Why Invest in a Golf Course?
With the new mini-boom in real estate in 2013 investors are again purchasing commercial real estate. They prefer established properties in good neighborhoods with a positive cash flow.
There are about 16,000 golf courses (18-36 holes) across the country, about 4,500 nine-hole properties, and nearly 900 par-threes. The better properties have suffered the loss of some players during the real estate crash of 2007-2011 but stand out from the rest by better financial performance.
Several key points are:
· Profit proven properties may be bought at competitive cap rates; and
· Commercial properties are selling from one-third to about one-half replacement cost.
The better golf properties to invest in share common characteristics. Properties with a poor or questionable location should be avoided. The jewels have similar characteristics as a good retail site. They will be located only in an area with good demographics, a lower crime rate, higher end shopping and restaurants nearby with upper middle class neighborhoods in the vicinity.
Age: An older course will present a more mature settled appearance. When the buildings and golf course have been well maintained with occasional upgrades they may be a prime candidate. By a rule of thumb, a course less than five years old probably has too high financing costs to assume, unless the investor can determine it has positive financial data for at least the last three to five years.
The Neighborhood: The better courses are located where the surrounding community and infrastructure are built out and settled. In the current recessionary environment, an investor should be quite cautious before buying when the surrounding neighborhood is still being developed.
A mini-fitness center: A center both men and women can be an attraction and an “added value” justification for their monthly dues payment; special events planned (holiday celebrations, author signing luncheons, entertainment) which can attract more traffic which leads to more income.
Some golf facilities do a poor job with their food offerings. Even a shorter menu should be high quality with a great presentation and service by facilities which can’t afford a full food and beverage option. A clubhouse that is spacious with an adequate kitchen and sufficient room to support a caterer for larger special gatherings such as weddings and banquets can be profitable and increase customer retention.
Property Type: It is preferable to seek out a single owner. As a rule it’s much easier to negotiate with one person rather than a board of directors. A golf course that charges a daily fee or a combination of daily fee and dues-paying members who have no ownership interest in the property is the easiest type to own and operate.
Private clubs with a board of directors should be avoided in general. They have a tendency to overvalue the golf course property and it’s harder to obtain a decision from a board and any equity members. (equity members have a vested interest in the property they may have bought with an initiation fee.) Properties owned or controlled by a homeowners association can be up for consideration as long as the investor spends time to investigate the group prior to any investment which should be a step in the investor’s due diligence research.
Success in negotiating a good deal can largely hinge on personalities of the leadership. It’s generally better to move on when an investor finds they are dealing with a group who have unrealistic attitudes about the property’s value or conflicting agendas.
Market Research: Some golf course operators may lack essential data about their customer base even though they understand course management. It’s not enough to think you have a general idea of what needs your customers have. The wrong or incomplete intelligence data can lead to a domino effect of errors in services, use of facilities, stock available, pricing, and necessary market positioning.
Final Evaluation: It is imperative for the golf course investor to run the figures past his or her accountant before ever making the offer. An accountant who deals with business profit and loss statements regularly can tell the investor if the golf course is likely a winner, meaning it generates a positive cash flow, of if it presents as a potential problem property to operate which could turn into a negative cash flow. All these facts and figures are obtained during the due diligence research one completes prior to ever making the real estate offer for the course.