The membership of Desert Mountain is going to face a number of decisions as it prepares for turnover. The goal of this page is to share what members of the Desert Mountain Advisory and Master Boards learned as part of the Community Business Model Project and how Desert Mountain is preparing for its future. The first article in this series is below:

The Community Business Model Project:
A Joint Undertaking of the Advisory Board and the HOA Board

Over the course of the next few months, the membership of Desert Mountain is going to face a number of decisions relative to turnover and other important issues as we start to oversee this sizable operation. As a community, we need to recognize that managing Desert Mountain is much more complex and very different than overseeing the average private club with which we may all be familiar. We will also be competing for new members nationwide, not just locally. In addition, our scale of operation dwarfs the vast majority of clubs and many members are in the process of making the lifestyle choice to make this their full-time home.

In view of this new paradigm, both the Advisory and Homeowner Boards began educating themselves for the challenges ahead. Our joint plan is to share with you what we have learned via a series of articles in the weeks ahead.

Private Golf Clubs
We began our education by investigating the golf industry within the United States. The following are a few key facts of interest:

1. Per the National Golf Foundation (NGF), on the eve of the Great Depression, there were about 4,400 private golf clubs in America, which, surprisingly, is about the same number as today. Following the Depression and throughout World War II, the number of private clubs dropped by about one-third and then recovered in the mid-50s. Private clubs peaked at 4,898 in 1988.
2. When comparing 2009 with 1990, public golf facilities and 18-hole equivalent courses are up 24.4% and 34.0% respectively. For the same period, private facilities and 18-hole equivalent courses are down 9.7% and 0.4% respectively. From the 1998 peak, membership in private clubs has declined 13% and golf rounds are down 17%. Surveys conducted by the National Golf Foundation show the primary reason for the decline is financial.
3. The survey further reports that 67% of existing private club members are likely to be members five years from now, but 20% will be on the fence, and the remaining 10-15% are at risk of giving up their club membership. Forty-two percent of those at risk are more than 65 years of age.
4. The total number of active golfers in 2009 (private and public) was down 5.1% in 2009 versus the previous year.
5. NGF reports that golf course closures continue to outpace golf course openings, however, this is part of a gradual correction in a national market that experienced an overbuild (in relation to golf demand) in the 1990s and early 2000s. NGF expects openings to continue at about fifty 18-hole equivalents per year, with between 100 - 150 course closures per year over the next five years.

The conclusions of NGF: a large drop in demand is unlikely (short- or long-term), but a large increase is also unlikely, so the overall supply/demand imbalance is likely to continue.

The Second Home Market
The second home market in this country is an additional dynamic relating to our community that we need to understand, as Desert Mountain is a second home for approximately sixty-five percent of our members. Pete Halter, Chairman of Halter Companies, Inc., wrote an important article on February 9, 2009, entitled "Thoughts on the Future of the Second Home Market."  In its thirty years in business, Halter Companies has worked with 61 different developers on 110 different communities, most of which are golfing communities throughout the United States. Desert Mountain is one of the communities with whom Halter has worked.

Some of his conclusions in the article are as follows:

1. While "baby boomer" demographics have not changed, there is a notable difference in both the psychology and motivations of a second homebuyer when compared with the retirement homebuyer. Considering a retirement home is a lifestyle decision. Conversely, a second home is a luxury and thus a discretionary decision. While both markets are being affected by the economy, the second home market will be hit the hardest.
2. Why will the second home market be hit the hardest?
   • Gone is the justification for pre-retirees that the purchase of a second home or lot is an investment under the premise that "real estate values never go down."
   • Many potential second homebuyers lost a great deal of wealth in the most recent economic downturn as the result of declines in their investment portfolios and the values of their homes and businesses. As a result, many are refocusing on other real life needs of their family, extended family, and businesses.
   • Limitations on the availability of reasonably priced mortgage financing for second homes will dramatically impact recovery of previous values. The current tightening of credit for potential second homebuyers will, in and of itself, further eliminate potential buyers. The same holds true for construction loans.
   • When the recession draws to a close, many potential second homebuyers will defer a second home decision to focus on the many purchases they have postponed during the recession, thus delaying the purchase of a retirement or second home.
3. Halter's prediction for the next two-three years: There are still some buyers out there, but the demand is far less than the supply.

Key points to be considered from all of this research include:

• The demand for private golf facilities is stable at best and the industry is overbuilt, resulting in supply greatly exceeding demand.
• The demand for second homes is declining and the existing supply exceeds demand.
• These combined facts have resulted in a very competitive market for golf community members.

So what, if anything, do we do to address this after we take over the Club?

The Investigation Process
In late 2009, the AB and HOA together with Bob Jones, initiated a joint process for both Boards to visit and understand the best practices of private, high-end residential golf communities within the United States. The objectives were to learn about their operational/governance philosophies, develop an understanding of best practices, get a feel for our competition for new members and understand what needs to be done in order for Desert Mountain to flourish as a premier residential golf community in the years to come.

A team of six to eight representatives including members of the Advisory Board, the HOA Board and Bob Jones, visited eight selected golf communities. Three communities were in the southwestern United States and five were in the southeast. Each trip included a site visit and tour as well as a sit-down discussion with the hosting club's General Manager, HOA Manager, and in most cases, members of their Boards.

What's Next?
In the weeks ahead, we will be publishing a series of articles that describe the key learning from each community visited. These articles will focus on the things they did right and other things that didn't quite work out as planned, as well as the ideas and concepts we believe can make Desert Mountain better.

The articles will be followed by a summary of what was learned from all the communities on pertinent topics and issues that we will be addressing as we assume control of the Club. These topics will include governance, roles and responsibilities, attracting new members, keys to stability and sustainability, Club-HOA synergies, community security, marketing, the need for space to expand and the importance of a wide range of amenities. We also plan a series of small group meetings to get member input on key aspects of club operations. We welcome your feedback as these efforts move forward.

Stay tuned.

David White, President                                                     Bob Borsch, President
Member Advisory Board                                                  Homeowners Association