Remember the good old days of Golf Course Development? The days when golf courses were built as part of residential communities and the homes looking at the golf course would sell for a premium. The developers were happy as they made money off the increased value of the lots and the homeowners were happy as they had great views of the golf course and the golf course operator was happy as they made money off all the people playing golf everyday. Well, those days are long gone in many places.
Now, the developer is typically long gone having sold the golf course (at a loss) to a third party, the homeowners are still there but in many cases they are looking at bunkers full of water and cart paths that are in need of urgent repair and the golf course operator is fighting every day to keep the tee sheet as full as possible.
How this happened has been gone over time and again; too much building with a drop in demand had done significant damage to the golf course investment market. The question that matters most now is what happens next to these golf courses? Do they stay as golf courses or do they get plowed under and turned into another use.
But before we look ahead, we need to go back and understand why many courses are so limited in their potential going forward. We go back to when the original developer took the parcel of land and went to the local building department and said I want to build a lot of homes and a golf course. The local building department would say that is great as long as the land that you are using for the golf course stays a golf course forever. The developer would agree in a heartbeat, often times the golf courses was built in low land that flooded and had no development potential anyway.
Fast forward 20-25 years. The golf course has not been profitable in a long time and is now owned by its 3rd owner, a local bank who put too much debt on the property when it sold from the developer to third party operator. The bank hires a competent golf course broker to sell the property. The golf course broker puts the course on the market and for every 1 call they get from someone looking to own and operate a golf course the broker gets 5 calls looking to see if they can redevelop the course into houses. The answer more often than not is no because the original developer promised to keep the course as open space. And even if the land might have development potential the homeowners around the course will protest if their golf course views become blocked by new homes.
So the property sits waiting for a new owner, the longer it sits the lower the price. As the course sits the amount of deferred capital begins to accumulate which begins to negatively impact home values surrounding the golf course. Finally, either the local Home Owners Association steps in and buys the course to protect their home values or a golf pro with a moderately rich uncle buys the course so they can own and operate it.
What happens from there is anyones guess. But the bank is not happy as they lost money, the homeowners are not happy as they lost value on their homes, and the golf course operator is probably not happy as they lost money trying to pay off too much debt.
The big news in the golf course industry this week is Apollo buying Club Corp for $1.1 Billion which according to industry experts is great news. Many of the Club Corp properties are prime sites for redevelopment and I would not be surprised to see the new owner attempt to maximize their investment by selling as many developable clubs as they can. The fight from exiting members and surrounding home owners will be interesting to watch.