GlobeSt.com Article 6.20.18

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Where Investors Are Getting Double-Digit Yields

JUNE 20, 2018 | BY KELSI MAREE BORLAND

Investors are securing 13% cap rates in the golf course space,

but it takes a savvy investor to take on a golf course.

Jeff Woolson

There is no doubt that investors are chasing yield, but at this point in the cycle, it has

become hard to find. Private equity capital and high net worth individuals, however,

have struck gold. The golf course niche is seeing double-digit cap rates—as much as

13%. Golf courses, however, aren’t your typical real estate investment. They rely on

cash flow, not appreciation, for value and they are management intensive operational

businesses. Still, investor demand is growing for golf course deals, especially in primary

markets. We sat down with Jeff Woolson, EVP and Managing Director of Golf & Resort

Properties at CBRE, to find out more about the golf market.

GlobeSt.com: Give me a snapshot of the golf investment market.

Jeff Woolson: The golf business is an interesting business because it really is a

business opportunity that is attached to a large piece of real estate. Often people

confuse golf courses with real estate, but there is often nothing that you can really do

with that real estate except have a golf course on it. Typically, they are deed restricted

or in a master plan community or part of a resort. Therefore, this large piece of real


estate really has one use only, and that is a golf course. As a result, golf courses trade

at a multiple different than real estate because there is really no land appreciation.

There is only value based on current cash flow and future cash flow. A lot of golf

courses don’t make money, but there are companies that do make good money buying

golf courses and operating them as businesses. There is a lot of private equity that is

and has been in the golf business, like Starwood Capital, ARCIS, which is owned by

Fortress, and Apollo Capital. There are a lot of people that believe the golf business can

be profitable and those that have succeeded in it. We have seen a lot of activity this

year related to big portfolios. It has been an active year for the golf business.

GlobeSt.com: Why do you think there has been an increase in demand?

Woolson: I think the attraction to the golf business, related to today’s environment, is

yield. It is so hard to get yield in anything. Money is looking for yield, and you can buy

golf properties at 10-caps, 11-caps, even 13-caps. Those are the multiples that golf

courses trade at. People often ask why these numbers are so much different than other

asset classes. One reason is that you are limited in the land use, like I said, but you are

also limited in financing. Prices increase when financing becomes easier, hence

apartment prices and the cap rates that those properties command. For apartments,

financing is very easy and low-priced right now. The golf business is not like that. You

get financing with maybe 65% LTV with a 7% or 8% interest rate, something much

higher than where the market is for traditional commercial real estate.

GlobeSt.com: Are there any geographic trends in the space? Which markets have

been most popular for investment?

Woolson: There is always demand for Southern California, and a lot of the demand in

the Southern California market is driven by the Korean American market. Koreans love

golf. When we take a property to market in Southern California, 90% of the time, a

Korean American or a Korean Corporation is buying it. They love golf and they love it as

an operating business. Southern California has always had that premium, but besides

that specific buyer group, a lot of people are starting to shy away from California. The

water costs and the taxes have spun out of control, and with our labor costs and

regulatory environment, a lot of people don’t want to be in California. There is hardly a

primary market in the country that isn’t desirable from a golf standpoint. We still see a


lot of pushback in second-home markets. That market is recovering, but it hasn’t

recovered like the primary markets have.

GlobeSt.com: You mentioned private equity capital as one of the players. Who

else is a buyer in this market?

Woolson: The buyer pool has been a lot deeper. It was certainly a lot deeper before the

crash, but we are seeing more and more buyers pop-up. A lot of these buyers are high

net worth individuals that invest in these golf courses with some friends. That continues

to be a huge part of our business. The best buyer is your high net worth individual

because they don’t need a double-digit return. They are happy with an 8% preferred

return, and they have great success raising money to buy these golf courses with very

little debt and very nice returns.

GlobeSt.com: What is your outlook for investment activity for golf courses?

Woolson: I think demand will be steady for good properties that have good cash flow in

good locations. There is very little interest in golf courses that have poor locations.

There isn’t a lot of capital chasing those deals. We sell golf courses that aren’t making

money, but there is often a reason why it isn’t making money. Maybe, it is a non-profit

that can make money, or it is owned by a corporation as part of a residential community

and they don’t care if the golf course is making money because they are killing it on the

real estate. I think activity will only improve as lenders start to free up some of their

capital to finance these acquisitions. As debt becomes more available for golf courses,

the prices will go up.

GlobeSt.com: Do you think that debt sources are becoming more interested in

golf course deals?

Woolson: No. I don’t see many at all. A lot of them got burned in the last cycle. There

were steady and predictable lenders in this space, and now there is really only one.

Most of the debt is put on the property by local banks with local banking relationships. I

am surprised by that, and it has kept down the value of properties.

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