was vanishing and so have planned a comfortable unit up-stairs and a separate unit below, possibly for a caretaker. We also realized that the time to go through the permit and construction process can be long and, thus, have begun the process.
As I said, I have spent many years in review and approval of projects within residential areas that involved changes, modifications, variances and a multitude of issues between neighbors. In almost all cases, compromise and clarification of those issues are truly important to bring changes asked for. I have adopted that approach with my project.
Eliminating an undocumented bedroom.
Modifying the two garage doors into one allowing access to a previously unusable garage from the narrow alley it opens to
Reducing the size and height of the elevator to address the concerns of the neighbors.
Placement of the elevator in the least noticeable location.
There is one change in our description of the planned work. In our previous submittals, we deemed the need for an elevator system as “if needed to deal with physical issues”. We would now remove the “if needed” part. We now know it is needed.
I am hopeful that you will agree with the decision of your planning commission and approve this process and that my neighbors will accept your decision.
Thank you
Bart Bruno
SCREEN CAPTURE FROM GOOGLE STREET VIEW AT MERMAIND AVE. & MOSS STREET
SCREEN CAPTURE FROM GOOGLE STREET VIEW AT MOSS STREET
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October 28, 2023
Dear Mayor and Pacific Grove City Council Members,
My name is Shelly Tinsley and my husband is Darrin Tinsley and we re�red to Monarch Pines in April 2022. When we were given our keys to our new home, we stood looking out the front window and whales were breaching close to shore and my husband yells out “Whale Belly!!!” A day we will always remember.
We LOVE living here. Definitely in Monarch Pines but absolutely in Pacific Grove. We feel very blessed to have found our “happily ever a�er” home.
Our reason for contac�ng you is regarding the Variance Use Permit, the property at 773-775 Ocean View Ave. is reques�ng for a roof top deck and an exterior elevator.
We have had the opportunity to view the orange ne�ng and story poles for the past several months from our front room. If this variance is granted it will drama�cally affect our Bay/Mountain View and not just ours but over a dozen other neighbors as well. Now we see boats, birds, mountains, skyscapes and some�mes even whales. With these changes our view will be blocked by a deck that will hardly ever have any use. This change will block our views NOT because the owners of 773-775 Ocean View want or need to create addi�onal living space nor to create a view for themselves, because they already have a spectacular view via their front row posi�on, but because they want to create an addi�onal viewing space for themselves with easy access that will block the views from my home and many of my neighbors.
Allowing the deck/elevator will also greatly change the look of the coastline from the Rec Trail and from the Bay. The building will be taller than the rest and will look out of place.
Also this variance would not be in compliance with the City’s General Plan policies SCE-2 and SCE-3. Public views would be impacted and this development does not protect, preserve, or enhance the scenic and visual quali�es of the area.
We encourage you to visit and walk around the property. The en�re lot is already used by the exis�ng structure. There is minimum landscaping or beau�fica�on to the property. An exterior elevator will be an eye sore as well as it appears to make it difficult for fire/rescue teams to access nearby proper�es as well.
As everyone is aware the coast is also a path used for migra�ng and local birds. Any disrup�on to their airspace should be considered.
For these reasons and more we ask you to accept the decision of the Architectural Review Board and deny the request for a roo�op deck and exterior elevator at 773-775 Ocean View Thank You for your Time and Aten�on,
Darrin & Shelly Tinsley 700 Briggs #8, Pacific Grove
773/775 OCEAN VIEW BLVD APN 006-071-007
Architectural Permit (AP), Use Permit (UP) and Variance (VAR) No.22-0284 Dear City Council Members,
We appreciate your willingness to par�cipate in governing as elected members of the City Council for Pacific Grove.
WE REQUEST THAT THE CITY COUNCIL DENY THE PROPOSED VARIANCE. WE ALL
PURCHASED OUR HOMES WITH AN UNDERSTANDING OF THE HEIGHT LIMIT OF 25’. THE VARIANCE VIOLATES THE ADOPTED HEIGHT REQUIREMENT. The proposed variances for height for an exterior elevator sha� nega�vely impact our property. A variance request is jus�fied only if special condi�ons exist on the lot that create hardship making it too difficult to comply with the code’s normal requirements. The special condi�ons or hardship typically must arise from physical configura�on of the lot or its structures.
23.12.030 PGMC
No building or structure shall be erected, reconstructed, or structurally altered in any manner nor shall any building or land be used for any purpose than as permited by and in conformance with this �tle and all ordinances, laws and maps referred to herein.
A MAJOR REMODEL OF 773/775 SHOULD BE USED TO CORRECT PREVIOUS
VIOLATIONS RATHER THAN SEEKING A REQUEST FOR ADDITIONAL RULE CHANGES
TO ACCOMMODATE THE PROPOSED MODIFICATIONS POSSIBILY ESTABLISHING
PRECEDENT FOR FUTURE PROJECTS
VIOLATION OF CODES AS PRESENTED:
INCREASED HEIGHT OF STRUCTURE WILL AFFECT MANY NEIGHBORS WHILE THE
CURRENT PROPERTY WILL CONTINUE TO HAVE AN UNOBSTRUCTED OCEAN VIEW **HEIGHT OF EXTERIOR ELEVATOR SHAFT
**EFFECTS SEVERAL PROPERTIES SOUTH OF THE ADDRESS
The concept of substan�al jus�ce raises the issue of fairness for the community and neighbors. This concept echoes the requirement that hardship must be peculiar to the property—not shared by the community.
Hardships that result from personal circumstances may not be the basis for gran�ng a variance. The nature of the property and the land use ordinances, not the nature of the applicant and their circumstances must be used.
Making decisions about variances is a difficult job. How much hardship is enough hardship? Is jus�ce being served? Does the variance preserve the spirit of the ordinance? The applicant must present competent material and substan�al evidence that meet all the standards. The City Council must weigh the evidence, apply the required statutory standards, and decide if a variance is warranted.
What will be the planning vision for Pacific Grove?
WILL THE USE OF VARIANCES BE USED AS PRECEDENT AND JUSTIFICATION FOR FUTURE DEVELOPMENT?
Richard and Judy Cole
700 Briggs Avenue Spc 9, Pacific Grove
[email protected]
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October 30, 2023
Honorable Mayor and Members of the City Council
City of Pacific Grove
Re: Appeal of Variance, Use Permit and Architectural Permit for 773/775 Ocean View Blvd.; Agenda Item No. 12 C on November 1, 2023 Agenda
Dear City Council Members and Mayor:
I am writing to request that you support our appeal of the Planning Commission’s decision on this matter, and deny the Use Permit, Variance and Architectural Permit for 773/775 Ocean View Blvd. for the reasons summarized below:
The city’s code, PGMC Sec. 23.64.120 provides an absolute prohibition on the size of the exterior elevator. The code addressing height limits provides in part: “Chimneys, cupolas, flagpoles, monuments, water tanks, clock towers and similar structures and mechanical appurtenances may be permitted in excess of height limits, provided a use permit is first obtained in each case. NO PORTION OF A CHIMNEY
WHICH EXTENDS ABOVE THE HEIGHT LIMIT IN ANY R DISTRICT SHALL HAVE AN AREA OVER 20 SQUARE FEET AT ANY CROSS-SECTION, NOR A HEIGHT MORE THAN TWO FEET ABOVE THE APPLICABLE LIMIT.” It is questionable whether it is a reasonable interpretation to consider that a very large external elevator shaft is "similar to” a chimney or a flagpole, but there is no room for interpretation on the two absolute prohibitions on height and circumference. The applicant has modified his application to comply with the height prohibition of 2 feet above the 25 foot height limitation. But the circumference of the elevator shaft exceeds 49 square feet—more than twice the allowable square footage. There is no allowance for an exception or a variance from this absolute limitation.
Moreover, the applicant has added an alternative access, an external stairway to the deck. An external elevator is not necessary.
The staff report does not cite any other projects where an external elevator was approved under this provision; nor does it cite any other structures that exceed the strict prohibition on greater than 20 square feet in circumference.
The project violates the City’s General Plan policies protecting public views along the coast, SCE-1 and SCE-2.
SCE-1: Public views along the coast should be protected and enhanced. The staff report inaccurately states that the public views along the coastline would not be impacted by the 27 ft. height. and the 10 ft. by 5 foot wide obstruction of the exterior elevator. To the contrary, there are a number of locations along public walkways along the north and south sides of the golf course, locations on the public golf course, and on Del Monte Blvd. where the existing views of the Monterey Bay coastline and shoreline near Sand City and Marina, as well as public views of the ocean, would be blocked by the protrusion. We will provide photos showing this at the hearing; a site visit and walk near the site would also give council members a more accurate factual picture.
SCE-2: Preserving and enhancing the scenic qualities of the coastal zone is a priority in all city actions and decisions.
In addition, the views of users of the coast walkway along Ocean View Blvd. would be affected by the imposing structure. The story poles are not a very representative demonstration of the plans, as the poles are higher than the orange (almost transparent) netting attached, so neither the netting nor the poles represent the solid blockage and mass that is planned. We will illustrate this with photos at the council meeting, but a site visit would also be helpful to understand this issue.
As the City Council well knows, General Plan consistency is required for a quasi-judicial decision, and the City’s outdated General Plan makes a finding of consistency a challenging but critical issue in this case.
The applicant is not being treated differently from other properties in the area in terms of height and width limitations. Although the staff report implies otherwise, none of the properties cited have been granted a use permit or height variance to exceed the 25 foot height limit. I reviewed the property files for each of the five Ocean View Blvd. addresses listed in the staff report, and although they were granted minor variances for setbacks, not one of them had a variance to exceed the height limitation.
Similarly, the circumstances of two of the nearby taller properties do not justify violating existing height and width limitations:
1) The barn-like structure at 775 Mermaid Lane was built in 1951, on an illegal undersized lot that had not been legally subdivided. It was subject to litigation and a settlement, so is not a precedent in this case. There is no height variance on file, and it may have been built before the 25-foot height limitation was adopted. It also has a history of inadequate public notices for other administrative permits, but no variance to exceed the height limits was documented.
2) The structure with a deck and tall stairwell entrance at 777 Mermaid Lane was built in violation of the 25-foot height limitation. In 1980, the city cited the owner for a height limitation violation. The owner claimed that the contractor had mistakenly laid a foundation four feet above grade, instead of the planned and approved 4 feet below grade foundation, thus resulting in the unauthorized height violation. Thereafter the city mistakenly granted building permits, and under threat of litigation, the city issued an Administrative Design Change. There is a dispute over whether the 300 ft. notices for the Administrative Design Change were properly issued. Neighbors within the 300 ft. radius who did not receive notice objected to the project, but were apparently told it was not a timely objection.
It does not seem that these properties are good examples of a precedent that the city should follow.
The variance of a setback of just 1 foot on this property poses undue fire and emergency access issues. Access to the stairwell and proposed elevator would need to be from Moss Lane, in a portion of the property where 5 of the 12 inches would be blocked by a telephone pole, effectively making the emergency access 7 inches wide on this property.
If the rear property line neighbor were approved for the same 1 foot setback, there would not be sufficient room for emergency personnel to reach the back of either home around the blockage of the telephone pole.
The facts do not support a finding for a variance.
As noted in our grounds for appeal, and our prior testimony at the Planning Commission,* the project does not qualify for a variance. There is nothing about the physical circumstances that prevents the owners from using their property in a reasonable fashion, which is an essential prerequisite to the constitutional reason that a variance is legally necessary. The lot maintains its use as a multi-family dwelling, and the property is not prevented from continued reasonable use, as the owners currently rent out 2 units.
Maximizing the use or value of a property, or adding square footage, are NOT valid reasons for a variance.
De Facto rezoning. Moreover, the staff report seems to suggest that the council undertake a wholesale disregard of the existing zoning. The stated rationale on page 159 is that without the variance, “the property would be adversely affected by the strict implementation of the zoning regulations, where other properties in the R-3-PGB zoning would not be affected in the same manner.” Question why shouldn’t all the properties with the same zoning be treated in the same manner by implementing the existing zoning? If they are not, then the zoning is essentially meaningless, and the city council will have changed the zoning “de facto,” parcel by parcel, without going through a public process of rezoning the entire area.
We urge you to support the Architectural Review Board’s recommendation to deny the Use Permit and Variance, and to require the project to use an interior elevator access only to the second floor. The oversized exterior elevator shaft would be 49 square feet in circumference, in clear violation of the absolute prohibition of no more than 20 square feet in circumference.
Upholding the city’s zoning ordinances, and establishing transparency in the variance process, are essential to what we hope and expect from our local elected officials.
Thank you for your careful consideration.
Marian Moe
700 Briggs Ave., #2, Pacific Grove
* Please note that our Grounds for Appeal requested that our testimony at the Planning Commission, and the video of both the Planning Commission hearing and the ARB hearing, be part of the record. When the staff report represents that we did not provide factual support for our contentions, apparently the prior testimony and evidence in the record were not considered. A fair hearing would include at least a summary of our extensive factual evidence submitted at the Planning Commission hearing.
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Agenda No. 12 D
CITY OF PACIFIC GROVE
300 Forest Avenue, Pacific Grove, California 93950
TO: Honorable Mayor and Members of the City Council
FROM: Tori Hannah, Administrative Services Director/City Manager Pro Tempore MEETING DATE: November 01, 2023
SUBJECT: Market and Economic Evaluation Report for the Pacific Grove Golf Links CEQA: Does not constitute a “Project” per California Environmental Quality Act Guidelines Section 15378
RECOMMENDATION
Receive the Market and Economic Evaluation Report for the Pacific Grove Golf Links from Pro Forma Advisors, LLC
1. 2. Alternatively, discuss and take other action related to this item
DISCUSSION
On February 15, 2023, Council Subcommittee Members, Mayor Bill Peake and Council Member Coletti brought forward an item to retain a consultant to perform an analysis on the Pacific Grove Golf Links. This was in relation to potential real property negotiations with the Golf Course lessee, CourseCo., and sustainability discussions regarding the Local Water Project. Additional details can be found in the February 15, 2023 Agenda Report.
As a result of the recommendation, the City Manager received direction to enter into an agreement with Pro Forma Advisors, LLC to prepare a Market and Economic Evaluation Report. The requested scope of work included the following components:
Prepare a description of the Pacific Grove Golf Links (PGGL) facilities and a historical operating review.
Provide an overview of the golf market, including national and regional demographics and trends.
Complete a comparative performance review of regional golf courses, including rounds of play, average revenues per round, revenues, operational costs, and maintenance.
Describe and compare various operating models employed by municipal golf courses in California, including PGGL.
Review the economics of alternative operating models related to PGGL.
Gene Kerkorian from Pro Forma Advisors, LLC conducted a site visit; and met with City staff, CourseCo. representatives, and the Golf Course restaurant lessee to gather information for the report.
The resulting Market and Economic Evaluation is attached for reference. Mr. Krekorian will be presenting an overview of the report at the Council Meeting.
OPTIONS
Receive the report
Alternatively, discuss and take other actions related to this item FINANCIAL IMPACT:
There is no financial impact with receiving this report.
FOCUSED PRIORITY AREA: Not Applicable.
Attachments
Market and Economic Evaluation Pacific Grove Golf Links
Market & Economic Evaluation
Pacific Grove Golf Links
Pacific Grove, California
Prepared for: City of Pacific Grove
Prepared by: Pro Forma Advisors, LLC
September 2023
PFAID: 11-630
Version: 1.1
Pro Forma Advisors, LLC Los Angeles T 310.616.5079 New York Metro T 203.604.9007 F 888.696.9716 www.ProFormaAdvisors.com Table of Contents
General Limiting Conditions 4
I. Introduction and Background 5
Background 5
Basic Assignment Objectives 5
II. Summary of Findings 7
Background 7
CourseCo Agreement 7
Golf Market Overview 9
Historical PGGL Performance 10
Comparative Metrics 11
Golf Course Operating Options 12
Economics of Operating Options 15
Golf Course Asset Value 15
III. Description of Facilities and Historical Operating Review 19 Facilities 19
Existing Golf Course Operating Agreement 19
Golf Course Irrigation Water 22
IV. Capital Improvements 31
Future Capital Improvement Requirements 34
Maintenance Equipment 34
V: Golf Market Overview 35
Market Area Demographics 35
National Golf Market Trends 40
Monterey Peninsula Golf Market 43
Golf Industry Challenges 51
PGGL
Pro Forma Advisors, LLC Los Angeles T 310.616.5079 New York Metro T 203.604.9007 F 888.696.9716 www.ProFormaAdvisors.com VI: Comparative Operating Revenues and Expenses 54
PGGL Market Share 54
Operating Revenues 54
Operating Expenses 57
VII: Golf Course Operating Options 60
Facility Lease Model 62
Management Agreement 68
Self-Operation 74
Hybrid Model 75
Summary of Operating Options Strengths and Weaknesses 77 VIII. Economics of Golf Course Operating Options 80
PGGL Baseline Revenues 80
PGGL Operating Expenses 81
Facility Lease 83
Management Agreement 86
Self Operation 88
Hybrid Agreement 90
Summary of Options Economics 92
IX. Asset Value 94
Valuation Methodology 94
PGGL Asset Value 95
PGGL
Pro Forma Advisors, LLC Los Angeles T 310.616.5079 New York Metro T 203.604.9007 F 888.696.9716 www.ProFormaAdvisors.com General Limiting Conditions
Certain information included in this report contains forward-looking estimates, projections and/or statements.
Pro Forma Advisors LLC has based these projections, estimates and/or statements on expected future events.
These forward-looking items include statements that reflect our existing beliefs and knowledge regarding the operating environment, existing trends, existing plans, objectives, goals, expectations, anticipations, results of operations, future performance and business plans.
Further, statements that include the words "may," "could," "should," "would," "believe," "expect," "anticipate," "estimate," "intend," "plan," “project,” or other words or expressions of similar meaning have been utilized.
These statements reflect our judgment on the date they are made and we undertake no duty to update such statements in the future.
No warranty or representation is made by Pro Forma Advisors that any of the projected values or results contained in this study will actually be achieved.
Although we believe that the expectations in these reports are reasonable, any or all of the estimates or projections in this report may prove to be incorrect. To the extent possible, we have attempted to verify and confirm estimates and assumptions used in this analysis. However, some assumptions inevitably will not materialize as a result of inaccurate assumptions or as a consequence of known or unknown risks and uncertainties and unanticipated events and circumstances, which may occur. Consequently, actual results achieved during the period covered by our analysis will vary from our estimates and the variations may be material. As such, Pro Forma Advisors accepts no liability in relation to the estimates provided herein.
In the production of this report, Pro Forma Advisors has served solely in the capacity of consultant and Pro Forma Advisors has not rendered any “expert” opinions and does not hold itself out as an “expert” (as the term “+” is defined in Section 11 of the Securities Act of 1933).
This report is not to be used in conjunction with any public or private offering of securities, and may not be relied upon without the express written consent of Pro Forma Advisors.
This study is qualified in its entirety by, and should be considered in light of, these limitations, conditions, and considerations.
PGGL
Pro Forma Advisors, LLC Page 4 PFAID: 11-630
I. Introduction and Background
Background
The City of Pacific Grove’s municipal golf course, Pacific Grove Golf Links (PGGL), has served the community of Pacific Grove and Monterey Peninsula since 1932. PGGL provides the Pacific Grove community, residents and visitors alike, with a high quality, relatively affordable recreation experience on a well-designed and maintained golf course facility. The golf course is an 18-hole regulation length layout offering two distinct nine hole routings. The front nine, developed in 1932, winds through the inland forested areas of Pacific Grove, while the back nine, developed in 1960, sits on a spectacular ocean front site reminiscent of wind-swept dunes similar to those of traditional Scottish golf links.
PGGL was managed, operated, and maintained by the City through an “enterprise” fund until October 2014, when the City elected to lease operation of the municipal golf course to a private sector professional management company (CourseCo Inc.). The golf course food and beverage operation is leased to a separate independent private sector restaurant operator. The golf course lease extends through 2029, with one remaining 5-year option, and the food and beverage lease extends through October 2025, with two 5-year options to extend the lease term.
As a public access facility, the golf course offers a high quality recreation experience for community residents and visitors to the Monterey Peninsula. About one-half of the golf course play is generated by area residents, and one-half attributed to visitors, of which approximately one-half are day visitors mostly residing in the Bay Area, and one-half to overnight visitors to the area. PGGL is competitively priced, and operates at a relatively high utilization level.
Basic Assignment Objectives
Key objectives of the assignment include:
‣ Prepare a description of PGGL facilities and historical operating review. ‣ Provide an overview of the golf market, including national and regional demographics and trends. ‣ Complete a comparative performance review of PGGL relative to selected competitive California golf courses, including rounds of play, average revenue per round, revenues, and operational costs. ‣ Describe and compare various operating models employed by municipal golf courses in California. ‣ Review the economics of alternative operating models related to PGGL. ‣ Estimate the current value of PGGL both encumbered and unencumbered by the existing lease agreement.
PGGL Introduction
Pro Forma Advisors, LLC Page 5 PFAID: 11-630
Overall Work Process
The overall work process for this assignment has occurred over about a three-month time frame, extending from April through June 2023. The work tasks completed during this study process included the following:
‣ Discussions and interviews with City of Pacific Grove staff charged with overseeing the lease agreement, representatives of the current golf course lessee (CourseCo) and The Grill at Point Pinos (Le Creme Hospitality), and management staff at regional public access golf courses. ‣ A review of historical operating and financial statements for PGGL. ‣ Inspection of the golf course and support facilities. ‣ Analysis of current and anticipated future golf course market conditions. ‣ A review of future capital improvement requirements at the golf facility. ‣ Identification and analysis of the various operating models employed by municipal golf courses. ‣ Projections of near- and mid-term operating performance of PGGL. ‣ Comparative review of strengths, weaknesses, and economics of prospective operating models for PGGL.
‣ Evaluation of the economics related to the various golf course operating models. ‣ An assessment of the current golf course asset value.
