By Geary Leathers^*

Owners - Time to Sell?

Introduction

After a sustained period of unprecedented growth in the number golf clubs and courses through the 1990s to the early/mid-2000s, 2008 will likely see the third straight year of a “net reduction” in the number of golf facilities across the United States. Putting a facility up for sale has become a more common business option. Why are more owners selling? What factors do they consider prior to sale? This article will address these questions.

Facility Boom Drivers

The reasons for earlier growth in new facilities were numerous but primarily included:

• Anticipated continued momentum in the growth of golf popularity and participation fueling daily fee course construction.
• Developer investment in golf club/course amenities to fuel prospective real estate/home sales endeavors.
• Strong growth in the premium daily fee (resort) market segment to provide for expected rise in corporate/business golf rounds and high-worth golf guests/patrons.

Very few major and secondary metropolitan areas throughout the United States were immune from this growth in courses. Even after many years of flat growth in municipal facilities, cities, counties and states across the nation (large and small) were awash with tax/revenue proceeds and similar “golf popularity” expectation models to invest in municipal golf facilities.

Yet since 2004/2005, new course openings have risen at a snail’s pace. While many owners/operators naturally welcome this reduction in the number of golf facilities for competitive reasons, it is likely that the “supply and demand” pendulum will take years to swing back to a position where golf demand meets or exceeds golf supply.

Common Reasons for Selling

As has been the trend for several years, an increasing number of golf facility owners are contemplating, if not already deciding, that the disposition of their golf assets and business is the prudent option going forward. The reasons are numerous and broad-based, consisting of macro- and micro-factors:

• Basic change in ownership motivation and the significant amount of day-to-day management and capital resources required.
• Stiffening competitive issues as outlined above and the inability to improve or even sustain operating revenues and income.
• Investor and lender pressure for long-awaited ROI expectations or preferred debt repayment and the recent “credit crunch” in some cases precluding additional borrowing or re-financing.
• In many markets, a determination of golf course land having a “higher and better use.” This factor has slowed in recent months due to the national real estate market doldrums, but will remain a long-term alternative to owners in many urban/metro locations.
• Numerous other reasons exist, such as: strategic business/asset portfolio alterations, unsolicited buyer inquiries/interest, and impending significant capital outlays for both recurring and non-recurring course/clubhouse projects.

Pre-sell Considerations

The decision to sell is often a very emotional one, affecting local relationships and future business circumstances. In anticipation of and preparation for sale, owners should evaluate the following considerations (there are a number of qualified experts across the U.S. who can provide these services on a consulting basis):

• Objective operational review to confirm facility is operating “on all eight cylinders” and maximizing proceeds
• Market analysis of local and regional areas concentrating on potential sales proceeds
• Discussions with determined local, regional and national golf facility buyers
• Discussions with “golf-specific” commercial real estate brokers to determine marketing profile issues and market/buyer opportunities
• Land use survey that would evaluate any “higher and better use” alternative development potential, considering zoning issues and local market needs
• Tax advice regarding business/asset portfolio sales/ownership change alternatives

It must be remembered, and planned for, that the entire process from “commitment to sale” to “closing” could take mere months to well over a year. Owner involvement must maintain an “operational vigilance” because in most instances the course/club is being sold as an “ongoing” business concern. Ongoing maintenance and upkeep issues and items such as “new paint," “fixtures” and “equipment replacement” must be addressed. Also, once a decision to sell is made, owners/operators commonly face the challenge of maintaining personnel/co-worker morale.

A Final Consideration

While there are very few absolutes, it is strongly believed that the game/sport of golf is one that will be integral to the future recreation and hospitality needs of the U.S. consumer. The golf business may be particularly difficult right now, prompting the consideration of selling a facility. However, given the projected long-term growth potential in golf, the wise owner/operator will look hard at the option of improving management practices as an alternative to selling.

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Credits

Originally posted by GearyLeathers on 06 Aug 2008.
All contributors: ClifKussmaul, GearyLeathers, JimKass, LynnwoodBrown, MarleneStone, MichaelBrezin,

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