Golf's 'Adjustment' Continues
Linkedin member, Allen DuPuy, posted this article whereby another well known favorite Myrtle Beach golf course, Heather Glen, is probably going to be paved over in 2018 - http://www.myrtlebeachonline.com/sports/golf/article161878928.html
It says, " Other courses that have closed since February 2014 include Waterway Hills Golf Links, Heron Point Golf Club, Wicked Stick Golf Links, Cypress Bay Golf Club and the nine-hole Carolinas Country Club, and many of those properties are being redeveloped.
Once with 120 courses stretching from Georgetown to Southport, N.C., the Grand Strand is now down to about 90 layouts. The number could decrease even more in the next few years."
Of course, everyone is crying that 'golf is dead!' when all we're seeing is a natural adjustment from the overbuilding of golf courses for about 15-years (1990-2005).
GOLF COURSE INVESTORS ARE TRICKLING BACK
Meanwhile, I'm seeing a few investors taking a second look at marginal golf courses. After all, acquisition prices are often less than 1/3 what it would cost to build a golf course in 2017. And golf courses are land first and foremost, which attracts foreign investment into the USA. However, the purchase price of a golf course today is probably less than half the real cost because of deferred issues.
25-YEAR-OLD GOLF COURSES WILL HAVE DEFERRED ISSUES
Golf courses more than 25 years old you can expect will have all kinds deferred issues. For instance, irrigation systems have about a 20-year life span before they need an extensive overhaul or even complete replacement. (I priced a complete replacement for a Daytona area 18-hole golf course in 2013 and it couldn't be done for less than $1.3 million).
Irrigation is just the beginning of refurbishing a 25-year-old golf course. Figure the clubhouse roof, est. $60,000, the parking lot, est. $70,000, air conditioning units (some clubhouses have several) est. $30,000, kitchen equipment like stoves, freezers, and coolers, est. up to $50,000. Don't forget golf course maintenance equipment. A full pallet of new mowing and grooming machinery can run $1/2 a million. Even replacing missing small tools can 'nickel and dime' you to death.
The last 30-year old clubhouse I looked after was like a grungy old ship. Leaky roof, failing plumbing, musty smelling washrooms, worn out carpeting, dilapidated landscaping, rodents, dangerous electrical outlets, out-of-date POS system, Windows 98 computers - get the picture?
BUT ONE CAN STILL ACQUIRE A 25-YEAR-OLD GOLF COURSE AND REFURBISH IT FOR LESS THAN THE COST TO CREATING ONE FROM SCRATCH
I don't believe you can buy land and build a 'competitive' golf course today for less than $5 million - and can probably run closer to $10 million. To review the costs and maintenance budgets for golf courses review a guide by Architect, Dr. Michael Hurdzan, past president of The American Society of Golf Course Architects, Building a Practical Golf Course Facility, in PDF.
So, buying a golf course for $1 million and refurbishing it entirely with another $2 million might still make it a bargain. However, the golf course still has to pay its way. I always calculated that the fee to play a golf course would be $10.00 per $ million it cost to create the golf course. Therefore, the scenario in this paragraph means it's a $30.00 a round golf course.
I don't see why that can't work.
BONUS BUYING OLDER GOLF COURSES: THEY MAY STILL HAVE FULL LAND RIGHTS
I've learned that most golf course built since the mid-1970s gave up other land use rights via the permitting process - especially residential community golf courses. So, it means it's either a golf course or nothing. But golf courses built before the 70s may still retain their original land rights, which makes them attractive to investors because the land may someday be developed. If you're considering investing in a golf course take an areal look at it on Google Earth. If development is around the outside perimeter of the golf course (we call it a 'core' golf course) the land may have development possibilities. However, if the fairways finger through residential homes you can bet the golf course land has virtually no value.
I AM MORE OPTIMISTIC ABOUT GOLF THAN MOST
Hey! Golf in some fashion has been around as long as mankind. Golf ain't going away. I believe there are millions of people who would give golf a try if given the opportunity. I know between the late 1980s and until about 2005 they built too many golf courses while the culture of building the game had stopped - that's another story. But I look down at the 10th tee at my golf course from the 6th floor and foursomes continue through all the time - men and women.
I think golf is moving into a new era. The PGA Tour is far more athletic than it was during the days of Walter Hagen and Julius Boros. The golf swing by golf's number-1 world ranked players (in my opinion) is a highly precise action equal to an action by a champion figure skater, or a daring Circ Du Soleil acrobat. I mean they're driving 360-yard par-4s! That's athletic don't you think?
If you haven't seen golf's new sensation take a look at Top Golf. Look at how it's attracting young people. No 1935 dress codes (wake up PGA Tour). It's not long before Top Golf patrons will want the real thing - golf courses.
Golf is here to stay.