The City of Pacific Grove contracted with Pro Forma Advisors LLC to compile and analyze data and information contained in this report. Gene Krekorian, a Principal with Pro Forma Advisors, served as the project manager, and conducted the analysis. Mr. Krekorian is well qualified for this effort having undertaken numerous similar assignments for other municipal golf courses throughout California. City of Pacific Grove staff, and representatives of CourseCo, as well as assisted Pro Forma Advisors in compiling data and other information employed in the analysis.
PGGL Introduction
Pro Forma Advisors, LLC Page 6 PFAID: 11-630
II. Summary of Findings
The following section presents a summary of principal findings related to a market and economic review of the City of Pacific Grove’s Pacific Grove Golf Links (PGGL). The analysis examined the market environment in which PGGL operates, the course’s market positioning, historical and current performance, future operating options available to the City, and the overall value of the City’s asset. Substantiation and documentation of these summary findings are contained in the subsequent sections of the report.
Background
Pacific Grove Golf Links (PGGL) has served as the City’s municipal golf course since 1932, when the first nine hole routing through the inland pine forest area opened. The second nine, developed on the coastal dunes, opened in 1960. PGGL is an 18-hole regulation length public access course, operated as an enterprise fund within the City’s overall financial structure.
PGGL was operated and maintained by the City through 2014, at which time the City elected to lease the golf course to a private golf course management company (CourseCo) for a 10-year term, with two 5-year options to extend the agreement.
During the period of self-operation, PGGL typically operated at close to breakeven, until 2011 and 2012 when the course recorded losses of $200,000 to $400,000 annually, mostly due to rising operating expenses. With the conversion to a facility lease, the City has insulated itself from operating losses with annual fixed rent offsetting the City’s obligation for water costs exceeding the annual threshold established in the lease agreement. Over the past several years, improvement in golf course performance has generated overage rent which has exceeded City expenses by $200,000 to $300,000 per year. Gross revenue has increased due to a combination of improved operator performance and the beneficial impact of COVID-19 on overall golf participation. It is important to note that the improvement in golf course performance in recent years has not been achieved through substantial reduction in resident access to the course or affordable golf provided to resident golfers through discount programs.
While golf course performance has improved sharply in recent years, the golf course will continue to face a series of challenges going forward. Extremely high, and rising, golf course irrigation water cost is probably the single biggest issue, but the availability and cost of labor, and ongoing capital improvements of an aging facility, will need to be continuously addressed.
It should also be noted that the City has a current liability of $1.9 million related to the Golf Course Site Lease.
CourseCo Agreement
The City of Pacific Grove and CourseCo Golf Management entered into an agreement in 2014 to lease the golf course maintenance, operations, and management of the PGGL for a period of 10 years, with two 5-year options to extend the term, subject to mutual approval by the parties. One of the 5-year options has already been exercised, extending the current agreement to September 30, 2029, with a second 5-year option PGGL Summary
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remaining. The food and beverage operations at PGGL are provided under a separate concession agreement with a restaurant operator.
The existing lease agreement appears equitable, and compares favorably with most California public golf course lease agreements negotiated over the past 5 to 10 years. The following elements of the current lease agreement are noted:
Length of Term--The initial fixed term of the agreement is ten years, with two 5-year options. The term of the lease generally is a function of the required level of lessee-funded capital improvements. The greater the private investment in the course, the longer the term required to amortize the improvements, and satisfy the length of term requirements of lenders financing improvements. Many lease agreements involving $2-$3 million, or more, in front-end capital improvements have lease terms of 25 to 40 years. CourseCo’s initial capital improvement contributions were less than $200,000. As such, a 10-year minimum term is reasonable and appropriate.
Term Extension Options--There are two 5-year options to extend the length of the term, subject to mutual agreement by both parties. As documented in Amendment #1 of the lease agreement, the first 5-year option was exercised in December 2016, with the City agreeing to extend the term early in the lease in exchange for the lessee bearing golf course irrigation water costs that exceeded the amount specified in the initial lease agreement. Both parties benefited by the terms of the amendment.
Base Rent--The base rent was set at $300,000 per year, with increases of $5,000 per year commencing in Year 3 of the agreement. The base rent at the time the lease was initiated appears reasonable given the historical performance of the golf course, savings accruing to the operator related to private labor rates, typical management oversight expenses, the anticipated cost of golf course irrigation water, and the gross revenue threshold used in calculating overage rent.
Upside Revenue Participation--It is important to recognize that a golf course generally is regarded as a fixed cost business--that is, operating expenses do not vary significantly with changes in operating revenue.
Most existing golf course lease agreements have a rent structure which calls for the greater of a minimum rent amount versus a percentage of gross revenues. This provision generally favors the lessee to the extent that most of the incremental revenue generated which exceeds budgeted performance is retained by the lessee.
By comparison, the PGGL/CourseCo lease agreement provides for the lessor to share significantly in the upside revenue, with 65 percent of revenues exceeding the budgeted threshold accruing to the City. This has allowed the City to share greatly in the outstanding performance of the golf course over the past two years.
Most golf facility lease agreements do not have a sharing agreement of this nature such that the operator typically would receive 70 to 80 percent of the upside revenue generated, and the owner (public agency) only 20 to 30 percent.
Irrigation Water Cost Cap--An important provision of the golf course lease agreement addresses golf course irrigation water. The lessee’s obligation for reclaimed water currently is capped at $443,300 per year, with the City responsible for costs above this threshold. Over the 2017-2022 period, the water rate was subject to a
2.0 percent average annual increase. However, over the past year, the cost of the reclaimed water has PGGL Summary
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escalated sharply such that the City’s obligation in the near term will likely be in the range of $300,000- $400,000 annually for water above this threshold.
The terms of the agreement reflect the water costs in place at the time the agreement was negotiated.
Because of the significant uncertainty regarding future increases in irrigation water rates, the agreement required the lessor to bear most of the risk related to unforeseen increases in costs over which the lessee had limited control . Such protections related to water costs are not unusual in California municipal golf course lease agreements.
Capital Improvements Replacement Reserve--The lease provides for each party to contribute to a reserve fund for future ongoing capital improvements equal to 1.5 percent of “golf” gross revenue. A total contribution equal to 3.0 percent of “golf” gross revenue is generally in-line with the experience at similar courses. Given the likely continuing need for capital improvements, and the length of the contract term, sharing the reserve contribution equally appears to be equitable.
Golf Market Overview
The national and Monterey Peninsula regional golf markets steadily improved between the mid-1980s and 2000. Golf rounds played increased at an average annual rate of 2.0-3.0 percent. This unprecedented growth in golf play during this period was due to a number of factors including:
‣ An increase in the number of golfers;
‣ The increasing importance of golf-oriented real estate; ‣ Expansion of the golf tourism industry;
‣ One of the longest economic expansions in the nation’s history.
The increase in golf demand and the popularity of golf-related housing development during the 1990s stimulated extraordinary expansion of the national golf course inventory, primarily between 1995 and 2002.
Beginning in about 2001, the first signs of industry problems surfaced, and persisted through 2019. Most individual golf courses experienced a steep decline in utilization and revenue generation, with net operating income declining sharply. New golf course construction virtually ceased while the number of courses closing significantly increased. The impact of market softness was widespread during this period and affected all segments of the market and all geographic areas. Importantly, the industry problems went well beyond cyclical trends, as there appeared to be fundamental shifts in recreational preferences and other underlying factors affecting long-term demand for golf. The golf participation rate, after rising steadily through 2003, fell precipitously from 12.4 percent in 2004 to a 8.0 percent in 2019. The combination of lower rounds and a lower average effective rate substantially adversely impacted revenue at virtually all golf courses, regardless of market positioning.
Then, in early 2020, the emergence of COVID-19 dramatically changed the golf industry. The impact of COVID-19 on market area golf course play levels has been extraordinary. With a major shift in the number of employees working at home rather than in an office, and with golf offering an attractive form of safe outdoor PGGL Summary
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recreation, golf participation has increased markedly which, in turn, has translated into a large increase in play levels and revenues at both public access and private golf courses.
Golf rounds played in the State of California, as reported by industry analyst Golf Datatech, increased 20-25 percent at public access courses between 2019 and 2022.
Not unlike virtually every golf market in the country, the Monterey Peninsula public golf market has improved significantly over the past three years primarily due to the beneficial impact of COVID-19 on golf participation rates. The COVID-19 impact dissipated slightly in 2022, but play on most courses remains well above pre-pandemic levels. Golf play in 2023 is expected to decline somewhat as well due to an unusually high number of rain days. While it is likely there will be some further dissipation of the COVID-19 impact, golf play at most courses is expected to remain above 2019 levels. At the same time, it is highly unlikely that there will be many, if any, golf course development opportunities in the region due to lack of available land suitable for golf course development and the very high cost of development. Thus, it is anticipated that market area demand will remain stable or improve somewhat, such that the long-term outlook remains reasonably favorable.
Historical PGGL Performance
In the 2010-2013 period, when the City was self-operating PGGL, the course produced 50,000 to 55,000 rounds annually at a relatively low average greens fee below $30.00 per round. As much as one-half the play was generated by club members and residents at well below posted rates.
Annual play and gross revenue since the golf course was converted from City self-operation to a facility lease agreement with its current operator (CourseCo) is summarized as follows:
Table II-1: Summary of PGGL Historical Play and Gross Revenue Gross Revenue ($000) Revenue per Round
Year Rounds Golf* Other Total Golf* Other Total
2018 47,332 $2,324.6 $527.9 $2,852.4 $49.11 $11.15 $60.26 2019 48,240 2,414.4 557.3 2,971.7 50.05 11.55 61.60
2020 57,796 2,618.3 338.6 2,956.8 45.30 5.86 51.16
2021 65,593 3,204.6 604.1 3,808.7 48.85 9.21 58.07
2022 62,371 3,464.4 770.7 4,235.1 55.55 12.36 67.90
* Includes greens fees, member dues, discount cards, and golf carts.
While annual play levels under private operation are somewhat higher than during the latter years of City self-operation, the average golf revenue per round is substantially higher. This improvement is attributed primarily to the sharp reduction in discounted/member rounds in favor of full rate play. Again, the impressive improvement in golf course performance has been accomplished while still offering Monterey Peninsula PGGL Summary
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residents significant discounts ranging from 30 percent to well over 50 percent relative to the standard greens fees charged at the golf course.
The golf course lessee reports gross revenue, but is not required to divulge it operating expenses and net earnings.
Comparative Metrics
Annual gross revenue by department for selected municipal golf courses extending from Ventura County on the south to the San Francisco South Bay on the north for fiscal year 2021-2022 is shown in Table II-2. The revenues relate to golf functions only, and specifically exclude food and beverage operations.
Table II-2: Gross Revenue at Selected California Regional Municipal Golf Courses (FY2021-22) (thousands of dollars)
Annual Gross Revenue
Course Annual
Rounds2/
Greens
Fees1/
Cart Fees Range Merch Other Total
PGGL 62,371 $2,781.5 $682.9 $148.0 $450.0 $172.7 $4,235.1 Salinas Fairways 45,0003/ 1,106.2 302.9 143.8 113.9 --- 1,666.8 DeLaveaga 58,800 2,026.7 499.7 475.0 450.6 305.2 3,757.2 Santa Barbara 75,100 2,372.5 697.4 327.9 330.0 227.0 3,954.9 Los Robles 82,800 2,624.0 796.2 512.5 205.2 122.0 4.259.9 Buenaventura 61,370 1,733.2 476.2 --- 87.0 --- 2,485.9
Olivas Links 61,990 1,935.0 483.8 253.0 125.7 --- 2,914.7 Simi Hills 83,970 2,598.6 919.5 280.2 214.4 54.5 4,067.2 Shoreline 82,200 1,837.6 434.0 599.2 134.3 73.0 3,077.7 Poplar Creek 83,960 2,950.0 670.0 400.0 380.0 50.0 4,450.0 1/ Includes passholders and/or annual membership play.
2/ Includes paid and complimentary/employee rounds.
3/ Estimated play level based on greens fees and membership fees. 1/ Includes passholders and/or annual membership play.
2/ Includes paid and complimentary/employee rounds.
3/ Estimated play level based on greens fees and membership fees. 1/ Includes passholders and/or annual membership play.
2/ Includes paid and complimentary/employee rounds.
3/ Estimated play level based on greens fees and membership fees. 1/ Includes passholders and/or annual membership play.
2/ Includes paid and complimentary/employee rounds.
3/ Estimated play level based on greens fees and membership fees. 1/ Includes passholders and/or annual membership play.
2/ Includes paid and complimentary/employee rounds.
3/ Estimated play level based on greens fees and membership fees. 1/ Includes passholders and/or annual membership play.
2/ Includes paid and complimentary/employee rounds.
3/ Estimated play level based on greens fees and membership fees. 1/ Includes passholders and/or annual membership play.
2/ Includes paid and complimentary/employee rounds.
3/ Estimated play level based on greens fees and membership fees. 1/ Includes passholders and/or annual membership play.
2/ Includes paid and complimentary/employee rounds.
3/ Estimated play level based on greens fees and membership fees.
PGGL’s performance ranks among the most successful municipal properties surveyed, including those courses in strong more urbanized market areas such as the San Francisco southern peninsula and Los Angeles County northwest suburban markets. On a revenue per round basis, PGGL outperforms all of the surveyed municipal courses in every department with the exception of the golf practice range.
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Golf Course Operating Options
There are four basic golf course operating options employed by municipalities. ‣ Golf Facility Lease (current model)
‣ Management Agreement
‣ Self-Operation (City or other public agency)
‣ Hybrid: Golf Operations Concessionaire/With City or Contract Maintenance In addition to these basic options, there are numerous permutations which would create alternative hybrid models. These alternative hybrid models combine some form of self-operation, concession agreements, and/or management/contract agreement. As noted, PGGL is operated under a golf facility lease agreement.
It is important to point out that while there are alternative operating options available to the City, there are six years remaining on the existing lease agreement between the City of Pacific Grove and CourseCo, with one option which, if exercised, would extend the agreement five additional years. As well, transition from the current facility lease format to any of the alternative operational models would entail significant front end capital funding for maintenance equipment ($1.5 million) and needed golf course capital improvements ($1.0 million).
The following table provides an overview of the responsibilities for each function in the various models.
Table II-3: Golf Function Responsibility Under Alternative Operating Models Model Course
Maintenance
Golf
Operations
Food &
Beverage
Administration/
Management
Golf Facility Lease (current PGGL model) Private Private Priv/Concession Private Management Agreement Private Private Private Private
Hybrid City/Private Priv/Concession Concession City/Private Full Self-Operation City City Concession City
Golf Facility Lease (current PGGL model)--Under the “golf facility lease” model, the City enters into a midto long-term facility lease with a private golf course operator who provides course maintenance, golf operations, and overall facility management. The food and beverage operation may be included or provided by another concessionaire. Typically, the lease model has been utilized when a private entity will be investing significant capital into the facility. Most agreements call for the greater of a minimum rental payment versus a schedule of percentages applied to gross revenues from various departments. The lessee receives 100 percent of the revenue and is obligated to fund required front-end capital improvements, operating expenses, rent, and a capital improvement reserve. While the facility lease model dominated the municipal market between 1970 and 2000, management agreements gained popularity during the first part of the new century.
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In recent years, however, many municipalities which had previously employed the management agreement operating format have elected to reemploy the facility lease model.
Management Agreement--Under the “management agreement” model. the municipality enters into a fee-for-service agreement with an outside management company. Under a typical management agreement, the facility owner (City) receives all revenues and is responsible for funding all capital improvements, operating expenses and capital reserves . In addition, the City pays the operator a fee for management of the facility. In effect, the professional operator serves as the City’s agent in managing, operating and maintaining the golf facility. Management compensation typically consists of a base fee, plus performance incentives.
Management agreements often project the highest net earnings to the City on a pro forma basis, but it is important to note that the owner (City) bears all of the operating and financial risk, as well as much greater legal liability associated with golfer/spectator personal injury or property damage. Moreover, the City is responsible for funding all of the capital needs of the golf course and support facilities.
Self-Operation--Under the self-operation model, the public agency receives all revenues and is responsible for all operating expenses, capital improvements, and capital reserves. While employed relatively frequently in the past, the “self-operation” model, whereby the facility is operated fully by the public agency with a city workforce, is observed infrequently in today’s market, and movement away from this model continues given higher public employee labor costs. Pacific Grove employed this model prior to its conversion to a facility lease in 2014.
Hybrid--The “hybrid” model consists of a combination of concession agreements and service contracts. The most common form is structured utilizing a private golf operations concessionaire responsible for all golf operations, with the municipality responsible for golf course maintenance through its parks and recreation department. The food and beverage function is generally provided by a second independent concessionaire.
The golf operations and food and beverage concessionaires typically pay the municipality the greater of a fixed rental amount or a percentage of gross revenue.
There are economic and non-economic advantages and disadvantages of the various types of operating structures, and the most appropriate structure generally is influenced by the the objectives of the owner (City).
Most of the advantages and disadvantage of each approach are summarized in Table II-4.
In general, there are three factors which influence the preferred structure:
‣ Level of control desired by public entity in terms of setting fee structure, establishing policies, and implementing operating procedures.
‣ Ability and/or willingness to fund significant capital improvements required. ‣ Degree of financial risk tolerance related to market conditions and other events.
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Table II-4: Strengths and Weaknesses of Golf Course Operating Options Facility Lease Management Agreement Self Operation Hybrid
STRENGTHS
• Provides reasonably strong
financial return to City
• Produces guaranteed
minimum rent payment to
City
• Minimizes financial risk
• Minimizes political influence
with less direct involvement
of City with setting fees,
policies, and practices
• Offers potential benefits in
golf management expertise
and specialized
maintenance support
services
• Provides private capital
investment in facilities
• Protects City from
golfer/spectator liability
• May provide strong upside
potential financial return to
City.
• Provides high level of City
control
• Greater potential quality
assurance
• Opportunity to provide
shorter term contracts
• Provides opportunity to
retain specialists in
professional golf
management
• Captures benefits of private
sector wage and benefit
structure
• Provides highest level of
City control over rates,
policies, practices, and
overall golf experience
• Availability of City overhead
support functions
• Strong participation in
upside financial
performance
• Preserves option to convert
to alternative operating
option
• Provides high level of City
control over rates, policies,
practices, and overall golf
experience
• Availability of City overhead
support functions
• Strong participation in
upside financial
performance
• Provides opportunity to
retain specialists in golf
operations and food and
beverage
• Preserves option to convert
to alternative operating
option
WEAKNESSES
• More limited operational
and quality control
• May involve long-term
contractual commitment
• May minimize financial
upside
• Limited number of potential
candidates, particularly
when substantial private
investment is required
• Potential conflicts over
capital reinvestment
responsibilities of
contracting parties
• Requires more City
involvement than facility
lease option
• Minimizes private capital
investment, if any, in
facilities.
• Entails greatest level of City
operating and financial risk
• City bears substantial
liability risk related to golfer
and spectator injury
• May constrain ability of
management to adapt and
respond to dynamic market
conditions
• Entails high level of financial
risk
• Involves higher public
sector wage and benefit
structure
• Reduces opportunity to
attract private capital due
to reduced lessee control
• Relatively high City
monitoring requirements
• Constrains ability of
management to adapt and
respond to dynamic market
conditions
• Entails high level of financial
risk
• May involve higher public
sector wage and benefit
structure for maintenance
• Reduces opportunity to
attract private capital due
to reduced lessee control
• Potential conflicts of
multiple concessionaires
• Relatively high City
monitoring requirements
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While PGGL is operated under a facility lease agreement, the structure of the agreement incorporates key features of both a lease agreement and a management agreement. CourseCo bears all of the operating and financial downside risk--an important feature of the lease option. At the same time, the City shares significantly in the upside performance of PGGL (the City receives 65 percent of gross golf revenue exceeding a threshold which is set at a level whereby the operator receives a reasonable, but not excessive, rate of return for their invested capital and operating services)--an important feature of the management agreement option.
Economics of Operating Options
Table II-5 illustrates the economics of the various models from the City’s perspective if implemented in Pacific Grove. In general, the primary difference in net operating income and net cash flow under each model derives from whether golf course maintenance is provided by a City employee workforce or a private entity.
It is important to note that in the case of Pacific Grove, the golf course lessee reports gross revenue, but is not required to share its operating expenses and net earnings, which is normally the lessee’s right under facility lease agreements. Consequently, in estimating the economics of the various models, representative operating expenses for PGGL are employed based on a review of the operating expense profile at a series of other California mid- to upper-mid market oriented municipal golf courses.
With regard to the facility lease model (currently employed at PGGL), the current agreement structure is compared with a contemporary “market” agreement which reflects the current performance level and other factors and conditions present at PGGL. As shown, the City’s rental revenue under the current agreement is consistent with a representative “market” agreement, suggesting that the current agreement is equitable.
This finding reflects the upside participation feature of the current agreement, whereby the City receives 65 percent of the gross “golf” revenue exceeding the established gross revenue threshold. While PGGL current agreement has significant City upside participation in performance, it is likely that upside participation would be reduced from 65 percent to 50 percent in order to reflect higher lessee funded initial capital improvements and higher operating expenses primarily related to higher water costs.
The City’s annual income estimated at just over $600,000 under the management agreement model is the highest among the various models shown, which compares with the facility lease model which yields an estimated $430,000 annually. Importantly, however, the management agreement model (and self operation) carries the highest level of City operating, financial and liability risk, requires City capital improvement funding, and involves greater City oversight resources. As well, under the management model, operating expenses often tend to be less aggressively controlled than some of the alternative options, resulting in lower than projected net operating income.
Golf Course Asset Value
Pacific Grove Golf Links is a valuable City asset, offering a desirable recreation activity for residents and visitors, providing community open space, and funding most of the cost of operating the City’s reclaimed water plant. From a pure market perspective, the golf course also is an important and valuable economic asset.
