New buyers in the market
In recent years, Korean and Chinese investors have come forward. They seek trophy properties, but they don’t throw money around like the Japanese did. If they have a game plan, it’s to buy venues with upside potential in locations favored by their countrymen.
“The hope is that Asians will overpay, but in my experience that’s wishful thinking,” said Chris Charnas of Links Capital Advisors. “Unless they have external factors weighing on them, they are businessmen who can read a balance sheet.”
And because they can, they’re selective.
Larry Taylor, CEO of SJS Tomorrow’s U.S. golf operations, said Kim paid only $500,000 — the amount of the club’s debt — for Bermuda Dunes. Kim paid $1.3 million for Pauma Valley Country Club near San Diego, and he paid $11.5 million for Dove Canyon Golf Club, a Southern California venue that once sold for $20 million.
“We want high-end country clubs in Southern California,” Taylor said. “Hopefully, we can buy for pennies on the dollar.”
Other Koreans have different strategies. L.A. Koreana Inc., a subsidiary of Bang Yong Hoon’s Koreana Hotel Co., has become perhaps the premier golf operator on Oahu by focusing on vacationers. Since 2005, Koreana has purchased five golf properties on the island, along with a resort-style hotel. It’s been lying low lately, but its last three acquisitions came in quick succession: Hawaii Kai Golf Course in 2015, Royal Hawaiian Golf Club in 2016 and Ko’olau Golf Club in 2017.
Lately, though, no Korean has been as active as Yoo, the new majority owner of PGA West. In 2018, Yoo bought Oregon Golf Club and six properties in California from American Golf Corp. They included Monterey Country Club, Sunset Hills Country Club and Wood Ranch Golf Club.
It’s notable that American Golf will continue to operate the courses, said Hinckley, who was CEO of American Golf until recently and whose Arnold Palmer Golf Management is running Yoo’s PGA West tracks.
“The mentality of Asian investors has changed,” he said. “Today, they want an experienced operating partner who understands how to do business in the United States. In the past, some buyers managed the courses themselves, and they weren’t successful.”
Chinese look abroad
During the past decade, China has produced more ultra-rich individuals than any country outside the United States. At the same time, though, golf in the People’s Republic has been likened to supposedly sinful behaviors such as “extravagant eating and drinking.” New golf construction has ground to a halt in China, and dozens of existing venues have been shuttered.
So Chinese investors have gone looking for greener pastures. Not all have found them.
In 2014, Haitao Zheng, who had complained of having “too much money in pocket,” paid $16 million for Coyote Creek Golf Club near San Jose, Calif. Ximin Shi purchased three properties in upstate New York: Thousand Islands Country Club, Pioneer Hills Golf Club and Greenview Country Club. Asian Pacific Group acquired Darkhorse Golf Club in Auburn, Calif., and Sunridge Golf Course in Carson City, Nev. A Chinese-American group called Kung Fu Panda bought The Golf Club at Echo Falls, one of Scott Oki’s venues in suburban Seattle.
A bolder plan was hatched by Du Sha, who’d founded a chain of Chinese home-improvement superstores and pocketed $600 million by selling them. In 2010, Sha initiated a buying spree to add value to Pacific Links International (PLI), his network of limited-access membership clubs. Among the purchases were four venues on Oahu, three in Las Vegas and one in Southern California.
PLI originally intended to buy more courses in those locations, but Sha later determined that membership sales made for better cash flow. He has since unloaded all his properties except for Makaha Golf Club and Makaha Valley Country Club, and they’re for sale. PLI was hoping to make Makaha a destination-worthy resort with courses by Tiger Woods and Gil Hanse, but it has been handcuffed by constraints that China has put on foreign investment.
“PLI can’t get its money out of China,” said Woolson, who is marketing Makaha. “China won’t even let them take a few million.”
HNA Group, like PLI, hoped to capitalize on cross-Pacific opportunities. In 2009, it acquired The Club at Pasadera in Monterey, Calif., whose members included several prominent Chinese CEOs. HNA later acquired two golf properties in New York, but it made its biggest splash in 2016, when it ponied up $137.5 million for eight Oki-owned properties in greater Seattle, among them The Golf Club at Newcastle and The Golf Club at Hawks Prairie.
Today, HNA has been flattened by the weight of its ambition. Originally an airline company, HNA invested not only in golf properties but in corporations, including Deutsche Bank and Hilton Worldwide, accumulating a massive load of debt in the process — $100 billion worth, according to one estimate. To shore up its bottom line, it sold Pasadera. Then, after the coronavirus clipped the wings of its aviation business, Chinese regulators put it in financial intensive care. They forced the sale of the courses in Seattle.
In the mid 2010s, several Chinese buyers were lured to Grand Strand, an overbuilt market along the coast of North and South Carolina that was having a going-out-of-business sale. For $8.5 million, an investor known only as Mr. Pan bought Sea Trail Plantation, a bankrupt, three-course resort community in Sunset Beach, N.C. Two venues in Longs, S.C. — Crown Park Golf Club and Black Bear Golf Club — sold for $1.5 each.
But the major investor on Grand Strand was Founders Group International (FGI), which beginning in 2014, spent an estimated $154 million on raw land and 22 golf properties, including TPC Myrtle Beach, Grande Dunes and Wild Wing Plantation. By 2016, however, FGI and its managing partner, Daniel Liu, were being investigated for allegedly defrauding thousands of Chinese investors out of as much as $1.5 billion. Chinese authorities have put out a warrant for Liu’s arrest, and one of his associates has been sentenced to 15 years in prison.
Like other investors along Grand Strand, FGI expected Myrtle Beach to become a destination for Chinese travelers, and it planned to build vacation accommodations at some of its courses.
Asian buyers beware
No doubt, some Asian investors are happy with the purchases they’ve made. But others have learned that U.S. golf properties aren’t always blue chip investments.
Most of the time, investments go south when buyers bite off more than they can chew. Isutani, who went heavily into debt to acquire Pebble Beach, lost something like $340 million when he sold the company only two years after he’d bought it. Sports Shinko took a $130 million hit when it sold La Costa. HNA took a $51 million loss on its Seattle properties.
Taylor said he knows of a dozen Korean purchases that have gone sideways, including The Golf Club at Rio Vista east of San Francisco and The Golf Club of California north of San Diego.
And the numbers explain why golf can be a risky bet. The United States has 24.2 million golfers today, the same number it had prior to the Great Recession. The number of rounds played in 2018, the last year for which data is available, fell to 434 million, a decline of almost 5% from 2017.
“The underlying market conditions haven’t changed,” Charnas said. “I always try to tell a positive story about the business, but we’re just not getting golfers to play.”
And sometimes a virus sparks a crisis in both health and wealth. The full effect of COVID-19 on U.S. golf hasn’t yet been determined, but this year the business will almost certainly post a decline in play and participation.
Owners who’ve been existing on the margins will be stressed to the point of insolvency. Private clubs will lose members, and resorts that rely on air travel will struggle. At the height of the pandemic, Woolson said he had a sale on hold because the Chinese buyer couldn’t fly to the United States.
“The impact of the coronavirus will be huge,” Madison Marquette’s Arimitsu has concluded.
So, as it did not so long ago, the U.S. golf industry waits and hopes for a recovery. Little is certain about the future of golf operations, but the value of golf properties once again will be recalculated.