Golf Course Valuation and Bailouts

If you read the golf industry articles online you will find that they tout the increasing number of players and the strong future of golf.  I can't take issue with any of the arguments that they make, the game and the future survival of golf today is unassailable. 

The problem with the strong golf industry argument for golf course appraisers is that the golf course business is not the golf industry.  Golf courses have been struggling financially since the early 2000's, many were further damaged by the recession of 2008, and today the survivors are reeling from the increasing cost of operations and water.

Online golf industry articles have noted that there have been more than 800 golf course closures over the last 10 years, but based on my quick review of online reported closures that count appears to be closer to 1,500 golf courses closed.  Since over 15,000 golf courses were still open in the U.S. in 2017 that means there has likely been an actual loss of nearly 10% of all U.S. golf courses, and there are many more that are operating in the red and just haven't closed yet.

So how do you appraise a golf course that is losing money?  Most golf courses that are losing money are not likely to return to profitability, it's not a poor management issue it is about volume of play and the cost of operations.  So making an assumption that a golf course will return to profitability is pure speculation and relatively few investors are willing to take a chance that a course will return to profitability or carry it and see what happens.

The golf course market will eventually return to balance like other real estate markets, but unlike homes, commercial properties and land a golf course can actually be closed and the land used for an alternate purpose.  So while some golf properties will be “rescued” by investors others will simply disappear and become residential development land, agricultural land, recreational land, multi-family land or possibly even commercial land.

There are some companies willing to purchase the “right” golf courses even in these slow and painful economic times.  What criteria are they looking for?  Guaranteed stable water prices and a guaranteed supply are important.  If you have a course that has had a 10% increase in water costs and future increases to come, that's a negative factor.  The largest golf course expenses are generally labor and water. 

Another important criterion for acquisition is that there are no deed restrictions or reversions in place.  If there is nothing to be gained at the end of the line, in that even the land reverts, there is no one who will step in and continue to run a golf course with just losses to look forward to.  Many investors realize that if you have reached the end of a golf courses profitability from rounds played and membership fees and there is nothing left on the table, because of deed restrictions and / or reversionary clauses, then there is absolutely zero dollars coming for investors or for those who have been loyal to the course since its beginning.

Golf course bailouts are not free there is no investor who wants to acquire a golf course asset that has no future value only years of losses and a hope that the income can be increase so that the course becomes profitable.  That is simply a scenario that cannot be resolved by an outside investor.

For more appraisal information contact Glenn J. Rigdon MA, MRICS, ASA is a Las Vegas / Henderson Nevada based appraiser who can be contacted via email or via his business website known as Appraiser Las Vegas  (http://www.appraiserlasvegas.com), or you can also click on “Contact Us” on the home page of this website or visit my public profile at LinkedIn at http://www.linkedin.com/pub/glenn-rigdon-ma-mrics-asa/1a/30b/879/

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