Golf course superintendents interested in purchasing a course of their own should find favorable prices for the next 12 to 18 months, said one industry insider. During his recent presentation on golf course ownership, T. Bland Cooper, Sulstone Group, Charlotte, N.C., said, “The market is very close to, or already, bottomed out from a buyer’s perspective.”
Cooper added that common multiples used to evaluate the appropriate purchase price of golf courses are at industry lows. In a seller’s market golf courses tend to sell for as much as four times gross revenue. “A multiple of two times gross revenue is where we’ve been the last eight to 10 months and where we will be for next year to 18 months,” Copper said, who made his comments during the Golf Course Superintendents Association of America Show, Feb. 9-14, San Diego, Calif.
Another common multiple, Earnings Before Interest Taxes Depreciation and Amortization (EBITDA) is also at market lows, with many properties selling at 6 to 7 times EBITDA. In a seller’s market course purchase prices of 10 to 12 times EBITDA are often seen.
According to Cooper, a combination of over development, inflated purchase prices during the golf boom of the mid-1990s and a downturn in the general economy has led to the recent discounts on facilities.
In the mid-1990s when the stock market was under performing, real estate ventures became more attractive to banks and investors. During the same time the conventional wisdom was that demand for golf was growing. “In the mid-1990s banks became very interested in [the golf market]. They thought wow, this is positive return, let’s run with it,” Cooper remarked.
At the same time Real Estate Investment Trusts (REITS) started to get involved in golf course ownership. REITS are ownership groups that take multiple investors and purchase and sometimes manage multiple real estate properties in order to provide a return to the investors, similar to a stock mutual fund.
All of sudden multiple REITS were identifying the same markets and same courses as attractive and a bidding war ensued, which artificially inflated prices.
REITS quickly found they could not generate the kinds of returns they had anticipated from golf course properties, Copper said. Simultaneously, the economy took a downturn and business from corporations and corporate outings fell. “So the revenues of these courses that were purchased also fell, making their purchase price look even more inflated. All of these factors created a bubble for golf development,” Cooper said.
Unfortunately, Cooper said, while purchase prices for golf courses are low, investors are wary of the golf market right now, making it difficult to line up financing for a purchase. “Right now the golf course business is not a good business from an investor standpoint. Investors are scarred to death of it.”
Editor’s Note: Stay tuned to Golf Course News Magazine and Golf Course News Online for upcoming stories on how superintendents can became part of golf course ownership group and establish equity in the golf course they maintain.