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Table II-5: Comparative City Operating Options Economics (thousands of constant 2023 dollars)
Facility Lease
Management
Agreement
SelfOperation
Hybrid
Current
Contract
Market
Contract
Management
Agreement
SelfOperation City
Maintenance
Contract
Maintenance
Gross Revenue --- --- $4,380 $4,380 $2,376 $2,376
City Revenue/Rent
Minimum $350 $450 --- --- --- ---
Overage/Concession 527 5 --- --- 154 154
Total $877 $455 --- --- $154 $154
Total $877 $455 $4,380 $4,380 $2,530 $2,530
Less: Cost of Sales --- --- $315 $315 --- ---
Gross Profit/Rent $877 $455 $4,065 $4,065 $2,530 $2,530 Operating Expenses
Course Maintenance --- --- $1,720 $1,970 $1,970 $1,720
Golf Operations --- --- 530 660 --- ---
Clubhouse/Undistrib --- --- 100 150 75 75
General & Admin --- --- 595 845 --- ---
Management Fee --- --- 200 --- --- ---
Total --- --- $3,145 $3,625 $2,045 $1,795
Net Income (EBITDA) $877 $455 $920 $440 $485 $735
Less: Other Costs
CIP Repl. Reserve $57 --- $114 $114 $114 $114
Initial Capital Amort --- --- 87 87 87 87
Irrigation Water Cost 300 --- --- --- --- ---
Citywide OH Alloc 25 25 100 75 100 75
Total $382 $25 $301 $276 $301 $276
Net Cash Flow $495 $430 $619 $164 $184 $459
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The market value of a golf course asset is principally based on its income producing potential. With regard to PGGL, the value is significantly influenced by the cost of irrigation water, which is set at the discretion of the City. There clearly is a tradeoff between the economics of the Pacific Grove Local Water Project (PGLWP) and those of the golf course. That is, improvement in the operating economics of the water plant through higher reclaimed water rates decreases the economic performance of PGGL which, in turn, reduces the value of the golf asset. Similarly, lower water costs increase operating performance of PGGL and asset value.
The market value of a golf course is based primarily on its income earning potential. For an income producing asset operating at a stable level, the standard approach employed in valuation is to capitalize earnings before interest, taxes, depreciation and amortization (EBITDA). When an allowance for a management fee and capital improvement replacement reserve are included in the calculation of EBITDA, a capitalization rate in the 9.0 percent range provides a reasonable indication of market value.
In the case of PGGL, asset value ranges widely depending on the commodity rate charged by PGLWP. For example, at the 2022 rate of $0.0176 per gallon, and based on annual water consumption of 84 acre feet, normal year water costs are approximately $470,000. However, as of July 1, 2023, the reclaimed water commodity rate is now set at a full cost recovery level ($0.029 per gallon), PGGL’s annual water cost balloons to about $820,000.
An indication of PGGL asset value in an open market environment at the low and high end of the reclaimed water commodity rate is summarized in Table II-6. As shown, the PGGL asset value ranges from about $7.8 million to $11.3 million.
Table II-6: Indication of PGGL Asset Value
$0.017/gallon $0.030/gallon
Gross Revenue $4,380,000 $4,380,000
Less: Cost of Sales 315,000 315,000
Gross Operating Profit $4,065,000 $4,065,000
Operating Expenses
Irrigation Water $470,000 $820,000
All Other Expenses 2,541,000 2,501,000
Total $3,011,000 $3,321,000
Net Operating Income (EBITDA) $1,016,000 $706,000
Direct Capitalization Rate 9.0% 9.0%
Capitalized Asset Value $11,290,000 $7,845,000
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The values of the PGGL asset expressed above assume that current annual greens fees revenue is at a market level. While it appears that such revenue is maximized in the context of the resident programs currently in place at PGGL, operated as an unrestricted public access daily fee course might produce somewhat higher greens fees revenue which, in turn, would generate higher net operating income and a higher asset value.
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III. Description of Facilities and Historical Operating Review The following section contains a description of Pacific Grove Golf Links (PGGL) and a review of historical operating performance.
Facilities
PGGL has an interesting and rich history, extending over 90 years. The 18-hole regulation length, par 70, golf course is comprised of two distinct nine-hole routings, each developed during separate time frames. The front nine was designed in 1932 by H. Chandler Egan, a renowned American amateur golfer and well respected golf course architect, opening shortly thereafter. This first phase, developed on the inland forested areas of Pacific Grove, is a par-35 layout measuring 2,927 yards from the back tees. The back nine was developed on oceanfront land surrounding the Point Pinos Lighthouse leased by the City from the U.S. Coast Guard. This second phase opened in 1960, was designed by Jack Neville, who was the principal golf architect for the famous Pebble Beach Golf Links. The back nine is a par 35, 2,800 yard regulation layout which cuts through windswept dunes reminiscent of a traditional Scottish Links golf course.
The 18-hole golf course envelope is relatively small at approximately 86 acres, of which only about 40 acres is irrigated turf. This irrigated turf area is extremely small, with most 18-hole regulation length golf courses designed with 80 to 100 irrigated turf acres. There are 19 bunkers on the golf course. An aerial photo of the golf course is presented in Figure III-1.
The amenities of the course include two practice putting greens, a golf cart storage facility located underneath the Grill at Point Pinos restaurant, pro shop/office, restrooms, an unlighted warm-up driving range which can accommodate about 10 golfers. The clubhouse complex is comprised of a freestanding pro shop totaling approximately 2,500 square feet, and the two-level restaurant/cart storage building with a total of about 12,000 square feet.
The golf course maintenance yard is located on the north side of hole #5, with an enclosed building area of approximately 5,000 square feet.
Existing Golf Course Operating Agreement
The golf course was managed, operated, and maintained by the City of Pacific Grove Parks and Recreation Department through 2014, at which time the City elected to solicit proposals for outsourcing the golf course operation to a professional golf course management company. CourseCo, Inc., a California based golf course management company, was selected to manage, operate and maintain PGGL. Following a brief period starting on April 1, 2014 when the golf course was operated under an interim management contract, a lease agreement between the City of Pacific Grove and CourseCo was finalized. The lease agreement commenced on October 1, 2014 for a 10-year term, expiring on September 30, 2024. The agreement included two five-year options to extend the term, subject to mutual agreement of both parties.
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An initial capital investment of $100,000 by CourseCo was required, with the lessee also responsible for the cost to complete the “dune restoration project” up to a maximum contribution of $75,000. The lease agreement calls for base rent of $300,000 per year, which increases $5,000 in the third year of operation, and annually thereafter. In addition to base rent, the City receives participation percentage rent equal to 65 percent of annual gross “golf” revenue from all sources (excluding food and beverage, merchandise, lessons, and other non-golf related revenues) which exceeds a gross golf revenue baseline. The “golf” gross revenue baseline was established at $2.35 million for 2015, with annual consumer price index (CPI) adjustments applied. The agreement also requires the lessee to contribute 1.0 percent of total gross “golf” revenue to a capital improvement Program (CIP) fund in years 1 and 2, increasing to 1.5 percent beginning in year 3. The City is required to match the tenant’s CIP funding obligation.
An important term in the original lease specified that, during the first three years of the agreement, the tenant is responsible for irrigation water costs up to $600,000 per year for up to 27.2 million gallons (83 acre feet) per year, with the City funding amounts over the $600,000 limit for up to the 27.2 million gallon threshold. The lessee is responsible for any water costs related to consumption which exceeds the annual consumption threshold. After the third year of the agreement, the tenant’s maximum obligation is reduced to $443,300 per year, with the City responsible for costs exceeding this maximum amount. If consumption is reduced below
27.2 million annual gallons, the savings in cost is split evenly between the two parties.
In December 2016, a 5-year extension to the lease term was negotiated (effectively representing the first 5-year option), with the lease now expiring on September 30, 2029. The basic terms of the agreement are maintained for the extended term, with the exception of irrigation water cost obligations. The tenant’s annual water cost cap was maintained at $443,300 for consumption up to 27.2 million annual gallons, subject to 2.0 percent annual adjustments, with the City responsible for costs above the cap. The tenant is responsible for irrigation water costs associated with utilization over 27.2 million annual gallons, if any. Further, the tenant is obligated to remit a minimum of $375,000 annually toward golf course irrigation water expenses.
Restaurant Lease
The PGGL restaurant, known as The Grill at Point Pinos, is operated under a separate lease, independent of the golf course lease. The basic terms of the lease agreement are summarized below:
Restaurant: The Grill at Point Pinos
Lessor: City of Pacific Grove
Lessee: Le Creme Hospitality, Inc.
Lease Start: November 1, 2020
Term: 5 years (expires October 31, 2025
Renewal Options: two 5-Year extensions, at lessee’s discretion PGGL Description/Operating History
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Figure III-1: Pacific Grove Golf Links Aerial Photograph Rent:
Minimum: None
Percentage:
11/1/20 4% of gross sales
11/1/21 5% of gross sales
11/1/22 6% of gross sales
11/1/23+. 7% of gross sales
Repair and replacement of restaurant fixtures and equipment--split evenly between lessor and lessee.
Lessor is responsible for building exterior maintenance and repair.
Rent and other contract terms remain unchanged during option term extension periods.
Management and Operation
PGGL is managed, maintained, and operated by CourseCo Golf Management. The Grill at Point Pinos is operated by Le Creme Hospitality, Inc., an independent restaurant lessee.
Golf operations’ staff are responsible for pro shop operations, merchandising, the starting function and golf cart services. The golf course maintenance staff, consisting of four full- and four part-time staff (7.0 full time equivalent), maintains the golf course and warm-up practice range. As previously noted, the golf course area totals about 86 acres, with only 40 irrigated acres.
Golf Course Irrigation Water
The source of golf course irrigation water is treated effluent produced at the City’s Pacific Grove Local Water Project recycling facility located adjacent to the golf course’s number 15 tee complex. Opening in 2018, the plant’s production capacity currently is about 125 acre feet (40.8 million gallons) per year. Annual water consumption and PGGL costs of the irrigation water over the past five years is summarized in Table III-1.
Table III-1: PGGL Historical Golf Course Irrigation Water Cost Fiscal
Year
Consumption
(millions of
gallons)
Average Rate
per Gallon
Annual Cost
($000)
CourseCo
Cost Cap
($000)
City Cost
($000)
2018 23.85 $0.01630 $388.8 $461.2 ---
2019 24.65 0.01660 409.2 470.4 ---
2020 23.59 0.01700 401.0 479.8 ---
2021 28.66 0.01730 495.8 489.4 $6.4
2022 27.50 0.01764 485.1 499.2 ---
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As indicated, through 2022 all or most of the reclaimed golf course irrigation water cost was covered by the lessee. The City was responsible for a small amount in FY2021. Water consumption was relatively consistent, averaging about 25.6 million gallons (80 acre feet) per year. The reclaimed water is delivered directly into the golf course irrigation system such that there is no electrical pumping expense. The cost of the water at $0.0179 per gallon ($5,850 per acre foot) in 2022-2023 is relatively high compared with the cost of similar water utilized at other California golf courses, and as of July 1, 2023, the rate was increased sharply to $.03 per gallon ($9,780 per acre foot).
A PGLWP “Business Plan” was prepared by Pacific Grove City staff in July 2021. The plan cited the then current cost California American Water Company, a private water purveyor on the Monterey Peninsula, charges for delivery of water used for irrigation uses at approximately $.029 per gallon, when all surcharges, fees, and taxes are included. This rate compares with the 2021 PGLWP rate for reclaimed water of $0.0173 per gallon.
A “peer review” of the “business plan” was conducted by DTA management consultants in January 2022. DTA concluded that proposed rate increases of 35% in FY2022, 21% in FY2023 and 3% per year for the subsequent five years are necessary to achieve positive fund balances, while accumulating a fund balance of just under $500,000 by FY2028, to be used to fund future capital improvements. The steep increases in FY2022, FY2023 and FY2024 will increase the rate levels from 0.0179 per gallon in FY2023 to $0.03 per gallon by FY2026. The review stated that a rate level of around $0.03 per gallon, with modest annual increases thereafter, would enable the City to not only achieve a break-even operation but allow fund balances to accumulate so that by FY2028 these balances would carry forward to help fund future capital improvement projects.
Implementation of these recommended rates would increase the annual cost of PGGL irrigation water to $820,000 by FY2024 compared with current average cost of about $470,000. Based on the existing golf course lease agreement between the City of Pacific Grove and CourseCo, most of the increase in cost would be borne by the City.
Golf Course Play Levels
Play at PGGL derives from general public daily fee play, annual memberships, discount card holders, golf tournaments, and junior/school programs.
Annual revenue rounds at PGGL over the 2018 through 2022 period are summarized in Table III-2. As shown, play levels have increased sharply over the past five years, with rounds played in 2022 up nearly 32 percent over this period. Clearly, much of the gain in course utilization is attributed to the positive impact of COVID-19, where golf represented an accessible safe outdoor recreation activity available to an expanded home work force. Play at PGGL increased 36 percent over the 2019-2021 period, when most public access California golf courses experienced play volume increases of about 20-25 percent, suggesting PGGL outperformed the market over this period. Golf rounds in 2022 were down about 4.9 percent at PGGL, consistent with the experience of most other California public golf facilities, as there was some dissipation of the COVID-19 surge.
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Table III-2: PGGL Historical Annual Play Level by Source (rounds) Round Type 2018 2019 2020 2021 2022
General Public (retail) 25,067 26,855 29,794 34,164 31,898 Annual Member 6,712 6,469 9,779 12,216 12,264
Discount Card Holder 10,935 10,492 13,910 12,692 11,690 Tournament 3,580 3,366 2,224 4,492 4,456
Junior/School 1,038 1,058 2,089 2,029 2,063
Total 47,332 48,240 57,796 65,593 62,371
Based on play levels through May, annual play at PGGL in 2023 is projected at about 58,000 rounds. This volume reflects the extraordinary number of rain days in the early part of the year. With normal year precipitation, golf play at PGGL in 2023 would likely be in the range of 61,000 to 62,000 rounds.
Annual play at PGGL is comprised of general public daily fee play, accounting for approximately 50 percent of the total rounds, annual members at 20 percent, and discount card holders at about 20 percent of total play.
The remaining 10 percent is comprised of some loc tournament play and special programs offered to juniors and area schools.
It is estimated that about one-half of total play at PGGL is attributed to Monterey Peninsula resident golfers, and one-half to non-residents. Of the non-resident play, about one-half of the play is generated by day visitors, the majority of which reside in the San Francisco/Oakland/San Jose Bay Area. The other one-half of non-resident play derives from overnight visitors to the Monterey Peninsula. Many of these visitors play multiple courses during their stay.
Not surprisingly, the vast majority of Monterey Peninsula resident play is generated by golfers participating in the annual membership and discount card programs offered by PGGL. In part, this reflects the relatively low cost to participate in these programs.
The distribution of 2022 play, by month, is presented in Table III-3. Monthly play levels are reasonably consistent throughout the year, reflecting the favorable year round climate on the Monterey Peninsula.
Resident monthly play is particularly uniform throughout the year, while visitor play tends to be somewhat more concentrated during the summer months. As well, monthly play is somewhat higher in the summer months of June-August which is attributable to the longer daylight hours during this period.
Golf tournament play represents about 7 percent of total play. This is a substantially higher percentage of total play than observed at most public access municipal courses, where tournaments generally account for about 4 percent of total play levels.
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Table III-3: PGGL Monthly Rounds Distribution by Source of Play--2022 Month Public
Access
Annual
Member
Discount
Card Holder
Tournament Junior/
School
Total
January 1,932 1,189 1,175 151 88 4,535
February 2,702 1,082 976 235 103 5,098
March 2,512 1,123 983 343 127 5,088
April 2,725 1,156 992 278 241 5,392
May 2,739 1,112 1,015 382 178 5,426
June 3,053 1,052 1,036 379 217 5,737
July 3,462 1,093 1,105 460 327 6,447
August 3,303 1,084 1,096 294 241 6,018
September 3,185 978 968 537 156 5,824
October 2,711 869 863 883 109 5,435
November 2,108 8,52 828 391 174 4,353
December 1,467 674 653 123 101 3,018
Total 31,899 12,264 11,690 4,456 2,062 62,371
Percent
Distribution 51.1% 19.7% 18.7% 7.1% 3.3% 100.0%
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Golf Fees
Golf fees for PGGL over the 2018-2023 period are shown in Table III-4. In addition to retail “rack” rates charged for general public play, PGGL offers annual pass and discount card programs, available to both Pacific Grove residents and non-residents. The Monarch Card, which provides for greens fees discounts of about $20, costs $55 per year for residents and $150 per year for non-residents. There are approximately 1,000 members participating in this program. The Lighthouse Card program is an annual membership which allows unlimited play seven days per week. The annual fee for Pacific Grove residents is $1,350, with non-residents charged $1,500. The cost of power carts is in addition to the fees charged. There are approximately 150 annual cardholders.
Power golf carts are $21 per rider. Cart utilization is relatively low at 40-45 percent of players, reflecting the limited topography, as well as course length and short distance between greens and tees on most holes.
PGGL Revenue
Annual gross revenue for PGGL, by major component, is shown in Table III-5 for the 2018-2022 period. Total gross revenue from all sources has increased sharply over the past five years, in part due to the positive impact of COVID-19 in overall golf participation. Gross revenue at PGGL has increased from $2.8 to $4.2 million over this period, or nearly 50 percent, while the play level has increased by 32 percent over this same time frame. Golf fees, consisting of greens fees, annual and discount card fees, and cart rental account for the majority of total fees. Typically, golf revenue accounts for about 85 percent of total annual PGGL gross revenue. Other revenue is comprised of practice range revenue, pro shop merchandise sales, instruction fees, club rentals, and other miscellaneous sources. Again, food and beverage revenue accrues to the independent operator of The Grill at Point Pinos.
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Table III-4: PGGL Historical Greens Fees
2018 2019 2020 2021 2022 2023
Monday-Thursday
Public (retail) $50 $51 $53 $56 $59 $62
Twilight 30 31 33 36 39 42
9;-Holes 30 31 33 36 39 42
Monarch Discount Card 29 30 31 32 34 36
Lighthouse Annual 19 20 21 22 --- ---
Junior 20 20 20 20 20 20
Friday-Sunday
Public (retail) $55 $56 $58 $70 $75 $78
Twilight 32 33 35 40 45 49
9;-Holes 32 33 35 42 49 55
Monarch Discount Card 34 35 36 37 39 41
Lighthouse Annual 24 25 26 27 --- ---
Junior 20 20 20 20 25 25
Cart Fee/Rider
18-holes $18 $18 $18 $19 $20 $22
9-Holes 12 12 12 13 13 14
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Table III-5: PGGL Annual Gross Revenue ($000)
Department 2018 2019 2020 2021 2022
Golf Fees
Greens Fees $1,655.9 $1,742.9 $1,917.6 $2,293.0 $2,499.9 Cart Rental Fees 503.3 489.0 494.1 654.2 682.9
Annual Dues
}165.4 }182.5
144.9 193.0 214.8
Discount Card Program }165.4 }182.5 61.7 64.4 66.8
Subtotal Golf Fees $2,324.6 $2,414.4 $2,618.3 $3,204.6 $3,464.4 Range 71.7 78.2 74.9 111.8 148.0
Merchandise 271.2 280.6 200.9 387.6 450.0
Instruction 58.4 58.5 48.1 52.4 67.5
Other Revenue 126.6 140.0 14.7 52.3 105.2
Total $2,852.4 $2,971.7 $2,956.8 $3,808.7 $4,235.1
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The average revenue per round over the 2018 to 2022 period is summarized in Table III-6. As indicated, the average golf revenue per round has increased from $48.69 in 2018 to $57.92 in 2022, nearly 20 percent.
Thus, the 57 percent increase in gross golf revenue at PGGL over the past five years reflects both an increase in play (32 percent) and an increase in the average revenue per round (20 percent).
Table III-6: PGGL Average Revenue per Round
Department 2018 2019 2020 2021 2022
Golf/Cart Fees $49.11 $50.05 $45.30 $48.86 $55.54
Practice Range 1.51 1.62 1.30 1.70 2.37
Merchandise 5.73 5.82 3.48 5.91 7.21
Other 3.91 4.11 1.09 1.60 2.77
Total $60.26 $61.60 $51.16 $58.07 $67.90
The warmup practice range revenue for 2022 is relatively modest at $148,000 ($2.37 per round), with nearly all of the usage attributed to same-day golfers. The range is small, and not designed to service non-playing golfers using the range for golf practice.
Merchandise revenue has increased sharply as well over the past five years, while other miscellaneous revenues have generally remained unchanged. These revenue categories are much less important than golf not only because they represent a small percentage of total PGGL gross revenue, but also due to their corresponding high cost of sales/expense margins.
PGGL Rent
Annual rent paid by CourseCo to the City of Pacific Grove consists of base rent plus overage rent. As previously noted, the operator is obligated to pay base rent at $300,000 per year (with a $5,000 annual increase), plus “overage” rent calculated based on 65 percent of annual gross revenue which exceeds an annually CPI adjusted $2.35 million “golf” revenue threshold. As shown in Table III-7, substantial overage rent was generated in 2021 and 2022 due to the strong revenue performance of the golf complex. Based on yearto-date performance, substantial overage rent in the range of $350,000 is expected in 2023 as well.
In 2022, rent totaled about $775,000, equal to 18 percent of total revenue (21 percent of golf/cart revenue).
Annual projected rent (base and overage rent) for 2023 will represent a similar percentage of golf/caret revenue. The projected 2023 overage rent reflects the unusual number of rain days affecting annual play levels, although this decline in utilization is substantially offset by the increase in the 2023 greens fees structure.
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Table III-7: PGGL Annual Rent
Year Base Rent Overage Rent Total
2015 (9 months) $235,000 --- $235,000
2016 300,000 --- 300,000
2017 300,000 --- 300,000
2018 273,250 --- 273,250
2019 338,900 --- 338,900
2020 239,4001/ --- 239,400
2021 344,400 --- 344,400
2022 323,500 256,500 580,000
2023 338,900 399,700 728,500
1/ Base rent adjusted due to course closure during initial COVID-19 response.
