methodology guide- valuing golf courses in ontario - …

METHODOLOGYGUIDE

VALUINGGOLFCOURSESINONTARIO

ValuationDate:January1,2016

AUGUST2016

August22,2016

TheMunicipalPropertyAssessmentCorporation(MPAC)isresponsibleforaccuratelyassessingandclassifyingpropertyinOntarioforthepurposesofmunicipalandeducationtaxes.

InOntario’sassessmentsystem,MPACassessesyourpropertyvalueeveryfouryears.Thisyear,MPACisupdatingthevalueofeverypropertyintheprovincetoreflectthelegislatedvaluationdateofJanuary1,2016.MPACiscommittedtoprovideOntariopropertyowners,municipalitiesandallitsstakeholderswiththebestpossibleservicethroughtransparency,predictabilityandaccuracyinvalues.Aspartofthiscommitment,MPAChasdefinedthreelevelsofdisclosureofinformationinsupportofitsdeliveryofthisyear’sassessmentupdate.ThisMethodologyGuideisthefirstlevelofinformationdisclosure.ThisguideprovidesanoverviewofthevaluationmethodologyundertakenbyMPACwhenassessinggolfcoursepropertiesforthisyear’supdateensuringthemethodologyforvaluingthesepropertiesiswelldocumentedandinalignmentwithindustrystandards.

Propertyownerscanaccessadditionalinformationabouttheirownpropertiesthroughaboutmyproperty.ca.Logininformationforaboutmyproperty.caisprovidedoneachPropertyAssessmentNoticemailedthisyear.AdditionalinformationaboutMPACcanbeaccessedatmpac.ca.

AntoniWisniowskiPresidentandChiefAdministrativeOfficer

RoseMcLean,M.I.M.A.ChiefOperatingOfficer

TableofContents

1.0INTRODUCTION................................................................................................................4

1.1PROPERTIESCOVEREDBYTHISMETHODOLOGYGUIDE......................................................................41.2LEGISLATION.............................................................................................................................51.3CLASSIFICATION.........................................................................................................................61.4THEUSEOFTHISMETHODOLOGYGUIDE.......................................................................................61.5CONSULTATIONANDDISCLOSURE.................................................................................................7

2.0THEVALUATIONPROCESS.................................................................................................8

2.1OUTLINE..................................................................................................................................82.2APPROACH.............................................................................................................................102.3DATACOLLECTION...................................................................................................................102.4DATAANALYSIS.......................................................................................................................152.5VALUATION............................................................................................................................172.6VALIDATINGTHERESULTS..........................................................................................................17

3.0THEVALUATION..............................................................................................................18

3.1APPROACH.............................................................................................................................183.2SAMPLEVALUATION.................................................................................................................193.3CONCLUSION..........................................................................................................................20

©MunicipalPropertyAssessmentCorporation2016Allrightsreserved 4

1.0Introduction

TheMunicipalPropertyAssessmentCorporation(MPAC)–mpac.ca–isresponsibleforaccuratelyassessingandclassifyingpropertyinOntarioforthepurposesofmunicipalandeducationtaxation.

InOntario,propertyassessmentsareupdatedonthebasisofafour-yearassessmentcycle.In2016,MPACwillupdatetheassessmentsofOntario’snearlyfivemillionpropertiestoreflectthelegislatedvaluationdateofJanuary1,2016.Assessmentsupdatedforthe2016baseyearareineffectforthe2017–2020propertytaxyears.

ThelastAssessmentUpdatewasbasedonaJanuary1,2012,valuationdate.Increasesarephasedinoverafour-yearperiod.Anydecreasesinassessmentareappliedimmediately.

Itisimportanttoensurethatthevaluationmethodologyappliediscapableofprovidingarealisticestimateofcurrentvalueattherelevantvaluationdate,which,inturn,enablesallstakeholderstounderstandthevaluationprocessandhaveconfidenceinthefairnessandconsistencyofitsoutcome.

ThisMethodologyGuidehasbeenpreparedforthebenefitofMPACassessors,propertyownersandtheirrepresentatives,municipalitiesandtheirrepresentatives,AssessmentReviewBoardmembers,provincialofficials,andthegeneralpublic.

