To learn more about Steve, go to this website for Golf Courses For Sale!
For graphs and other information from Real Capital Analytics, visit the National Golf Group Research Weblink!
The commercial loan market has been squeezed like a bottle of Ketchup with a clog at the opening of the bottle. We can see there is Ketchup in the bottle, there are loans that can be made, but the restriction in the end caused by lender uncertainty, government regulation and lack of a secondary market has stemmed the flow of loans to a few drips and drabs. With the $2.2 Trillion of commercial Properties acquired or refinanced from 2004 through today, it is tough to have them refinanced since the reduction in values would cause most owners to come to the table with cash.
Prices of all properties across the board have dropped 37% from the peak. Values for golf courses have dropped even more. Since Revenue is down and expenses are up, it is a double whammy to course owners. All commercial property sales reached only 7% of the volume achieved in the first half of 2007, according to Real Capital Analytics. The volume of all distressed properties has doubled in 2009.
According to the NGF/Allied Golf Associations August Report, a survey of 2,100 golf facility operators showed that rounds fell 2.7 percent nationwide on a same-facility basis in August 2007 vs. August 2006. As a result, the year-to-date total is down 0.8 percent through August. The premium public segment is slightly more positive.
Severe weather in the Midwest was the primary cause for the drop in U.S. rounds. However, five of 11 NGF climate regions were actually up slightly. But the Lower Midwest, the hardest hit region, was down 8.6 percent. South Central region has the poorest performance year-to-date, even though the area had a relatively good August.
There have been 71 closures (in 18-hole equivalents) year-to-date as of June 2009. (There were 106 for the full year 2008.) The leading reasons for 2009 closures have been the economy, lack of financing and over-building followed by conversion to real estate. Closures continue to be disproportionately public, stand-alone 9-hole, short courses (executive and par-3) and value price point. However, in general, the private courses that have been hit with members who have lost jobs, members who move and members who can no longer afford to pay dues, are seeing declining memberships, lower revenue and many are at risk of staying open. There are of course exceptions to this. There are private courses in markets not over saturated with good owners or good boards of directors who are increasing memberships and flourishing. In as much as the real estate business is a local business, golf course ownership is a microcosm of that. We have seen two private courses next to each other where one is bankrupt and the other is flourishing; it comes down to debt structure, customer service, good management, cost containment and reputation.
Closures have far outpaced openings in 2009 - so far only 16.5 courses (in 18-hole equivalents) have opened. As a result, the total net supply of golf facilities is continuing to decrease, from a high of 16,057 in 2004 to 15,931 as of this writing (126 fewer).
For golf course owners, the realities of the fact that the “big three”, Textron, GE and CapMark have exited the airspace, has left a vacuum. When loans come due, lenders have a choice, work with the investor and extend the loan or foreclose. Since there aren’t many lenders out there willing to take out the existing debt, especially when Loan to Values, (LTV’s which are down from 70-75%) are currently in the 50-65%.
For new golf course acquisitions there are a few more options. There is SBA financing, hard money and community banks. If a buyer desires an SBA 504 loan which provides 90% LTV, the debt is structured thusly:
Bank - 1st mtg. (50% of purchase and closing costs) – 25-year term, no balloons. Rate is 450 bps over 5-year treasury (currently 7.16%) and it will adjust every five years at the same index and margin.
SBA - 2nd mtg. (40% of purchase and closing costs)- 20 year term with no balloons. Rate is fixed for twenty years
Hard Money loans are 9.5-12% over Libor or other indexes, typically 3-5 year terms.
Community banks that make loans more on the individual’s net worth rather than the property, are offering loans in the town in which the course resides, at approximately 7.5% interest rate, 20 year amortization and a 5-year term. In addition, these banks want to see a certain level of deposits to be kept on hand by the borrower. That amount is usually in the $250K plus range.
While times are tough and the Ketchup bottle is clogged, we can still squeeze new financing out for the right buyer and the right golf course.
