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Where Investors Are Getting Double-Digit Yields<br />

JUNE 20, 2018 | BY KELSI MAREE BORLAND<br />

Investors are securing 13% cap rates in the golf course space,<br />

but it takes a savvy investor to take on a golf course.<br />

Jeff Woolson<br />

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

be<strong>com</strong>e hard to find. Private equity capital and high net worth individuals, however,<br />

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

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

cash flow, not appreciation, for value and they are management intensive operational<br />

businesses. Still, investor demand is growing for golf course deals, especially in primary<br />

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

Properties at CBRE, to find out more about the golf market.<br />

<strong>GlobeSt</strong>.<strong>com</strong>: Give me a snapshot of the golf investment market.<br />

Jeff Woolson: The golf business is an interesting business because it really is a<br />

business opportunity that is attached to a large piece of real estate. Often people<br />

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

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

or in a master plan <strong>com</strong>munity 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<br />

at a multiple different than real estate because there is really no land appreciation.<br />

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

courses don’t make money, but there are <strong>com</strong>panies that do make good money buying<br />

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

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

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

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

year related to big portfolios. It has been an active year for the golf business.<br />

<strong>GlobeSt</strong>.<strong>com</strong>: Why do you think there has been an increase in demand?<br />

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

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

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

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

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

also limited in financing. Prices increase when financing be<strong>com</strong>es easier, hence<br />

apartment prices and the cap rates that those properties <strong>com</strong>mand. For apartments,<br />

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

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

higher than where the market is for traditional <strong>com</strong>mercial real estate.<br />

<strong>GlobeSt</strong>.<strong>com</strong>: Are there any geographic trends in the space? Which markets have<br />

been most popular for investment?<br />

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

the Southern California market is driven by the Korean American market. Koreans love<br />

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

Korean American or a Korean Corporation is buying it. They love golf and they love it as<br />

an operating business. Southern California has always had that premium, but besides<br />

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

water costs and the taxes have spun out of control, and with our labor costs and<br />

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

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<br />

recovered like the primary markets have.<br />

<strong>GlobeSt</strong>.<strong>com</strong>: You mentioned private equity capital as one of the players. Who<br />

else is a buyer in this market?<br />

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

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

net worth individuals that invest in these golf courses with some friends. That continues<br />

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

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

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

little debt and very nice returns.<br />

<strong>GlobeSt</strong>.<strong>com</strong>: What is your outlook for investment activity for golf courses?<br />

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

good locations. There is very little interest in golf courses that have poor locations.<br />

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

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

that can make money, or it is owned by a corporation as part of a residential <strong>com</strong>munity<br />

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

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

capital to finance these acquisitions. As debt be<strong>com</strong>es more available for golf courses,<br />

the prices will go up.<br />

<strong>GlobeSt</strong>.<strong>com</strong>: Do you think that debt sources are be<strong>com</strong>ing more interested in<br />

golf course deals?<br />

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

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

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

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

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