In the 35 years we’ve been appraising, consulting and marketing golf course properties for sale the one constant is that something new is always learned. Whether it’s a new method of marketing, different deal structures, financing or dealing with due diligence items we have to be ready for a wide variety of issues. It’s always interesting to look back and take stock in what we’ve observed and learned that can help us do our job better. A constant lesson has always been to consider not only the property, but also the goals and objectives of the client.
In the past year, we’ve been privileged to be involved in several transactions, all representing sellers, that had some interesting issues, providing us with several opportunities to expand our knowledge and experience. Since it’s often easy to focus just on the property, sometimes the goals of the buyer and seller can be overlooked. We focus on those goals and seek to prioritize them.
One of these recent opportunities (still ongoing) involves a partnership dispute that is holding up the transaction. The judicial system most certainly moves slowly and can be extended for an eternity. Patience is a virtue and sometimes there’s nothing one can do but wait. Another deal has seen new management (eventual ownership) take over on an installment sale agreement that will, if all goes as planned, result in the seller realizing considerably more yield (over time) than a straight cash sale would have produced. One thing that is always foremost is understanding not only the property but also the goals of the parties involved in the transaction. Patience is also a priority in this deal since no money will change hands for awhile.
Conversely, among the most interesting dynamics observed is a lesson in pricing that might surprise many sellers, and serve to promote a more expedited transaction. In two recent deals, sellers priced their properties attractively to generate activity and not only received considerable interest and multiple offers on the deals, but also received prices in excess of the listed asking prices after bidding competition ensued. These transactions sped from listing to closing in approximately 4 months. In a third, marketed without a price, the seller realized a price well in excess of appraised value through a strategy of select marketing to a limited group of potential buyers to compete with the club’s members who had, and exercised a right of first refusal after a bidding competition.
While golf courses aren’t yet in the category of in-demand residential property, real estate investors, often with experience in other market segments (apartments, retail, office, etc.) are recognizing that golf offers potentially higher return on investment (ROI) while no longer being perceived at the high risk levels of the pre-COVID days. That doesn’t mean there’s no risk! It’s simply that while cap rates for golf courses have remained relatively constant, cap rates for other property types are still much lower and the ROI for golf, especially in a high (comparatively) interest rate environment is more favorable.
While most sellers seek to market their properties at the highest price possible so as not to “leave anything on the table”, a seemingly more productive strategy in some recent cases we’ve experienced has been to price the property attractively (or even without a price) to encourage and take advantage of the competition that can result from multiple interested buyers. There aren’t a plethora of golf courses on the market so it’s not unlike housing where many homes generate multiple offers above asking price. The residential brokers tell me that’s often now their strategy, especially with desirable properties. This may not be the best strategy for all properties, but in the cases mentioned, it’s worked well.
A question mark in the market now, despite still active interest in golf acquisitions is financing. Banks still don’t always like golf courses and interest rates are high compared to 2-3 years ago. If sellers can provide financing, that’s an advantage. Yes, there are also cash buyers, often repositioning funds from other market segments seeking the returns golf can offer but availability of financing should be a part of every seller’s strategy. I’m advising owners that “waiting for the top of the market” can be risky given that nobody knows how sustainable the COVID surge may be.
I’m also advising clients that there are different marketing strategies best suited for different properties. It’s not a “one size fits all” approach. As shown above, variables like asking price, broad versus limited marketing approach, seller financing, auction, hybrid sealed bids and whatever other strategies may be indicated by the combined factors of ownership goals and objectives and property/market characteristics. Developing an exit strategy is always suggested.