Owners and operators can benefit says Charles Greville-Heygate of Strutt and Parker in his annual review.
One of the bright aspects of 2006 has been the emergence of a strong leisure investment market involving golf courses. Over the last 20 years there has been no open market sale of a freehold golf course subject to a lease. Where freeholds were sold, they were only offered to the tenant.
2006 saw two public offerings. At Clacton-on-Sea Golf Course the club were the successful bidders. The investment yield could not be accurately assessed as the rent review was overdue and a significant increase was likely.
Seckford Golf Course, near Ipswich, which was publicly marketed by Strutt & Parker, attracted property companies, individual investors and those seeking to purchase through their SIPP. The guide was set at a yield of 5% but as a result of strong bidding, a number of offers were received at lower yields.
This low yield reflected the rent being a ground rent and, although the tenant did not have a strong covenant if the lease was ever forfeited, the market value of the property with vacant possession would be greater than the investment value.
Owners of freehold courses let to tenants now have an opportunity of selling at a high point in the market or raising funds against it to invest elsewhere. Operators can also consider a sale and leaseback arrangement.
Owners of groups of golf courses either held freehold or on long leaseholds can take advantage of the strong market and set up an Opco/Propco arrangement and sell the property investment. It will be interesting to see if any of the multiple golf operators follow this route in 2007. It must be a good opportunity.
Trading Down in 2006
As predicted last year, the football World Cup had a significant impact on golfers and this, combined with a very cold spring and a very hot summer resulted in many operators falling 10% – 15% below their financial forecast. This has increased the financial pressure on some of the more vulnerable courses. If 2007 trading does not improve, this is likely to lead to an increase in courses coming to the market.
Steady Market in 2006
Fourteen sales of golf courses of 18 holes or more took place in 2006, just above the previous 4 year average of thirteen. Sales have settled in to a consistent pattern, although we would not be surprised if the numbers slowly increased over the next 2 or 3 years. Values have again remained static and seem unlikely to change significantly in 2007.
The one ‘Trophy course’ sold in 2006, The Addington Golf Club, near Croydon, was purchased by Altonwood. Although substantial investment is required, it attracted a premium price. The guide was £7.5m.
Development Opportunities Help Boost Values
A number of courses have obtained or are seeking planning consent to increase values. West Bowling Golf Course in Bradford has been sold for development and the members have received a substantial windfall payment. Other clubs are also looking at these opportunities.
Development opportunities at Windwhistle Golf Club in Somerset enabled Strutt & Parker to achieve a sale within the guide price of £1.3 – £1.5m. This simple 18 hole course with clubhouse had planning consent for overnight accommodation. Opportunities exist for this consent to be beneficially amended.
Newbury Racecourse have submitted a planning application for housing on part of the golf course. Advice on the golf mix for redevelopment on the facilities was provided by Strutt & Parker. Costessey Park Golf Course in Ipswich with planning consent for 25,000 sq.ft of offices is being marketed by Strutt & Parker.
With the continued increases in house prices, the value of a single house with land around in a high value residential area is now becoming higher than a 9 or 18 hole golf course. If planners grant planning consent for this, a number of courses would close and reduce the current over supply, benefiting the whole golf market. Just wishful thinking?
The Shire, London is the first Seve Ballesteros designed course in England. Years of carefully controlled tipping of inert material followed by high quality restoration and construction has produced a wonderful course and a good advertisement for constructive landfill. Membership is already full. Close monitoring of all aspects of a development of this type are essential. Strutt & Parker have advised Barclays Bank plc, funders to the project, throughout.
There are still opportunities to develop or redesign courses using landfill providing the operation is professionally handled.
Membership Structures – Time for a Change?
Most clubs now struggle to achieve full membership. In our view the traditional membership with an annual payment to cover all golf use is unlikely to grow and fill clubs. Goodwood Estate have developed a high quality course and clubhouse with a membership structure designed to charge golfers for their actual use of the course and the time at which they use it. Members pay a modest subscription (£160) and purchase credits.
The number of credits required for each round depends on whether it is at peak time, off peak or in between. With email marketing, the club has the ability to stimulate demand for the quieter periods at little cost. Golfers have flexibility and may wish to join a second club, thereby extending the catchment area of the course.
We think this is a good system for a quality product which will be attractive to the market and may set a trend for others to follow.
Strutt and Parker www.struttandparker.com
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