Michael A Kahn, Consultant. Email: mike@golfmak.com. Phone: 941-739-3990. Skype: GOLFMAK
BASIC ACQUISITION ADVICE: WHAT IS A GOLF COURSE WORTH?
"I'm often interviewed by property appraisers asking me what I think a golf course is worth. To me, it has a lot to do with what entitlements are included with the property, and/or what the golf course earns. For instance, if a golf course is on land designated as open space, meaning you can't use it for development, I only see value based on what the business earns. My factors are performance over the recent three years. If development entitlements have not been given (or taken) away the risk factor has a exit on future land value, which means you might pay a premium if all entitlements are still in place."
To place a value on a golf course with no development possibility, I'll review the trailing 36-months income and expenses (as do lenders). I also look at performances from several years back to see what business was like during golf's good times. I'll do my physical review of the property, clubhouse, etc., to establish its condition and recent level of care. I'll review local competition. From these factors I try to determine whether the golf course has a future.
If I can't see a reasonable financial future for a golf course I can't place any value on it. I mean, if the business cannot make a profit, and you can never develop the land, what good is it? However, If I see room for improvement via management I might place some risk value on the course. Here are my determining factors:
Net operating income for the past three years. I would be comfortable paying seven to ten times earnings. Seven if the property has deferred issues, ten if the property is in very good condition. In fact, I would pay a very high multiple if it was a new course with the latest irrigation and drainage, new clubhouse, etc., but it must be located in a neighborhood with a future.
If development is possible and entitlements are in place, it may well be worth sustaining a poorly performing golf course while waiting for land values to appreciate. In fact, many golf courses are being paved over for development, which is why I predict a net decline in the number of golf courses in the USA over the next five years. If there is future value in the land, I can see paying a price reflecting land values, not value as a business."
THEN WHAT DO YOU PAY FOR A GOLF COURSE TODAY?: In 2006, an up-and-running golf course can be acquired for a fraction of replacement cost. It all depends on the course as an asset, its performance, and its market. As things have changed for the better since 2004,I believe I'm seeing opportunities.
I believe the golf business is recovering from the economic problems experienced in the years 2000 through 2004. In 2006 it's good news for existing golf courses, as the addition of new facilities is down to a trickle (net added 18-hole courses in 2006 less than 100 according to the NGF). In fact, I predict a net loss of golf courses between now and 2010.
For the golf course buyer, I believe the best golf course deals out there are marginal or non-performing facilities available for less than replacement cost. If you're looking at one of these courses, the issues will be deferred maintenance, added competition, and worn out management. That's where I can help.
When I'm working on behalf of first-time golf course buyers I try to outline issues that need to be addressed before a decision is made to buy or pass on the property. The component I can't help determine is the effort the next owner will put out to make make the golf course a financial winner.
The opportunity today is that you'll be buying golf courses for a fraction of their original replacement or appraised value. Sure, you'll pay some back to bring the property back to competitive standards, but recently we've been selling golf courses you couldn't replace for $9 million for a little over $3 million. If it costs another $ million to put the place in condition, it will become competitive and should deserve its share of business.- yet still you got it for less than replacement cost.
You hear about investors buying fixer-upper houses and making good money. The same can be true buying non-performing golf courses.
I understand there's emotion involved in the desire to become a golf course owner. That's why I try to address important issues so the buyer understands the nature of the golf course and its marketplace. Success will be knowing the product, who will buy it, and what needs to be done to earn the business - no different than any customer-driven business.
DISCLAIMER: The information above is based on the opinion of Michael A. Kahn, who takes absolutely no responsibility for your results.