The second income generating components of a golf course are the clubhouse and pro shop.  It is necessary to recognize income from these sources as it can often be very considerable and form an important part of the financial success of a golf course.  Another reason for recognizing these income sources is that a course’s operating expenses, usually wages, applicable to these sources, is typically not reported separately.  This is because the same person that collects the green fees also collects cart rental fees.

Revenue sources associated these components include:

• restaurant, including food, beverages, and concessions,
• pro shop,
• golf cart rentals,
• driving range, and
• other - cart and club storage, locker room.

Aside from the driving range and the other rental income sources, a number of approaches can be used to capture the real estate value of these components.  Gross rents are considered instead of net rents to ensure that the revenues generated from these operations are comparable to the gross revenues generated from the golf course.  Deductions for management and administration expenses can be completed in one step. 

Gross rents can be established using either of two methods:

• gross rents per square foot based on analysis of existing leases for pro shops, restaurants and health clubs, or
  
  
• gross rent as a percentage of sales.

Income generated by the driving range, lockers and club and cart storage is generally reported separately on golf course financial or operating statements.  The total income from these revenue sources is added to the income from golf operations and gross rents as the real estate is the asset that produces the revenue.

Gross Rents per Square Foot

A number of pro shops, restaurants, and other tenants may lease space from golf courses.  Analyzing these leases, or leases for other similar retail outlets, may help the assessor to arrive at typical gross rental rates per square foot.

Multiplying gross rents by the number of square feet produces a gross rental income for these elements of a golf course.

Gross Rents as a Percentage of Sales

In many instances, golf course restaurants, cart rentals and other operations are not leased to tenants.  Also, it may not be possible to compare gross lease rates per square foot for typical retail operations to the rents that would be charged at a golf course location that is closed for a good part of the year or is remotely located.

For any retail operation (store, service, or restaurant) there is a relationship between the amount of sales generated and the amount that can be spent on the costs of the space (rent, operating expenses, and taxes).  Therefore, it should be possible to establish gross rental rates as a percentage of sales.

Gross percentages can be determined by analyzing the sales and lease costs held by pro shops, restaurants, driving ranges, and cart operations (if available).  It should also be possible to develop appropriate gross percentage rent rates by analyzing the typical lease costs as a percentage of sales from shops and restaurants in shopping centre’s or hotels (since the rents charged under a percentage rent clause relate to the volume of sales, it does not matter whether the golf course operations are closed for part of the year).  An article published on percentage restaurant leases in hotels indicated a typical range of 5% to 8% of gross sales.  Typical ranges used by appraisers are between 5% and 10%, depending on the volume of sales.  A 2005 listing of the Eagle Rock Golf Course in southeast Edmonton, reported that the food and beverage departments were leased at 13.5% of gross sales.

The gross rental income is added to the golf course revenues to establish the gross income from a golf property.  The gross sales from food and beverage, pro shop and cart rentals are automatically transferred from Form GC5, the year-to-year income and expense sheet, to the valuation form GC6.  It is up to the assessor to determine the applicable percentage rates.