The Grill at Point Pinos
The Grill at Point Pinos is operated independently from the golf course by Le Creme Hospitality. The Grill serves both PGGL golfers and non-golfer patrons. The restaurant operating hours typically extend from 7:00 a.m. to 7:00 p.m. daily. The operator indicated that about one-half of their customers are same-day golfers, and one-half non-golfing area residents. However, in terms of gross revenue, same-day golfers represent well under one-half of the total revenue as golfer per capita expenditures are substantially below non-golfer restaurant patrons.
It is estimated that the average food and beverage revenue generated by golfers through the quick service and in-restaurant post-golf round activity is $5.00 to $6.00 per round. This average per round golfer revenue is consistent with similarly positioned golf courses.
PGGL Operating Expenses
Under the terms of the lease agreement between the City of Pacific Grove and CourseCo Golf Management, the PGGL operator is not required to report their operating expenses, other than irrigation water costs. This provision is standard for golf course lease agreements between public agencies and private operators.
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IV. Capital Improvements
The following section presents a summary of the capital improvements program for Pacific Grove Golf Links.
Many components and features of a golf course have a limited life expectancy, and thus a golf course requires a capital improvement replacement program in order to remain competitive in the marketplace. In particular, components requiring improvements or replacement include cart paths, tees, bunkers, greens, clubhouse FF&E, parking lot surfaces, and, perhaps the most important and costly, the golf course irrigation system. As well, golf course maintenance equipment requires continuous replacement.
PGGL Capital Improvement Program
The lease agreement between the City of Pacific Grove and its lessee (CourseCo) establishes a Capital Improvement Reserve Fund as the primary mechanism for funding golf course capital improvements. The fund is intended to be used for capital items or the repair/replacement of capital items in accordance with a Capital Improvement Plan prepared by CourseCo and approved by the City. The fund specifically is not intended for acquisition of golf course maintenance equipment.
Upon commencement of the lease agreement on July 1, 2014, the lessee was obligated to contribute a relatively nominal amount of $100,000 to the fund, and assume responsibility for the cost to complete the “dune restoration project” up to a maximum contribution of $75,000.
Between July 1, 2014 and March 30, 2016, the lessee was required to contribute 1.0 percent of total gross revenue generated by the golf course to the Capital Improvement Fund, with the City also contributing 1.0 percent. Commencing April 1, 2016, the contribution was increased to 1.5 percent for both parties, or a total annual contribution of 3.0 percent of total gross revenue.
Over the past five years, annual contributions to the Capital Improvement Fund have ranged from $100,000 to $125,000. The industry standard for annual contributions to the capital improvement replacement reserve fund typically are in the range of 3.0% to 3.5%. Again, as noted above, in order to remedy years of deferred maintenance, a one-time commitment of about $1.0 million in capital improvements is needed in the near term. Excluding the clubhouse, the replacement cost new of all of the various depreciable components at PGGL is estimated in the range of $5-$6 million.
Capital improvements completed over the past five years are shown in Table IV-1. Over this period, capital improvements totaling about $285,000 were completed at the golf course, or an average of about $55,000 per year. Over the next five years, another $520,000 are scheduled for the course, as shown in Table IV-2.
Improvements in 2020 were curtailed due to the onset of COVID-19, which substantially disrupted play and revenue for the year.
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Table IV-1: Pacific Grove Golf Links Capital Improvements Completed--2018-2022 Project 2018 2019 2020 2021 2022
Tree Maintenance $6,480 $29,118 $19,925 $9,600 $17,000
Net Replacement --- --- --- --- 9,700
Tee Box Renovation (#4) --- --- --- --- 19,933
Clubhouse Landscape --- --- --- --- 10,800
Drainage Renovation (#6) --- --- --- 54,532 ---
Cart Path Addition (#2) --- --- --- 28,064 ---
Asilomar Fence Renovation --- 14,401 --- --- ---
Range Netting 21,400 --- --- --- ---
Cart Path Addition (#9) 25,435 --- --- --- ---
Irrigation Control Equipment 16,782 --- --- --- ---
Total $70,097 $43,519 $19,925 $92,196 $57,433
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Table IV-2: Pacific Grove Golf Links Scheduled Capital Improvements--2023-2027 Project 2023 2024 2025 2026 2027
Tree Maintenance $30,000 $30,000 $30,000 $30,000 $30,000 Crespi Pond Dredge 25,000 --- --- --- ---
Driving Range Path Resurface 20,000 --- --- --- ---
Maintenance Equipment Lift 29,547 --- --- --- ---
Greens Heads Replacement 15,200 --- --- --- ---
Tee Renovation (#18) --- 20,000 --- --- ---
Cart Path Addition (#3) --- 25,000 --- --- ---
Tee & Bunker Renovation (#16) --- 30,000 --- --- ---
Cart Path Addition (#6) --- --- 70,000 --- ---
DG Walk-Up Path--Tee Boxes --- --- --- 20,000 ---
Driving Range Tee Line Repl. --- --- --- --- 15,000
Bunker/Tee Renovations --- --- --- 50,000 50,000
Total $119,747 $105,000 $100,000 $100,000 $95,000
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Future Capital Improvement Requirements
While the improvements completed over recent years, and those planned in coming years, result in a positive impact on playing conditions and the overall golfer experience, in several areas, PGGL’s current condition reflects some degree of deferred maintenance. Generally, if a golf course has been well maintained and benefited from sufficient and timely capital improvement expenditures, an annual capital improvement reserve allowance on the order of $125,000-$150,000 per year is sufficient to maintain a quality golf product.
However, if golf course capital improvements have been deferred over an extended period of time and/or appropriate reserves have not been set aside, this annual commitment will be insufficient.
PGGL is considered to be in a relatively favorable situation with respect to many near- and mid-term capital improvement requirements. The pro shop, restaurant and cart storage facilities are less than 15 years old and in very good condition. Moreover, the major capital improvement facing most golf courses, other than the clubhouse related capital expenditures, is the golf course irrigation system. Typically, the cost to fully replace a system in the current market environment is in the range of $2.0 to $2.5 million, although PGGL has a more limited system with only about 40 acres of irrigated turf. The current operator indicated that there have not been any extraordinary issues related to the irrigation system, and there does not appear to be any major repairs or replacement of the system in the foreseeable term.
Based on discussions with current management, along with inspection of the course, it appears that to address deferred maintenance would likely require about $1.0 million in near term capital improvements. The principal improvements relate to bunker renovation, major tree trimming, tee renovations, cart path network repair/expansion, protective netting, and driving range improvements. Following this significant infusion of capital, continued funding of a reserve equal to about 3.0 percent of gross revenue ($125,000 per year) should be sufficient to sustain a quality product.
Maintenance Equipment
The golf operator owns and maintains a full complement of golf course maintenance equipment. This equipment was purchased from the City when the conversion from self-operation to a lease agreement operating structure occurred. Most equipment components have a useful life expectancy of 5 to 10 years, and a full complement of equipment costs in the range of $1.5 million.
Replacement of maintenance equipment is not regarded as capital improvements, and the PGGL capital improvement program specifically is not intended to fund replacement of such equipment. Most operators either lease their fleet of maintenance equipment, or establish a replacement reserve for periodic equipment replacement. At this time, most operators lease the majority of their maintenance equipment for a term of five years, with an affordable buy-out for most of the components at the conclusion of the lease term. A typical annual allowance for lease payments and/or reserves for maintenance equipment replacement is in the range of $120,000 per year.
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V: Golf Market Overview
The following section presents an overview of the demographic makeup of the Pacific Grove market area and an analysis of national, regional and local golf market conditions.
Market Area Demographics
The primary market area for a golf course is influenced by a number of factors including course quality, rate structure, transportation network and access, location and characteristics of competitive facilities, resident demographic attributes, and other such factors. The primary market area for PGGL, from which 70 to 80 percent of total play is expected to derive, is defined as the region extending from Carmel Valley on the south to Castroville on the north, and inland to Salinas on the east. This region is generally within about a 30- to 40- minute drive time (20 miles) of the PGGL complex. Most of the balance of support derives from residents from the San Francisco/Oakland/San Jose metropolitan market area and overnight visitors to the Monterey Peninsula.
Comparative demographics of the Pacific Grove resident market area are presented in Table V-1, which is segmented into 20-, 40- and 60-minute drive time bands (see Figure V-1). As noted, the 20-minute drive time population is reported at about 80,000 currently, with another 165,000 population residing in the 20-40 minute drive time band. Expanding the drive time out to 60-minutes adds about 365,000 additional residents. These market area segments have experienced very modest growth over the past 12 years, and there is effectively no growth forecast over the next five years.
Residents within the 20-minute drive time area are substantially older and somewhat more affluent than the statewide benchmark, while residents in the 20-40 and 40-60 minute bands are slightly younger and less affluent than statewide residents.
The senior population in the market area is particularly important with regard to golf demand, as the participation rate and frequency of play for the 60-79 year old age group is much higher than other age groups. As shown in Table V-2, Monterey County’s current 60-79 age cohort, as a percentage of the total population, is slightly smaller than the statewide average (17.3% versus 18.8%), although this age cohort in the more immediate Pacific Grove area (20-minute drive time from PGGL) is much larger than for the County as a whole. Over the next 10 years, this age cohort in Monterey County is forecast to increase its share of total population compared, while all other age cohorts will experience a decline. The Monterey County senior cohort rate of increase, however, is much lower than for the State as a whole and neighboring counties.
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PGGL
Figure V-1: PGGL Market Areas Defined by Drive Time
Table V-1: Pacific Grove Golf Links Market Area Demographics 0-20 Minute
Drive Time
20-40 Minute
Drive Time
40-60 Minute
Drive Time
State of
California
Population
2010 79,158 148,023 346,538 37,253,900
2022 80,004 165,111 367,686 39,770,200
2027 (projected 79,736 166,806 366,237 39,648,300
Average Annual Growth
2010-2022 0.09% 0.91% 0.49% 0.55%
2022-2027 (0.07%) 0.20% (0.08%) (0.06%)
Population Characteristics
(2022)
Median Age 42.1 34.1 34.2 36.7
Population 65+ 23.0% 14.8% 13.2% 15.5%
Average HH Size 2.34 3.04 3.25 2.86
Median HH Income $98,889 $82,884 $88,299 $88,930
% HH Exceeding $100,000 49.5% 39.6% 44.5% 45.3%
Source: ESRI forecasts for 2022 and 2027. U.S. Census Bureau 2010 and 2020 decennial Census data converted by ESRI into 2020 geography.
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Table V-2: Projected Monterey County Senior Population Growth Monterey County Population State of California
Age 60-79
Cohort
Other
Cohorts
Total Age 60-79
Cohort
Other
Cohorts
Total
Population
2022 Estimate 77,486 369,814 447,300 7,556,200 32,589,800 40,146,000 2032 Projection 85,256 382,114 467,370 8,739,400 33,492,200 42,231,600 10-Year Increase
Number 7,770 12,300 20,070 1,183,200 902,400 2,085,600
Percent 10.0% 3.3% 4.5% 15.7% 2.8% 5.2%
Source: California Department of Finance, “County Population Projections by Age and Sex, 2020-2060”, and Pro Forma Advisors.
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The Monterey Peninsula has relatively mild climate, as indicated in Table V-3, which compares favorably with most other areas of Central California. Moderate year-round temperatures, and rainfall of about 18 inches annually, provide for year-round golf.
Table V-3: Summary of Climate Statistics--Pacific Grove Month
Average Daily Temperature (F) Average Rainfall
(inches) High Low
January 60 45 3.5
February 61 47 3.8
March 61 48 2.8
April 62 49 1.2
May 63 52 0.4
June 65 53 0.1
July 65 55 ---
August 68 56 ---
September 68 55 0.2
October 67 53 0.8
November 63 49 2.0
December 60 45 3.2
Total --- --- 18.0
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National Golf Market Trends
Nationwide, golf play increased steadily between the mid-1980s and 2000. As shown in Table V-4, for the 1990-2000 period, the total number of annual rounds played nationally increased at an average rate of just over 2.5 percent per year. Golf balls sold, perhaps the best indicator of play, increased at a similar rate (2.3 percent per year). This unprecedented growth in golf play during this period was due to a number of factors including:
‣ An increase in the number of golfers;
‣ The increasing importance of golf-oriented real estate; ‣ Expansion of the golf tourism industry;
‣ One of the longest economic expansions in the nation’s history.
The increase in golf demand and the popularity of golf-related housing development during the 1990s stimulated extraordinary expansion of the national golf course inventory, primarily between 1995 and 2002, as summarized in Table V-5. Over the 1990-2010 period, the inventory of golf courses in the United States increased by 34 percent, while the U.S. population registered only a 24 percent gain, and golf demand (play) increased only 12 percent over this same period.
Right after the new century started, the first signs of industry problems surfaced, and persisted through 2019.
While total golfers and rounds played during this period were down industrywide, most individual golf courses experienced steeper declines in utilization, along with revenue contraction and falling net operating income, as the market totals were spread over an increased supply of facilities. Further, golf course transaction prices declined precipitously, bankruptcies and foreclosures became routine, and new golf course construction virtually ceased while the number of courses closing significantly exceeded new openings. The impact of market softness was widespread during this period and affected all segments of the market and all geographic areas. Importantly, the industry problems went well beyond cyclical trends, as there appeared to be fundamental shifts in recreational preferences and other underlying factors affecting long-term demand for golf.
The National Golf Foundation (NGF) reported that since 2000, annual golf play in the United States declined from 518 million in 2000 to 441 million rounds in 2019, or about 15 percent. Other independent sources indicate a more severe contraction, which is borne out by golf ball sales and other market indicators. The golf participation rate, after rising steadily through 2003, fell precipitously from 12.4 percent in 2004 to a 8.0 percent in 2019. (It should be noted that the golfer participation rate is based on the number of golfers relative to the population over the age of 6 years old). The golf market also was significantly impacted by the 2008 national economic recession. Revenue contraction in many instances was more pronounced than the decline in rounds due to intense price competition which, in many cases, resulted in declining effective golf rates. The combination of lower rounds and a lower average effective rate substantially adversely impacted revenue at virtually all golf courses, regardless of market positioning.
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Table V-4: Indicators of U.S. Golf Demand (1990-2022)
Year Rounds
(millions)
# of Golfers1
(millions)
Participation
Rate
Golf Ball Sales2/
(millions of dozens)
1990 400 27.8 13.5 42.0
1995 420 25.0 11.6 46.0
2000 518 28.8 11.7 52.2
2005 489 29.3 11.2 43.6
2006 493 29.4 11.2 44.0
2007 490 29.5 11.1 43.5
2008 481 28.6 10.7 42.2
2009 477 27.1 10 40.1
2010 475 26.1 9.6 --4/
2011 463 25.7 9.2 --4/
2012 490 25.3 9.0 --4/
2013 465 24.7 8.9 --4/
2014 457 24.7 8.5 --4/
2015 465 24.1 8.2 --4/
2016 468 23.8 8.0 --4/
2017 456 23.8 7.9 --4/
2018 434 24.2 8.0 --4/
2019 441 24.3 8.0 --4/
2020 502 24.8 8.2 --4/
2021 530 25.1 8.3 --4/
2022 510 25.6 8.3 --4/
Average Annual Growth
1990-1995 1.0% (2.1)% --- 1.8%
1995-2000 4.3% 2.9% --- 2.6%
2000-2005 (1.1%) 0.3% --- (3.5%)
2005-2010 (0.6%) (2.3%) --- (2.1%)3/
2010-2015 (0.4%) (1.6%) --- ---4/
2015-2019 (1.3%) (0.2%) --- ---4/
2019-2022 5.0% 1.8% --- ---4/
1/ Represents golfers over 6 years of age. 2/ Estimated by PFA based on “soft goods” sales recorded by Data Tech and golf ball manufacture sales. 3/ For period 2005-2009. 4/ Data for 2010-2020 not available in comparable format.
Source: National Golf Foundation; Golf Data Tech; and Pro Forma Advisors LLC.
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Table V-5: Number of Golf Courses1 - U.S.
Year Annual Courses
Added
Annual Courses
Closed
Total Golf
Courses2
Average Annual
Percent Change
1990 --- --- 11,105 ---
2002 315 15 14,725 2.96%
2006 120 60 14,968 0.8%
2007 115 95 14,988 0.13%
2008 70 105 14,953 (0.23%)
2009 50 100 14,903 (0.33%)
2010 45 110 14,838 (0.44%)
2011 35 140 14,733 (0.71%)
2012 14 155 14,592 (0.96%)
2013 14 157 14,449 (0.98%)
2014 11 174 14,289 (1.13%)
2015 17 177 14,129 (1.12%)
2016 15 211 13,933 (1.39%)
2017 15 206 13,743 (1.36%)
2018 12 198 13,557 (1.35%)
2019 10 202 13,355 (1.49%)
2020 8 193 13,170 (1.40%)
2021 10 130 13,050 (0.99%)
2022 20 105 12,965 (0.99%)
1/ 18-hole equivalents.
2/ Includes courses added, less courses closed., 2006-2022 Source: National Golf Foundation; and Pro Forma Advisors PGGL Market Overview
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Beginning in 2020 with the onset of COVID-19, golf participation and rounds have increased sharply. Rounds played surged 20 percent over the 2020-2021 period, with strong growth in golf course revenue and net operating income. Nationally, rounds in 2022 declined about 5 percent from 2021 as there has been some dissipation of the COVID-19 impact, and play in 2023 is down somewhat as well, although this is in part due to unusual bad weather impacts.
Since 2002, the construction of new courses in the country has declined sharply, and the rate at which courses have closed has accelerated. Between 2006 and 2022, for example, the number of courses closed substantially exceeded new course openings. New courses have been added to the inventory since 2006 at an annual rate of 40-50 courses per year, while course closings have averaged about 145 per year over this period. Over 1,700 golf courses have closed over the past 10 years. The rate at which golf courses are closing has decelerated in recent years with the onset of COVID-19. In 2021, 130 golf courses closed nationwide, with 105 course closures in 2022.
The outlook for the golf industry is somewhat unclear at this time. Most golf analysts believe that there will be continued erosion of the COVID-19 impact on golf participation and play levels. Nonetheless, it is anticipated that there will be some sustained positive impact as there has been a substantial increase in the number of new golfers introduced to the sport over the past three years.
The one trend which has been observed is the emergence of significant movement toward recreational activities associated with golf entertainment and family-oriented golf activities. The success of TopGolf facilities and TopTracer Technology is particularly noteworthy. As well, golf-oriented miniature golf, such as the Tiger Woods’ PopStroke product have been extremely well received in the market.
Monterey Peninsula Golf Market
Pacific Grove Golf Links (PGGL) is located within the City of Pacific Grove on the Monterey Peninsula. The Monterey Peninsula anchors the northern portion of California’s central coast region, and is comprised of the cities of Monterey, Carmel, and Pacific Grove, as well as the resort community of Pebble Beach. The Monterey Peninsula golf market is well established and world renowned, and is home to five of Golf Digest’s top 100 golf courses in the country. The market is broadly defined as the area extending from Carmel Valley on the south to Castroville on the north, and from the Pacific Coast on the west inland about 10 miles to Salinas on the east.
The inventory of public access and private golf courses is shown in Table V-6. As noted, while there was some expansion between 1995 and 2010 in both the public and private inventory, the increase in the public golf supply (conversion of Blackhorse and Bayonet 36-hole complex from military to high end daily fee in 2006/2008) was only 13%, and there has been contraction since 2015 related to the closing of the 36-hole Rancho Canada golf complex in the Carmel Valley in 2016/2017. This compares with an expansion of the public supply in the Bay Area golf market of 40% between 1990 and 2015, and the closure of only three courses in the San Francisco Bay Area southern peninsula.
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Table V-6: Monterey Peninsula Inventory of Regulation
Length Golf Courses
Number of Courses (18-Hole Equivalent)
Year End Public
Access
Private Total
1990 15.0 5.0 20.0
1995 15.0 5.0 20.0
2000 15.0 8.0 23.0
2005 15.0 8.0 23.0
2010 17.0 8.0 25.0
2015 17.0 8.0 25.0
2020 15.0 8.0 23.0
2023 15.0 8.0 23.0
The location of Monterey Peninsula market area public access golf courses is depicted in Figure V-2, and selected characteristics of these course are presented in Table V-7. Table V-8 provides a summary of golf fees and current play levels at the market area public access courses. The golf fees shown are “rack” rates, which in some cases are subject to discounting and golf play specials at the discretion of the operator. Further, some courses employ a “dynamic” pricing structure which varies according to prevailing demand relative to the available inventory of tee times.
It also should be noted that play levels refer to calendar year 2022, or fiscal year 2021-2022. In many instances the play levels shown are estimates based on historical play, adjusted based on current market conditions, as well as information derived from interviews with operators of the facilities. For these facilities, actual play levels are regarded as proprietary information which is not disclosed.
