evaluating a golf course in 2011

Evaluating a Golf Course How do you appraise a golf course these days? None of the traditional methods seem to apply. So, what is a golf course worth? Meanwhile, can the Subject Golf Course Survive?
MICHAEL KAHN, PRESIDENT, GOLFMAK, INC. NOTE: I am not a lawyer, accountant, appraiser, banker, or mortgage broker. Information herein comes from my own experience in golf since 1956 (yep, 56). I have bought, sold, financed, leased, managed, and consulted hundreds and hundreds of golf courses all around North America. I have 100% confidence that my evaluations are reliable based on my from many years of experience in golf courses. Of course, all is subject to disclaimer. Evaluating a golf course drives MIA appraisers crazy - especially if the land has no higher and better use. When the land under the fairways is designated green space, which includes nearly all courses built since the mid 1980's, the only remaining criteria for its value is what the business returns in cash flow. Unfortunately, valuations based on earnings cannot apply if the golf course shows long periods of cash flow losses. In the past we valued a golf course on a multiple of its earnings - somewhere between six and ten Sometimes we valued a golf course on a multiple of gross receipts or revenues, usually one to two times gross annual sales If the land had other usage, entirely or partially, the value of real estate for future development purpose could be factored into the evaluation. Sales comparisons are difficult because many golf courses sales prices often made almost no sense. Trends since year-2000 have made a 6-month old appraisal more or less worthless. ALL THE ABOVE METHODS ARE DIFFICULT TO APPLY TO GOLF COURSES LOOK AT THESE EXAMPLES (real situations, but remain confidential by name) An outstanding 18-hole world class golf course in the upper northwest including several hundred fully service mountain residential lots with well over $30 million originally invested. The current owner, the bank, can't get $9 million for it A Carolina golf course appraised at $4.5 million seven years later appraised by the bank (holding the mortgage) at $1.6 million. Market value now less than $2 million A Wisconsin 18-hole course by a top-ten architect appraised only a year ago at $4.7 million offered at $1.95 million. A fire sale A beautiful old South Carolina private country club announced to its banker that they cannot make further payments on their $2 million note An Orlando 18-hole golf course traded for over $6 million seven years later offered for $1.8 million Two Tampa area golf courses only a five miles apart with similar acreage, round counts, clubhouse sizes. Within months, one sold for $8.5 million, the other for $2.3 million. The price spread completely baffled the county tax assessor (who called me hoping for an explanation) THE THREE METHODS OF APPRAISING: CASH FLOW: If the business loses money, what value does it have? For instance, what value would a bond have that pays negative interest? ASSET REPLACEMENT: All that personal property might have liquidation value - usually worth less than 25-cents on the dollar. For instance, if a golf course has failed, what is a 30,000 square foot clubhouse worth when the building has no other functional use? It's worth virtually nothing if you can't do anything else with it! COMPARABLE: Comparing recent sales never make sense - like the two Tampa courses mentioned above. HOW CAN I HELP? This is where Mike Kahn's (me) detailed knowledge of golf courses, their markets and many years of experience can help put a value on a golf course. With appraisers and assessors virtually helpless to evaluate a golf course property, possibly the only thing you have to go on is an analysis by a person with my skill and background. So how do I evaluate a golf course? I look at a golf course and its marketplace and determine whether I can apply my years of experience to make the place profitable. I put value somewhat on its potential. However, like appraising itself, my work is more of an art than a science. Your first consultation is free. All I need to know is the basic facts of the specific golf course to give you a quick opinion of value. Keep in mind I AM NOT A CERTIFIED APPRAISER, AN ACCOUNTANT, OR AN ATTORNEY. I am a golf course expert backed by over 60-years in the business. Why not check now: Write: mike@golfmak.com ALTHOUGH, YOU MIGHT BE SMART TO TAKE YOUR MONEY AND RUN! If you're operating a golf course and show more then 18-months of negative cash flow my advice to you is sell for whatever you can and get out. I say that because either the market is just not there, or your operational methods are not working. I know it's hard to admit it, but it's better to get out while you still have the shirt on your back than wind up in the poor house. I've watched stubborn owners pour money down the drain out of foolish pride rather than move on with life. PLANNING ON BUYING A GOLF COURSE? There is no magic bullet to move a money-losing golf course to a money-maker! However, if you're determined you should begin by looking at the subject as a long term investment - I mean looking ahead at least five years. Therefore, you'll need staying power in the form of operating capital and patience. Build in the cost to reach 'stabilization' as part of your acquisition cost. If you can accept that the near-term cost to take the business to profitability is a part of the acquisition cost, you can be more comfortable and patient. I believe ~~virtually~~ almost every golf course in existence today can make money. In fact, it may not be too difficult to move a course into the black. It would need a marketing plan among other things. There are ways to build (or rebuild) a golf course business with a solid and loyal customer base. It's not rocket science either. If you follow the proper approach, it is possible to earn a decent return from just about any golf course. However, there are golf courses out there that are doomed. Write to me: mike@golfmak.com. First consultation is free. Mike

