Buyer Sentiment

Investors understand that as a commercial real estate investment, golf competes with all other asset classes for investment dollars. Those who are heavily invested in income-producing properties know that there are plenty of options available for commercial investment. Core assets (Multi-family, Office, Industrial and Retail) are the market trend-setters. Non-core assets, such as golf tend to lag behind their less volatile counterparts. Even as the debt market for traditional income-producing properties began to tighten in 2008, we still saw golf assets trade on multiples of gross income near 2X and cap rates in the single digits in some cases. Currently, traditional commercial real estate core assets are very attractive to investors. Financing is readily available and there is a historically high spread between Treasuries and core asset cap rates. This has put a great deal of downward pressure on non-core assets, especially golf courses. Buyer sentiment is such that a leveraged investment in an income-producing core asset is like a safe layup shot on a tricky par-5. So, what makes an investor want to go for the green in two? The answer is irresistible metrics. In 2011, some courses with negative EBITDA have traded in the 0.5X to 0.7X.  For assets with positive EBITDA we saw courses trade in the 1X to 1.5X thus pushing cap rates to numbers well above traditional core real estate returns which has helped stoke velocity in golf transactions. We are beginning to see buyers who are heavily invested in commercial real estate core assets allocating capital for acquisitions in golf. Nearly 50% of the transactions closed by the NGRPG in 2011 involved principles purchasing their first golf assets. Smart money is betting on what it perceives to be purchasing at the bottom of the market with healthy returns from golf properties on a 5 to 7-year holding period. Buyers are taking advantage of opportunities in the golf market where underwriting courses with unleveraged internal rates of return are in the low 20% range. We believe that investors will continue to buy according to the aforementioned metrics for the next 4-8 quarters or until such time as core asset cap rates begin to compress.