Thisguideoutlinesthevaluationprocesstobefollowedbyanassessor,includingstepsthatrequireappraisaljudgment.Itisincumbentupontheassessortomakeinformeddecisionsthroughoutthevaluationprocesswhenarrivingatestimatesincurrentvalue.

1.1PropertiesCoveredbyThisMethodologyGuide

ThisMethodologyGuideappliestogolfcoursesinOntario.

Thetypesofgolfcourseownershipandoperationvaryandcaninclude:

• dailyfee

• semiprivate

• executive

• high-endpublic

• privatefor-profit


• privatenot-for-profit

• resort

• exclusive

Golfcoursesalsoofferarangeofservicelevelsfromasimplecheck-inboothtomoreextensivefacilities,includingrestaurants,proshops,concessions,lockerroomsandotherrecreationalfacilities(suchastenniscourts).

Thetypesandobjectivesofgolfcourseownershipvaryandcaninclude:

• privateequityfacilities,whichcatertoanexclusivenumberofmembersandtheirguestsandaregenerallyoperatedonanot-for-profitbasis

• privatenon-equityfacilities,whichmayoperateaseitherafor-profitornot-for-profitfacility

• semiprivatefacilities,whichcombinemembershiprightswithpublicaccess(atspecifictimesandonafee-payingbasis)andgenerallyoperateasfor-profitfacilities

• daily-feefacilities,whichareopentothepubliconafee-payingbasisandgenerallyoperateasfor-profitfacilities

• municipally-ownedpubliccourses,whichareopentothepubliconafee-payingbasisandrunasnot-for-profitfacilities

MPACusesaseriesofpropertycodestocategorizedifferenttypesofproperties.Thepropertycodeforgolfcoursesis490.

Anassessormayalsomakereferencetoadditionalmethodologyguidesforpropertiesthatdonotfallpreciselywithinthedescriptionofthepropertycodelistedabove.

1.2Legislation

ThemainlegislationgoverningtheassessmentofpropertiesinOntarioforpropertytaxpurposesiscontainedintheAssessmentAct.1

TheActcontainsimportantdefinitionsandstateswhatpropertyistaxableandhowitshouldbevalued.Section19(1)oftheActrequiresthatlandbeassessedatcurrentvalue,whichis

1AssessmentAct,R.S.O1990,cA.31:https://www.ontario.ca/laws/statute/90a31.


definedtomean,inrelationtoland,“theamountofmoneythefeesimple,ifunencumbered,wouldrealizeifsoldatarm'slengthbyawillingsellertoawillingbuyer.”

TheMinisterofFinancefiledOntarioRegulation430/15onDecember18,2015,whichaddedadditionalrulesaffectingthevaluationandclassificationofpropertiesonwhichathird-partysign(billboard)islocated.Tocomplywiththeregulation,theincomeattributabletoathird-partysignwillnotbeincludedinthevaluationofanypropertyforassessmentpurposes.

1.3Classification

MPAC’sroleistoaccuratelyassessandclassifyallpropertiesinOntarioinaccordancewiththeAssessmentActanditsassociatedregulationsestablishedbytheGovernmentofOntario.Theclassificationofapropertywilldeterminewhichtaxratewillbeappliedbythemunicipalityortaxingauthority.Allpropertiesareclassifiedaccordingtotheiruse,andOntarioRegulation282/98oftheAssessmentActsetsouthowvariouspropertyusesareclassified.

TheclassificationofgolfcoursesiscoveredinSection3(1)2.vi,whichincludesintheResidentialPropertyClass“landusedasagolfcourse,includingbuildingsandstructuresusedforthepurposeofmaintainingthegolfcourse,butnotincludinganyotherbuildingsandstructuresandthelandusedinconnectionwiththosebuildingsorstructures.”2

InadditiontobeingincludedintheResidentialPropertyClass,theassessedvalueallocatedtothefood/beverageandproshopcomponentsofagolfcoursefallsintotheCommercialPropertyClass.

Ifaportionofthepropertyisusedforotherpurposes,forexamplehoteluse,itmaybenecessarytovaluethosecomponentsseparatelyandsumthecomponentvaluestoachievethecorrecttotalcurrentvalue.Itmayalsobenecessarytoapportionthetotalvalueofthepropertybetweenthevarioususestoensurethattheappropriatetaxrateisappliedtotherelevantpartsoftheproperty.

