Courses selling for 1.6x gross revenue


Private equity buyers have been chomping at the bit this past year, in hopes of rolling up distressed properties. But the number of sales has been slow, even though plenty of course owners want to sell.

It is a classic disconnect between buyers and sellers over value.

Golf courses are selling at an average of 1.6 times gross revenue, according to a recent study by the Society of Golf Appraisers.

That rate is higher than most experts feel courses are worth and 60 percent higher than what the big buyers are willing to spend. Private equity buyers, including Concert Golf Partners and Fore Golf Partners, have said they will buy courses at one times gross revenue. The problem is finding a decent course where the owner is willing to sell at that rate.

The difference between 1 and 1.6 times revenue is huge, and Doug Main, director of real estate consulting with Deloitte Financial Advisory and the SGA member who oversaw the survey, said potential sellers should understand the nuances within the data.

“The [gross income] multiplier is impacted by the quality of the earnings,” Main said at an SGA session at the Golf Industry Show in late February. “Brokers tend to look at multiples of EBITDA.”

The SGA survey shows that the average net income multiplier is 8.1, with a range of 6 to 16. The average Capitalization rate is 11 percent, with a range from 6 to 14.5 percent.

While most brokers prefer to use these numbers to determine a course’s worth, a large percent of courses that are currently for sale are not making a profit. A recent survey by Golf Course Industry shows that only 32 percent of all courses made money in 2011. That forces brokers and buyers to rely on gross revenue.

But Main says most buyers who are closing deals are cash flow based. That means that most courses getting sold are making a profit — driving up the gross income multiplier. And many of the unprofitable courses that are getting purchased are smaller — less than $2 million in revenue.

Rob Waldron, acquisitions and business development manager for Billy Casper Golf, warns that the gross income multiplier has its limitations.

“You can’t just automatically take that multiplier and apply it against all revenue,” he said. “Food and beverage only adds 15 percent to the bottom line while golf adds 35 percent.”

That means a golf course with a large food and beverage operation will not be worth as much to a buyer as a golf course with little F&B, assuming total revenue is equal.

Still, many sellers seem willing to wait. The average golf course for sale is currently sitting on the market for 14.5 months. Hilda Allen, who runs one of the most active brokerages in the U.S., said she has clients who have been trying to sell for four years. The problem — they don’t want to drop their asking price.

Some of these sellers officially leave the market and re-enter at a later time. And some courses that are currently for sale are not publicly acknowledging the fact.

Larry Hirsh, an appraiser and broker in Pennsylvania, said he has two courses currently for sale that are not listed on his website.

“There have been significantly fewer transactions,” Hirsh said. “Many of them are distressed so that they don’t give you an indication of value. And many are not at arms length.”

Hirsh says a lot of sales involve members buying their club, or other similar deals. Members usually make emotional buys, sometimes paying far more than the private equity firm would spend. And that, perhaps more than anything else, is driving up the gross income multiplier.

But things may not always be so murky for course valuation. Hirsh is hopeful there will be several deals in 2012 that will give appraisers, brokers and buyers a much better understanding of the value of golf courses. And if the sellers start to accept the lower bids, the flow of sales could speed up considerably.


Beside a broker, any special place to advertise a golf course fo sale?

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