Steven M. Ekovich is the Director of the National Golf & Resort Group of Marcus & Millichap. As director, he is in charge of golf courses for sale, consulting and acquisitions for the firm’s clients. Mr. Ekovich has brokered or overseen as a an executive of the firm over $3 billion in transactions. His partner Chris Karamitsos is a PGA professional who also has brokerage experience and has been in the golf industry for over 20 years. The website for the National Golf Group has information on golf courses for sale, finance, and research that may help the interested reader.
Thursday, August 27, 2009
Friday, August 14, 2009
Staying Afloat When the Golf Tide Goes Out
Owning and operating a golf course in this economic environment poses numerous challenges. Though rounds of golf are holding steady nationwide, there are pockets around the US where rounds are down more than five percent compared to a year ago. The core golfer has cut back his number of rounds in some places by as much as 50%, meaning new consumers must be cultivated. In 2008 owners saw some operational expenses double while their green fees remained the same or lower. In 2007, for the first time, a greater number of courses closed than came on line. So far in 2009, course closings out number openings by more than 3-1. All of this means that now more than ever, in this economy, the golf business is a zero-sum game; if someone is gaining market share, someone else is losing market share. Thus many in the industry fall into the “rate-war” trap. “Low rate is better than no rate” becomes the business model of desperation and only prolongs the inevitable. This does little to attract new business. It simply gives the patron whose business a course has already captured, a lower rate resulting in less revenue at the end of the day. Like any other sector of the market, new consumers are more likely to pay higher prices for goods and services than their seasoned counterparts.
The National Golf Foundation estimates that there are roughly 30 million golfers in the US and approximately 16,000 golf facilities. In Florida alone, there are over 1,400 courses or about 8% of the nation’s supply. That is a supply and demand ratio that tests the creativity and operational skills of all course owners. Yet, in spite of all the negative factors, there are many success stories in the industry. In one sense, this environment provides the most skillful course operators the opportunity to be very successful. With golf courses closing their doors all over the country, those that have the capacity to remain open will reap great benefits provided that their business model is fluid and adaptable to changing conditions in the market.
The successful owners/operators are taking a three-pronged approach to maintaining a fiscally healthy facility. That approach centers around creative marketing, driving value and developing a good reputation while being as frugal as possible. This multi-facetted strategy, when properly employed, should serve to develop new business and keep core patrons from drastically scaling back their rounds.
Effective Marketing
With regard to marketing there are some very effective non-traditional methods that most owners should consider. In this day and age it is imperative for a course to have some sort of web presence and internet campaign to drive new business. According to Matt Kessler of Active Golf, a golf course software and marketing firm, the goal of a marketing campaign is to make potential customers aware of your course then turn him/her into a repeat customer through specialty offers, loyalty programs and maintaining frequent communication with them. He suggests these five keys to a successful web-based campaign: Third-Party Tee Time Marketing, Custom Web Design, Database and Email Marketing, Online Marketing and Yield Management. While the first four are relatively self explanatory, the last of these is particularly innovative. Using golf management software, pro shops can sell excess tee times online, track results and improve yield by choosing to discount distressed tee times (those times that traditionally, for whatever reason, tend to go unsold). Courses have the ability to provide all rate types and booking windows online and integrate online bookings with software which saves staff time on reservations and customer calls. I know of several clients who have over 150,000 golfers in their databases who receive daily specials on available tee times. This generates business and sells tee times that would otherwise go unclaimed.
Be Proactive
Recently I was calling local golf courses for the purpose of doing a comparative rate study. I phoned no fewer than 20 daily fee facilities. When I spoke to the pro shop personnel, they would politely tell me their rates, ask if I had any further questions and essentially end the call as soon as possible. There was however one course I called that was an exception. Once I received all the data I needed the attendant on the phone employed proven sales techniques to sell me one of the available times. He was willing to negotiate the rate over the phone on one of his off-peak times or even throw in a sleeve of balls if I booked a prime time for the next day. It is much more cost effective to include a $5 pack of golf balls than to lower the rate by $10. That is proactive! This is no environment to have mere order-takers answering the phones. Every member of the staff should endeavor to get tee times sold.