1.4TheUseofThisMethodologyGuide

ThisMethodologyGuideisintendedto:

• EnsureMPAC’sassessedvaluesforthesepropertiesarefair,accurate,predictableandtransparent.

2OntarioRegulation282/98,GENERAL:https://www.ontario.ca/laws/regulation/980282.


• Providedirectiontoassessorsandclearexplanationstomunicipalities,taxpayersandAssessmentReviewBoardmembers.

• EnsurethatMPAC’smethodologyforvaluingthesepropertiesiswelldocumentedandalignswithindustrystandards.

• Explainthethoughtprocess/decision-makingprocessthatanassessorshouldundertaketoapplythevaluationmethodology.

• Ensureaconsistentapproachtovaluingthesepropertytypes.

• SupportMPACassessorsinconductingtheirduediligencein:

Ø applyingOntario’slegislationandregulationsØ adheringtoindustrystandardsformarketvaluationinamassappraisal

environment

ItshouldbenotedthatthisMethodologyGuideisnotintendedtobeasubstituteforanassessor’sjudgmentinarrivingatamarketvalue–basedassessment(i.e.,currentvalue)foraparticularproperty.However,giventhattheMethodologyGuideexplainsindustrystandardsforpropertyassessment,conformstovaluationindustrynorms,andadherestoprovinciallegislationandregulation,MPACassessorsareexpectedtofollowtheproceduresintheMethodologyGuideandbeabletoclearlyandsatisfactorilyjustifyanydeviationsfromit.

1.5ConsultationandDisclosure

MPACiscommittedtoprovidingmunicipalities,taxpayersandallitsstakeholderswiththebestpossibleservicethroughtransparency,predictabilityandaccuracy.Insupportofthiscommitment,MPAChasdefinedthreelevelsofdisclosureaspartofitsdeliveryofthe2016province-wideAssessmentUpdate:

• Level1–MethodologyGuidesexplaininghowMPACapproachedthevaluationofparticulartypesofproperty

• Level2–MarketValuationReportsexplaininghowthemethodologyoutlinedinLevel1hasbeenappliedatthesectorlevelforthepurposesofeachassessment

• Level3–PropertySpecificValuationInformationavailabletopropertytaxpayers,theirrepresentativesandmunicipalities


2.0TheValuationProcess

Thevaluationprocessalwaysbeginswithadeterminationofthehighestandbestuseofthesubjectproperty.

Golfcoursesconsistoflargetractsofland,oftenincloseproximitytoexistingdevelopment.MPACassessorsmustalwaysconsiderthehighestandbestuseanddevelopmentpotentialoftheproperty.Apropertywithahighervalueunderanalternatepermitteduseshouldnotbevaluedasagolfcourse.

Thehighestandbestuseofthepropertymustbedeterminedasvacantandimproved.Thefourhighestandbestusetestsarethatthealternative,higher-valueuseofthepropertymustbephysicallypossible,financiallyfeasible,legallypermissibleandmaximallyproductive.

Anyrelianceuponthisguideismadeonlyaftertheassessorhasdeterminedthatthehighestandbestuseofthesubjectpropertyisthatofagolfcourse.

Assessorsdeterminethevalueofapropertyusingoneofthreedifferentapproaches:

• thedirect(sales)comparisonapproach

• theincomeapproach

• thecostapproach

2.1Outline

Inthedirect(sales)comparisonapproach,valueisindicatedbyrecentsalesofcomparablepropertiesinthemarket.Inconsideringanysalesevidence,itiscriticaltoensurethatthepropertysoldhasasimilaroridenticalhighestandbestuseasthepropertytobevalued.

Intheincomeapproach(or,moreaccurately,theincomecapitalizationapproach),valueisindicatedbyaproperty’srevenue-earningpower,basedonthecapitalizationofincome.Thismethodrequiresadetailedanalysisofbothincomeandexpenditure,bothforthepropertybeingvaluedandothersimilarpropertiesthatmayhavebeensold,inordertoascertaintheanticipatedrevenueandexpenses,alongwiththerelevantcapitalizationrate.

Inthecostapproach,valueisestimatedasthecurrentcostofreproducingorreplacingimprovementsoftheland(includingbuildings,structuresandothertaxablecomponents),lessanylossinvalueresultingfromdepreciation.Themarketvalueofthelandisthenadded.


