Distressed market

A glut of new courses and declining demand punished the market, while lenders left the market for a variety of reasons. What lending is done is extremely fragmented, with high interest rates and loan-to-value ratios around 50 percent, compared with 90 percent before the recession. Valuations for golf courses have been slow to recover the financial crisis.

New business model

Investors, who have the cash, see the current market as an opportunity to scoop up distressed clubs and revamp their business models.

Golf courses have high fixed costs. At a typical course, it’s at least €300,000 a year just to mow the grass. Moreover, many clubs are mismanaged: too often a private club is not run with profit in mind, but with the idea of making the place fabulous. As a result these clubs have no rhyme or reason on spending.

As such, investors focus primarily on buying private clubs — annual and monthly dues are “stickier” than daily fees on public courses — and turning around the operations.

New trend

The golf clubs that are doing well have also evolved from being golf centric to family centric. They are relaxing dress codes and adding water parks, tennis courts and fitness facilities. Kids are playing putt-putt golf and running around in their bare feet while grandmas do yoga.

Valuation of golf courses

There has been a fundamental change in the way investors base their offers. It’s not on the value of the real estate anymore, but buyers are focusing on the cash flow generated by the business. Prior to the recession, nobody even talk about gross revenue multipliers.

Before the financial crisis, buyers were paying the equivalent of 11 to 14 times net income. Now, the going rate for a well-run course is in line with other businesses, typically six to eight times net income. That change is warranted as a lot of courses have deed restrictions that preclude developing them for other purposes. In that case they are not real estate investments.