Is there a destination golf bubble forming?

[Jeff Evagues]

I was thinking of going to Pebble next year because I haven't been there in about 20 years. I was willing to swallow the green fees but saw that a room was $1000 a night. I won't be going there.

[David_Tepper]

It would be interesting to know how the "destination golf" resorts/clubs have been financed and how leveraged they are on an operating basis. My guess is many of them (Bandon, Streamsong, Barnbougle, Cabot Trails/Cliffs, Sand Valley, etc.) were able to acquire their sites at very reasonable prices. It is not like those sites were high value or high use real estate. Not having a big monthly mortgage payment can give these places some breathing room if/when there is a downturn in their revenue stream.

[Chris Hughes]

The Fall Line is an interesting one.
The reaction of a smart friend who lives in the vicinity was "the world has gone mad"...   

[Tom_Doak]

It would be interesting to know how the "destination golf" resorts/clubs have been financed and how leveraged they are on an operating basis. My guess is many of them (Bandon, Streamsong, Barnbougle, Cabot Trails/Cliffs, Sand Valley, etc.) were able to acquire their sites at very reasonable prices. It is not like those sites were high value or high use real estate. Not having a big monthly mortgage payment can give these places some breathing room if/when there is a downturn in their revenue stream.

Many are "financed" by wealthy people who want to do something great, and know how to work the system to get tax breaks etc from localities eager to have a great project providing jobs and tourism $ in their backyard. 


I do not believe any of them are really "leveraged" in terms of financing, because banks have no interest in lending money for golf development -- they saw the carnage from 2008 and they haven't gone back.  [Honestly, it's the expensive renovations funded by local bankers which are more likely to result in a foreclosure event.]  But many do take on outside investors, who might take a haircut when the economy eventually has a hiccup.


Development itself [all types] is a boom and bust business; when someone has a working formula, others try to copy it, and that just accelerates until the model fails and the situation changes, because there is no such thing as central planning.  There is always a bubble, and it will pop eventually, and prices won't keep rising, and some places the prices will fall, and other places may fail entirely, depending on how they were financed.  [Although if they are really good courses, someone else will come in and buy them for 40 cents on the dollar, and they might wind up being a bargain.] 


The fact that prices are still rising means we have not hit the saturation point just yet.  But the fact that golf courses take 3-5 years to develop means that some people will be left naked when the tide goes out.


There are also places, like Fall Line or Tara Iti or Ardfin, funded by guys with so much money that they don't really need to be successful.  Is it a bad thing they spent some of their money on golf?


P.S.  I don't know the % of international revenue for Bandon, but I know at Barnbougle it's never been as much as 10%, and I feel secure in saying Bandon is even less than that, because the domestic market here is so much bigger.  You could also call Royal Melbourne a "bucket list destination" and their international business is a tiny % of the whole.

[Steve_Roths]

The Fall Line is an interesting one.[/size]The reaction of a smart friend who lives in the vicinity was "the world has gone mad".



What is the story behind The Fall Line club?[/color]

[Steven Wade]

I don't think that it's by accident that these newer developments have: a) a close proximity to major population centers and  b) a real estate angle that just doesn't seem to be present at the earlier (and more remote) destination golf facilities.


I would assume in the boom times these places can meter back the daily fee tee times in favor of the more lucrative stay and play variety, but could open more up to people traveling from Dallas/Houston (Wild Spring Dunes) or Denver (Rodeo Dunes) and still keep a fairly robust amount of play. With the real estate, it's a very classic replay of Florida circa 60 years ago. Buy land on the cheap, build a golf course, sell homes (and homesites) on the now more desirable land. The big difference here is that the quality of the golf courses are far more of a consideration than they were then, and the real estate has (thankfully) been relegated to a town square model instead of lining the fairways.


I don't think that we are going to be done with this until we run out of people who live in big cities that have enough money for a weekend home a few hours away. I do hate that I feel like I kind of already know that I know that these courses are going to have sandy waste areas and generous fairways. I prefer this to what these courses might have looked like in the 1990s, but it feels like everything I'm seeing of late looks like the progeny of #2.

