[ed. See also: Welcome to the Everything Boom, or Maybe the Everything Bubble.]
When the Gaillardia Golf and Country Club opened in 1998, it was to be the crown jewel of golf in Oklahoma City, complete with an 18-hole P.G.A. championship course and a 55,000-square-foot clubhouse of Norman-style architecture. The Gaylord family, best known as Oklahoma media moguls and owners of the Grand Ole Opry, sank a reported $59 million into the project.
Over the next 15 years, however, the course changed hands and fell into disrepair as a glut of new courses and declining demand punished the market. Finally, early this year, Gaillardia was sold to Concert Golf Partners, an investment firm based in Newport Beach, Calif., which assumed $7 million in loans and now owns the property free and clear.
“Between 1998 and 2005 there would have been a bidding war,” said Peter Nanula, the chairman of Concert Golf who previously ran Arnold Palmer Golf Management.
While golf is still anathema to many investment portfolios, investors who have the cash see the current market as an opportunity to scoop up distressed clubs and revamp their business models.
“It’s certainly a buyer’s market,” said Larry Hirsh, president of Golf Property Analysts. “There are a lot of distressed courses, financing is difficult and most buyers don’t have the ability to write a check.” (...)
Last September, the world’s largest owner and operator of private clubs, ClubCorp Holdings, went public at $14 a share. The Dallas-based company, which had been owned by the private equity firm KSL Capital Partners, has used the injection of capital to add to its portfolio of clubs and eventually pay off its high-yield debt. It now owns 109 golf and country clubs in 23 states and Mexico. Its shares climbed as high as $19.30 in May and closed at $18.63 on Thursday. (...)
Though the industry as a whole has been under a black cloud, not all clubs are losing money. The clubs that have held up best are those in densely populated areas with limited land on which to develop, Mr. Main noted. “You can have a club in Chicago doing better than one in Florida or Texas, even after you factor for the weather,” he said.
The worst off are those developed in the last 15 years as part of a residential community off the beaten path. “They’re relying solely on demand from that community,” Mr. Main added. Indeed, many of the new courses built during the housing boom were meant to be subsidized by home sales. When the bottom fell out of the housing market, developers had no way to pay for the expensive amenity. In many cases they defaulted on their loans, which are now getting scooped up by investors.
“Golf courses have high fixed costs,” Mr. Nanula said. “At a typical course, it’s at least $500,000 a year just to mow the grass.” Moreover, many clubs are mismanaged, he said. “The typical dynamic at a private club is that it’s not run with profit in mind but with the idea of making the place fabulous,” he said. As a result, he said, “we consistently see clubs that 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.
While the right location and management is crucial, the golf clubs that are doing well have also evolved from being golf centric to family centric. “It’s now golf with a small ‘g’ instead of a capital ‘G,’ ” Mr. Affeldt said, explaining that ClubCorp is refreshing food and beverage operations, relaxing dress codes and adding water parks, tennis courts and fitness facilities. Case in point: His home club, Brookhaven Country Club in Dallas. “Kids are playing putt-putt golf and running around in their bare feet while grandmas do water aerobics,” he said. “It’s the epitome of a multiuse, multigenerational club.”
When the Gaillardia Golf and Country Club opened in 1998, it was to be the crown jewel of golf in Oklahoma City, complete with an 18-hole P.G.A. championship course and a 55,000-square-foot clubhouse of Norman-style architecture. The Gaylord family, best known as Oklahoma media moguls and owners of the Grand Ole Opry, sank a reported $59 million into the project.
Over the next 15 years, however, the course changed hands and fell into disrepair as a glut of new courses and declining demand punished the market. Finally, early this year, Gaillardia was sold to Concert Golf Partners, an investment firm based in Newport Beach, Calif., which assumed $7 million in loans and now owns the property free and clear.“Between 1998 and 2005 there would have been a bidding war,” said Peter Nanula, the chairman of Concert Golf who previously ran Arnold Palmer Golf Management.
While golf is still anathema to many investment portfolios, investors who have the cash see the current market as an opportunity to scoop up distressed clubs and revamp their business models.
“It’s certainly a buyer’s market,” said Larry Hirsh, president of Golf Property Analysts. “There are a lot of distressed courses, financing is difficult and most buyers don’t have the ability to write a check.” (...)
Last September, the world’s largest owner and operator of private clubs, ClubCorp Holdings, went public at $14 a share. The Dallas-based company, which had been owned by the private equity firm KSL Capital Partners, has used the injection of capital to add to its portfolio of clubs and eventually pay off its high-yield debt. It now owns 109 golf and country clubs in 23 states and Mexico. Its shares climbed as high as $19.30 in May and closed at $18.63 on Thursday. (...)
Though the industry as a whole has been under a black cloud, not all clubs are losing money. The clubs that have held up best are those in densely populated areas with limited land on which to develop, Mr. Main noted. “You can have a club in Chicago doing better than one in Florida or Texas, even after you factor for the weather,” he said.
The worst off are those developed in the last 15 years as part of a residential community off the beaten path. “They’re relying solely on demand from that community,” Mr. Main added. Indeed, many of the new courses built during the housing boom were meant to be subsidized by home sales. When the bottom fell out of the housing market, developers had no way to pay for the expensive amenity. In many cases they defaulted on their loans, which are now getting scooped up by investors.
“Golf courses have high fixed costs,” Mr. Nanula said. “At a typical course, it’s at least $500,000 a year just to mow the grass.” Moreover, many clubs are mismanaged, he said. “The typical dynamic at a private club is that it’s not run with profit in mind but with the idea of making the place fabulous,” he said. As a result, he said, “we consistently see clubs that 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.
While the right location and management is crucial, the golf clubs that are doing well have also evolved from being golf centric to family centric. “It’s now golf with a small ‘g’ instead of a capital ‘G,’ ” Mr. Affeldt said, explaining that ClubCorp is refreshing food and beverage operations, relaxing dress codes and adding water parks, tennis courts and fitness facilities. Case in point: His home club, Brookhaven Country Club in Dallas. “Kids are playing putt-putt golf and running around in their bare feet while grandmas do water aerobics,” he said. “It’s the epitome of a multiuse, multigenerational club.”
by Sarah Max, NY Times | Read more:
Image: Pacific Links International