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10 PGGL Market Overview
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1 3
5 2
11 1
10 4
7 12 13
14 15
8 9
6 Figure V-2: Location of Market Area Public Access Golf Courses Table V-7: Selected Characteristics of Monterey Peninsula Public Access Golf Courses Course PGGL Pebble Beach Spanish Bay Del Monte
Location Pacific Grove Pebble Beach Pebble Beach Monterey Course Type Reg-Muni Reg-Resort Reg-Resort Reg-Resort
Architect Egan/Neville Jack Neville RT Jones II Chas Maud Owner City of Pac Grove Pebble Beach Co Pebble Beach Co Pebble Beach Co Operator City of Pac Grove Pebble Beach Co Pebble Beach Pebble Beach Year Opened 1932 1919 1988 1897
Number of Holes 18 18 18 18
Par 70 72 72 72
Course Length (back) 5732 7040 6821 6357
Rating (back) 67.7 75.5 74.2 71.5
Slope (back) 119 145 142 127
Greens Fees
Standard (18 holes)
Weekday $62 $625 $335 $125
Weekend 78 625 335 125
Mid-Day
Weekday $42 --- --- ---
Weekend 49 --- --- ---
Twilight
Weekday --- --- --- ---
Weekend --- --- --- ---
Senior (18 holes)
Weekday --- --- --- ---
Weekend --- --- --- ---
Cart Fees (18/9 holes) $21 $55 $55 $25
Mandatory no no no no
Percent Using Carts 50% 90% 90% 90%
Facilities
Clubhouse Size (sq. ft.)* 6,000 15,000 1,200 4,000
Banquet Seating Capacity yes --- --- ---
Snack Bar yes yes yes yes
Driving Range yes yes no no
Number of Tees 10 20 -- ---
Annual Number of Rounds 62,400 45,000 45,000 45,000
% Twiilight/9-Hole Play 15% 15% 10% 5%
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Table V-7 (continued): Selected Characteristics of Monterey Peninsula Public Access Golf Courses Course Monterey Pines Poppy Hills Spyglass Laguna Seca Location Monterey Pebble Beach Pebble Beach Carmel
Course Type Reg-Daily Fee Reg-Daily Fee Reg-Daily Fee Reg-Daily Fee Architect Graves/Messier RTJones I RT Jones I RTJones I & II Owner Navy NCGA Pebble Beach Co Rancho Canada
Operator Navy Golf Prog NCGA Pebble Beach Co Rancho Canada Year Opened 1963 1986 1966 1970
Number of Holes 18 18 18 18
Par 69 72 72 71
Course Length (back) 5556 6857 6953 6174
Rating (back) 66.9 74.3 75.5 70.6
Slope (back) 114 144 147 132
Greens Fees
Standard (18 holes)
Weekday $53 $55/200 $465 $55
Weekend 53 72/200 465 75
Mid-Day
Weekday 43 --- --- ---
Weekend 43 --- --- ---
Twilight
Weekday 35 $35/60 --- $35
Weekend 35 40/65 --- 45
Senior (18 holes)
Weekday --- --- --- $41
Weekend --- --- --- ---
Cart Fees (18/9 holes) $23 $18/12 $55 $20/12
Mandatory no no no no
Percent Using Carts 40% 65% 95% 50%
Facilities
Clubhouse Size (sq. ft.)* 8,000 20,000 8,000 10,000
Banquet Seating Capacity yes yes yes yes
Snack Bar yes yes yes yes
Driving Range yes yes yes yes
Number of Tees 15 18 16 15
Annual Number of Rounds 50,000 45,000 45,000 35,000
% Twilight/9-Hole Play 15% 15% 5% 5%
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Table V-7-Concl: Selected Characteristics of Monterey Peninsula Public Access Golf Courses Course Carmel Valley Ranch Quail Lodge Black Horse/Bayonet Pajaro Valley Location Carmel Valley Carmel Seaside Royal Oaks
Course Type semi-private/resort semi-private/resort Reg-Daily Fee semi-private Architect Pete Dye RM Graves Gene Bates MacFar/Graves
Owner Pritzker Quail Lodge Diamond/Pitt ---
Operator Quail Lodge Troon Golf ---
Year Opened 1981 1963 2008 1922
Number of Holes 18 18 36 18
Par 70 71 72 72
Course Length (back) 6234 6449 7024 6664
Rating (back) 70.5 71.4 74.8 69.5
Slope (back) 134 129 136 118
Greens Fees
Standard (18 holes)
Weekday --- $295 $100 $60
Weekend --- 295 140 65
Mid-Day
Weekday 150 $145 $60 ---
Weekend 150 145 95 ---
Twilight
Weekday $98 --- $40 (incl cart) $38
Weekend 98 --- 40 (incl cart) 43
Senior (18 holes)
Weekday --- $60 $50
Weekend --- 60 ---
Cart Fees (18/9 holes) included Included Included $20/15 Mandatory no no no no
Percent Using Carts 95% 60% 95% 60%
Facilities
Clubhouse Size (sq.ft.)* 10,000 7,000 9,500 6,500
Banquet Seating Capacity yes 250 100
Snack Bar double ended yes yes yes
Driving Range yes yes Double End yes
Number of Tees 20 15 60 20
Annual Number of Rounds 45,000 45,000 75,000 40,000
% Tweilight/9-Hole Play 10% 10% 15% 15%
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Table V-8: Monterey Peninsula Golf Courses--Summary of Rounds and Rack Rates Regular 18-Hole Loyalty Club/Resident
Weekday Weekend Weekday Weekend Rounds
PGGL $62 $78 $42 $58 62,400
Forest Courses
Pebble Beach $625 $625 --- --- 45,000
Spanish Bay 335 335 --- --- 45,000
Del Monte 125 125 --- --- 45,000
Spyglass 465 465 --- --- 45,000
Monterey Pines 53 53 17-31 (military) 17-31 (military) 50,000 Poppy Hills 200 200 55 72 45,000
Carmel Valley/Other
Course
Carmel Valley Ranch $150* $150* --- --- 45,000
Laguna Seca 55 75 --- --- 35,000
Quail Lodge 295 145 --- --- 45,000
Salinas Area
Bayonet/Blackhorse $100 $140 $60 $95 75,000
Pajaro Valley 60 65 --- --- 40,000
Salinas Fairways 43 56 --- --- 50,000
* Includes cart.
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The impact of COVID-19 on market area golf course play levels has been extraordinary in most markets. With a major shift in the number of employees working at home rather than an office, and with golf offering an attractive form of outdoor recreation, golf participation has increased markedly which, in turn, has translated into a large increase in play levels at both public access and private golf courses. The Monterey Peninsula public access courses, in general, have benefited, although the improvement in utilization has not been as significant as in most other markets.
Golf rounds played in the United States and State of California, as reported by industry analyst Golf Datatech, document the COVID-19 impact:
Year
Change in Annual Golf Rounds
California United States
2019 (4.7%) 1.5%
2020 5.6% 13.9%
2021 13.6% 5.5%
2022 (4.2%) (3.7%)
2023* (12.1%) 3.1%
* Through April.
As shown, California golf rounds played increased nearly 20 percent over the 2019-2021 period, before declining 4.2 percent in 2022. The large increase for 2023 (January-April period) is primarily attributable to a very unusual number of rain days for this period. The national rounds played numbers show a similar pattern of increase over 2019-2021, with 2022 rounds down 3.7 percent.
Based on the review of characteristics, and discussions with regional golf course managers, observations regarding the Monterey Peninsula golf market are presented below:
‣ There are 15 regulation length 18-hole public-access golf courses serving the Monterey Peninsula, of which 6 are regarded as resort courses--that is, a lodging component is linked to the golf course. ‣ The three Pebble Beach Resort courses (Pebble Beach, Spyglass Hill, Links at Spanish Bay) and Carmel Valley Ranch have very high greens fees ($335-$625) and offer limited public access. ‣ Although subjective, most knowledgable golf professionals regard Pebble Beach Golf Links, because of its rich history and legacy, as among the premier golf courses in the country, followed by Spyglass Hill, and Spanish Bay. The Bayonet/Blackhorse golf courses, along with Poppy Hills, Carmel Mountain Ranch and Quail Lodge, fall into the next tier. Pacific Grove Golf Links is slightly below this second tier in terms of golf course design quality and condition, but benefits from its spectacular sand dunes/coastal frontage.
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‣ PGGL competes most directly with Monterey Pines Golf Club in Monterey, Poppy Hills in Pebble Beach, and Laguna Seca in Monterey. At the same time, PGGL often is played by resort/visiting golfers who elect to play multiple courses during their visit to the Monterey Peninsula. ‣ Monterey Pines is a U.S. Navy owned par-70 course which is available to both military current personnel and veterans, as well as the general public. The golf course was fully renovated in 2009/2010. The course accommodates about 50,000 rounds annually, one-half attributed to the general public and onhalf to military personnel (current or veterans). Greens fees are $53 daily for the public, with military rates ranging from $17 to $31 depending on rank. Golf carts are $23 per player, with utilization low at 40 percent.
‣ Poppy Hills greens fees are $200 daily for the general public, but NCGA members play at greens fees of $55 weekdays and $72 weekends, plus $18 per player cart fees, with carts optional. The vast majority of the play, estimated at 85 percent, at Poppy Hills is NCGA member play, with only about 15 percent general public daily fee play. Poppy Hills accommodates about 45,000 annual rounds. ‣ Laguna Seca is an 18-hole regulation length course located in the Monterey hills, on the north side of Highway 68, about 5 miles inland from the Monterey coastline. The golf course has a fair amount of topography (difficult to walk), relatively short, and in good condition. Although similarly priced to PGGL, the course generates only 35,000 rounds annually.
‣ Several clubs offer loyalty programs with substantially reduced greens fees including Bayonet/ Blackhorse, Poppy Hills (NCGA members), and Laguna Seca Golf Club. ‣ Annual play on most courses on the Monterey Peninsula declined 20-30% over the 2001-2019 period, depending on the market positioning and rate strategy. Then, the impact from COVID-19 triggered about a 10-15 percent surge in play levels over the 2020-2021 period, with play levels retrenching 3-5 percent in 2022.
‣ There are plans to redevelop the 18-hole Pajaro Valley Golf Course with a completely new land use plan which calls for 27 holes of golf and 230 residential units. This proposed plan will be subject to a very rigorous approval process such that the likelihood and timing of this project are uncertain at this time. ‣ There has been increased competition for higher quality daily fee golf course like PGGL, Poppy Hills and Bayonet/Blackhorse stemming from the increased availability of golf at a few of the private clubs in the market. For example, Quail Lodge and Carmel Valley Ranch now offer daily fee play, although the fee structure is relatively high.
Golf Industry Challenges
Despite the recent COVID-19 related surge in the demand for golf, golf property owners/operators in California will face a number of challenges affecting golf course operating economics in the coming years. In particular, the sharp increase in the cost of irrigation water and the impact of recent increases in the California minimum PGGL Market Overview
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wage, along with golf course maintenance worker shortages, will adversely impact operating costs and profitability.
Irrigation Water Costs
Regulation length 18-hole golf courses generally have 90-110 acres of cultivated turf area. Typical irrigation consumption for Central California golf courses averages in the range of 250-300 acre feet, or more, per year.
PGGL water consumption is much lower at about 84 acre feet per year due primarily to the small number of irrigated acres and the course’s coastal location. While the source and cost of irrigation water varies from course to course, nearly all golf courses have experienced extraordinary increases in their water costs over recent years.
Rates for irrigation water generally have doubled for many water agencies in California over the past 10 years.
Continued increases in water rates which substantially exceed the general cost of living are expected going forward due to limited resources and the need to repair/replace aging infrastructure. Water costs for many courses are in the range of $300,000-$500,000 annually, often representing 15-20 percent of total operating expenses.
Pacific Grove Golf Links irrigation water costs are very high as well, despite its much lower consumption, due primarily to the very high water commodity rates at PGGL.
California Minimum Wage
Labor related expenses typically represent approximately 50-60 percent of total golf course operating expenses. Most golf course employees (maintenance, pro shop and food and beverage) earn at or somewhat above the minimum wage. Increases in the minimum wage in California over the past six years were as follows:
Table V-9: California Minimum Wage
Year Minimum Hourly Wage
2016 $10.00
2017 10.50
2018 11.00
2019 12.00
2020 13.00
2021 14.00
2022 15.00
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Over the 2016-2022 period, the California minimum wage increased 50 percent, equal to an average annual rate of about 7 percent. The increase in the California minimum wage has impacted golf course economics for most golf courses.
Labor Availability
Even at the elevated minimum wage levels, labor availability has been extremely limited, particularly maintenance staff. Over the past few years, most operators have been forced to rely on some level of casual maintenance labor, which is more costly than permanent labor. It is expected that this could lead to further marked increases in maintenance labor cost.
Golf Market Outlook
Not unlike virtually every golf market in the country, the Monterey Peninsula public golf market has improved significantly over the past three years primarily due to the beneficial impact of COVID-19 on golf participation rates. The COVID-19 impact dissipated slightly in 2022, but play on most courses remains well above pre-pandemic levels. Golf play in 2023 is expected to decline somewhat as well due to an unusually high number of rain days. While it is likely there will be some further dissipation of the COVID-19 impact, golf play at most courses is expected to remain above 2019 levels. At the same time, it is highly unlikely that there will be many, if any, golf course development opportunities in the region due to lack of available land suitable for golf course development and the very high cost of development. Thus, as the population continues to grow and mature, it is anticipated that market area demand will remain stable or improve somewhat, such that the long-term outlook remains reasonably favorable.
The consensus among recognized golf authorities is that golf demand, in real terms, will increase modestly at about a 1.0-1.5 percent average annual growth rate over the next 10- to 20-year term. Most of this growth will result from the aging population trends previously discussed, where the propensity to, and frequency of, play increase compared to younger age cohorts.
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VI: Comparative Operating Revenues and Expenses
Pacific Grove Golf Links (PGGL) performance is compared with a series of market area courses, as well as selected California municipal courses extending from Ventura on the south to the San Francisco South Bay on the north.
PGGL Market Share
A golf course’s market share is determined by a number of factors including golf course design quality and conditioning, pricing structure and play policies, market orientation, overall market conditions, sales and marketing efforts, and property management. Pacific Grove’s market share, defined as PGGL rounds divided by total rounds played at public access golf courses in the Monterey County market area, is estimated over the 2005-2022 time frame in Table VI-1.
Table VI-1: PGGL Historical Market Share
Year PGGL Rounds Market Rounds* PGGL
Market Share
2005 77,500 730,000 10.6%
2010 56,000 627,000 8.9
2015 54,400 622,000 8.8
2020 57,800 605,000 9.6
2022 62,400 648,000 9.6
* Total rounds played at the 15 public access golf courses serving the Monterey County region.
PGGL’s market share declined sharply over the 2005-2015 period when the golf facility was under City management (golf operations and course maintenance). CourseCo, the current course manager, assumed golf course operation and maintenance in 2014/2015, when the course market share was at its low point (8.8 percent market share). By 2020, PGGL’s market share had increased modestly to 9.6 percent, and has been maintained at this level over the past two years. Importantly, PGGL’s improved market share was achieved while the greens fee structure at the course escalated sharply.
Operating Revenues
Annual gross revenue by department for selected municipal golf courses extending from Ventura County on the south to the San Francisco South Bay on the north for fiscal year 2021-2022 is shown in Table VI-2. The revenues relate to golf functions only, and specifically exclude food and beverage operations. The average revenue per round is calculated in Table VI-3.
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Table VI-2: Gross Revenue at Selected California Regional Municipal Golf Courses (FY2021-22) (thousands of dollars)
Annual Gross Revenue
Course Annual
Rounds2/
Greens
Fees1/
Cart Fees Range Merch Other Total
PGGL 62,371 $2,781.5 $682.9 $148.0 $450.0 $172.7 $4,235.1 Salinas Fairways 45,0003/ 1,106.2 302.9 143.8 113.9 --- 1,666.8 DeLaveaga 58,800 2,026.7 499.7 475.0 450.6 305.2 3,757.2 Santa Barbara 75,100 2,372.5 697.4 327.9 330.0 227.0 3,954.9 Los Robles 82,800 2,624.0 796.2 512.5 205.2 122.0 4.259.9 Buenaventura 61,370 1,733.2 476.2 --- 87.0 --- 2,485.9
Olivas Links 61,990 1,935.0 483.8 253.0 125.7 --- 2,914.7 Simi Hills 83,970 2,598.6 919.5 280.2 214.4 54.5 4,067.2 Shoreline 82,200 1,837.6 434.0 599.2 134.3 73.0 3,077.7 Poplar Creek 83,960 2,950.0 670.0 400.0 380.0 50.0 4,450.0 1/ Includes passholders and/or annual membership play.
2/ Includes paid and complimentary/employee rounds.
3/ Estimated play level based on greens fees and membership fees. 1/ Includes passholders and/or annual membership play.
2/ Includes paid and complimentary/employee rounds.
3/ Estimated play level based on greens fees and membership fees. 1/ Includes passholders and/or annual membership play.
2/ Includes paid and complimentary/employee rounds.
3/ Estimated play level based on greens fees and membership fees. 1/ Includes passholders and/or annual membership play.
2/ Includes paid and complimentary/employee rounds.
3/ Estimated play level based on greens fees and membership fees. 1/ Includes passholders and/or annual membership play.
2/ Includes paid and complimentary/employee rounds.
3/ Estimated play level based on greens fees and membership fees. 1/ Includes passholders and/or annual membership play.
2/ Includes paid and complimentary/employee rounds.
3/ Estimated play level based on greens fees and membership fees. 1/ Includes passholders and/or annual membership play.
2/ Includes paid and complimentary/employee rounds.
3/ Estimated play level based on greens fees and membership fees. 1/ Includes passholders and/or annual membership play.
2/ Includes paid and complimentary/employee rounds.
3/ Estimated play level based on greens fees and membership fees.
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Table VI-3: Revenue per Round at Selected California Regional Municipal Golf Courses (FY2021-2022)
Average Revenue Per Round
Course Annual
Rounds
Greens
Fees1/
Cart Fees Range Merch Other Total
PGGL 62,371 $44.60 $10.95 $2.37 $7.21 $2.77 $67.90
Salinas Fairways 45,000 24.58 6.73 3.11 2.53 --- 37.04
DeLaveaga 58,800 34.47 8.50 8.08 7.66 5.19 63,90
Santa Barbara 75,100 31.59 9.29 4.37 4.39 3.02 52.66
Los Robles 82,800 31.69 9.71 6.18 2.48 1.47 51.45
Buenaventura 61,370 28.24 7.76 --- 1.42 --- 40.51
Olivas Links 61,990 31.21 7.80 4.08 2.03 --- 47.02
Simi Hills 83,970 30.95 10.95 3.34 2.55 0.65 48.44
Shoreline 82,200 22.35 5.28 7.29 1.63 ,89 37.44
Poplar Creek 83,960 35.14 7.98 4.76 4.53 0.60 53.00
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Annual Play Levels--Annual play at a municipal golf course depends on a number of factors including course design and maintenance quality, market area strength, competition, greens fees, resident discounts, among other factors. PGGL play at 62,371 rounds is within the middle of the range for the municipal golf courses shown. This play volume, however, is considered relatively favorable given that PGGL commands the highest pricing structure of the golf courses shown.
Greens Fees--At $4.2 million, PGGL greens fees revenue is at the top of the range for the 10 courses shown in the comparative table. The other top courses--such as Los Robles, Simi Hills, and Poplar Creek--are located in very strong market areas. On a per round basis, the average PGGL greens fee revenue is $44.60, by far the highest among the courses shown. While not shown, PGGL’s average greens fees would be in-line with the higher quality public access courses such as Poppy Hills and Laguna Seca.
Cart Fees--The PGGL cart fee is slightly higher than the comparative courses shown, and in-line with most public access courses on the Monterey Peninsula. The average cart revenue per round depends primarily on cart utilization which, in turn, depends on course policies and course design (topography, course length, green-to-tee distance). PGGL is easy to walk, yielding relatively low cart utilization, and an average per round cart fee.
Range Revenue--PGGL driving range revenue at $148,000 per year ($2.37 per round) is very low compared with most other courses surveyed. The low revenue results from PGGL’s small, poorly designed warmup range which services primarily same-day golfers. As well, the golf driving range is difficult to access for same day golfers and is not lighted for night use.
Merchandise--Pro shop merchandising at golf courses is very difficult in a retail environment where there are large retail superstores and online merchants which offer very competitively price golf related products.
Merchandising revenue at PGGL is 2022 totaled $450,000 ($7.21 per round), at the top of the range for the comparative sample shown.
The total PGGL revenue, excluding food and beverage sales, is at the top of the range for the comparative courses both on a total annual volume and per round basis. Again, at the top of the range are several courses in extremely strong golf markets.
Food & Beverage--As noted, The Grill at Point Pinos is independently operated from the golf course.
Nonetheless, it is interesting to note that the average food and beverage revenue at the grill averages about $5 to $6 per round of golf played. This average per golfer expenditure is in-line with most municipal and midmarket golf courses. It would appear that there may be some revenue upside for the restaurant related to golfer food and beverage purchases.
Operating Expenses
Annual operating expenses by department are shown in Table VI-4 for a series of selected mid-market oriented California municipal golf courses. It should be noted that all of the golf courses shown are operated and maintained by private sector employees, with the exception of Poplar Creek and DeLaveaga which are maintained by City staff. The current concessionaire at PGGL is not required to disclose operating expenses.
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Table VI-4: Comparative On-Site Operating Expenses--FY 2021-2022 ($000) Course Santa Barbara Olivas Links Buena Los Robles
Location Santa Barbara Ventura Ventura Thousand Oaks
Course Maintenance
Payroll and Benefits $606.9 $575.7 $395.6 $639.8
Services and Supplies 327.6 296.8 219.4 452.2
Utilities 403.6 132.5 120.0 750.0
Maintenance Equipment 156.4 --- --- 65.0
Subtotal $1,494.5 $1,005.0 $735.0 $1,907.0
Golf Operations
Payroll and Benefits $175.0 $217.6 $192.0 $225.0
Cart Leasing 80.0 85.0 75.0 85.0
Outside Services 150.0 291.6 115.7 280.0
Range 50.0 89.0 --- 85.1
Services and Supplies 109.6 31.5 16.3 68.1
Subtotal $564.6 $714.7 $399.0 $743.2
Undistributed/Clubhouse $125.0 --- --- 433.0
General and Admin
Payroll and Benefits $175.0 $143.6 $144.1 $197.6
Insurance 39.7 45.0 40.0 172.4
Property Taxes --- --- --- 8.2
Marketing/Promotion 25.0 69.7 58.9 350.8
Services and Supplies 300.7 276.7 264.7 362.0
Management Fee 288.9 104.8 77.0 259.8
City Overhead Allocation 56.7 --- --- ---
Subtotal $886.0 $639.8 $584.7 $1,350.8
Total $3,070.1 $2,359.5 $1,718.7 $4,434.0
1 Excludes food and beverage.
Source: PFA.
