What are Golf Courses Really Worth?

Just today, I reconnected with an old client who expressed his displeasure with a widely used methodology in the golf course business of using Gross Revenue Multipliers (GRM) as a primary method of valuation. While certainly a GRM is a method that can be used effectively, to do so blindly using the average from a global survey of GRMs is dangerous.

We’ve found that GRM’s can vary considerably, usually based on the property’s ability to generate cash flow. Those with strong positive cash flows typically have much higher GRM’s when sold whereas those that break even or lose money have much lower GRM’s. Where cash flow is strong or stabilized, it is still very advisable to utilize the income approach and for those properties that are stabilized, a direct capitalization is probably the best bet.

As many courses recover, begin generating positive cash flow and find themselves in the position of refinancing, in some cases the valuations are critical to that process. I’ve always said that it’s just as bad to be overly conservative as it is to be overly aggressive, and this is just such an example.