Marcus & Millichap News: A Good Time for Golf ~ Steven Ekovich
Investors are always looking for opportunities to buy right at the start of the uptrend — which perfectly describes the market for golf courses right now. Golf properties were hit hard in the Great Recession, but are now showing significant signs of improvement.
“The golf industry has been in a state of recession since 2006. Usually golf is the last to go into a recession and the first to come out. However, in the Great Recession, once we went in, we didn’t come out,” says Steven Ekovich, Vice President and Managing Director of the National Golf & Resort Properties Group (a division of Marcus & Millichap). “We’ve had six straight years of decline in revenue, in EBITDA, and that caused tremendous financial stress throughout the industry.”
Ekovich estimates that distressed assets in the category have decreased by 65% since 2009, and the average transaction price in the first half of 2011 increased from $3.1 million to $3.3 million. You can read more about the specific data points in this Bloomberg interview with Ekovich.
“What’s happened as a result is a lot of golf courses were operating at negative EBITDAs. As a result, they were either in technical default of their loans or had loans coming due that they could not finance since most golf courses’ value have declined about 50% since 2006,” says Ekovich. “So many golf courses went back to lenders, and when we started the group in 2009 we were very lucky to step into that arena of distress and very quickly develop our brand by working with lenders.”
A good time for golf
Now may be one of the best times in years to invest in golf properties. But if you are considering investing in a golf property for the first time, this property type has several unique factors that you’ll need to consider:
• Business management — Unlike owning a net-leased retail establishment that requires relatively little oversight, owning a golf property is more complex. It involves running a business that includes a variety of employee types and revenue streams to manage.
• Six businesses in one — Most golf courses operate about six businesses in one: the greens, the driving range, private lessons, the food and beverage business, a banquet business, and the retail store. In some cases, there are also tennis courts and a pool club.
• Grounds management — You’ll need to understand and assume responsibility for the course’s grounds. You should know, for example, what condition the greens are in, whether the course is well irrigated, and how well it drains.
• Location — You should understand where the golf course fits in with local competition. For example, is the course connected to a housing community, or is it open to the public?
• Capital expenditure spend opportunities — Determine what types of capex improvements can be made on the course and how such expenditures will impact revenue.
Partner with industry experts
When considering a niche investment type such as golf, make sure to consult experts who have worked in the space for years. When Ekovich and Chris Karamitsos, Senior Investment Advisor and Partner, started the National Golf & Resort Properties Group in 2009, there was no precedent at the time for a completely dedicated investment broker in this space. Since then, the group has sold 53 golf courses and has 11 more under contract.
“I was a regional manager for 17 years for Marcus & Millichap. It occurred to me that we had clients that owned golf courses that were acquired either through passion buys, vanity buys, or through acquisition of portfolio properties,” says Ekovich. “They’d have a golf course with no way to monetize that investment. So that’s why Chris and I started the Golf and Resort Properties Group. We had to respond to the needs of our client base.”
Golf property owners who have been holding out may want to consider their sale now, as investors begin looking for entry into this market. Owners and sellers alike can benefit from the expertise of the National Golf & Resort Properties Group plus Marcus & Millichap’s collaborative platform, which enables agents to cast a wide net and connect with buyers who are ready and eager to purchase these properties.
To learn more, contact Marcus & Millichap now for a Broker’s Opinion of Value and consultation to set a strategy for sale of your property.