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Table VI-4: Comparative On-Site Operating Expenses--FY 2021-2022 ($000) Course Simi Hills Poplar Creek Shoreline DeLaveaga
Location Simi Valley San Mateo Mountain View Santa Cruz Course Maintenance
Payroll and Benefits $740.0 $1,100.0 $463.0 $1,006.0
Services and Supplies 300.0 735.0 145.0 495.0
Utilities 856.0 110.0 545.0 725.0
Maintenance Equipment 37.0 125.0 --- 25.0
Subtotal $1,933.0 $2,070.0 $1,153.0 $2,251.0
Golf Operations
Payroll and Benefits $175.0 --- $191.0 ---
Cart Leasing 90.0 --- 97.0 ---
Outside Services 125.0 --- ---
Range 55.0 --- 164.0 ---
Services and Supplies 35.0 --- 24.0 ---
Subtotal $480.0 --- $476.0 ---
Undistributed/Clubhouse $100.0 --- $113.0 ---
General and Admin
Payroll and Benefits $200.0 --- $131.0 ---
Insurance 109.0 --- --- ---
Property Taxes --- --- --- ---
Marketing/Promotion 25.0 --- 106.0 ---
Services and Supplies 180.0 --- 55.0 ---
Management Fee --- --- 150.0 ---
City Overhead Allocation --- --- 46.0 ---
Subtotal $514.0 $300.0 $489.0 ---
Total $3,027.0 $2,370.0 $2,231.0 $2,251.0
1 Excludes food and beverage.
Source: PFA.
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VII: Golf Course Operating Options
The following section presents a description and information regarding various forms of golf course operation and management available to the City of Pacific Grove. Presently, PGGL is operated under a golf facility lease agreement whereby the operator/lessee (CourseCo) is responsible for all golf course functions. The Point Pinos Grill is operated by an independent restaurant concessionaire under a separate lease agreement. The current golf course lessee (CourseCo) receives all revenues from golf operations, and is responsible for all operating expenses, with the exception of water which is under a cost sharing agreement. The lessee is required to make annual lease payments to the City.
There are five basic golf course operating options that are available to the City of Pacific Grove:
‣ Golf Facility Lease (current model)
‣ Management Agreement
‣ Full Self-Operation (City or Recreation District)
‣ Golf Operations Concessionaire/City Maintenance
‣ Golf Operations Concessionaire/Contract Maintenance
The distribution of the 177 municipal golf facilities (204 golf courses) located in the State of California by type of operating model is indicated as follows (based on golf facilities, regardless of number of holes):
Table VII-1: Distribution of California Municipal Golf Facilities by Operating Format Operating Model
Number of Facilities Percentage
Distribution Operating Model
Southern CA Northern CA Total
Percentage
Distribution
Self-Operation 5 3 8 5%
Recreation District 2 5 7 4
Concession W/ Muni Maintenance 5 8 13 7
Concession W/Contract Maintenance 5 8 13 7
Management Agreement 19 30 49 28
Facility Lease 47 40 87 49
Total 83 94 177 100%
The above distribution presents a snap shot of the current situation. Nearly one half of the golf facilities are operated under a facility lease agreement, including Pacific Grove Golf Links. The lessee is typically a private sector golf course operating company, responsible for all golf course operating functions. The lessee generally pays the public agency the greater of a minimum rent payment or a percentage of gross revenue. Food and beverage facilities usually are operated by the lessee, although sometimes there is a separate private sector food and beverage concessionaire. The “leased facility” numbers shown above are skewed somewhat by Los PGGL Operating Options
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Angeles County where 13 golf facilities are the County of Los Angeles’ municipal golf courses and four are the City of Long Beach golf courses, all of which are leased.
There are 49 California municipal golf courses operated under management agreements, representing 28 percent of the total. These courses are operated by private companies specializing in golf operations and maintenance. All of the revenues and expenses are borne by the public agency, with the management company receiving a fee for their management services.
There are eight municipal golf courses in the State which are self-operated, with the public agency providing all golf course maintenance and golf operation services. In virtually all instances, food and beverage facilities are operated under a concessionaire agreement. In terms of municipal self-operation, five of the eight facilities shown are owned and operated by the Los Angeles City Department of Recreation and Parks properties, two by the City of San Francisco, and one by the City of Sunnyvale.
In addition to the eight golf facilities which are self-operated, there are 13 other municipal facilities in the State which retain concessionaires for golf operations, but utilize City Parks and Recreation staff for golf course maintenance. The golf operations concessionaire is responsible for the starting function, cart rental, practice range operation, and pro shop merchandise sales. Again, food and beverage operations are operated either by the golf operations concessionaire or by a dedicated food and beverage concessionaire.
There also are a few hybrid operations involving a mix of public and/or private service providers. For example, there are some golf courses where operations are provided by a golf management company with golf course maintenance provided on a contract basis by a separate company.
The distribution shown in the exhibit does not present a clear picture of the trends established over the past 10-20 years. For example, nearly all of the 49 municipal management agreements at golf courses in California have been put in place within the past 20 years. Over this time span, there have been numerous other golf courses which have converted from City maintenance to private sector maintenance through fee-for-service maintenance contracts, facility leases or management agreements.
Responsibility for the basic maintenance, operation and management functions for each of these operating models is summarized as follows:
Table VII-2: Golf Function Responsibility Under Alternative Operating Models Model Course
Maintenance
Golf
Operations
Food &
Beverage
Administration/
Management
Golf Facility Lease (current PGGL model) Private Private Priv/Concession Private Management Agreement Private Private Private Private
Hybrid City/Private Priv/Concession Concession City/Private Full Self-Operation City City Concession City
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In addition to the basic options outlined above, there are numerous other permutations which would create alternative hybrid models. These alternative hybrid models, discussed later in this section, combine some form of self-operation, concession agreements, and/or management/contract private party agreements. All of the operating options require City oversight responsibilities including contract monitoring, budget preparation and review, management oversight, and the like. The degree of City participation varies by operating model.
Facility Lease Model
Pacific Grove Golf Links currently is operated and maintained under a standard facility lease. Under this option, the golf course is leased to a private golf course operator who provides course maintenance, golf operations, and overall facility management services. The food and beverage operation may be included under the golf course facility lease or provided under a separate lease to a dedicated food and beverage operator. In most California municipal golf facility leases, the operator's lease payments typically are equal to the greater of a minimum rental payment versus a percentage of golf, merchandise, lessons, and food and beverage departmental gross revenue. Under a typical facility lease, the lessee receives 100 percent of the revenue and is obligated to fund some level of required front-end capital improvements, all operating expenses, rent, and contribute to a reserve for ongoing capital improvements. As such, the financial risk is largely borne by the lessee. The term of the lease is negotiable, although the length generally is related to operator capital improvement levels and rental payment terms.
There are many examples of the facility lease model. All of the Los Angeles County courses, the City of Long Beach courses, City of San Jose courses, and numerous other municipal golf facilities in the State are operated under a facility lease. The leases are structured with a minimum versus a percentage of gross revenue (different percentages for the various revenue departments such as golf (greens, carts and range), merchandise, food and beverage, and lessons. More recently negotiated facility leases often are structured with more revenue sharing at greater than expected gross revenue levels. The PGGL agreement has this feature, with the City receiving a share of revenue above a specified golf gross revenue threshold.
Tables VII-3 and VII-4 contain a summary of golf course “turnkey” facility lease terms — facilities where all operations are leased to a contract operator – for selected Southern and Northern California public properties, respectively. There has extensive facility lease activity in recent years, with a number of public agencies converting from management agreements to facility leases. In addition to Pacific Grove Golf Links in Pacific Grove, Chuck Corica Golf Course in Alameda, Alhambra Golf Course in Alhambra, the City of San Jose courses (Los Lagos, San Jose Muni, and Rancho del Pueblo), Valley Oaks in Visalia, Green River in Orange County, Las Positas in Livermore, Redwood Canyon and Tilden Park in the San Francisco East Bay, and several Los Angeles County golf courses have been leased in recent years, many of these conversions from a management agreement operating format to a facility lease. In addition, there have been a number of municipal golf course lease agreements renewed or extended over the past several years, mostly ones located in Southern California.
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Table VII-3: Regulation Length Public Golf Course Facility Lease Terms Course Pacific Grove Salinas
Fairways Soule Park Oceanside Costa Mesa CC
Mountain
Meadows
Location Pacific Grove Salinas Ojai Oceanside Costa Mesa Pomona Number of Holes 18 18 18 18 36 18
Lessor City of Pacific
Grove City of Salinas Ventura County Oceanside Costa Mesa L.A. County Lessee CourseCo Sierra Golf Mgmt Highlands Golf
Bellows/
Landscapes Un.
Mesa Verde
Partners
American Golf
Agreement Date 2014 2008 2007 2007 1992 2020
Lease Term (years)
Initial 9.5 20 10 30 18 15
Option Extension Two 5-year 1-10 1-5 1-10 2-5 + 10 yr. ext 1-5 Minimum Rent $300,000 $100,000 $180,000 None $630K/720K $890,000 CPI Adjusted No No No --- No No
Percentage Rents
Greens --- 7.5% 11.5%/50%1/ 20% 35% 28%
Carts --- 7.5% 11.5%/50%1/ 20% 35% 28%
Range --- 7.5% 11.5%/50%1/ 20% 35% 28%
Merchandise --- 7.5% 5% 20% 6% 6%
Lessons --- 7.5% --- --- 5% 10%
Food and Beverage --- 7.5% 5% 20% 11% 8%
Liquor --- 7.5% 5% 20% 11% 10%
Banquet Room Rental --- 7.5% 5% 20% 25% 25%
Revenue Sharing
Min + 65% of
total golf revenue
exceeding
$2.35M
Required Capital Imps $100,000 none None --- $1.938M $150,000 Repl Reserve Require 1.5% of total
gross revenue none $1/round --- 5% of greens --- 2/
Cost of Water Lessee Lessee Lessee Lessee Lessee County 1/ Percentage rent increases to 50% for gross greens fees exceeding $1,650,000, cart revenue of $425,000 and range revenue of $125,000.
2/ County contributes an amount equal to 10 percent of greens fees.
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Table VII-3 (continued): Regulation Length Public Golf Course Facility Lease Terms--Southern California Course La Mirada Los Verdes Meadowlark Los Amigos Diamond Bar Los
Lagos/San
Jose Muni
Location La Mirada Palos Verdes Huntington
Beach Downey Pomona San Jose
Number of Holes 18 18 18 18 18 36
Lessor L.A. County L.A. County Huntington Bch L.A. County L.A. County City of San Jose Lessee American Golf American Golf American Golf Los Amigos GP American Golf CourseCo Agreement Date 2020 19942/ 1993 2012 2020 2023
Lease Term (years)
Initial 15 15 25 20 15 15
Option Extension 1-5 --- 15 (city) 5 (county) 1-5 two 5-year Minimum Rent $890,000 $970,000 $500,000 ---3/ $890,000 None CPI Adjusted No No No No No Yes
Percentage Rents
Greens 28% 40% 25% 5%-43%4/ 28%
Carts 28% 40% 25% 5%-43%4/ 28%
Range 28% 30% 25% 5%-43%4/ 28%
Merchandise 6% 5% 4% 6% 6% 5.0%
Lessons 10% --- --- --- 10% 5%
Food and Beverage 8% 10% 10% 8% 8% ---
Liquor 10% 12% 10% 12% 10% ---
Banquet Room Rental 25% 10% 25% 25% 25% ---
Revenue Sharing 10% up to
$8.0M; 20%
$8.0-$12.0M.
35% over 12.0
Required Capital Imps $150,000 $800,000 $3,500,000 $500,000 $150,000 $2,000,000 Repl Reserve Require --- 1/ ---1/ --- ---1/ --- 1/ ---
Cost of Water County Lessee Lessee Lessee County Lessee 1/ County contributes an amount equal to 10 percent of greens fees. 2/ Term extended for an additional 15 years with commitment of additional capital improvements. 3/ None in first 5 years; then 80% of year 5 percentage rent. 4/ Years 1-2 / 3+.
1/ County contributes an amount equal to 10 percent of greens fees. 2/ Term extended for an additional 15 years with commitment of additional capital improvements. 3/ None in first 5 years; then 80% of year 5 percentage rent. 4/ Years 1-2 / 3+.
1/ County contributes an amount equal to 10 percent of greens fees. 2/ Term extended for an additional 15 years with commitment of additional capital improvements. 3/ None in first 5 years; then 80% of year 5 percentage rent. 4/ Years 1-2 / 3+.
1/ County contributes an amount equal to 10 percent of greens fees. 2/ Term extended for an additional 15 years with commitment of additional capital improvements. 3/ None in first 5 years; then 80% of year 5 percentage rent. 4/ Years 1-2 / 3+.
1/ County contributes an amount equal to 10 percent of greens fees. 2/ Term extended for an additional 15 years with commitment of additional capital improvements. 3/ None in first 5 years; then 80% of year 5 percentage rent. 4/ Years 1-2 / 3+.
1/ County contributes an amount equal to 10 percent of greens fees. 2/ Term extended for an additional 15 years with commitment of additional capital improvements. 3/ None in first 5 years; then 80% of year 5 percentage rent. 4/ Years 1-2 / 3+.
1/ County contributes an amount equal to 10 percent of greens fees. 2/ Term extended for an additional 15 years with commitment of additional capital improvements. 3/ None in first 5 years; then 80% of year 5 percentage rent. 4/ Years 1-2 / 3+.
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Table VII-4: Regulation Length Public Golf Course Facility Lease Terms Course Alondra Park Chuck Corica Crystal
Springs
Alhambra
G.C. Metropolitan
Location Lawndale Alameda Burlingame Alhambra Oakland
Number of Holes 18 45 18 18 18
Lessor L.A. County City of Alameda City/County of
San Francisco
City of Alhambra City of Oakland
Lessee American Golf Greenway Golf Crystal Springs
Golf Partners
Billy Casper Golf Oakland Golf,
LLC
Agreement Date 2020 2012 1997 2019 2001
Lease Term (years) (revised 2004)
Initial 15 20 20 5 25
Option Extension 1-5 One 5-year;
extended to 50 yr
None Three 5-year Three 5-year
Minimum Rent $890,000 $300,000 $1.25 million 11/$100,00 (yrs 1-5) increasing to
$175K over term
$400,000 2/
CPI Adjusted No No Yes No Yes
Percentage Rents
Greens 28% Years 1-20: 8%
of total gross
revenue up to
$4.0M (cpi
adjusted), 10%
above; Years
21-40: 10% up to
$4.0, 12% above
25/35/32% 12/ 0/15/17.5/20/22.
5/
25/27.5 3/
Carts 28%
Years 1-20: 8%
of total gross
revenue up to
$4.0M (cpi
adjusted), 10%
above; Years
21-40: 10% up to
$4.0, 12% above
25/35/32%
Range 28%
Years 1-20: 8%
of total gross
revenue up to
$4.0M (cpi
adjusted), 10%
above; Years
21-40: 10% up to
$4.0, 12% above
25/35/32%
Merchandise 6%
Years 1-20: 8%
of total gross
revenue up to
$4.0M (cpi
adjusted), 10%
above; Years
21-40: 10% up to
$4.0, 12% above
8% --- 0/4% 4/
Lessons 10%
Years 1-20: 8%
of total gross
revenue up to
$4.0M (cpi
adjusted), 10%
above; Years
21-40: 10% up to
$4.0, 12% above 25/35/32% 12/ --- 0/4%
Food and Beverage 8% 7.5% 8% n.a. 0/4%
Liquor 10% NA 8% n.a. 0/4%
Banquet Room Rental 25% NA 25/35/32% 12/ n.a. 0/4%
Revenue Sharing 40% of gross golf
revenue
exceeding $1.9
million (2%
annual escalation)
Required Capital Imps $150,000 $5.7 million $1.98 million $183K, plus maint. equipment
$8.0 million
Repl Reserve Require --- 1/ 3.0% of total
gross revenue
6% (yrs.1-5);
2%(yr.6+)
of total gross
revenue
$30,000 per year 0% (1-2),
2% (3-4); 4% (5+)
of total gross
Cost of Water County Lessee Lessee Lessee
($200,000 cap)
Lessee
1/ County contributes an amount equal to 10 percent of greens fees. 2/ Increases to $500,000 by Year 4.
3/ Years 1-2 / 3-5 / 6-10 / 11-15 / 16-20 / 21-25 / 26+. 4/ Years 1-5 / 6-10 / 11-15 / 16+.
1/ County contributes an amount equal to 10 percent of greens fees. 2/ Increases to $500,000 by Year 4.
3/ Years 1-2 / 3-5 / 6-10 / 11-15 / 16-20 / 21-25 / 26+. 4/ Years 1-5 / 6-10 / 11-15 / 16+.
1/ County contributes an amount equal to 10 percent of greens fees. 2/ Increases to $500,000 by Year 4.
3/ Years 1-2 / 3-5 / 6-10 / 11-15 / 16-20 / 21-25 / 26+. 4/ Years 1-5 / 6-10 / 11-15 / 16+.
1/ County contributes an amount equal to 10 percent of greens fees. 2/ Increases to $500,000 by Year 4.
3/ Years 1-2 / 3-5 / 6-10 / 11-15 / 16-20 / 21-25 / 26+. 4/ Years 1-5 / 6-10 / 11-15 / 16+.
1/ County contributes an amount equal to 10 percent of greens fees. 2/ Increases to $500,000 by Year 4.
3/ Years 1-2 / 3-5 / 6-10 / 11-15 / 16-20 / 21-25 / 26+. 4/ Years 1-5 / 6-10 / 11-15 / 16+.
1/ County contributes an amount equal to 10 percent of greens fees. 2/ Increases to $500,000 by Year 4.
3/ Years 1-2 / 3-5 / 6-10 / 11-15 / 16-20 / 21-25 / 26+. 4/ Years 1-5 / 6-10 / 11-15 / 16+.
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In general, the facilities are leased to a golf management company with a minimum lease payment versus percentage rents. The contract specifies performance standards, required capital improvements and a range of contractual terms. It is important to note the agreement date, as the improving economics of the golf market and competitiveness in the golf management industry during the 1990-2000 period are reflected in more favorable lease terms to the lessor, with the most recent agreements somewhat adversely influenced by soft golf market conditions from 2001 through 2019 (pre-COVID-19).
The various terms of the leases are interrelated and the lease payments must be considered in the context of all the terms of the lease.
‣ Lease Term. The term of the facility leases shown generally ranges from 15-30 years. When front-end lessee capital improvements are required, which generally is the case, the term of the lease must be long enough to amortize these capital expenditures. The length of the term normally is a function of the level of capital improvements. Occasionally a short-term agreement (less than five years) is negotiated, but these are generally related to the continuation of an agreement with an operator where minimum capital improvements are required or where an option is exercised to extend the lease term. ‣ Minimum Rent. The minimum rent typically is established at about 75 to 80 percent of the expected “percentage rent” amount. The minimum often is adjusted annually to reflect about 80 percent of the average of percentage rents paid during the prior three to four years operation, but never less than the preceding minimum rent level.
‣ Percentage Rents. Percentage rents vary by golf department, although often a composite rate is applied to greens fees, cart revenue, and driving range revenue. Merchandise, food and beverage, and other minor departments generally have lower individual percentage rents primarily due to the relatively small operating profit margins on these goods and services. The percentage rents are a function of the length of term, required capital improvements, utility sharing agreements, and the replacement reserve requirements. The rent percentage may increase over the term of the lease. The higher the capital expenditure requirement, replacement reserve, and costs associated with utilities and other course operations, the lower the percentage rent structure. Also, the market strength and potential profitability of the course strongly influence percentage rents.
‣ Fees and Operating Policies. Under most municipal facility leases, the lessor (City) retains substantial control over setting fees and establishing operating policies. As well, specific guidelines such as maintenance standards are in-place or negotiated as an integral part of the lease terms. While changes in fees and policies normally require City approval, in practice, the lessee has greater influence in modifying fees and terms which financially benefit the lessee. Moreover, regardless of the rigor of the lease agreement, a number of “gray” areas, such as level of course conditioning, generally remain which may be exploited by the lessee.
‣ Capital Improvements. Most facility leases call for capital improvements to be funded by the lessee. A list of improvements is specified and a time frame for their implementation is established. The capital PGGL Operating Options
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improvements requirement varies widely for the facilities shown, from less than $1 million to over $8 million.
‣ Capital Improvement Replacement Reserve. Generally, some provision for establishing a reserve for ongoing future capital improvements is stipulated. The replacement reserve is normally a percentage of greens fee revenue, with the percentage depending on anticipated future capital requirements, the age of the course, and the front-end capital expenditure requirement. Usually, the replacement reserve is in addition to percentage rents, but sometimes the reserve funds are credited against rent payments. ‣ Utilities. Typically, the lessee is responsible for utility costs. However, due to the high cost of water in California, there may be some cost sharing of utilities, or some protection provided the lessee in terms of ceilings or caps on utility rate increases.
For facility lease agreements, the market potentials, specific course maintenance requirements, areas of lessor/lessee responsibility, and other contract terms must all be considered in establishing an equitable lease structure. Thus, while the experience of other courses can serve as a general guideline, specific consideration should be given to the unique characteristics of a city’s golf course, such as the location and market strength.
Further, the overall objectives of the City will influence the structure of contract terms.
The primary advantages of the facility lease option include a guaranteed minimum rent payment to the City, potential benefits of professional golf management, limited required participation by the lessor (City), minimum financial risk to the City, and significant levels of private capital improvement funding availability. The primary disadvantages of the facility lease option include waiving some control over operating policies and procedures, commitment to longer term agreements and, depending on the structure of the agreement compensation, limited participation in upside financial performance.
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Management Agreement
This option relates to a fee-for-service agreement with a Director of Golf, General Manager or an outside management company. Golf and food and beverage functions may be combined or separated, but the structure is the same. All functions would be under the authority of the contract golf director, General Manager or management firm. Under a typical management agreement, the facility owner (City) receives all revenues and is responsible for funding all capital improvements, operating expenses, and reserves for ongoing capital reinvestment. In addition, the owner (City) pays the operator a fee for management of the facility. In effect, the professional operator serves as the City’s agent in managing, operating, and maintaining the golf facility.
Management compensation typically consists of a base fee, plus performance incentives.
While there was a period in the early part of the new century when a number of public agencies employed a management contract approach to operations and maintenance, in more recent years movement back to a facility lease structure has occurred. A summary of selected management agreement terms and conditions relating to moderate and high quality municipal golf course operations in California is contained in Table VII-5.
