How Private Clubs Finance Major Capital Projects

Clubhouse renovations, course restorations, new fitness and racquet facilities and major infrastructure projects can cost several million dollars, often more than a club's annual dues revenue. How the club pays for the project shapes member sentiment, cash flow and the balance sheet for years.

This guide covers the main funding sources for private club capital projects, the trade-offs of each, and how to build a funding model the board and members can evaluate.

Key takeaways

• Most large club projects combine assessments, debt, capital dues and initiation fees.
• Replacement reserves generally shouldn't fund new amenities.
• Model each funding mix over ten years and stress test it.
• Show members the per-member cost of each option.

Funding sources for club capital projects

• Existing capital reserves. Best for replacing existing assets on schedule. Using replacement reserves for new amenities can leave the club short when roofs and HVAC come due. See club capital reserve funding.
• Special capital assessment. A one-time charge to members, often payable over several years. Raises money fast and keeps debt off the balance sheet, but it is the most visible cost to members.
• Capital dues. A recurring charge on each member's statement dedicated to capital. Spreads cost over time and builds a predictable funding stream. See capital dues for private clubs.
• Initiation fees. Many clubs dedicate some or all initiation fees to capital. Works well when the waitlist is strong; risky if the membership market softens. See initiation fee accounting.
• Bank debt. A term loan or line of credit repaid from capital dues or assessments. Lets the club build now and spread the cost across current and future members.
• Member bonds or notes. Some clubs raise funds from members through bonds or notes. These involve legal and securities considerations that require counsel.
• Voluntary contributions. Naming opportunities or capital campaigns. Useful as a supplement, rarely enough alone.

Combining sources

Most large projects use a combination. A common structure: an assessment for part of the cost, bank debt for the rest, repaid from capital dues and a share of initiation fees. The mix depends on the club's existing debt, reserve balance, membership demand and how members feel about assessments versus dues.

Our article on club dues increases vs. special assessments walks through the math of the two most common choices.

Building the funding model

1. Confirm the total project cost including design fees, permits, contingency (often 10 to 15 percent), furniture and equipment, and lost revenue during construction.

2. Review the balance sheet before committing. See what to check on your club balance sheet before a renovation.

3. Model each funding mix over at least ten years, showing the effect on member charges, cash, debt service and reserves.

4. Stress test for slower initiation fee sales, higher interest rates and cost overruns.

5. Check lender requirements such as debt service coverage and minimum liquidity.

6. Show the per-member cost under each option in plain numbers.

Communicating with members

Members want to know three things: what it costs them, why now, and what happens if the club doesn't do it. Present the per-member cost by category, the condition of the current facilities, the competitive landscape for membership, and the alternatives considered. Clubs that show the full funding model, including the downside cases, generally earn more trust than clubs that present a single number.

Check the club's bylaws for member vote requirements on assessments and debt, and involve counsel early.

Accounting for capital funding

Track capital assessments, capital dues and designated initiation fees separately from operating revenue so the operating results stay comparable year to year. Capitalize project costs consistently with the club's written policy and move construction in progress to fixed assets when the project is complete. See club capital asset inventory for capitalization policy basics.

An independent club CFO can build the funding model, coordinate with lenders and present the options to the board.

Common questions

How do private clubs pay for clubhouse renovations?

Usually with a mix of special capital assessments, capital dues, a share of initiation fees, existing reserves and bank debt, chosen based on the club's balance sheet, membership demand and member preferences.

Is it better to assess members or borrow for a club project?

It depends. Assessments avoid interest but hit members all at once; debt spreads the cost across current and future members but adds interest and covenants. Many clubs use both.

Should clubs use reserves for new amenities?

Generally not. Capital reserves are meant for replacing existing assets. Using them for new amenities can leave the club short when major replacements come due.

Do members have to vote on a capital assessment?

That depends on the club's bylaws. Many require a member vote for assessments or debt above set amounts, so check the governing documents and consult counsel.