Why golf course values are up

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In every year end recap, we try to tell you what happened on a macro scale, what we think will happen in the future and what that means to you as a course owner.

If you look at golf’s dashboard, there are two main barometers that are the most important, the operational gauge (rounds, revenue, participation, weather) and the golf value gauge. The golf value gauge was up squarely for a second year in a row, but the operations gauge was down ever so slightly but revenue was up slightly. While it is clear golf still has some worrisome stats that were down: rounds were down 1 percent and depending on who’s numbers you use participation is slightly down, revenue was up slightly and those who play are playing more frequently. After seven years of decline, (2007-2012) if operations are down slightly and income is slightly up that is still good. We will take flat any day in an industry that has been besieged by bad press. In addition, Golf’s landscape has been forever changed by six mega deals that transacted this year. When nearly a billion dollars trades hands in the golf market affecting almost 10 percent of the stock, that capital brings with it two side benefits: the ability to infuse more capital into cap-ex for courses in need and significantly reduced basis’s. If you look at the golf industry as a patient that has had a seven-year flu, this almost billion dollar infusion is like, receiving the most powerful Penicillin known to mankind. What does this mean going forward?

Golf Values:

The median average of all golf course sales in 2014 for values $250,000 to $75M is up 15 percent to $2,305,300 from $2,000,000 in 2013. This is the second year in a row of increasing golf values after a significant run up in 2013 of 11 percent. This is positive for golf owners, golf lenders and the industry in general. (Excluded in both the median and average golf prices are golf courses over $75 million, major resort sales where golf is di minims, golf repurposing sales and major portfolio sales. The average golf sale was also up 1 percent to $4,211,000 in 2013 to $4,260,000 in 2014 after a 56 percent run up in golf’s average pricing in 2013. (However if we added in just one of the portfolio sales like Arics’ purchase of CNL’s golf courses, the average price paid would increase the average significantly since the CNL average was around $6M per course.) We now have two years in a row of increasing pricing, (the median being the most important barometer). The Fed considers two quarters of positive growth the end of a recession, I would submit two years of price growth shows an end to golf’s slide in value and proves we have reversed course from the seven year decline. Again, that does not even include the uplift from the portfolio sales, which is a one- time event so for that reason was not included and had leases and management contracts so knowing the values of each course in all the portfolios was difficult to determine. What is interesting is that total golf transactions (velocity) is up in the 11 percent range, not accounting for the mega portfolio sales.

Why have golf values increased two years in a row? The answer lies in a number of areas. The golfer population seems to be stabilizing at around 25 million, according to the NGF (some publications still have it eroding); Rounds and revenue have been up or flat the last few years, (i.e. certainly no longer in a steep decline); The economy is getting stronger. All three have signaled to investors that golf has bottomed out and is on the way back up. In addition, there is more financing entering the golf market place. At the last Crittenden golf conference in October, a number of new golf lenders were introduced to the audience that will lend nationally along with the existing SBA financing platforms and local lender financing. If a buyer can obtain more financing, that should translate into higher prices that they are willing to pay. Another way to look at it is, if you pay all cash you can buy at a discount, (which is the only way golf purchases were being made during the recession.) Another reason values have gone up is that cross-over buyers from different investment real estate classes who have chased yields down severely, look at golf and its returns as very enticing.

In addition, foreign buyers, particularly the Chinese, are interested in golf as foreign economies are weakening and their real estate prices are retrenching. With the US economy picking up steam, the US is a stable haven for foreign investment. Golf is a commonality that we all can enjoy as a pass time and is not as available in foreign countries. Finally, since most of the REO (bank foreclosures) have cleared the market, there are a lot of buyers chasing a few good deals driving values up, hence more demand for good product than supply.

Steve Ekovich will moderate the first day keynote on Why invest in golf? For more information on golf courses for sale or golf research information click on any of the links: www.leisurepropertiesgrup.com .

This report is an excerpt from our semi-annual Golf & Resort Investment Report. For more information or for the full report go to www. leisurepropertiesgroup.com .

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