The new deal

For four years, investors have been using Tenant in Common deals as a way to evade heavy taxes, but last month was the first time the process was used to sell a golf course.

The sale of Stallion Mountain Country Club in Las Vegas closed in a transaction totaling about $25 million. More than 27 investors were involved, according to Stephen Burr, Tenant in Common attorney with Foley & Lardner LLP.

In 2002, the Internal Revenue Service expanded the definition of TIC offerings, which now allows multiple owners to purchase property and seek tax deferral through like-kind exchange. (More information can be found in a previous Golf Course News online article, “Ownership Options.”)

The market has exploded in the last four years, with some in the real-estate business making a living as TIC offering sponsors.

“There was tremendous pent-up demand, and a lot of people took advantage of it,” Burr says.

Until recently, TIC deals have only been carried out on office and apartment buildings. With a 6 or 7 percent return, they are considered the safest investments. But with the rising interest rates, investors are looking outside the box for property that will bring a higher return.

This is where golf courses come in. With a yield of as much as 8.75 percent, they draw investors’ attention, Burr says.

Stallion Mountain is the first golf course to complete a TIC deal, and similar deals are on the horizon, Burr says. The industry could see four or five other golf course offerings this year. Other possible TIC deals could come by way of hotels, senior living facilities and self-storage facilities.

“It’s not huge, but over time, it could be significant,” he says.

The investors will lease Stallion Mountain to a master lessee, who will have the option of acquiring the course in the future at its fair market value and pays the investors rent over the term of the master lease. Other terms of the deal were not released.

Burr says the investors have no involvement in the management of the course, but they did look at the quality of the operations there to make sure it would be worth the investment. After all, he says, investing in golf courses can be risky.

“You have to be confident they’re running the property well,” Burr says, adding research about the Stallion Mountain deal determined there was a low risk factor. Part of the basis of this decision was the desired location of the course in Las Vegas and the fact that the course has a coveted water agreement with its municipality.

On the other side of the bargaining table, the TIC deal likely was appealing to the golf course seller because TIC investors generally are willing to pay slightly more for a property than the average investor because of the tax advantages that follow, Burr says.

For more information about TICs, visit the TIC Association Web site (www.ticassoc.org).