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May 2019

Still plenty of green to be found

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Despite industry assumptions, investors are buying golf real estate

By Scott Kauffman

In the last decade, more than 1,200 U.S. golf facilities closed, according to the National Golf Foundation, and the total number of U.S. golfers dropped to 23.8 million from a high of 32.9 million in 2003. Yet, in spite of this NGF data and the not-so-favorable mainstream media coverage that continues to perceive golf business as a non-growth industry, investors still see “green” in the underlying real estate asset class as an operating course.

At least that’s the attitude of numerous leading real estate brokers specializing in course marketing from coast-to-coast and a number of fairly new course buyers.

To be sure, closed courses acquired for residential and commercial redevelopment have been – and will always remain – prime targets for real estate investors, builders and developers.

But there’s a wave of new first-time buyers who keenly see opportunity or “green” when it comes to maintaining 9 or 18 holes of fairways, manicured greens and reimagined clubhouses for the modern-day club member/consumer attracted to these green-space settings. And many of these new investors are far from golf business rookies, whether it’s former Yamaha national sales manager Brooks West, PGA, in Nashville; noted Scottish PGA Professional Kenny Nairn in Orlando, longtime American Golf executive Ken Hultz or career PGA Professional Rich Smith, to name a foursome of fairly new owners.

Indeed, while 1,200 courses might have closed their doors in the last decade, what’s missing in that statistical backdrop is the fact there is arguably an equal number of individuals seeking contrarian strategies and actually buying courses and keeping them open.

Consider that Marcus & Millichap broker Steve Ekovich’s Tampa-based Leisure Investment Properties Group secured more than 150 buyers during that same timeframe, and Jon Knudson of Scottsdale-based brokerage Insight Land & Investments counts more than 40 course transactions in the last 10 years.

Meanwhile, Adel, Georgia-based broker Hilda Allen closed on more than 40 course sales in the last five years alone (1,000-plus since 1991), and CBRE managing director Jeff Woolson of Carlsbad, California, whose Golf & Resort Properties is the leading leisure real estate brokerage firm in America with more than $1.1 billion in sales volume since 1991, is averaging 10-15 course sales per year since 2009. And this is just a sampling of the real estate professionals in course brokerage.

Industry brokers and owners acknowledge supply and demand in the golf asset class hasn’t fully recovered from the financial crisis 10 years ago, and there certainly are not as many large-scale institutional private equity-type buyers chasing investment yield in the golf space. Lack of Wall Street capital notwithstanding, golf business and its typical 100-plus acres of real property continues to attract a steady flow of interested shoppers and buyers.

“I’m not convinced that it’s harder to find golf course buyers,” says Golf Property Analysts President Larry Hirsh, one of the country’s leading golf course appraisers/brokers, principally focused in the Mid-Atlantic/Northeast markets. “If the opportunity meets their investment criteria, they’ll pursue it. Of course, there are still – believe it or not – some hobbyist buyers who simply like golf and have money. … There are, in my experience, plenty of suitors for cash-flowing properties or those that have opportunity to cash flow.”

Therein explains the ongoing rush by course suitors, especially savvy golf-experienced professionals, to jump in the business. Simply put, many of these first-time buyers see opportunity to grow. Especially when the course or club is in the right place, at the right time – and equally as important, at the right price or valuation.

That was certainly the case of West, who closed last Dec. 31 on the former Crossing Golf Course (renamed Franklin Bridge Golf Club) in booming, affluent Williamson County outside Nashville with the help of a Small Business Administration loan and a few local investor partners. As West put it, he’s either a revolutionary or just not so smart, he said with a confident smile of someone with 20-plus years in the business.

If anything, West, a graduate of Mississippi State University’s PGA Golf Management program with impressive private club pedigree and strong sales experience for Ahead and Yamaha, is part of an exclusive course ownership club. According to Smith, former CEO/executive director of the PGA of America’s North Florida Section and new owner of Charlotte Harbor National Golf Club at Bobcat Trail and Golf Links of Charlotte Harbor in Port Charlotte, Florida, there’s probably 120 fellow PGA Professionals who own courses – out of some 29,000 members overall.

“Twelve years ago there was way more interest in golf than there is today and there were a lot more larger companies (acquiring courses),” Ekovich points out. “What’s really different is there’s a lot more first-time buyers in the market and buyers new to golf because the affordability index for golf courses has totally changed. The model’s changed.

“Before, an average course that was $4 million was out of most people’s range. Now, that course, let’s call it a pre-2006 property, is worth $1.9 or $2 million. As a result, it opens up a lot more people. We’ve seen two different classes of buyers that have really come to the forefront in the last year or two. First is the golf course person with experience but working at other firms – someone seeing opportunities at courses being mismanaged by people who bought them and didn’t know what they were doing, or they were in bad locations.”