As previously indicated, under this structure, the City receives all revenue and is obligated to fund all maintenance, operating and administrative expenses, including a management fee. The management fee is in addition to all on-site salaries and expenses. The basic terms and conditions of the agreements are discussed below.
Term
Generally, management terms are five years in length, long enough to allow a firm to amortize its initial efforts to establish policies, procedures, and systems, and to ensure sufficient job security for key employees. Longer terms offer little advantage to the owner. The renewal of an agreement typically is for a period of three to five years. The terms may be influenced by conditions dictated by the financing instrument used such as tax-exempt bond IRS regulations. For example, the IRS has a number of stipulations imposed to ensure a management contract does not result in private business use of a bond-financed facility. Among other things, the IRS restricts contracts which give the service provider an ownership or leasehold interest or provide compensation for services rendered based in whole, or in part, on a share of net profits from operations of the facility. In recent years, the IRS has relaxed the restrictive provisions of public management contracts to some degree.
Compensation Structure
For moderate volume courses ($2.0-$2.5 million in annual golf/greens, carts, range) revenue, the base fee generally ranges from $100,000 to $140,000 per year. Compensation typically consists of a base, or guaranteed fee, plus an incentive fee. Incentive fees are structured such that expected performance would result in additional compensation of $20,000 to $60,000. Total compensation, assuming budgets are met or slightly exceeded, for moderate volume 18-hole public courses, generally ranges from $150,000 to $180,000 per year. For high volume courses ($3+ million in golf revenue), the base fee generally ranges from $150,000 PGGL Operating Options
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Table VII-5: Management Agreement Terms at Selected California Public Golf Courses Golf Course Buenaventura/
Olivas Links Los Robles Carlsbad Crossings Callippe Preserve Location Ventura Thousand Oaks Carlsbad Pleasanton
Course Type Mid-market Muni Municipal Upscale Municipal Upscale Municipal Number of Holes 36 18 18 18
Owner City of Ventura City of Thousand Oaks City of Carlsbad City of Pleasanton Manager Kemper Sports EAGLE Golf JC Resorts CourseCo
Agreement Date 2020 2006 2019 2021
Term (years) 5 10 5 5
Options Two 5-year Four 5-year None One 3+One 2 year
Options Holder City City --- City
Annual Gross Revenue $5,500,000 $5,000,000 $7,500,000 $4,700,000 Base Annual Fee $136,000 $100,000 $135,000 $120,000
CPI Adjusted Yes 2%/year No Yes
Incentive Structure 3.5% of gross “golf
“revenue exceeding
$5,000,000 (not to
exceed fixed
12% of NOI, ex
depreciation
5.5% of gross revenue
exceeding $5.0 million (not
to exceed fixed fee)
15% of golf gross revenue
exceeding $3.0 M + 15%
of f&b and merchandise
exceeding $1.1 M. (max
total $150K
Management Functions
Course Maintenance X X X X
Golf Operation X X X X
Food and Beverage X X X X
Annual Compensation
Base $136,000 $140,000 $135,000 $128,000
Incentive 17,500 75,000 135,000 102,000
Total $153,500 $215,000 $270,000 $230,000
% of Total Gross Rev 3.1% 4.3% 3.6% 4.9%
Reimbursements Out-of-Pocket Accounting None Accounting/Out of Pocket Performance/Other Deposit None None None None
Non-Compete Restrictions None None None None
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Table VII-5 (continued): Management Agreement Terms at Selected California Public Golf Courses Golf Course Shoreline Baylands Golf Boundary Oak Black Gold Location Mountain View Palo Alto Walnut Creek Yorba Linda Course Type Mid-Market Municipal Upscale Municipal Mid-Market Municipal Upscale Municipal Number of Holes 18 18 18 18
Owner City of Mountain View City of Palo Alto City of Walnut Creek City of Yorba Linda Manager Touchstone Golf OB Sports CourseCo Inc Kemper Sports Mgmt.
Agreement Date 2021 2021 2022 2020
Term (years) 5 3 10 5
Options None One 3-year None None
Options Holder --- City --- ---
Annual Gross Revenue $3,200,000 $4,400,000 $6,000,000 $6,200,000 Base Annual Fee $120,000 $108,000 $175,000 $170,000
CPI Adjusted No Yes Yes No
Incentive Structure 10% of golf gross revenue
in excess of $2,600,000
20% of gross revenue (ex
F & B) exceeding
$3,655,000
15% of golf gross revenue
exceeding prior year;
720% of F & B gross
exceeding prior year. Not
more than 20% of total
fee.
7.0% of gross revenue in
excess of $4,800,000. 9%
in excess of $6,000,000
Management Functions
Course Maintenance X X X X
Golf Operation X X X X
Food and Beverage Leased to OB X X
Annual Compensation
Base $120,000 $108,000 $175,000 $170,000
Incentive 60,000 60,000 $45,000 102,000
Total $180,000 $168,000 $220,000 $272,000
% of Total Gross Rev 5.6% 3.8% 3.7% 4.4%
Reimbursements None Out-of-Pocket None None
Performance/Other Deposit None None None $50,000
Non-Compete Restrictions None None None No
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Table VII-5 (conc): Mgmt. Agreement Terms at Selected California Public Golf Courses Golf Course Santa Barbara Mun Encinitas Ranch DeBell
Location Santa Barbara Encinitas Burbank
Course Type Mid-Market Municipal Mid-Market Municipal Mid-market Muni Number of Holes 36 18 18
Owner City of Santa Barbara Encinitas Ranch Golf Auth. City of Burbank Manager CourseCo J.C. Resorts Touchstone
Agreement Date 2016 2012 2019
Term (years) 5 10 5
Options One 5-year None 5
Options Holder City --- City
Annual Gross Revenue $3,950.000 $4,500,000 $3,000,000
Base Annual Fee $98,000 $220,000 $96,000
CPI Adjusted Yes Yes No
Incentive Structure 15% of golf gross revenue
in excess of $2,800,000
.75% of gross golf revenue
Accounting
reimbursement
direct
15% of gross oper profit
exceeding $2,550,000, or
prior year’s GOP
Management Functions
Course Maintenance X X X
Golf Operation X X X
Food and Beverage X X
Annual Compensation
Base $96,000 $238,000 $96,000
Incentive 172,000 25,000 100,000
Total $268,000 $263,000 $196,000
% of Total Gross Rev 6.8% 5.8% 4.3%
Reimbursements Accounting, Out-of-Pocket Accounting - $48K/year Yes Performance/Other Deposit None None No
Non-Compete Restrictions None None None
None
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to $180,000 per year for 18-hole courses. Incentive fees are structured such that expected performance would result in additional compensation of $30,000 to $75,000. Total compensation, assuming budgets are met or slightly exceeded, for high volume 18-hole public courses, generally ranges from $150,000 to $225,000 per year.
While there are many ways of structuring incentive agreements, it is generally more effective to key them off of net operating income, or gross revenue above established threshold levels, with incentive payments equaling anywhere from 25 to 100 percent of the base fee.
The compensation noted above relates to agreements where all management staff, including day-to-day accounting, are provided onsite, and there are no reimbursements for corporate support functions, marketing, or other normal offsite management services, including routine travel. The cost of some extraordinary services (e.g., legal, specialty agronomical consulting, etc.) may be borne by the golf course owner. There are many agreements where out-of-pocket expenses such as travel are reimbursed, and a few where the accounting function is provided off-site for an additional fee.
Incentive compensation normally is triggered by performance which exceeds predetermined levels of net operating income (defined as “earnings before interest, taxes, depreciation, and amortization,” or EBITDA) or gross revenue. Since expenses are reasonably predictable, incentive payments based on gross revenue exceeding specified threshold levels often are workable.
It should be noted that golf revenue (greens, carts, and range) has little associated variable cost, whereas merchandise and food and beverage have very high variable costs. Given this, each revenue category should be treated independently, and incentive clauses should more greatly reward extraordinary golf revenue compared with merchandise, food and beverage, lessons, and other miscellaneous sources.
Overall, total compensation should represent about 4 percent of total gross revenue. The 4 percent allowance is an industry standard which most professional golf management firms utilize when allocating home office services for courses they own and operate.
It is generally desirable for at least one-quarter to one-third of total compensation to be incentive-based.
Again, the type of financing may influence the structure of the compensation and limit the portion which is incentive-based.
Over the past two years, with the extraordinary improvement in golf course performance resulting from the positive impact of COVID-19 on golf participation, a number of management agreements have yielded significant windfall gains for golf course management companies. Those agreements with incentive provisions related to gross revenue or net income performance generated substantial incentive fees. Many agreements have a cap on total management compensation, which prevents these high windfall gains.
Base Fee Adjustments
In many agreements, the base fee is inflation-adjusted. This is a negotiable point, and typically relates to the structure of incentive compensation, which often serves as an inflation hedge.
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Management Services
Offsite management services covered under the management fee include, although are not necessarily limited to, the following functions:
‣ Personnel/Human Resources
‣ Training
‣ Payroll and Benefit Administration
‣ Management Reporting and Accounting Systems
‣ Internal Audits
‣ Budgeting Support
‣ Marketing Support
‣ Agronomical Support
Typically, all of these services are included under the management fee. If not, an accordingly lower management fee would be expected.
While the management company provides these services, they do so, in effect, as the agent for the City. The City determines the fee structure, establishes policies, and has the right to approve compensation, employment practices, and other similar items. Clearly, the management firms provide input and recommendations, but ultimately the City retains near-full control over all operating decisions.
Other Provisions
Daily accounting and management system reports are an integral part of the golf course operation. This daily function can be provided on-site by golf course administrative staff, or at the home office of the management company. When provided by on-site staff, the expense is borne by the course like any other operating expense. When provided off-site by the management company, there often is a separate charge to the City, in addition to the basic management fee.
There may be other services provided by the management company which are reimbursed by the City separately from the management fee. Examples include travel expenses by home-office management staff, outside agronomical evaluations, and the like. All of these elements of the management agreement are negotiable, and clearly, the overall compensation consists of the sum of the base fee, incentive fee, and reimbursements.
The primary advantages of the management agreement structure include the benefits related to professional golf course management, lower wage and benefit structure related to private sector employment, shorter term contractual commitments, more control over the overall golfer experience and operations, and greater participation in upside financial performance. The major disadvantages of this form of operation include greater participation required on the part of the contractor (City), financial risk, inability to attract private capital, and significant operating and financial risk. Effectively, while the public agency retains substantial upside PGGL Operating Options
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revenues, it bears all of the financial risk related to economic downturns and extraordinary events such as COVID-19, heavy rainfall, flood damage, and golfer liability exposure.
Self-Operation
Until 2015, Pacific Grove Golf Links was self-operated by the City of Pacific Grove. The City provided all golf operations and golf course maintenance, with the food and beverage operations provided by a private sector concessionaire.
The principal advantage of the self-operation model is control--the public agency maintains full control over pricing, service levels, maintenance quality, play policies, and virtually all other aspects of the operation. As well, under self-operation, the public agency receives all revenues generated at the facility and retains all of the net operating income.
There are numerous disadvantages associated with self-operation which have lead to the clear trend to convert to alternative forms of golf course management. Some of the most notable disadvantages are summarized below:
Higher Labor Costs--Generally, public sector employees command higher compensation than comparable private sector labor, with higher benefits accounting for a major component of the variance. Public sector labor often is 20-30 percent higher than private sector labor. In addition, the private sector generally has greater flexibility in labor scheduling than the public sector. This is particularly important in the use of part time employment for both course maintenance and golf operations.
Financial Risk--While the public agency receives all revenues, it is also responsible for all operating expenses, and thus is solely responsible for all operating losses. As golf is primarily a fixed cost operating business, a decline in operating revenue can result in sharp operating losses.
Management Expertise--The private sector offers specialization in golf course management which may or may not be available through public sector employment. Management specialization is not only important in planning, organizing and delivering quality and efficient golf programs and services, expert management is particularly important in reacting to market changes. The public sector often is less responsive to market shifts, and implementing changes to minimize financial losses.
Political Influence--Public sector operation is somewhat more vulnerable to political influence than private sector operation. That is, private sector management may insulate the City from constituent interference and influence, and allow decisions to be made which benefit the golf course in terms of operating efficiency and profitability.
Liability--Golf course operations carry some degree of personal injury liability. While the owner of the enterprise may always have some exposure to liability (primarily related to the golf course design safety), a private operator typically bears a substantial portion of such exposure. One of the responsibilities of a private operator is to conduct safety inspections relative to both the golf course layout, as well as maintenance and operating practices.
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Due to these disadvantages, most public sector agencies have elected to outsource their golf courses to private sector operators in the form of facility leases or management agreements. Over the past 20-30 years, there have not been any instances where a California public agency has assumed operation and maintenance of a golf course.
Hybrid Model
Hybrid models basically refer to bifurcation of the golf operations and golf course maintenance functions.
There are two basic situations observed. First, there may be golf course management company which operates golf operations either through a concession agreement, or through a management service agreement, with golf course maintenance provided by the public agency. Alternatively, golf operations can be provided by a private management company, with course maintenance provided by a private landscape management company on a contract basis.
Golf operations concessionaire agreements normally involve payment of rent to the City based on a percentage of gross revenue (percentage varies by revenue category). Sometimes the percentage rental rates are adjusted downward to reflect the concessionaire responsibility for reservation, greens fees collections, and starting, but in other cases a separate fee is paid to the concessionaire by the City for these services. In these cases, the City receives rent from the concessionaire, and also pays the concessionaire a fee for services. A summary of representative golf operations concession agreements is provided in Table VII-6).
Historically, there have been many public agencies which have elected to maintain the golf course through their parks and recreation department, while retaining concessionaires for golf and food and beverage operations.
In most of these instances, the reservations, starting, marshaling, and greens fees collection function is the responsibility of the concessionaire, although in some instances (e.g. City of San Diego) the municipality fills this role, creating some level of redundancy in staffing. An examples of the hybrid model is DeLaveaga Golf Course in Santa Cruz, whereby maintenance is provided by City Parks and Recreation staff and golf operations – pro shop merchandise, cart rentals, driving range, instruction – are provided by the concessionaire. Food and beverage operations may be provided by the golf operations concessionaire, but more often are the responsibility of a separate concessionaire.
The primary advantage of the self-operation and hybrid models is the level of control retained by the City in terms of setting policies, prices and standards. A case can also be made that under these structures, the City has substantial overhead support functions at its disposal from other City departments. It also is often argued that a portion of the entrepreneurial compensation (profit for services rendered) is retained by the public agency under this model, and most of the financial upside related to better than anticipated performance accrues to the City. The validity and value of these advantages is subjective.
There are several firms which provide contract golf course maintenance on a fee-for-service basis. The contractors employ private sector employees, paying private sector prevailing wages and benefits, which generally are well below the corresponding public sector wage/benefit scale. Maintenance is provided by a private landscape provider, such as Bright View or International Golf Management (IGM), on a fixed fee basis subject to standards and practices established by the public agency.
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Table VII-6: Golf Operations Concession Agreements, Selected California Courses Course DeLaveaga San Clemente Manteca Pak Diablo Creek
Location Santa Cruz San Clemente Manteca Concord
Lessor City of Santa Cruz City of San Clemente City of Manteca City of Concord Lessee Loustalot Dave Cook DeBenedetti Golf J. Fernandez Agreement Date 2016 2021 2017 1998
Lease Term (years)
Initial 10 5 3 5
Options Two 5-Year None 1/ 2-year 2 / 5-year
Discretion Cocessiionaire --- Lessor Lessee
Concession Services
Reservation X X X X
Starter X X X X
Green Fee Collect X X X X
Marshals X X X X
Range X X X X
Carts X X X X
Pro Shop X X X X
Lessons X X X X
Food and Beverage X O O
Minimum Rent n.a. n.a. $50K None
CPI Adjusted --- ---
Percentage Rent
Carts 7% 33-35%1/ 12%/20% ($425K) 35% (0-450K)
Range 15% 25% 10%/20% ($75K) 25% (450K+)
Merchandise 7% 5% 5% 30% (0-400K)
Lessons 5% 10% 10% 25% (6-500K)
Food and Beverage --- --- 5% (0-500K)
Liquor 8% --- --- ---
Other 6% --- --- ---
Investment Requirements None None None
Utilities Lessee Lessee Lessor Lessor
Incentive / Lessor Pymts 6% of greens fees None --- Per Round2/ Reinvestment/Reserve None None --- $10,000/year
1 Years 1-5 at 20%; increases 2% points annually beginning in year 6. 2 $1/round 93,000-98,000; $2/round 98,000-103,000; $3/round 103,000-108,000; $4/round (108,000+).
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Many of the disadvantages associated with the self-operation model also apply to the hybrid model, particularly where services are provided by public sector employees. In addition, the hybrid model involves multiple providers of service which potentially may create conflicts and inconsistent service levels. Most golf analysts strongly believe that there are significant advantages to controlling the entire golfer experience through providing all of the functions at the golf course under one management entity.
Summary of Operating Options Strengths and Weaknesses
The strengths and weaknesses of the four basic options are outlined in Table VII-7. Each option offers advantages and disadvantages relative to economic performance, operating and financial risk, legal liability from golfer/spectator injury, the cost of payroll and employee benefits, city control, maintenance, influence on policy-making, operator responsiveness, efficiencies relating to one operating entity, required city involvement, and other factors. As stated above the Modified Hybrid model would have the same strengths and weaknesses as the full management services.
The hybrid model, while having some benefits in terms of quality control, support from other City departments, and upside financial participation, has many deficiencies. There are higher costs associated with public sector employment, financial risk, and absence of professional golf management “best practices.” The most significant disadvantage, at least in the current structure, is the City’s inability to operate in a business-oriented, entrepreneurial manner which allows management to adapt and respond to dynamic market conditions. As well, the absence of an on-site manager with the authority to manage and coordinate the various functions provided by multiple providers is problematic, potentially resulting in lower revenues, less efficient operations and a diminished golfer experience.
The strengths and weaknesses of a modified hybrid model would depend on the specific model. Contracting the maintenance function offers clear cost savings, but must be considered in the context of the City’s policies with respect to outsourcing jobs. Retaining a fee-for-service golf operations management entity/individual offers similar advantages and disadvantage associated with the “management model”--principally offering greater City control and participation in upside revenues, while increasing operating and financial risk to the City.
The turnkey facility lease generally yields a reasonable guaranteed financial return to the City and requires the least City involvement. However, the City typically relinquishes at least some control over maintenance levels, golfer service levels, and operating policies, much of which may be due to contract “gray” areas. The major advantages of the turnkey facility lease operation are that normally substantial capital funds can be attracted from the private sector for course improvements, with the amount directly related to the length of the lease term, and the shifting of financial and operating risk away from the public sector to the private operator. As well, the municipality is generally relieved of much of the liability related to golfer/spectator injury from errants golf balls or other activities at the site.
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Table VII-7: Strengths and Weaknesses of Golf Course Operating Options Facility Lease Management Agreement Self Operation Hybrid
STRENGTHS
• Provides reasonably strong
financial return to City
• Produces guaranteed
minimum rent payment to
City
• Minimizes financial risk
• Minimizes political influence
with less direct involvement
of City with setting fees,
policies, and practices
• Offers potential benefits in
golf management expertise
and specialized
maintenance support
services
• Provides private capital
investment in facilities
• Protects City from
golfer/spectator liability
• May provide strong upside
potential financial return to
City.
• Provides high level of City
control
• Greater potential quality
assurance
• Opportunity to provide
shorter term contracts
• Provides opportunity to
retain specialists in
professional golf
management
• Captures benefits of private
sector wage and benefit
structure
• Provides highest level of
City control over rates,
policies, practices, and
overall golf experience
• Availability of City overhead
support functions
• Strong participation in
upside financial
performance
• Preserves option to convert
to alternative operating
option
• Provides high level of City
control over rates, policies,
practices, and overall golf
experience
• Availability of City overhead
support functions
• Strong participation in
upside financial
performance
• Provides opportunity to
retain specialists in golf
operations and food and
beverage
• Preserves option to convert
to alternative operating
option
WEAKNESSES
• More limited operational
and quality control
• May involve long-term
contractual commitment
• May minimize financial
upside
• Limited number of potential
candidates, particularly
when substantial private
investment is required
• Potential conflicts over
capital reinvestment
responsibilities of
contracting parties
• Requires more City
involvement than facility
lease option
• Minimizes private capital
investment, if any, in
facilities.
• Entails greatest level of City
operating and financial risk
• City bears substantial
liability risk related to golfer
and spectator injury
• May constrain ability of
management to adapt and
respond to dynamic market
conditions
• Entails high level of financial
risk
• Involves higher public
sector wage and benefit
structure
• Reduces opportunity to
attract private capital due
to reduced lessee control
• Relatively high City
monitoring requirements
• Constrains ability of
management to adapt and
respond to dynamic market
conditions
• Entails high level of financial
risk
• May involve higher public
sector wage and benefit
structure for maintenance
• Reduces opportunity to
attract private capital due
to reduced lessee control
• Potential conflicts of
multiple concessionaires
• Relatively high City
monitoring requirements
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A fee-for-service management agreement offers many advantages such as maintaining greater authority managing the facility. Since the City would receive all revenues and expenses under this option, the financial return to the City may exceed that of a turnkey facility lease, but carries with it additional financial exposure.
The City bears all of the operating and financial risk under the management option, and generally is subject to full legal liability for accidents and injury on the property. At present, service contracts are more prevalent in the private sector (management of daily fee golf courses).
A full self-operation model, which is an extension of the current City hybrid model to include additional golf operations functions (merchandise, carts, and driving range), offers some advantages over the current model.
The principal advantage is the ability to coordinate the various functions to a greater degree and potentially to achieve some operating expense efficiencies in golf operations. There are potentially additional disadvantages of moving from the existing hybrid to a full self-contained model, primarily higher payroll and benefits related to public employees in the golf operations department. As stated earlier, cities who self- operate are beginning to make certain that they are staffed appropriately with experienced “golf operators” in order to react to changing market conditions, driving both rounds and revenue to the facilities while maintaining the required golfer experience.