[Steve Lapper]

It would be interesting to know how the "destination golf" resorts/clubs have been financed and how leveraged they are on an operating basis. My guess is many of them (Bandon, Streamsong, Barnbougle, Cabot Trails/Cliffs, Sand Valley, etc.) were able to acquire their sites at very reasonable prices. It is not like those sites were high value or high use real estate. Not having a big monthly mortgage payment can give these places some breathing room if/when there is a downturn in their revenue stream.

Many are "financed" by wealthy people who want to do something great, and know how to work the system to get tax breaks etc from localities eager to have a great project providing jobs and tourism $ in their backyard. 


I do not believe any of them are really "leveraged" in terms of financing, because banks have no interest in lending money for golf development -- they saw the carnage from 2008 and they haven't gone back.  [Honestly, it's the expensive renovations funded by local bankers which are more likely to result in a foreclosure event.]  But many do take on outside investors, who might take a haircut when the economy eventually has a hiccup.


Development itself [all types] is a boom and bust business; when someone has a working formula, others try to copy it, and that just accelerates until the model fails and the situation changes, because there is no such thing as central planning.  There is always a bubble, and it will pop eventually, and prices won't keep rising, and some places the prices will fall, and other places may fail entirely, depending on how they were financed.  [Although if they are really good courses, someone else will come in and buy them for 40 cents on the dollar, and they might wind up being a bargain.] 


The fact that prices are still rising means we have not hit the saturation point just yet.  But the fact that golf courses take 3-5 years to develop means that some people will be left naked when the tide goes out.


There are also places, like Fall Line or Tara Iti or Ardfin, funded by guys with so much money that they don't really need to be successful.  Is it a bad thing they spent some of their money on golf?


P.S.  I don't know the % of international revenue for Bandon, but I know at Barnbougle it's never been as much as 10%, and I feel secure in saying Bandon is even less than that, because the domestic market here is so much bigger.  You could also call Royal Melbourne a "bucket list destination" and their international business is a tiny % of the whole.

Tom,


 Most of what you write above is highly accurate.


 Where I would beg to differ is the omnipresence of significant "shadow" financing, creating hidden leverage in today's turbo growth expansion. Surely, conventional bank financing has all but disappeared for golf, save for lower loan-to-value loans given by local or regional banks to a private club or long-time neighborhood public-access or resort. The larger, multi-location resort franchises have tapped into various private equity and real estate fund vehicles. These funds usually have multi-billion AUMs and are tasked with job of finding reliable operators whose real estate-backed assets allow the lenders some underwriting risk mitigation.


  Borrowers (developers of these franchises) have typically faced relatively higher interest rates over the past 18mos and still find this kind of debt attractive, especially when compared with more expensive (and ultimately dilutive) equity financing. The biggest names in the expanding golf world (multi-location resort models and even some single uber high-end private courses) are tapping into these funds at a healthy clip. If I were in their shoes (and am to a much smaller measure), I'd do exactly the same.


  The problem and risk to the above lies is two-part. If business slows (and as many here have argued eventually will), higher rate fixed-income loans become an ominous burden on the enterprise. Cost-cutting, coupled with pricing adjustment, become the apparent remedy and usually result in considerable brand diminishment. This can, and does, often lead to a vicious illiquidity cycle.


  The 2nd part is a combination of slower and overbought second-home real estate markets and sustained higher-rates that merge to quickly force the hand of the operator where RE sales are a considerable component of the resort. We saw this decades ago with the Bobby Ginn business model fiasco. Again, this undeniably leads to a vicious illiquidity cycle.


   If greens fees and F&B cash flows stop growing and shrinks, the demise of the "shadow-levered" resort model is inevitable. Low-or no-debt financing (read internal and external equity) is the antidote to all of this. The best businesses stockpile cash when times are flush and expand again in the troughs of cycles.


