Among the questions I’m frequently asked of late is whether there are still buyers seeking golf properties. While the answer is yes, conditions have evolved since 2021 or even earlier this year. Accordingly, those seeking to sell a golf or club property need a sound strategy that reflects current market conditions to best achieve their goals. It’s no secret that interest rates are climbing. The Federal Reserve Interest Rate is now 3-3.25%, and expected to exceed 4% by year end. At the beginning of 2022, that same rate was less than 1%. The prime lending rate is now 6.25%, up from 3.25% in March of 2022. Accordingly, money costs more and loans can be harder to get.
As many golf course owners have sought to take advantage of the COVID induced surge in golf participation, rounds and memberships, some have sought to maximize their yield by waiting for the top of the market. That may have already occurred. While golf is still healthier than in the pre-COVID period before 2020, rounds in 2022 are down 4% nationally through July, 2022 (vs 2021) and the sustainability of the surge will be tested. That’s no surprise to most industry insiders. This all begs some questions:
- How much of the 18% surge in rounds for 2020 and 2021 is sustainable?
- Will private club waiting lists recede and/or disappear?
- What will the impact be on rates (fees & dues)?
- Is the time still good to do renovations and improvements?
- How are buyers reacting?
- When is the time to sell?
- What is the best Exit Strategy?
Only time will tell how much of the surge is sustainable. Societal behaviors have changed because of COVID, much to the benefit of golf courses and clubs, which enjoyed record performance in 2021. If people go back to the office en-masse, golf could feel that impact. If working remotely becomes more prominent, golf could benefit. Office and retail markets have already felt the burden of shifts in work and shopping habits and a return to pre-COVID customs will require golf to broaden its reach to sustain the gains. Golf has never struggled to add new players. The problem has always been keeping them.
Private clubs, especially mid-market clubs could struggle to maintain full membership and waiting lists if the (upcoming, predicted by many) recession becomes a reality and is deep. Time will tell. Even the most upscale of private clubs are likely to feel pain in the event of a recession as membership could decline, usage could go down and attitudes at the club change, focusing on survival and servicing the debt from costly recent improvements many have made. The problem of servicing that debt could be compounded if the interest rate is adjustable and rates continue to rise.
For those clubs and courses in competitive markets, there could be downward pressure on fees and dues. Simple supply & demand.
Many facilities have made significant capital improvements in recent years. Often, these were the result of long term neglect and addressed “required” rather than simply “desired” improvements that had been put off. Making either required or desired improvements right now could be a tough decision, depending on your specific club’s outlook and competitive environment, cost of funds and (in the case of private clubs) the membership’s culture and appetite for costs.
Buyers are still looking, but some are taking a “wait & see” approach to new acquisitions. This is to be expected. Whether now is the time to sell or not depends on an owner’s short and long term goals. The best exit strategy is one that considers not only the current market conditions (“the disease”) but also the owner’s goals (“the patient”). Each situation is different and can require a different approach.
Whereas in the past 2 years, many golf deals were accomplished quickly, with no financing contingency and often at premium prices, different strategies may be needed. The most significant may be the seller’s willingness (and ability) to finance all or part of the deal. Nobody knows where interest rates will ultimately go. Presumably, interest rate increases are a response to the inflation created by the Russia/Ukraine war and its impact on energy prices. We don’t know how or when that will end. Some will suggest that politics and the upcoming mid-term elections will help or hurt, and of course there’s no consensus on that.
In advising our clients, I often share the story of one client during the last golf boom around 2000-2002 who sought to sell his course and wanted $8 million. I told him it was worth $6m. With no interest, we removed from the market. A few years later, he was ready to sell for $6m but it was only worth $4m. The sad ending of the story is that with about $2.5m in debt he gave it back to the bank a few years later. Being greedy can be rewarding but isn’t without its risks. Whether now is the time to sell doesn’t have one answer for all. Develop a strategy that treats both the disease and the patient.