Develop and Maintain a Good Reputation
Based on research by the National Golf Foundation (NGF), word of mouth is the top reason that a golfer will try a different course from the one that he most frequently plays. The NGF data shows that a loyal customer will provide a referral impact of more than one additional new customer each year through the positive referral behaviors that loyal customers perform. However, disloyal customers also provide a negative referral impact and may cost up to one customer per year. The NGF estimates that at a typically priced golf course ($45 peak green fee) a positive referral resulting in a new customer can provide approximately an additional $740 of income per player per year. Yet negative referrals can cost $550 per customer per year. This represents an economic factor that due to its intangibility and abstract nature has mostly gone overlooked by today’s golf course operators. Courses that don’t have a quantifiable referral program in place should experiment and track its progress. You might be surprised at the results. After all, customer services is one aspect of which every staff member has direct control.
Driving Value
This falls into the category of subjectivity but there is a basic premise to value. Does the consumer feel as though the return on his investment of time and money to spend the day at the course, was worth the sacrifice of that time and money? If so, what was it? If not, why not? What could the course have provided that would have changed that sentiment? In an industry that relies on repeat business and new consumers, golf facilities can ill-afford for their patrons to experience buyer’s remorse as they slam the drunks of their cars. Evaluate the tangible vs. intangible value-added benefits to playing your course. Some examples of intangible benefits are, superb playing conditions, clean carts, new and clean range balls, hole-location sheets with instructions on how to read them or GPS on carts, daily stimp meter readings, towels in carts, shoe service etc. Adjust your tee sheet to avoid on-course delays so players finish as close to 4 hours as possible. This might mean running ten-minute tee times as opposed to 8-minute tee times, or conduct a first tee/tenth tee start on busy days so more golfers can access peak times. On-course beverage service should be prompt and frequent. Tangible benefits may include a boxed lunch, bounce-back coupons, merchandise discounts or free golf balls.
Do not hesitate to institute late afternoon functions during daylight savings time that include nine holes of golf followed by an organized social gathering. Some of these may sound familiar: Nine & Network, Nine & Dine, Nine & Wine, Ladies Night, Scotch & Cigar Night, Hospitality Appreciation Night, and the list goes on. Football enthusiasts may enjoy Monday Night Tee Off to Kickoff; a nine-hole scramble followed by dinner and watching Monday Night Football. Don’t neglect junior golfers either. Comprehensive junior golf programs in the summer will cultivate future long term patrons and result in increased parent-child rounds in the short term. Remember that when it comes to driving value creativity is your greatest asset.
Though this happens to be one of the most challenging economic environments in decades, sound business practices and thinking outside the box can help you weather the stormy seas.
Chris Karamitsos is a member of the PGA of America and co-founder of the National Golf & Resort Properties Group of Marcus & Millichap Real Estate Investment Service. The National Golf & Resorts property group specializes in Golf Courses for Sale, Nationwide.
The National Golf Foundation estimates that there are roughly 30 million golfers in the US and approximately 16,000 golf facilities. In Florida alone, there are over 1,400 courses or about 8% of the nation’s supply. That is a supply and demand ratio that tests the creativity and operational skills of all course owners. Yet, in spite of all the negative factors, there are many success stories in the industry. In one sense, this environment provides the most skillful course operators the opportunity to be very successful. With golf courses closing their doors all over the country, those that have the capacity to remain open will reap great benefits provided that their business model is fluid and adaptable to changing conditions in the market.
The successful owners/operators are taking a three-pronged approach to maintaining a fiscally healthy facility. That approach centers around creative marketing, driving value and developing a good reputation while being as frugal as possible. This multi-facetted strategy, when properly employed, should serve to develop new business and keep core patrons from drastically scaling back their rounds.
Effective Marketing
With regard to marketing there are some very effective non-traditional methods that most owners should consider. In this day and age it is imperative for a course to have some sort of web presence and internet campaign to drive new business. According to Matt Kessler of Active Golf, a golf course software and marketing firm, the goal of a marketing campaign is to make potential customers aware of your course then turn him/her into a repeat customer through specialty offers, loyalty programs and maintaining frequent communication with them. He suggests these five keys to a successful web-based campaign: Third-Party Tee Time Marketing, Custom Web Design, Database and Email Marketing, Online Marketing and Yield Management. While the first four are relatively self explanatory, the last of these is particularly innovative. Using golf management software, pro shops can sell excess tee times online, track results and improve yield by choosing to discount distressed tee times (those times that traditionally, for whatever reason, tend to go unsold). Courses have the ability to provide all rate types and booking windows online and integrate online bookings with software which saves staff time on reservations and customer calls. I know of several clients who have over 150,000 golfers in their databases who receive daily specials on available tee times. This generates business and sells tee times that would otherwise go unclaimed.
