Source: Broward Daily Business Review
The Emerald Dunes golf course in suburban West Palm Beach proved to be a jewel for managing partner Ray Finch and his co-owners. The group, which includes course architect Tom Fazio, sold the 120-acre, 18-hole course for $20.37 million.
Given the premium Investcorp and its partners paid for the course and the sluggish state of the golf industry over the past five years, some analysts suggest Investcorp may ultimately replace Emerald Dunes with housing.
The sale, completed Feb. 18, was the most expensive for a single-fee course in the nation over the last four years, according to the database of Jeff Woolson, managing director of CB Richard Ellis' golf and resort properties group in San Diego. The transaction price also represents a hefty 83 percent premium over what Finch's partnership, Emerald Dunes Golf, paid for it in September 2001 - $11.1 million.
"Twenty million is a big number," Woolson said. "Of the 60 courses I've sold since 1990, not one exceeded its replacement cost."
The Weston Hills Country Club in Weston changed hands for $23.5 million in 2002. But that facility has twice the number of holes of Emerald Dunes, plus eight tennis courts, a fitness center and a swimming pool.
Finch and his partners sold the public course, located in Vista Center on Okeechobee Road west of West Palm Beach, to a group led by Investcorp. The global private investment firm, based in Bahrain and with an office in New York, has long been active in South Florida. The firm sold two Palm Beach County shopping centers in late 2003 for $128.3 million.
Investcorp's partners on the Emerald Dunes deal are RFR Holdings, a New York real estate investment firm, and MHC Golf of Los Angeles, which will manage the course day to day.
Officials of Investcorp declined comment. They referred questions to John Haas, a principal of MCH Golf, who didn't return phone calls.
In a news release, Investcorp announced that it intends to turn the award-winning 15-year-old course "into a prestigious, first-class private golf club that offers memberships at market competitive prices."
Finch is assisting the new owners in the transition. Why did he decide to sell?
"It was just a business decision," Finch said. "These gentlemen wanted it and were willing to pay appropriately for the value. I never listed the property."
He declined further comment.
Not everyone is pleased that the course is becoming private. "From a tourism standpoint, we hate to lose a good public golf course, because it's a great amenity for business and leisure travel," said Enid Atwater, spokeswoman for the Palm Beach County's Convention & Visitors Bureau.
Mike Kranz, a lawyer and avid golfer, played Emerald Dunes several times.
"It's one of the nicest courses in the county," said the shareholder at Jones Foster Johnston & Stubbs in West Palm Beach.
The course's allure may not translate into enough initiation and regular membership fees to justify the purchase price, leading to speculation that the course would be more valuable as part of a residential development.
The basic problem for golf courses is that participation in the sport isn't growing much. The number of rounds played nationally rose only 0.7 percent in 2004, and that was the first gain in three years, according to the National Golf Foundation, which is based in Jupiter. The number of rounds played in Central and South Florida - including the west coast - rose 1.2 percent last year, matching the increase of 2003.
"Not enough people are playing golf to drive the price of courses higher," said Steven Hart, vice president of real estate risk assessment for Bank of America in West Palm Beach.
Florida has 1,073 courses and is followed by California with 925, according to the NGF. Palm Beach County has 170 courses, up from 164 four years ago.
Golf course construction soared in the mid-1990s and peaked with 398 courses opened in 2000. Tiger Woods helped spark the boom, winning his first major title, at the Masters Tournament, in 1997. Investor demand for courses surged too, and in 1999-2000, real estate investment trusts lapped up courses in expectation of hefty profits.
When participation in the sport stalled, as new players realized how difficult it is to play golf, the REITs dumped their holdings. The securities firm Goldman Sachs is now the largest owner of courses nationwide, Woolson noted, having swooped in to buy what it saw as valuable real estate at bargain prices.
Emerald Dunes has annual cash flow of about $1 million, according to a source familiar with the course's finances and who requested anonymity.
Woolson said the new owners would have to attain $5 million to $6 million of annual revenue, which would equate to net income of about $2 million, to make the deal successful.
With the plethora of top-end private clubs already in the area, such as Trump International Golf Club in West Palm Beach and the Bear's Club in Jupiter, that won't be an easy feat, he and others said.
"There are a lot of six-figure clubs [those that charge more than $100,000 as an initiation fee] in Palm Beach County," said Larry Hirsh, president of Golf Property Analysts in Harrisburg, Pa., which appraised Emerald Dunes for Investcorp. "It's getting tougher and tougher to sell those kinds of memberships. Right now there is some softness in the private club market in Southeast Florida. I think prices will fall."
That's why some analysts suggest Investcorp will replace Emerald Dunes with homes at some point. But Bill Reichel, who has brokered sales of property in the 500-acre Vista Center, said it wouldn't be easy for the golf course's zoning designation to be changed from recreational to residential.
"To go through the rezoning for residential and commercial would entail a lot" of time, work and money, said the president of Reichel Realty & Investments in West Palm Beach.
The county government decided to move much of its offices to Vista Center, and plans abound for other office buildings, residences and a hotel surrounding the golf course. Palm Beach Ocean Studios, uniform-cleaning company Cintas and the National Alliance for Youth Sports already have office facilities there.
The county has already approved a 227-room hotel and 1,032 residential units for land next to the golf course.
"With all the business people and the residents in the area, if they did a moderately priced club, it would probably be pretty successful," Reichel said.