MPACprimarilyusestheincomeapproachtovaluegolfcourses.Thevalueofanincomepropertysuchasagolfcourseisbasedonthepresentworthofanticipatedfutureincome.

MPACusesthedirectcapitalizationmethodtoestablishcurrentvalueassessmentsinamassappraisalcontext.

Thismethodestimatestheannualrevenuethatcanbegeneratedbythegolfcourse,deductsoperatingexpenses,andthenappliesacapitalizationratetothenetincometoarriveatanestimateofcurrentvaluefortheproperty.

Thedirectcapitalizationapproachinvolvesthefollowingsteps:

1. Determinestabilizedrevenuesforthegolfcourse

2. Deductthestabilizedcostofsales

3. Determinethegrossmargin

4. Deductstabilizedexpensestodeterminethenetoperatingincome(NOI)beforemunicipaltaxes

5. Establishthecapitalizationratefromsalesdata

6. Determinetheeffectivetaxrate(ETR)usedtorepresentpropertytaxes.TodeterminetheETR,apercentageofeachthemunicipalcommercialandresidentialtaxratesareusedandadjustedtoaccountforthesubsequentpersonalpropertydeductionfromthecapitalizedvalue.

7. Addtheeffectivetaxratetothecapitalizationrate

8. CapitalizetheNOIintoanestimateofvalue

9. Deductpersonalpropertyfromthecapitalizedvalue,withtheresultbeingthecurrentvalueassessment.

10. Addthevalueofanyotherlandandbuildingsnotcapturedinthevalueofthegolfcourse.


2.2Approach

TherearethreemainphasesinthevaluationprocessusedbyMPAC:

• datacollection

• analysisofthedatacollected

• valuation

2.3DataCollection

Thedatarequiredforgolfcoursevaluationscomefromanumberofsources:

• MPACconductsperiodicinspectionsofgolfcourses.

• PropertyownersarerequiredtoprovideMPACwithdetailsincludingactualincomeandexpenses.

• MPACalsocollectsinformationaboutsalesandtransfersofgolfcourses.

• Thereareanumberofguidesandotherpublishedinformationaboutgolfcourses.

MPACgenerallycollectsthefollowingtypesofdataforgolfcourses:

• generaldata

• financialdata

• propertydescription

• salesdata

• improvementdata

• landvaluationdata

• greenfeesandmembershipdata


InformationfromOwnerorManager

Inordertocompareproperties,toproperlyclassifyeachgolfcourseandtodevelopappropriatecurrentvalues,itisnecessaryforMPACtoobtainpertinentinformationabouteachgolfcourse,asfollows:

• greenfees

• numberofroundsperyear

• developmentcosts

• buildingplansanddrawings

• sitelayout

• incomeandexpensestatementsoveraperiodofyears

• budgetsandfinancialforecasts

• typeofirrigationsystem/watersupply

• courseandsloperating

• size/length/layoutofcourse

• design/qualityofcourse

• facilitiesavailable

• topography

• age

• landscaping

FinancialData

Agolfcourseownerormanageristhemainsourceofagolfcourse’sfinancialdata.Awrittenrequestforthepertinentfinancialinformationismadetoeachgolfcourseowner.Acopyoftheoperatingstatement,includingrevenueandexpenses,isrequiredannually.


Revenuedatarequiredonanannualbasisincludes:

• greenfees–non-memberandguestfees,packagedeals,tournaments,etc.

• cartrentals–rentalfees,trailfees,storageandbatterychargingfees

• membershipfees–alltypesofmembershipfeesandannualduesplayerspayforthecurrentgolfseason

• range–allrevenueearnedfrompayandplayatadrivingrangeand/orrevenuefromdrivingrangememberships

• lessons–allrevenuederivedfromgolflessonsaftercommissionispaidtotheinstructor

• proshop–revenuefromsalesofallmerchandise

• foodandbeverage–food,alcoholicbeveragesandnon-alcoholicbeveragesfromallsources,includingbanquetsandtournaments

• otherrevenue–breakdownofallotherrevenue

Costofsalesdatarequiredonanannualbasisincludes:

• proshop–thedirectcostofpurchasestosupplethegolfshopwithgolfmerchandiseforsale

• foodandbeverage–thedirectcostofpurchasesoffoodingredients,alcoholicbeveragesandnon-alcoholicbeveragesforre-sale

Expensedatarequiredonanannualbasisincludes:

• wagesandbenefitsfromallsourcesatthegolfcourse,shopsandrestaurants,includingmanagement,directlabourandassociatedbenefitcosts,employerhealthtax,vacationpay,staffon-siteaccommodations,staffmeals,clothingallowance,etc.

