By Larry Hirsh^*

How Do We Value Golf Courses?

This edition was supposed to come out last week. However, in the wake of SuperStorm Sandy, we thought there were more relevant issues to discuss. In any event, I am often asked how we value golf courses, since to many, golf courses are a somewhat mysterious type of property for which few understand the determinants of value and the economics of golf properties, be they private or daily fee.

Certainly, in this space we're not going to teach how to do a golf course appraisal. But hopefully, we can identify some of the determinants of value and fundamental concepts and issues that drive not only our appraisals, but also provide some insight on how clubs and owners can enhance the value of thier properties as well as use a properly done appraisal to their advantage, even if the value is lower than hoped for.

First and foremost, a golf property cannot be valued like traditional investment real estate. It's a business. It uses and includes a significant amount of real estate but its value stems not only from the real estate, but also from the enterprise and the personal property that make it all happen. This means that at least initially, we're valuing a "going concern." If the property's highest and best use is something other than golf we'll need to know if that is what needs to be valued or if the function of the appraisal requires the value to be based on continued use as a club.

There are several determinants that contribute to the value of a golf or club property, including location, demographics, property characteristics and management. To illustrate, we recently worked on some assignments where these elements were clearly on display.

One club was a struggling private club developed within the past 10 years that while breathtakingly beautiful had many fundamental "strikes" against it. This particular club suffered from a location with very limited access to affluent golfers, was situated on a physically challenging site and exhibited golf course design flaws. Unfortunately, despite its considerable aesthetics, the economics didn't work and it had limited value.

Another club we visited was not quite as attaractive, had a much less dramatic golf course and a small clubhouse. However, because it was located near a densely populated area, had a good competitive position, was well managed and aggressively marketed it was profitable. It's value was substantially greater.

The bottom line is that golf courses are businesses and when valued as such, it becomes about economics. Part of that is management, but also the property's characteristics (location, desirability, competition, etc.) all contribute.

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Credits

Originally posted by LarryHirsh on 09 Nov 2012.
All contributors: LarryHirsh,

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