The other first-time buyer increasingly kicking golf car tires these days, says Ekovich, is the “golf-passioned buyer” who believes golf’s traditional ways of doing business no longer works and they can create more “ebitda” or net income/value by adopting a more service-oriented, hospitality approach to golf. That can be everything from creating more “restaurant-type touch and feels throughout the club,” Ekovich adds, or adopting things like “internet marketing using the hotel model for tee times.”

Fueling this confluence of first-time buyer activity is the fact more courses are falling into that “affordable” $2 million range, meaning the ability to raise capital from “family and friends” or SBA financing, for example, is more realistic. Of all the different commercial real estate asset classes, Woolson says golf and second-home developments are the only ones that haven’t “fully recovered” in the recent real estate cycle or economic expansion.

“Golf is slightly ahead of second-home real estate,” Woolson notes, “But these are the two lagging asset classes for two different reasons. Second-home real estate hasn’t recovered because there’s a lot of people who don’t want to own second homes. There’s a lot of people, the Gen Xers and Millennials that are saying, ‘We don’t know if we want to own a home in the mountains like our parents did.’

“Golf, I still think, is a viable asset class. It provides great cash flow. And we’ve had this in our proposals a lot. We call it the tale of two cities. Some golf courses are worth a lot; some golf courses are worth nothing. And there’s hardly anything in the middle. Golf course investments, and I don’t mean playable wise, I mean investment wise. … There’s either really good investments or there’s just really bad investments. Really bad ones are not trading and they’re not doing well.”

That’s not the case at Gettysvue Polo, Golf & Country Club, situated high atop a matured affluent Knoxville, Tennessee, community that looks out over sweeping views of the Smoky Mountains. Featuring a strong membership base and great pool, tennis, fitness and clubhouse amenities, the private facility “always had my eye,” says Hultz. And Hultz knows this property well because his company, American Golf, oversaw the club prior to his scheduled closing April 9.

“Like anything, you identify areas of opportunity whenever you acquire a club or asset, and from our perspective, Gettysvue had continued to be enhanced by American Golf in every level,” says Hultz, who was buying the club with three other career golf operations professionals. “There’s a better member experience, improved facilities. … And I think myself and the friends/partners that are part of this, we all identified there’s still those additional opportunities to drive membership and the member experience.

“From our vantage point, which all of the partners feel and truly believe. If you take care of the members, the P&L (profit and loss) will take care of itself.”
Nairn, managing partner of Orlando-based CFL Golf, has been taking care of golf operations business since 2008, when he joined Celebration Golf Management after his organization acquired Celebration Golf Club near Walt Disney World. Ten years later, after his previous group dissolved, Nairn became the owner of three other successful Orlando-area properties: Eagle Creek Golf Club, an upscale daily course in one of the country’s top-selling master-planned communities (Lake Nona); RedTail Golf Club, a semi-private facility in Sorrento at the doorstep of a soon-to-be-completed beltway that will encircle Orlando; and 36-hole King’s Ridge Golf Club situated in an active age-restricted community.

Nairn’s partner in the new company is Larry Snyder, a third-generation certified course superintendent. In many respects, Nairn’s adjustment in becoming a course owner has been matter-of-fact. “It’s like everything,” Nairn notes. “You make a decision with all of the due diligence in advance.”

Without providing specific figures, privately held CFL Golf is successful to say the least as it enters its fourth season. 

“If you can pay your debt, then you’re obviously doing something right,” says Nairn, a native of St Andrews, Scotland. “And if you can pay your debt, you’re usually putting some capital back into the property and so forth. So, your other hat is obviously real estate. You got to buy it right. And obviously – location, location, location. I think we’ve been successful in those things.”

Regarding future golf property investments, Nairn, 48, says he’s not actively looking. And with his daughter beginning her last year of university, meaning “she’ll soon be off my payroll,” the Scotsman really doesn’t know what the future holds for his course portfolio and beloved game he represents so well as a member of the PGA of Great Britain & Ireland and European Golf Teachers Federation.

“From an investment perspective I can easily say I don’t know the out or the end result,” Nairn says. “I would not say we’re successful or not successful. Our doors are open; our courses are in great condition; we’ve got fantastic employees. Let’s put it that way.

“Golf is a very difficult business to be in, but I would say every business is difficult because you got to try and get your experiences correct. You got to try and get your marketing down. I’m coming up on over 20 years in Orlando and every year I still think about marketing. OK, what did I try last year? What was my success; what were my failures? It’s working but it’s just bloody hard work.”

For a growing number of first-time course owners with golf backgrounds like Nairn, it’s bloody hard work they wouldn’t trade for anything else right now. 

Scott Kauffman is a golf business writer and the managing director of Aloha Media Group.

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