• administrationduesandsubscriptions,alltelecommunicationcosts,automotivecosts,costfortravel/education/training,officesupplies,computersupplies,donationsandbankcreditcardcharges

• proshopsupplies,includingallconsumablecostsassociatedwiththeoperationofthegolfshop(forexample,uniformsforgolfshoppersonnel,scorecardsandpencils)


• foodandbeveragesupplies,includingallconsumablecostsassociatedwiththeoperationofrestaurants(forexample,uniformsandnapkins)

• marketingexpenses,includingallchargesforpromotionaladvertisinginprint,radio,televisionandonline

• turfoperations,includingthecostoffertilizer,pesticides,aggregatesandfueltooperatetheturfequipment(butnotincludingcoststopurchaseorleaseequipment)

• professionalfeesforexternalconsultants(forexample,legalandaccountants/auditors,includingtravelanddisbursements)

• repairsandmaintenance,includingallexpensesrelatedtorepairbuildingsandassociatedfurnitureandfixtures(butnotincludingcapitalexpenditures)

• allutilitiesassociatedwiththeoperationofthefacilities,includinghydro,propane,gas,heatingoil,waterandsewage,andcableandsatellite

• alltypesofinsurancerelatedtotheoperationsandbuildingsofagolfcourse(excludinginsurancerelatedtoemployeebenefits,whichisaccountedforunderfringebenefitsbydepartment)

• abreakdownofallotherexpenses

Pleasenotethatnoneoftheexpensecategoriesshouldincludeanyinterestpayments,mortgagepayments,loanpayments,propertytaxes,amortization,depreciation,capitalimprovementsorpurchasesofcapitalassets.

PersonalPropertyData

Ifowned,detailsofownershipshouldincludethedepreciatedcostofthefollowingequipmentand/orfurnishings:

• golfcarts

• maintenanceequipment

• kitchenequipment

• clubhousefurnishings


Ifleasedorleasedtoown,detailsoftheleaseshouldincludetermsandpaymentsforthefollowingequipmentand/orfurnishings:

• golfcarts

• maintenanceequipment

• kitchenequipment

• clubhousefurnishings

GolfCourseSalesData

MPACalsocollectsdatawithregardtosalesofgolfcourses.Thisinformationisrequiredforestablishingtheappropriatecapitalizationratestoapplyinthevaluationandconfirmingfinalmarketvalues.

Salesdatatobecollectedincludes:

• propertyaddressandlegaldescription

• salesprice

• dateoftransfer

• nameandaddressofvendorandpurchaser

• intereststransferred(feesimpleorother)

• purchasermotivation

• financingconditions

ItisimportantforMPACtoascertainasmuchinformationaspossibleregardingeachsale,includinglocalmarketfactors.Allinterestsinthepropertysalemustbeisolatedandseparatedtoderiverealisticvaluesfortheassessableproperty.Golfcoursesalesincludenon-assessableitems,suchasinventory,personalproperty,intangibles(businessvalue)andthecontributoryvalueoftheimprovements.

MPACassessorswillanalyzesalesfromabroadgeographicalareatodetermineappropriatevaluesandanalyzelocalmarketconditionstoreconcilethesaleprices.


Confidentiality

Asoutlinedabove,itisimportanttobeawarethat,inordertoenableMPACtoproduceanaccuratevaluationofthepropertyconcerned,informationneedstobeobtainedfromavarietyofsources.

ThiswillincludeinformationfromMPAC’srecords,fromtheowneroroperatoroftheproperty,fromthemunicipalityinwhichthepropertyislocated,fromtheassessor’svisittotheproperty,andfromothersources.

AllstakeholdersinthepropertytaxsystemhaveaninterestinensuringthatthecurrentvalueprovidedbyMPACiscorrect;inordertoachievethis,itisnecessaryforallpartiestocooperateintheprovisionofinformation.

