Buyer Sentiment – 2016 Year in Review
Throughout 2016, buyer sentiment within the golf industry can be broken up into several distinct groupings based on purchase price. Generally speaking, the types of properties being purchased and the types of investors involved are based almost exclusively on the price of the asset. The chart at the bottom of this page summarizes these price-based groupings, including the traits of the properties and characteristics of the people buying them. But first, let’s review two broader observations of the industry’s buyers. What types of properties are most desirable? What is the general attitude from investors regarding potential golf asset acquisitions?
Traditional Golf Opportunities
Looking at standalone golf investment opportunities (i.e. golf course only, with no excess real estate or hospitality), there are several recurring features buyers are seeking. As is the case with all real estate, location is key. For golf this typically means strong demographics (population and income), typically demonstrated by courses in major metros or affluent suburban areas. Being the focal amenity to a high-end residential community is a plus as well. Secondly, these courses must have strong gross revenue, with a focus on potential profitability from the total income collected. The deals must be large enough to make the investment (and subsequent returns) worthwhile – forget looking at acreage, the true “size” of a golf course is the top-line revenue produced. Finally, many buyers prefer private clubs over daily fee facilities. This is due to the reliable nature of monthly dues payments vs. the weather-reliant nature of public play. If it rains, your members still pay. One recent example which fits this description to a tee is Concert Golf’s purchase and/or recapitalization of several member-owned clubs, including both White Manor Country Club in Philadelphia and Crestview Country Club in Wichita.
Golf course properties with all of these specific characteristics rarely come up for sale. In previous years, buyers could acquire golf courses meeting these criteria in the form of REO deals from banks post-foreclosure. In lieu of those REO opportunities, many established investors have turned to negotiating with the members directly to purchase private member-equity clubs. The buyers are able to purchase the property below market value, as the sellers aren’t actively promoting the asset to the investment community. In exchange, the member-sellers get their debts wiped clean and stop getting charged with member assessments to cover operating losses. Furthermore, these deals typically include a promised investment of capital back into the facilities. Although they get a considerably lower price for the property, members can rest easy knowing that an experienced operator will oversee their beloved club for the foreseeable future
Outside of traditional golf deals, redevelopment opportunities have garnered significant interest throughout 2016. This is especially true for properties with strong demographics near major metropolitan centers due to the lack of development alternatives in these mature, densely populated areas. As important as location is the property having a clear path to redevelopment, including appropriate zoning and development plan approval.
For example, in November the City of Boca Raton fielded offers from developers for their municipal golf course. The 194-acre property is extremely well-located, and drew offers of $51 million, $73 million, and $73.2 million. These investors were developers with plans to repurpose the golf course site into between 600 and 700 mixed residential units. Although each offer was not contingent upon specific development plan approval the site has clear residential development potential. One of the potential buyers summarized the situation quite clearly, saying that “There’s hardly any raw land left. Golf courses are one of the only opportunities that exist when there is no land left.”
Buyer Sentiment in 2016
As detailed in the price range segmentation chart below, 2016 has shown that buyers exist for many types of golf properties. With that said, the year has also demonstrated a certain ambivalence among the investment community. While it’s true that the types of deals previously described can still garner excitement and competition from buyers, that’s largely because those opportunities are becoming far and few between. In short, buyers must be blown away by the opportunity – in 2016 this meant well-located assets with strong membership revenue or redevelopment potential.
Despite the lack of these ideal opportunities, buyers have remained disciplined and patient when analyzing potential acquisitions. Even profitable deals listed at 10x EBITDA (10% cap rate) still need upside in revenue or expenses, otherwise they will seem overpriced to most golf buyers. Compare this against stabilized apartments, which regularly sell at 20x EBITDA (5% cap rate). Furthermore, investors are less likely to believe in that potential, especially given industry concerns such as declining participation rates. While this has been true with regard to projecting revenue growth, many buyers now also doubt their ability to reduce expenses, as they assume owners have already cut all of the costs they feasibly can. In conclusion, there is plenty of interest from buyers throughout the industry, but a newfound patience to remain very selective in what they purchase. They’re content to wait for a “steal” of a deal, which have become few and far between. For a better idea of which buyers and property types were actively trading in 2016, refer to the price range segmentation chart below or contact an LIPG agent. ◊