Two Tampa area golf courses only a five miles apart with similar acreage, round counts, clubhouse sizes. Within months, one sold for $8.5 million, the other for $2.3 million. The price spread completely baffled the county tax assessor (who called me hoping for an explanation)

THE THREE METHODS OF APPRAISING:

CASH FLOW: If the business loses money, what value does it have? For instance, what value would a bond have that pays negative interest?
ASSET REPLACEMENT: All that personal property might have liquidation value - usually worth less than 25-cents on the dollar. For instance, if a golf course has failed, what is a 30,000 square foot clubhouse worth when the building has no other functional use? It's worth virtually nothing if you can't do anything else with it!
COMPARABLE: Comparing recent sales never make sense - like the two Tampa courses mentioned above.

HOW CAN I HELP?

This is where Mike Kahn's (me) detailed knowledge of golf courses, their markets and many years of experience can help put a value on a golf course. With appraisers and assessors virtually helpless to evaluate a golf course property, possibly the only thing you have to go on is an analysis by a person with my skill and background. So how do I evaluate a golf course?
I look at a golf course and its marketplace and determine whether I can apply my years of experience to make the place profitable. I put value somewhat on its potential. However, like appraising itself, my work is more of an art than a science.
Your first consultation is free. All I need to know is the basic facts of the specific golf course to give you a quick opinion of value. Keep in mind I AM NOT A CERTIFIED APPRAISER, AN ACCOUNTANT, OR AN ATTORNEY. I am a golf course expert backed by over 60-years in the business.

Why not check now: Write: mike@golfmak.com

ALTHOUGH, YOU MIGHT BE SMART TO TAKE YOUR MONEY AND RUN!

If you're operating a golf course and show more then 18-months of negative cash flow my advice to you is sell for whatever you can and get out. I say that because either the market is just not there, or your operational methods are not working. I know it's hard to admit it, but it's better to get out while you still have the shirt on your back than wind up in the poor house. I've watched stubborn owners pour money down the drain out of foolish pride rather than move on with life.

PLANNING ON BUYING A GOLF COURSE?

There is no magic bullet to move a money-losing golf course to a money-maker! However, if you're determined you should begin by looking at the subject as a long term investment - I mean looking ahead at least five years. Therefore, you'll need staying power in the form of operating capital and patience. Build in the cost to reach 'stabilization' as part of your acquisition cost. If you can accept that the near-term cost to take the business to profitability is a part of the acquisition cost, you can be more comfortable and patient.

I believe ~~virtually~~ almost every golf course in existence today can make money. In fact, it may not be too difficult to move a course into the black. It would need a marketing plan among other things.

There are ways to build (or rebuild) a golf course business with a solid and loyal customer base. It's not rocket science either. If you follow the proper approach, it is possible to earn a decent return from just about any golf course. However, there are golf courses out there that are doomed.

Write to me: mike@golfmak.com. First consultation is free.

Mike