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VIII. Economics of Golf Course Operating Options
The following section illustrates the comparative economics of the various golf course operating options available to the City of Pacific Grove. It is recognized that the current lease agreement extends through 2029, with one remaining 5-year option to extend the agreement through 2034. The options evaluated include the following:
‣ Facility Lease (current form of operation)
‣ Management Agreement
‣ Hybrid Model, assuming golf operations concessionaire, food and beverage concessionaire, and City/ contract maintenance
‣ Self-Operation
The economics related to each of the operating options is estimated from the perspective of the City of Pacific Grove. An allowance for maintenance equipment costs, an annual capital improvements replacement reserve, and a Citywide Overhead Allocation, if applicable, are deducted from net operating income, yielding annual net cash flow to the City under each option.
PGGL Baseline Revenues
A baseline revenue estimate is first established in evaluating each of the golf course operating options. The revenue estimate is employed uniformly for the various options. The baseline revenue employed in the analysis is slightly below actual FY2022 revenues, based on the expectation that there will be some continued regression of the COVID-19 beneficial impact related to golf participation. Golf course baseline revenue assumes that annual play at PGGL stabilizes at 60,000 rounds, down slightly from the 62,000 rounds accommodated in 2022. Moreover, based on the analysis of market conditions and current performance of PGGL, no real improvement in revenue generation is reflected in the baseline revenue projections.
As shown in Table VIII-1, annual baseline revenue is indicated at $4.38 million, excluding the food and beverage function. Again, these revenues, expressed in constant 2023 dollars, are applied uniformly to each of the operating options evaluated.
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Table VIII-1: PGGL Baseline Annual Revenue (constant 2023 dollars) Component Annual Amount* Revenue/Round
Golf Revenue** $3,660,000 $61.00
Practice Range 150,000 2.50
Subtotal Golf $3,810,000 $63.50
Merchandise 450,000 7.50
Miscellaneous 120,000 2,00
Total $4,380,000 $73.00
* Based on 60,000 annual rounds.
** Includes daily fee greens fees, annual memberships, discount card fees, tournament revenue, and golf carts.
PGGL Operating Expenses
Pacific Grove Golf Links operating expenses are estimated for some of the operating options. The annual expenses vary by option depending primarily on whether public or private sector employees provide the golf course service.
Table VIII-2 presents stable year annual golf course operating expenses, expressed in constant 2023 dollars, for the various options where applicable. It should be noted that the current PGGL lessee is not required to provide their operating expenses to the City, with the exception of water expenses. The projected stable year expenses for the various operating options is based on the experience of a set of comparable municipal golf courses, adjusted to reflect specific factors and conditions present at PGGL which may influence operating expenses levels. In particular, operating expenses reflect PGGL’s source, usage and cost of golf course irrigation water.
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Table VIII-2: PGGL Estimated Operating Expenses
(thousands of constant 2023 dollars)
Public Provider Private Provider
Course Maintenance
Payroll and Benefits $750.0 $550.0
Services and Supplies 300.0 250.0
Utilities 800.0 800.0
Maintenance Equipment 120.0 120.0
Subtotal $1,970.0 $1,720.0
Golf Operations
Payroll and Benefits $250.0 $185.0
Cart Leasing 85.0 85.0
Outside Services 225.0 160.0
Range 50.0 50.0
Services and Supplies 50.0 50.0
Subtotal $660.0 $530.0
Undistributed/Clubhouse 150.0 100.0
General and Admin
Payroll and Benefits $300.0 $185.0
Insurance 45.0 45.0
Possessory Interest Property Taxes --- 18.0
Marketing/Promotion 100.0 65.0
Services and Supplies 300.0 300.0
Management Fee --- 200.0
City Overhead Allocation $100.0 ---
Subtotal $845.0 $813.0
Less: Capital Improvement Repl. Reserve $114.0 $114.0
Total $3,739.0 $3,277.0
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Facility Lease
Based on the recent experience with municipal facility leases, the characteristics and anticipated performance of PGGL, and typical lessee operating economics, the economics related to a facility lease for all functions, excluding food and beverage operations, are based on the following representative lease terms.
Table VIII-3: Summary of Facility Lease Terms
(constant 2023 dollars)
Current Agreement Market Agreement
Term (years) 10 20
Renewal Options two 5-year two 5-year
Initial Lessee Capital
Improvements
$175,000 $1,000,000
Lessee Water Cost Cap $500,000 $800,000
Annual Base Rent $350,000 $450,000
Overage Rent*
Annual Threshold (golf revenue) $3,000,000
(CPI adjusted to 2023)
$3,800,000
Distribution
City 65% 50%
Lessee 35% 50%
Total 100% 100%
Capital Improvement
Replacement Reserve
1.5% of golf revenues
(greens, memberships,
carts, range)
3.0% of golf revenues
(greens, memberships,
carts, range)
* Percent of “golf” gross revenue exceeding baseline.
Note that, given the current conditions of the golf course, a moderate level of initial lessee-funded capital improvements is anticipated. To the extent that such improvements are more than required, the minimum and percentage overage rental rate would be accordingly adjusted downward. Similarly, if initial capital improvements are less than indicated under the baseline, the minimum and percentage overage rental rate would be adjusted upward.
Under this option, the rent paid by the lessee is equal to the sum of the minimum rent plus the percentage overage rent, if any, based on applying the overage rental rate factor to gross revenue exceeding the set threshold.
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As shown in Table VIII-4, applying the “market” agreement terms to the baseline revenues produces total rent to the City of $455,000, about $420,000 less than the “current” facility lease agreement would generate.
However, after deducting the City’s expense obligations, which are substantially higher under the “current” lease structure than the “market” agreement, the net rent to the City under the “market” agreement is slightly lower than the current facility lease agreement. This suggests that under the baseline revenue projections, the current facility lease agreement is reasonable and equitable.
The facility lease option typically produces somewhat less net earnings to the City than under the management model, but is accompanied by less financial risk. Under the facility lease model, the level of City control and influence on the golf course operations and maintenance is clearly less than under the management model, although the City still retains control of greens fees and can set standards for maintenance. It should be noted that over recent years, many municipalities have moved away from management agreements and towards facility leases, primarily to insulate the public agency from operating and financial risk, and to attract more private capital.
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Table VIII-4: PGGL Projected City Annual Net Earnings
Facility Lease
(thousands of constant 2023 dollars)
Department Current Agreement Market Agreement
Gross Golf Revenue
Golf Fees $3,660,000 $3,660,000
Practice Range 150,000 150,000
Subtotal-Golf $3,810,000 $3,810,000
Merchandise 450,000 450,000
Instruction/Other 120,000 120,000
Total Gross Revenue $4,380,000 $4,380,000
City Net Earnings
Income
Baseline Annual Rent $350,000 $450,000
Overage Rent 527,0001/ 5,0002/
Total Rent $877,000 $455,000
Expenses
CIP Reserve $57,0003/ ---
Irrigation Water Expense 300,000 ---
Amortization of Initial Capital Contribution --- ---
City Contract Administration 25,000 25,000
Total Expenses $382,000 $25,000
City Net Operating Income $495,000 $430,000
1/ Based on 65% of golf revenue exceeding $3.0 million baseline. 2/ Based on 50% of golf revenue exceeding $3.8 million baseline. 3/ Equal to 1.5% of golf gross revenue (represents City obligation for 50% of total capital improvement reserve) 1/ Based on 65% of golf revenue exceeding $3.0 million baseline. 2/ Based on 50% of golf revenue exceeding $3.8 million baseline. 3/ Equal to 1.5% of golf gross revenue (represents City obligation for 50% of total capital improvement reserve) 1/ Based on 65% of golf revenue exceeding $3.0 million baseline. 2/ Based on 50% of golf revenue exceeding $3.8 million baseline. 3/ Equal to 1.5% of golf gross revenue (represents City obligation for 50% of total capital improvement reserve) PGGL Option Economics
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Management Agreement
The economics of the management agreement operating option, whereby the City retains an outside management company to administer all golf course functions (excluding food and beverage), is presented in Table VIII-5.
Based on estimated stable year play levels, annual gross revenue from all revenue departments totals $4,380,000. Cost of sales related to merchandise are deducted, resulting in gross operating profit of $4,065,000.
Annual operating expenses by major expense classification are deducted (derived from previously presented Table VIII-2), with the elimination of possessory interest property tax, yielding net operating income of $920,000. An annual deduction of $87,000 for the amortization of $1.0 million in initial capital improvements (6% cost of capital, 25 year term) is included. Finally, deducting a $100,000 annual allowance for allocated City overhead support services yields net earnings under the management option of $619,000.
The management agreement model produces the highest net operating income among the various models, due to the financial savings associated with private employment payroll and benefit packages, along with the expertise of professional golf course management. The model also provides for a relatively high level of City control as the policies and fee structure are entirely set by the City, with input from the retained management firm. The principal weakness of this model is that the City bears most, if not all, of the financial risk and legal liability.
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Table VIII-5: PGGL Management Agreement Net Earnings
(thousands of constant 2023 dollars)
Gross Revenue
Golf Revenues (60,000 rounds @ $61.00) $3,660,000
Practice Range 150,000
Subtotal Golf Revenue $3,810,000
Merchandise 450,000
Miscellaneous 120,000
Total $4,380,000
Less: Cost of Sales--70% (merchandise) $315,000
Gross Operating Profit $4,065,000
Operating Expenses
Golf Course Maintenance1/ $1,720,000
Golf Operations 530,000
Undistributed/Clubhouse 100,000
General & Administrative (ex property tax) 595,000
Management Fee (base + incentive) 200,000
Total $3,145,000
Net Operating Income $920,000
Less: Contract Administration $100,000
CIP Replacement Reserve (3% of golf revenue) 114,000
Amort of Initial $1,000,000 Capital Contribution 87,000 Net City Earnings $619,000
1/ Includes “total” irrigation water expenses.
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Self Operation
The economics of the self operation option, whereby the City is responsible for all golf operations, maintenance and management of the golf course, is presented in Table VIII-6. As shown, annual gross revenue, at $4,065,000, is the same as under the management agreement option. With public sector staffing, however, maintenance, operating and management expenses are substantially higher than under the management agreement option (refer to comparative operating expense detail presented earlier in Table VIII-2).
Deducting operating expenses yields City net operating income of $440,000. Then, deducting an annual capital improvement reserve of $114,000, a citywide overhead services allocation of $75,000 and amortization of the City’s responsibility for amortizing an initial $1.0 million capital improvement contribution ($87,000 per year), yields net City net annual operating income of $164,000.
A key assumption in the analysis is that the revenue projections under self operation are equal to those under the private operation models. While there are many municipally operated golf courses that perform well, most industry analysts would argue that the expertise of specialty golf management companies generally produce superior revenue results. From an expense perspective, while municipal employees generally can competently provide golf services, the labor cost of public sector employees is typically significantly higher than private sector employees, predominantly due to more costly benefits.
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Table VIII-6: PGGL Self-Operation Net Earnings
(thousands of constant 2023 dollars)
Gross Revenue
Golf Revenues (60,000 rounds @ $61.00) $3,660,000
Practice Range 150,000
Subtotal Golf Revenue $3,810,000
Merchandise 450,000
Miscellaneous 120,000
Total $4,380,000
Less: Cost of Sales--70% (merchandise) $315,000
Gross Operating Profit $4,065,000
Operating Expenses
Golf Course Maintenance $1,970,000
Golf Operations 660,000
Undistributed/Clubhouse 150,000
General & Administrative 845,000
Management Fee ---
Total $3,625,000
Net Operating Income $440,000
Less: Contract Administration $75,000
CIP Replacement Reserve (3% of golf revenue) 114,000
Amort of Initial $1.0 million Capital Contribution 87,000 Net City Operating Income $164,000
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Hybrid Agreement
There are numerous forms of operating agreements which combine aspects of the facility lease, management agreement, and self-operation models. The two most common “hybrid” models are: (1) golf operations concessionaire with City maintenance and overall administration; and (2)--golf operations concessionaire with private contract golf course maintenance. Most golf course management companies provide golf operations services, and there are a number of private contractors which provide golf course maintenance on a fee-forservice basis.
Table VIII-7 illustrates the economics of these two hybrid options. The projected revenue accruing to the City is shown with both continued City maintenance and with private contract maintenance. Note that “golf revenue” is segmented into two subcategories--greens fees and cart fees. Total gross revenue is the same for both hybrid versions at $4.38 million. Although not shown, the concessionaire’s annual gross revenue, after deducting cost of merchandise sales, is projected at about $1.0 million annually, a sufficient sum to cover golf operations, pro shop maintenance and selective golf management services.
Based on similar golf concession agreements, along with the operating profile of PGGL, the City is assumed to capture 80 percent of greens fees, 15 percent of gross revenues from carts and practice range, and 5 percent from merchandise and miscellaneous revenue sources. Based on these percentages, the City’s share of greens fees and other revenues totals about $2.53 million per year under the hybrid model.
Under the “hybrid” model with City maintenance, golf course maintenance, clubhouse related expenses, general and administrative expenses, an allowance for capital improvements/equipment, and contract administration/Citywide overhead are deducted, yielding $184,500 per year in net operating income. As with some of the other models, the City would be obligated to amortize the $1.0 million front end capital investment in the facility.
Under the “hybrid” model with “contract” maintenance, the golf course maintenance expenses are much lower due to lower cost maintenance payroll and benefits. The golf course maintenance expenses under contract maintenance are approximately $250,000 per year below City maintenance expenses. Deducting operating expenses, CIP reserves, and an allowance for contract administration/Citywide overhead results in net income of $459,500.
While there are some strengths of the hybrid model such as specialization in the various operating functions (maintenance, golf operations, food and beverage) and the City retains substantial control over operating policies, fees and maintenance quality, the hybrid model has a number of key weaknesses. Most notably is the absence of benefits related to a single coordinated operating entity where efficiencies of operation can be achieved and a more seamless and consistent product can be offered.
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Table VIII-7: PGGL Projected Annual Net Operating Income Hybrid Agreement With Golf Concessionaire
(thousands of constant 2023 dollars)
Department City Maintenance Contract
Maintenance2/
Gross Revenue
Greens Fees (60,000 @$49.50 per rd) $2,970,000 $2,970,000 Golf Carts (@$11.50 per round) 690,000 690,000
Subtotal Golf $3,660,000 $3,660,000
Practice Range 150,000 150,000
Merchandise 450,000 450,000
Miscellaneous 120,000 120,000
Total $4,380,000 $4,380,000
City Revenue/Rent
Greens Fees @80% $2,376,000 $2,376,000
Cart Rentals @ 15% 103,500 103,500
Practice Range @15% 22,500 22,500
Merchandise @5% 22,500 22,500
Lessons/Other Pro Shop (@5%) 6,000 6,000
Total Revenue/Rent $2,530,500 $2,530,500
Less: Golf Course Maintenance $1,970,000 $1,720,000
Clubhouse Maint/Undistributed 75,000 75,000
CIP Reserve 114,000 114,000
Amort of Initial $1.0 million Capital Imps 87,000 87,000 Citywide Overhead Allocation 100,000 75,000
Subtotal $2,346,000 $2,071,000
City Net Operating Income $184,500 $459,500
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Summary of Options Economics
A comparative summary of the various operating models is presented in Table VIII-8. In comparing the economics of the various options, it is important to recognize that revenues are uniformly the same for each of the options--that is, all of the operating alternatives are assumed to be equally efficient, which may not be the case. Moreover, there clearly are varying degrees of risk, as well as upside participation, among the various alternatives.
A comparative summary of the economics related to each of the operating options outlined above is presented below. The economics illustrate the net cash flow accruing to the City under each option. An allowance for capital improvements/equipment costs, an annual capital improvements replacement reserve, and a Citywide Overhead Allocation are deducted from net operating income, yielding net cash flow to the City for each option.
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Table VIII-8: Comparative City Operating Options Economics (thousands of constant 2023 dollars)
Facility Lease
Management
Agreement
SelfOperation
Hybrid
Current
Contract
Market
Contract
Management
Agreement
SelfOperation City
Maintenance
Contract
Maintenance
Gross Revenue --- --- $4,380 $4,380 $2,376 $2,376
City Revenue/Rent
Minimum $350 $450 --- --- --- ---
Overage/Concession 527 5 --- --- 154 154
Total $877 $455 --- --- $154 $154
Total $877 $455 $4,380 $4,380 $2,530 $2,530
Less: Cost of Sales --- --- $315 $315 --- ---
Gross Profit/Rent $877 $455 $4,065 $4,065 $2,530 $2,530 Operating Expenses
Course Maintenance --- --- $1,720 $1,970 $1,970 $1,720
Golf Operations --- --- 530 660 --- ---
Clubhouse/Undistrib --- --- 100 150 75 75
General & Admin --- --- 595 845 --- ---
Management Fee --- --- 200 --- --- ---
Total --- --- $3,145 $3,625 $2,045 $1,795
Net Income (EBITDA) $877 $455 $920 $440 $485 $735
Less: Other Costs
CIP Repl. Reserve $57 --- $114 $114 $114 $114
Initial Capital Amort --- --- 87 87 87 87
Irrigation Water Cost 300 --- --- --- --- ---
Citywide OH Alloc 25 25 100 75 100 75
Total $382 $25 $301 $276 $301 $276
Net Cash Flow $495 $430 $619 $164 $184 $459
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IX. Asset Value
The following presents a brief analysis in arriving at an approximate value of the Pacific Grove Golf Link market value in an open market environment. It is important to note that this value indication is not intended to be a fair market value appraisal of the property, but rather to provide a general indication of asset value.
Pacific Grove Golf Links is a valuable City asset, offering a desirable recreation activity for residents and visitors, providing community open space, and funding most of the cost of operating the City’s reclaimed water plant. From a pure market perspective, the golf course also is an important and valuable economic asset.
Valuation Methodology
The market value of a golf course asset is principally based on its income producing potential. That is the value of most income producing properties is determined primarily based on their net earning potential. The direct capitalization approach assumes that a property’s revenues, expenses, and net income do not vary over time, other than due to the effects of inflationary increases. Simply, a property’s asset value is determined by dividing the projected annual net operating income by a capitalization rate.
Net operating income is defined as earnings before interest, taxes, depreciation and amortization (EBITDA). A capitalization rate is defied as the ratio of net operating income divided by a property’s current market value.
This approach is a standard method employed in determining the value of an income producing real estate asset.
The income approach to value is clearly the principal methodology employed in valuing daily fee golf courses.
Every golf course has its own distinct characteristics which are reflected in its income producing potential. A sales comparison approach is unreliable to the extent that every golf property is unique requiring extraordinary adjustments to create comparable values. The cost approach also is unreliable as the cost to develop a golf course generally overstates a course’s value given the high cost of current construction.
The direct income capitalization rate is generally based on the observation of golf course transactions. For an income producing asset operating at a stabile level, the standard approach employed in valuation is to capitalize EBITDA. When an allowance for a management fee and capital improvement replacement reserve are included in the calculation of EBITDA, a capitalization rate in the 9.0 percent range provides a reasonable indication of market value.
With regard to PGGL, the value is significantly influenced by the cost of irrigation water, which is set at the discretion of the City. There clearly is a tradeoff between the economics of the Pacific Grove Local Water Project (PGLWP) and those of the golf course. That is, improvement in the operating economics of the water plant through higher reclaimed water rates decreases the economic performance of PGGL which, in turn, reduces the value of the golf asset. Similarly, lower water costs increase operating performance of PGGL and asset value.
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In the case of PGGL, asset value ranges widely depending on the commodity rate charged by PGLWP. For example, at the 2022 rate of $0.017 per gallon, and based on annual water consumption of 84 acre feet, normal year water costs are approximately $470,000. However, if the reclaimed water commodity rate is set at a full cost recovery level ($0.030 per gallon), PGGL’s annual water cost balloon to about $820,000.
PGGL Asset Value
For valuation purposes, stable year net operating income, expressed in constant 2023 dollars, at both ends of the irrigation water cost range, is presented in Table IX-1. The EBITDA estimate is based on the management operating model, and includes a provision for a professional management fee, capital improvement replacement reserve, and property taxes.
An indication of PGGL asset value in an open market environment at the low and high end of the reclaimed water commodity rate is summarized in Table IX-2. As shown, the PGGL asset value ranges from about $7.8 million to $11.3 million.
Table IX-2: Indication of PGGL Asset Value
$0.017/gallon $0.030/gallon
Gross Revenue $4,380,000 $4,380,000
Less: Cost of Sales 315,000 315,000
Gross Operating Profit $4,065,000 $4,065,000
Operating Expenses
Irrigation Water $470,000 $820,000
All Other Expenses 2,541,000 2,501,000
Total $3,011,000 $3,321,000
Net Operating Income (EBITDA) $1,016,000 $706,000
Direct Capitalization Rate 9.0% 9.0%
Capitalized Asset Value $11,290,000 $7,845,000
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Table IX-1: PGGL Net Operating Income
(thousands of constant 2023 dollars)
Reclaimed Water Cost per Gallon
$0.017/gallon $0.030/gallon
Gross Revenue
Golf Revenues (60,000 rounds @ $61.00) $3,660,000 $3,660,000 Practice Range 150,000 150,000
Subtotal Golf Revenue $3,810,000 $3,810,000
Merchandise $450,000 $450,000
Miscellaneous 120,000 120,000
Total $4,380,000 $4,380,000
Less: Cost of Sales--70% (merchandise) $315,000 $315,000 Gross Operating Profit 4,065,000 4,065,000
Operating Expenses
Golf Course Maintenance
Irrigation Water 470,000 820,000
All Other Maintenance Expenses 920,000 920,000
Subtotal Maintenance $1,390,000 $1,740,000
Golf Operations 530,000 530,000
Undistributed/Clubhouse 100,000 100,000
General & Administrative 595,000 595,000
Property Taxes 120,000 80,000
Management Fee (base + incentive) 200,000 200,000
CIP Replacement Reserve 114,000 114,000
Total $3,049,000 $3,359
Net Operating Income $1,016,000 $706,000
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