The past three years have experienced a steady decline of the number of golfers and rounds. The U.S. economy is uncertain. Present annual return on golf course investments is low. So why is CNL Lifestyle Properties buying every golf course it can get its hands on?
"Golf is still one of the largest single-participant sports in the world," says Byron Carlock, CNL Lifestyle Properties president and c.e.o. The company’s fifth latest real estate investment trust went into effect April 2004 and now owns $2 billion in assets. CNL Lifestyle Properties invests in golf courses as part of its investment thesis, which focuses on the leisure activities of baby boomers. A golfer in his 60s spends three times as much time playing golf as one in his 30s, according to the National Golf Foundation.
"If you look at the fact that someone's turning 50 every seven seconds today and the first boomers have retired, it's a good space for us to invest," Carlock says. "We acknowledge that it's not a growth industry, but it's a steady and good-income industry."
CNL Lifestyle Properties has three key areas of investment: mountain lifestyle, attractions and golf. The REIT made its first golf course acquisition in 2006, purchasing the Palmetto Hall Plantation Club in Hilton Head, S.C.
"Basically, we are investing with an eye toward following those sectors where boomers, their children and their grandchildren are spending their time and money,” Carlock says.
In November 2007, the REIT closed a 22-course transaction with American Golf. The trust works with five national operators, namely Eagle Golf, Billy Casper Golf, Heritage Golf Group, IRI Golf Group and, most recently, Traditional Golf Properties. Now in its third year, CNL Lifestyle Properties has become one of the nation's largest owners of golf properties with a golf portfolio comprised of 52 properties throughout the United States. Standout facilities include Arrowhead Golf Club in Littleton, Colo.; Cowboys Golf Club in Grapevine, Texas; Raven Golf Club at South Mountain in Phoenix; and The Golf Club at Cinco Ranch in Houston.
Rudy Anderson, vice president of investments at CNL Lifestyle Co., backs the long-term investment in the industry made by CNL Lifestyle Properties.
"Generally, we rely on our operators to help us make the best decisions for how a facility can maintain or be enhanced in its position in the community and how it can enhance the operating performance of the facility,” Anderson says. “At times, that includes remodels of the golf course – reconstruction of greens, rerouting of some holes, bunker reconstruction. But I wouldn't want to leave the reader with an impression that once we buy, we're hiring architects to change everything."
Some of the operators might choose to reposition a course or take a new marketing program to the marketplace, and that might or might not include physical plant changes, and in some cases, it has, Carlock says.
Anderson cited recent renovations at Cowboys, an NFL-themed club, as an example of remodeling for performance enhancement.
“We’re in the process of doubling the size of the private event space to help this operator do a better job of delivering an experience for some very high-end corporate customers,” Anderson says.
Long-term investment in the industry is essential, says Anderson, though he’s been surprised by what a welcome concept this has been to operators.
"What the REIT is able to do is to bring stability to the operators by being their capital partner, owning the underlying real estate, and then essentially leasing it back to these operators for 20, 30 and in some cases 40 years,” Anderson says. “There's a lot of private equity money that is in the business and has been for a decade or more. Over the course of the last three years or so, and projected now out into the next three years, there'll be approximately 500 golf courses that will probably change hands that are in various stages of these investment cycles. Because CNL can come in and not be the kind of private equity money that's seeking an exit in a short period of time, the operators look to us to create this type of stability in their company.”
“We’re a new type of capital, providing longer-term, stable, income-oriented partner capital to an industry that has been plagued by cyclical capital driven by opportunity funds,” Carlock adds.
Carlock is surprised at the industry’s recapitalization mode, but acknowledges it’s contributed to their success.
“You’ve seen KSL buy ClubCorp; you’ve seen all these opportunity funds begin to sell courses because they're reaching the end of their fund life. It's a good time to be a buyer, and an especially good time to be a buyer with a longer-term perspective,” he says.
The REIT owns 14 private and 38 public courses throughout the country, and hopes to see its portfolio expand in the near future. With long-term investments such as this one, backed by promising statistics, the future of the industry looks stable at the least. GCI