Investors from Donald Trump to luxury homebuilder Toll Brothers Inc. (TOL) are wagering there’s money to be made buying golf courses after a building boom fueled by Tiger Woods’s popularity led to a glut.
Standalone 18-hole golf properties in the U.S. sold for a median price of $3 million through the third quarter of 2011, which is about the threshold for a luxury apartment in Manhattan. That’s down from $4.5 million in 2006, according to data from real-estate broker Marcus & Millichap.
“Lack of financing is really causing a discount to value and investors are taking advantage,” Steven Ekovich, Florida- based director of Marcus & Millichap National Golf & Resort Properties Group, said in a telephone interview. “Golf courses may never be as cheap as they are today.”
Prices slumped after lenders including General Electric Co. (GE) stopped financing courses and investors in commercial mortgage backed securities retreated amid losses on deals made at the height of the property bubble. The number of courses in the U.S. has declined every year since 2006, according to the National Golf Foundation. That follows two decades of expansion, including a surge starting in the late-1990s fueled by excitement about the emergence and dominance of Woods over the sport.
“They built too many courses during the Tiger Boom and now they’re closing and disappearing,” said Trump, who announced last month he’s purchasing the Doral Golf Resort & Spa in Miami for $150 million out of bankruptcy. The resort features five courses on 800 acres, including the Blue Monster, and about 700 hotel rooms. “At some point enough will disappear that golf will be a really good business.”
Tiger Wins Masters
There are about 16,000 golf courses in the U.S. and approximately 1,100 of those opened since 2000, according to the Jupiter, Florida-based National Golf Foundation.
The sport’s popularity soared after Woods won the 1997 Masters Tournament at Augusta National Golf Club in Augusta, Georgia. In 2000, when an unprecedented 400 courses were opened, Woods captured the U.S. Open in Pebble Beach, California, by a record 15 strokes. When Woods, 36, is in contention to win a tournament, television ratings typically surge by as much as 50 percent, according to Nielsen Co. figures.
The golfer hasn’t won a U.S. PGA Tour event since September 2009 as his career has been derailed by extramarital affairs and injuries. He withdrew from the Cadillac Championship at the Doral Golf Resort in Miami last weekend with a strained left knee and Achilles.
The number of U.S. courses overall has declined by about 350 since 2006 with closures outpacing new development, according to National Golf Foundation figures.
The building boom in the 1990s was fueled primarily by increasing demand for golf, rising American affluence and entrepreneurs that built thousands of high-end real estate and premium public courses, Greg Nathan, a senior vice president for the National Golf Foundation, said in an e-mailed statement. Woods’s popularity and sporting success “has only marginal validity,” as an explanation for the building surge, he said.
Peter Nanula, a former corporate lawyer and member of private-equity firm Warburg Pincus LLC, has up to $50 million to buy golf properties that he intends to revamp and sell within five to seven years.
Nanula, the former chief executive officer of Arnold Palmer Golf Management, started Concert Golf Partners in 2010. The investment firm made its first course purchase in July when it bought Heathrow Country Club’s golf course and racquet club for $4.5 million. The Lake Mary, Florida club, located in Northern Orlando, was previously sold in 1996 for $20 million, the Orlando Sentinel reported, citing Seminole County court records.
“Mortgages are gone, so buyers are paying in cash and the value of properties keeps getting lower and lower,” said Nanula, who’s currently bidding on four properties.
Declining home values also are pushing the price of golf courses lower as many are attached to housing developments where homeowners are delinquent on their loans or in foreclosure, Marcus & Millichap’s Ekovich said.
Homes values fell 4 percent in December from a year earlier and are down 34 percent from a July 2006 peak, according to the S&P/Case-Shiller index of property values in 20 cities.
Toll Brothers, the largest U.S. luxury homebuilder, is buying private golf clubs as an alternative until the residential real estate market improves, according to David Richey, president of Toll Golf, a division of the Horsham, Pennsylvania-based company.
Toll plans to buy three golf properties in cash at “distressed prices” between $3 million and $4 million by the end of this year, Richey said.
The homebuilder rose 49 cents, or 2 percent, to $24.88 as of 4:02 p.m. in New York. It’s gained about 22 percent this year and is at the highest level since October 2008.
Lending Dried Up
Lending to buy the properties has dried up after Textron Inc., GE Capital and Capmark Financial Group Inc., once “the go-to financiers” for golf mortgages, pulled out of the business, according to Don Rhodes, a former manager of Textron’s golf credit business, and now head of investment at Florida- based CNL Lifestyle Company LLC, a property group.
CMBS investors, who buy bonds backed by loans tied to shopping centers, hotels and apartment buildings, are also shunning debt linked to the sport, after suffering losses from deals made before 2007.
Trump Buying Doral
Trump is buying the Doral Golf Resort & Spa out of bankruptcy five years after Morgan Stanley (MS) acquired it as part of the $6.7 billion purchase of CNL Hotels & Resorts Inc.
A $1 billion loan tied to the property was parceled inside a commercial mortgage bond in 2006, according to data compiled by Bloomberg. A lender group including New York-based hedge fund Paulson & Co. and Winthrop Realty Trust (FUR) seized control of the CNL Hotel & Resort properties including the Doral from New York- based Morgan Stanley last year before putting it into Chapter 11 bankruptcy.
Bundling loans on golf courses into CMBS isn’t “likely” to be repeated because too many investors realized “huge losses” and “don’t want to make that bet again,” according to Chuck Elfsten, president and chief executive officer of commercial real estate lender Ocean Pacific Capital.
“Ninety percent of golf CMBS investors will not touch golf courses with a 10 foot pole, maybe even with a 20 foot pole,” Elfsten of Irvine, California-based Ocean Pacific Capital, said in a telephone interview.
About 80 percent of golf course deals recorded last year were paid for in cash or with private equity, according to Ekovich of Marcus & Millichap. Course purchasing re-emerged in the other 20 percent in special circumstances such as seller financing and localized lending, Ekovich said.
Bobby Silva, vice president of business development at Texas-based Escalante Golf, has acquired eight 18-hole golf courses since 2008 and said he purchased one course through seller financing. If sellers give that option, they usually carry up to 75 percent of loan value with an interest rate between five and seven percent, according to Silva.
“It’s not what you could get from a local institution but it’s still pretty competitive,” Silva said in a telephone interview.
Few lenders take this route because they don’t want to finance their own foreclosed assets, Marcus & Millichap Golf & Resort Properties wrote in a semi-annual report.
‘Taken a Hit’
Wells Fargo & Co. (WFC) has taken back “a dozen or so golf courses since 2008,” according to Ken Kasten, asset manager within a bank unit that oversees some real estate. Some of them have been sold while the others are managed and operated by Wells Fargo, Kasten said. Whatever the case, the San Francisco- based lender doesn’t offer any type of seller financing for golf-course assets, according to Kasten.
“We’ve taken a hit on those properties once so we’re not going to make that risk again,” Kasten said.
Last year, median gross revenue per course increased by 1.4 percent, according to PGA PerformanceTrak, a golf data collection service, in cooperation with National Golf Course Owners Association.
Golf course investment is also expected to increase this year, though it’s predicted to be a “cash heavy,” market until financing returns on a national platform, according to Marcus & Millichap.
Until then Trump, Nanula and other investors are seeking out properties.
“I’m only able to do it because I can write a check,” said Trump, the real-estate investor and reality TV star who last year said he may run for President of the U.S.
“Banks aren’t so generous these days so if you can’t pay with cash you might as well forget about it.”
To contact the reporter on this story: Christine Harvey in New York at Charvey32@bloomberg.net
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