Dreams for Sale

Want to own your own golf course? With plenty available across the U.S., there are bargains out there. But first-time buyers shouldn't let their hearts overrule their heads

Capstone Club near Birmingham, Ala. built for $9 million, is listed for $4 million Courtesy of Capstone Club

By Matthew Rudy

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For a certain kind of golfer, owning a course is a romantic dream—like running a bar or investing in a Broadway production. After all, what could be better than waking up, deciding where the pins on each green should be set for the day, and collecting cash from all the other golf fanatics in your town who are just lining up to play?

But it isn't quite that simple.

A treacherous real estate market, uncertain credit climate, and a business model that depends on undependable things like weather and fuel prices make running a golf course a challenge. It's a buyer's market, however, and there are bargains for the shrewd investor. We asked some experts who have been through it to give their best advice to the first-time course buyer. Though not easy, it is possible to make a good deal on a golf-course purchase, even in this tough market.

1. KNOW THE LOCAL CONDITIONS

It doesn't take a sermon from legendary investor Warren Buffett to confirm that the real estate market isn't exactly vibrant. "The same thing that happened in subprime home lending happened in golf, with inflated property values," says Hilda Allen, a veteran Georgia commercial real estate agent who has closed more than 400 golf-course deals. "We're feeling the correction now. There are more courses for sale than ever before."

You can spend $68 million for the Rees Jones-designed Three Ponds Golf Course (and the estate that comes with it) in Water Mill, N.Y., or $400,000 for the Sandy River Golf Course in Farmington Falls, Me.—but virtually every sale is happening at a discount from list price, just as in the housing market. There's plenty of inventory and lots of time to shop around for the right fit.

In the current world of golf-course properties, more isn't always better, either. An attached subdivision, marina, or retail component adds a layer of expense and complexity to the business model. Higher property taxes, more insurance, and additional maintenance are costs you'll need to cover, even if those amenities aren't generating revenue—as developers around the country are learning the hard way. According to Allen, the best strategy for the first-time investor is to buy a course in a familiar area and be wary. That means having a realistic understanding about the course's competitors, challenges, and potential. If your business plan calls for course improvements and a subsequent increase in green fees, make sure the fees are still appropriate for the area—and that your business plan makes sense even if the tee sheet isn't full.

2. JUMP THE FINANCING HURDLE

Picking up a choice property for a quarter of the original construction price might be enticing, but it can be difficult given the skittish credit markets. To take advantage of these opportunities, you'll need to kick in some of your own cash. "In the conversations we're having with buyers these days, we tell them to expect to put in 30% to 40% cash," says Jerry Hinckley, national sales director for the Golf Finance Division at Textron Financial, one of the largest course financiers in the country. "That does two things. If you're buying in a situation where you have a slow turnaround in operations, having that equity gives you a smaller debt service payment while you work out the issues. And the lender is more likely to take that bet on the loan, because the owner has more of a stake in the business."

On the average $5 million to $6 million golf-course purchase, a common loan package would consist of a $3 million to $4 million note with a five- to seven-year term and a balloon payment at the end. The loan would be amortized at a 25-year rate, to keep the monthly payment lower. On a $4 million loan at 8.5% interest, a borrower would have a monthly payment of $32,200. On bigger properties, you can extrapolate the math: "When I see some of these $20 million projects, I wonder how they could possibly pencil out," says Ron Whitten, Golf Digest's architecture editor, who co-owned a public course in Abilene, Kan., from 2003 to 2006.