I recently got a call from an old friend who’s a partner in a golf course and the partnership is ready to sell. After asking a bunch of questions, reviewing information he shared and analyzing the situation, I concluded that while they may be ready to sell, the golf course is not in a marketable state right now. The course has limited revenues, doesn’t cash flow and requires considerable capital investment. On top of that, sale proceeds are not likely sufficient to cover existing debt and the partners all want out.
Frequently, owners call me and ask “What’s the golf course market like?” For sure the market has its ups and downs, but maybe more importantly, has the property in question been prepared – over time – for a successful sale at a maximum price? Yes, some distressed properties can be sold, but if distressed their price will most certainly be impacted, especially if there is considerable money to be spent immediately after sale.
The most successful marketing efforts for golf properties occur when owners have planned for and prepared the property to be sold. If the irrigation system is 30+ years old, outdated and existing on life support, and the membership or play is down because desirable playing conditions haven’t been maintained, a knowledgeable buyer will anticipate a large capital investment after sale, and adjust pricing accordingly. It will also likely take time to replenish membership or play to an acceptable level.
This is why we advocate considering the independent development of exit strategies for all golf property owners. Once establishing an owner’s goals, an assessment of the property’s market, facilities, conditions and economics can be done to plan for the maximum value at the desired time of sale. The issues with each and every property will vary, but the concepts will be the same.
The golf business can be challenging, but like anything else, good planning can maximize success and minimize distress. What are the elements that go into an exit strategy?
These can include everything from the age and condition of the property and its infrastructure to the marketing and management of the operation. One thing potential sellers often fail to acknowledge is the dynamics of their competitive market. How deep is the market? Is the property correctly positioned to maximize revenues? Are expenses being managed well to provide the best bang for the buck given the competition? In some cases, the reason a property doesn’t perform better is simply because the most optimal market segment isn’t being cultivated. Making some of those changes can take time and planning ahead but can be well worth it.
To answer that common question about “the market”, for the most part it’s still in a positive place with golf proving to be an attractive option for investors seeking higher returns than some more traditional investment properties and not universally distressed like some other types. Many investors are now considering golf as a high ROI option (yes there’s higher risk, too) for their capital and we’ve had success marketing golf properties in this environment that will hopefully endure the economic, political and environmental changes bound to come.
A friend once shared an interesting quote: Failure to plan is a plan for failure. Think about it. Developing an exit strategy can be your plan for success.