Scrap Golf Course Appraisals Before 2015
I’ve been in golf since the 1950s. I’ve brokered, financed, designed, managed, evaluated and consulted golf courses all around the country. At my website, Golfmak.com, I predicted the situation golf finds itself in today. My outlook was supported in a publication by the National Golf Foundation (www.NGF.org) and McKinsey and Company, A Strategic Perspective on the Future of Golf, January 30, 1999.
I had said in 1999 that 1997 was the last good year for the golf course industry overall. In 97, I was managing a Sarasota, Florida 27-hole golf course and saw the peak first-hand hosting over 80,000 rounds in a 12-month period. Rounds began to decline each year after to under 50,000 by 2006. The same wonderful money-making Sarasota golf course closed its doors forever in 2012.
The NGF document indicated there was a 100 million round gap in the industry by 2000 – meaning an oversupply of golf courses. The document indicated that growth in golf participation had flat lined in the last half of the 1990s, yet a thousand more golf courses were under construction or planned.
I AM NOT AN APPRAISER, BUT THEY CALL ME ALL THE TIME!
I’m interviewed by appraisers and county assessors often as they try to make sense of golf course values. For instance, in Hillsborough County, Florida, two golf courses were sold in the same 12-months. They were similar in acreage, clubhouse size, and round counts. The first one sold for $8.5 million. The second golf course, only 8-miles away from the first one sold for only $2.3 million. You can imagine the puzzled county assessor trying to figure that one out.
The only conclusion explaining the perplexingly different sale prices of the two Hillsborough County golf courses was that one buyer was willing to pay $8.5 million while the other was willing to pay $2.3 million. But that sale took place when the supply-demand golf course industry was still fairly stable. By 2007 there were far too many golf courses. The ‘correction’ had begun, golf courses were closing, and golf course values began to plunge.
In recent years (2008 – 2017) statistics on golf course sales prices are all over the board. However, one trend seems consistent: Golf courses are trading between 25% and 50% of what they were trading for 20-years earlier (the mid-1990s). For instance, in 2013, I brokered a Daytona, Florida golf course for $1.25 million that was worth over $5 million 10-years earlier. I brokered a Tampa golf course for $9.2 million in 2005 that sold for $3.2 million in 2012.
DEMAND TO OWN A GOLF COURSE IS DOWN TODAY.
The number-1 factor on value/price is demand. There just isn’t the phalanx of golf course buyers out there today that there was 20-years ago. That means an available for sale golf course will sit on the market for a long time – some over 2-years without a showing or a hint of a purchase offer. Another reason golf courses sit out there for a long time is that sellers tend to cling to offering prices of 10 to 20-years ago. The reality is that today’s golf course buyers, as few as there are, know enough about the golf environment not to fall for 1997 prices.
SO, HOW DO YOU PUT A VALUE ON A GOLF COURSE IN THE 2017 MARKETPLACE?
In the 1990s golf courses were traded on multiples of net operating income (NOI), usually from 6X to as high as 12X earnings. In the past five years, various publications and newsletters were indicating that the trading factor was based more on multiples of gross receipts (GR) – from .7X to 1.6X times gross receipts. Keep in mind, by 2010 not many golf courses were showing much in the way of profits, so multiples of earnings could not be applied. Therefore, a golf course with $1 million in gross receipts may be worth from $700,000 to $1.6 million. So, why such a spread?
When evaluating a golf course on GR, you can bet the lower valued golf course is losing money and probably has a build up of deferred issues like a redundant 25-year-old irrigation system, a leaky clubhouse roof, broken up parking lot, drainage problems, or a declining membership roster. The 1.6 X GR valued golf course may be making money and have fewer deferred issues. You hope smart diligence can sort it all out.
I can help you evaluate your golf course (link to an evaluation article on Golfmak.com), but if you want a full-blown professional appraisal, I recommend Golf Property Analysts, President Larry Hirsh.
What about the land use factor?
LAND RIGHTS ARE GONE, SO NO THERE’S EXIT VALUE
Most golf courses built in the USA since the mid-1970s went through a permitting process whereby virtually all land rights (development rights) were given up. Usually, these were ‘finger’ golf courses that were part of residential developments (houses down both sides of the fairways). It means, more or less, the land under the golf course has no real value because nothing else can be done with it. In fact, I’m betting that 90% of the failing golf courses today are finger courses built since 1970.
Therefore, it can be said that a finger golf course less than 50-years old that loses money may not be worth anything because there is zero exit value in the land. In fact, that’s why many frustrated money-losing golf course owners who couldn’t sell their golf courses just gave up. In fact, the reason so many banks own golf courses in recent years is that many frustrated owners simply threw the keys at the banker and walked away.
IT’S A BITTER PILL. WILL IT COME BACK? I SAY YES!
After several years of golf course ownership and realizing the present value of your golf course today is disappointing after all the hard work and attention you’ve given it. If you’re an owner upside down with your bank, an equity member, or part of an investment group, you have only two real choices: Stick with it until things turn around; Or sell it for what you can get, lick your wounds, and go on with life.
If you can hold on, I believe there is light at the end of the tunnel. I say that because I believe golf is shedding the old 1935 attitude and leaping forward to the culture of today (we’ll know we’re there when the PGA Tour allows its players to wear shorts). Golf is already starting to develop more life, more excitement, as the purple haired group dies off. Golf lost the age 18 to 35-year-old group in the 1990s, but that gang is coming back – evidenced by the explosion of TOP GOLF (31 locations, 14 more planned quickly).
If you have any questions about a golf course anywhere please write me, firstname.lastname@example.org. I always reply.
Mike Kahn, President, Golfmak, Inc., St. Petersburg, Florida.