Be Proactive
Recently I was calling local golf courses for the purpose of doing a comparative rate study. I phoned no fewer than 20 daily fee facilities. When I spoke to the pro shop personnel, they would politely tell me their rates, ask if I had any further questions and essentially end the call as soon as possible. There was however one course I called that was an exception. Once I received all the data I needed the attendant on the phone employed proven sales techniques to sell me one of the available times. He was willing to negotiate the rate over the phone on one of his off-peak times or even throw in a sleeve of balls if I booked a prime time for the next day. It is much more cost effective to include a $5 pack of golf balls than to lower the rate by $10. That is proactive! This is no environment to have mere order-takers answering the phones. Every member of the staff should endeavor to get tee times sold.
Develop and Maintain a Good Reputation
Based on research by the National Golf Foundation (NGF), word of mouth is the top reason that a golfer will try a different course from the one that he most frequently plays. The NGF data shows that a loyal customer will provide a referral impact of more than one additional new customer each year through the positive referral behaviors that loyal customers perform. However, disloyal customers also provide a negative referral impact and may cost up to one customer per year. The NGF estimates that at a typically priced golf course ($45 peak green fee) a positive referral resulting in a new customer can provide approximately an additional $740 of income per player per year. Yet negative referrals can cost $550 per customer per year. This represents an economic factor that due to its intangibility and abstract nature has mostly gone overlooked by today’s golf course operators. Courses that don’t have a quantifiable referral program in place should experiment and track its progress. You might be surprised at the results. After all, customer services is one aspect of which every staff member has direct control.
Driving Value
This falls into the category of subjectivity but there is a basic premise to value. Does the consumer feel as though the return on his investment of time and money to spend the day at the course, was worth the sacrifice of that time and money? If so, what was it? If not, why not? What could the course have provided that would have changed that sentiment? In an industry that relies on repeat business and new consumers, golf facilities can ill-afford for their patrons to experience buyer’s remorse as they slam the drunks of their cars. Evaluate the tangible vs. intangible value-added benefits to playing your course. Some examples of intangible benefits are, superb playing conditions, clean carts, new and clean range balls, hole-location sheets with instructions on how to read them or GPS on carts, daily stimp meter readings, towels in carts, shoe service etc. Adjust your tee sheet to avoid on-course delays so players finish as close to 4 hours as possible. This might mean running ten-minute tee times as opposed to 8-minute tee times, or conduct a first tee/tenth tee start on busy days so more golfers can access peak times. On-course beverage service should be prompt and frequent. Tangible benefits may include a boxed lunch, bounce-back coupons, merchandise discounts or free golf balls.
Do not hesitate to institute late afternoon functions during daylight savings time that include nine holes of golf followed by an organized social gathering. Some of these may sound familiar: Nine & Network, Nine & Dine, Nine & Wine, Ladies Night, Scotch & Cigar Night, Hospitality Appreciation Night, and the list goes on. Football enthusiasts may enjoy Monday Night Tee Off to Kickoff; a nine-hole scramble followed by dinner and watching Monday Night Football. Don’t neglect junior golfers either. Comprehensive junior golf programs in the summer will cultivate future long term patrons and result in increased parent-child rounds in the short term. Remember that when it comes to driving value creativity is your greatest asset.
Though this happens to be one of the most challenging economic environments in decades, sound business practices and thinking outside the box can help you weather the stormy seas.
Chris Karamitsos is a member of the PGA of America and co-founder of the National Golf & Resort Properties Group of Marcus & Millichap Real Estate Investment Service. The National Golf & Resorts property group specializes in Golf Courses for Sale, Nationwide.
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