Itisappreciatedthatsomeoftheinformationoutlinedabovemaybeofacommerciallysensitivenature.MPACrecognizestheneedtoensurethatanyinformationprovidedtoitisproperlysafeguardedandonlyusedforthepurposeforwhichitissupplied.Assessorsmustappreciatethenatureofthisundertakingandensuredataistreatedaccordingly.

If,afteranappealhasbeenfiled,MPACreceivesarequestforthereleaseofactualincomeandexpenseinformation,orothersensitivecommercialproprietaryinformation,theusualpracticeistorequirethepersonseekingtheinformationtobringamotionbeforetheAssessmentReviewBoard(ARB),withnoticetothethirdparties,requestingthattheARBorderproductionoftherequestedinformation.ThereleaseofsuchinformationisatthediscretionoftheARBandcommonlyaccompaniedbyarequirementforconfidentiality.

TheAssessmentActoutlinesinsection53(2)thatdisclosedinformationmaybereleasedinlimitedcircumstances“(a)totheassessmentcorporationoranyauthorizedemployeeofthecorporation;or(b)byanypersonbeingexaminedasawitnessinanassessmentappealorinaproceedingincourtinvolvinganassessmentmatter.”

2.4DataAnalysis

Havingcarriedoutthedatacollectionoutlinedpreviously,theassessorneedstoanalyzethedataandreachaconclusionregardingtheappropriatevaluationmethodtouseandhowitshouldbeapplied.Theprocessincludestheanalysisofthesalesdataandtheanalysisoftherevenueandexpensedata.


AnalysisoftheSalesDataCollected

Salesdataisanalyzedtoestablishbenchmarksandthecapitalizationrate(R)–thenetoperatingincome(NOI)ofthegolfcoursedividedbyitssaleprice–whichcanthenbeusedtovaluesimilarproperties.MPACmaintainsadatabasetoenablethedatafromdifferentpropertiestobeanalyzedandcompared.Thedataisclassifiedsothatitcanbesortedintoappropriategroups,whichreflectthedifferenttypesofgolfcoursesinvariouslocations.

AnalysisoftheRevenueandExpenseDataCollected

Thefirststepistostabilizeincomeandexpenses.

Golfcourseincomeandexpensescanvarysignificantlyfromoneyeartothenext.Becausethevaluationofgolfcourseslookstotheincomereturnedoverthelongrun,itwouldnotbeappropriateforMPACtovaluegolfcoursesonthebasisofoneyear’spoorperformanceoroneyear’sexcellentperformance.Bystabilizingtheincomeandexpensesoverathree-yearperiod,thepeaksandvalleysofincomesandexpensescanbereducedandthevalueofthegolfcoursebecomesbaseduponamorestablepictureofthegolfcourse’sperformance.

Oncethedatahasbeencollectedandtheassessorhasestablishedstabilizedrevenuesandexpenses,thenextstepistocomparetheactualrevenueandincomeperformanceofagolfcoursetotheindustrynorms.

Bycompilingtheincomeandexpenseinformationintoadatabaseandthenclassifyingallofthegolfcourses,MPACisabletoestablisharangeofvaluationparameters.Theseparameterscanthenbecomparedtopublishedindustrydataandindustrynormsandcanbeusedtoanticipateexpectedperformancelevels.

MPACworkswiththeNationalGolfCourseOwnersAssociationinordertoestablishcertainindustrynormsthatareappliedtotheassessmentofallgolfcoursesacrosstheprovince.Thesenormsinclude:

• roundranges

• discountratefactor

• costofsalesfromproshop(percentage)

• costofsalesfromfoodandbeverage(percentage)

• overallexpense(percentage)


• capitalizationrate(range)

• personalpropertydeduction(percentage)

2.5Valuation

Havingundertakenthenecessarystepsoutlinedabove,theassessorshouldnowbeinapositiontoapplytheappropriatevaluationmodel.

2.6ValidatingtheResults

Oncetheassessorhascompletedthevaluation,itisnecessarytocarryoutaseriesofcheckstoensurethatallrelevantpartsofthepropertyhavebeenincludedinthevaluation,therehasbeennodouble-countingofanyadjustments,theresultingvaluationhasbeencomparedwithanymarketevidencethatmaybeavailableinrelationtosimilarproperties,andthefinalvaluationisinlinewiththevaluationofothersimilarpropertiesinOntario.


