Global Edition

GBN’s Property Review

7.58am 20th February 2009 - Property

For the past several years the number of UK golf courses changing hands in the course of a year has remained at a remarkably constant figure. In most years that figure is normally between 12 and 18, writes Geoff Russell.

The exception was 2004 when there was unprecedented activity, with not only the sale of the 32 courses owned by Clubhaus and American Golf UK but also the trophy assets of The Belfry and Wentworth.

We are less than two months into 2009 but it is already apparent that this will be another year where market activity is likely to be exceptional. Golf Business (GBN) – has already published the details of 10 UK golf courses for sale on the open market and 1 being offered to let. It is safe to assume that there are other courses which are being offered for sale privately.

But although the world is full of gloomy news it should not be assumed that all golf course owners are taking a big hit on the capital value of their properties.

Ben Allen, head of Humberts Leisure’s golf agency team, comments, “The golf sector remains attractive to the market. Generally, freehold golf values have been static over the last 5 years and remain resilient in an otherwise difficult property market. We believe that it is this stability / security that is attractive to the market, especially high net worth purchasers.”

Kay Smith, from Savills Leisure team in Oxford, confirms that the golf sales market is buoyant. “Despite the over supply of golf courses in the UK, there is still plenty of interest from investors,” she says. “Many golf course operators have struggled with competition over the years. Now they are facing the added burden of consumers‘ reduced disposable income, causing their business to struggle further.

“Traditionally membership renewals are due in the early part of the year – a gloomy prospect! It’s a harsh choice between selling now, or potentially waiting another five years to match today’s prices, and many owners are considering surrendering their increasingly difficult battle by pushing the sales button now.”

“Luckily for golf sellers, there are plenty of people out there looking to invest their millions,” continues Kay. “Interest rates are at an all time low, the stock market is unpredictable and burglaries on the up, so even the mattress is unsafe! This brings us back to the trusty property market and the next question is ‘which sector is most secure?’

“The answer is land – the last area of property to be affected. So why not invest in golf? It involves owning plenty of land, the potential to earn an income and, well, who wouldn‘t want to own and play their own golf course!”

Across the Atlantic, however, the experts are far less cheerful, although a similar increase in courses being offered for sale has been noted. Last year Jeff Davis of Fairway Advisors, LLC was targeting British investors with news of American golf courses for sale. The £:$ relationship of 2007/8 made already relatively inexpensive US golf courses seem very attractive to British buyers. The recent slide in the value of the pound sterling has changed all that.

“The two largest obstacles in the US golf course sales market,” says Jeff, “are investor confidence and credit liquidity. Sliding equity markets, negative job reports, a dim economic outlook and a lack of debt have many potential investors on the sidelines. We will see more investors return to the golf market once the credit markets thaw. In the interim, sales prices will trend lower due to the lack of a competitive sales environment.”

Meanwhile in Germany the problem is a lack of golf courses for sale, rather than a surplus, and the market has seen only few transactions. Certified Golf Course Appraiser/Valuer, Dr Falk Billion, told me, “My personal guess is that the number of golf course sales in Germany is less than 3 per year (out of 690 existing courses). The international credit crunch so far does not seem to change this situation. If a golf course is sold at all, the market value in more than 90% of the cases is based on the DCF (discounted cash flow) model (income approach).”

Back in the UK, Charles Greville-Heygate of Strutt and Parker Leisure & Hotels agrees that 2009 looks like being an active year for sales with a steady stream of properties coming to the market ‘for a variety of reasons’.

“There are still buyers for properly priced properties as has been shown by recent sales such as Teign Valley Golf Club, sold by Strutt & Parker at close to the guide price within 3 months of it going to the market,” he says. “There are however less buyers due to the difficulties of raising funds so cash buyers have become more important together with those who have an existing loan facility in place based on other property they own.”

On values Charles agrees with the comments of Ben Allen and Kay Smith. “Generally values have not fallen like commercial or residential properties. We attribute this to the fact that unlike these property types, golf values did not undergo the substantial increases seen over the last 5 years. In addition agricultural land values have risen over the last 18 months and underpin the golf asset.

“The one single factor that would assist the market would be increased lending by the banks but this may yet take some time,” he concludes.

With or without a relaxation in bank lending policy, Tom Marriott of HMH Golf & Leisure believes that there will be more deals done this year than in 2008 saying that at the moment at least there is little evidence of an inability of buyers to borrow money, although he anticipates that some deals may be done where, due to the lending situation, the seller may have to accept deferred payments.

“Our view as to the state of the market,” sys Tom, “is that there are and will be a number of courses available this year. Last year there were few transactions and we feel that this was as a result of owners waiting to see what the financial markets did towards the end of the year and whether the UK was in fact sliding into recession. Now that we all know this to be the case, the sellers whom we are dealing with are not necessarily those with financial problems, rather individuals who need to move on for one reason or another.

“We are also finding a record number of new buyers looking to put their money into asset backed businesses.”

A note of caution, however, comes from Mark Smith of Smith Leisure. “There may be a large number of golf courses for sale at the moment but it will be interesting to see whether these translate into a large number of deals done in 2009,” he says.

“I cannot help but think that the ones that will get sold readily will be the ones that have to get sold i.e. those that are ‘forced sellers’ or receivership/administration sales. For those that do not have to sell but would like to sell, I think that the gap between a vendor’s expectation on price and what a purchaser is prepared to pay will be too wide.”

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