3.0TheValuation

3.1Approach

Regardlessofthetypeofgolfcourse,MPACvalueseverygolfcourse(assumingtheproperty’shighestandbestuseisagolfcourse)asifitwereapublicfor-profitcourse.Thisensuresconsistencyinthevaluationofgolfcourses.

First,theassessordeterminesthegolfoperations’revenuebyidentifyingthecourse’sprimegreenfeerate,thenmultiplyingitbyastandarddiscountratetodeterminetheaveragegreenfee.Theaveragegreenfeeisthenmultipliedbythenumberofroundsappliedtothesubjectgolfcourse.

Otherprojectedstabilizedrevenuesareaddedtothisgolfoperationsincomeincludingcarts,range,lessons,proshop,food/beverage,etc.,inordertoestablishtheproperty’stotalrevenue.

Costsofsalesarethendeductedfromtheproshopandfoodandbeveragerevenuestodeterminethegrossmargin.

Finally,tocalculatetheNetOperatingIncome,expensesaresubtractedfromtheGrossMargin.

TheCapitalizationRate

MPACanalyzesmarketdatatodetermineagolfcourse’scapitalizationrate.Thecapitalizationrateappropriateforthepropertywilldependonawiderangeoffactors,includingthelocation,populationbase,size,length,age,quality,condition,etc.

Thecapitalizationrateisderivedbyusingthefollowingformula:

CapitalizationRate=NetOperatingIncomePropertyPurchasePrice

Thecapitalizationratealsoincludesanadjustmenttoreflecttheeffectivetaxrateasthevaluationisbasedonthenetincomeofthepropertybeforepropertytax.

ValueAttributabletoPersonalProperty

Aportionofthevalueofagolfcourseisattributabletoandgoestosupportpersonalproperty.Thisamountisdeductedfromtheincomevalueofthegolfcourse.


Add/DeductOtherComponentsofValue

Fromtimetotime,aproperty’svalueisnotentirelycapturedorisoverstatedbytheapplicationoftheincomeapproach.Anadjustmenttothevalueisthenrequired.Anexamplemaybeanadditionforexcessland.

ExcessLand

Insomesituations,theremaybesurpluslandsaspartoftheproperty,which,becauseofmarketconditions,maybeundeveloped.Thissurpluslandmustbevaluedseparatelyandaddedtothemarketvaluedeterminedforthegolfcourseportionoftheproperty.

Thedeterminationofexcesslandinvolvesareviewofcurrentzoningbylawsaswellasthecurrentdensityandconfigurationoftheproperty.Excesslandvalueistypicallyderivedusingmarketsalesstudies.

FinalizetheValuation

Thefinalstepintheprocessistoconsolidateamarketvaluefortheproperty.

3.2SampleValuation

Asamplegolfcoursevaluationisshownbelow:

Numberofrounds 25,000

PrimeRate $100

Factor 58%

Golfoperationsrevenue $1,450,000

Cartrentalrevenue $200,000

Golfrangerevenue $200,000

Lessonsrevenue $100,000

Otherrevenue $200,000

Proshoprevenue $100,000

Foodandbeveragerevenue $400,000


Totalrevenue $2,650,000

Less:Costofsales

Proshop $74,000

Foodandbeverage $180,000

Grossmargin $2,396,000

Less:Expenses $1,892,840

Netoperatingincome $503,160

Capitalizationrate(9%)

Effectivetaxrate(1.07%)

Overallcapitalizationrate 10.07%

Indicatedvalue $4,996,624

Less:Personalproperty(9%) $449,696

Netvalue $4,546,928

Rounded $4,546,000

3.3Conclusion

ThisguidesetsouthowMPACassessorsapproachthevaluationofgolfcoursesforpropertyassessmentpurposes.

Althoughitoutlinesthegeneralapproachadopted,itdoesnotreplacetheassessor’sjudgmentandtheremaybesomecaseswheretheassessoradoptsadifferentapproachforjustifiablereasons.

ForfurtherinformationaboutMPAC’srole,pleasevisitmpac.ca.

methodology guide- valuing golf courses in ontario - …

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