 Covid's effect and the evidence of its pent-up demand on destination golf has yet to finish its flow-thru impact on golf and golf travel. Golf's entertainment sector continues to feed the game at a magnitude better than any time in the last 40yrs. The width and attractiveness of the available product in these spaces is at an all-time high. These are powerful influences and shouldn't be discounted. Only time will tell if today's place in the business cycle has stronger legs than the past and the golf business can sustainable grow enough to service the shadow debt they are taking on??

[Ronald Montesano]

Brauer smart...regional resorts offer bang for buck. Find them and go with the right people. You will have your proper experience. If there is no regional resort, create your own "trail." Use AirBnB and get a place. We went to Horseheads, NY, three weeks ago! Horseheads!!

We Age...You all write as though our generation/your generation/my generation is the last one on earth. We shall die, others shall replace us, destination resorts will be new to them. They will not have the baggage/scar tissue of what the DR used to cost, because it will be their first trip. They will go to DR1, and then someone will say "bruh, my bruh says that DR2 is so much better than DR1" and they will go to DR 2. This scenario plays out through DR 12.

[David_Tepper]

"What is the story behind The Fall Line club?"

https://fescue.github.io/Fall-Line-Golf/

[Tim_Weiman]

It would be interesting to know how the "destination golf" resorts/clubs have been financed and how leveraged they are on an operating basis. My guess is many of them (Bandon, Streamsong, Barnbougle, Cabot Trails/Cliffs, Sand Valley, etc.) were able to acquire their sites at very reasonable prices. It is not like those sites were high value or high use real estate. Not having a big monthly mortgage payment can give these places some breathing room if/when there is a downturn in their revenue stream.

Many are "financed" by wealthy people who want to do something great, and know how to work the system to get tax breaks etc from localities eager to have a great project providing jobs and tourism $ in their backyard. 


I do not believe any of them are really "leveraged" in terms of financing, because banks have no interest in lending money for golf development -- they saw the carnage from 2008 and they haven't gone back.  [Honestly, it's the expensive renovations funded by local bankers which are more likely to result in a foreclosure event.]  But many do take on outside investors, who might take a haircut when the economy eventually has a hiccup.


Development itself [all types] is a boom and bust business; when someone has a working formula, others try to copy it, and that just accelerates until the model fails and the situation changes, because there is no such thing as central planning.  There is always a bubble, and it will pop eventually, and prices won't keep rising, and some places the prices will fall, and other places may fail entirely, depending on how they were financed.  [Although if they are really good courses, someone else will come in and buy them for 40 cents on the dollar, and they might wind up being a bargain.] 


The fact that prices are still rising means we have not hit the saturation point just yet.  But the fact that golf courses take 3-5 years to develop means that some people will be left naked when the tide goes out.


There are also places, like Fall Line or Tara Iti or Ardfin, funded by guys with so much money that they don't really need to be successful.  Is it a bad thing they spent some of their money on golf?


P.S.  I don't know the % of international revenue for Bandon, but I know at Barnbougle it's never been as much as 10%, and I feel secure in saying Bandon is even less than that, because the domestic market here is so much bigger.  You could also call Royal Melbourne a "bucket list destination" and their international business is a tiny % of the whole.

Tom,


Great post!

[Wayne_Kozun]

  The 2nd part is a combination of slower and overbought second-home real estate markets and sustained higher-rates that merge to quickly force the hand of the operator where RE sales are a considerable component of the resort. We saw this decades ago with the Bobby Ginn business model fiasco. Again, this undeniably leads to a vicious illiquidity cycle.

Not all of the real estate at these resorts is for second homes.  At some of these it works more like a time-share or buying a hotel room.  The property owner buys a golf villa and uses it for a few weeks every year.  The rest of the time it is part of the resort's accomodations pool. This makes it much more like a co-investment in the resort itself and a business decision based off of cash flows rather than a second home that is only occupied occasionally.  As long as visitors keep coming and pay upwards of $500/night/bedroom then the real estate investment will work.

[Chris Hughes]

Chris, love your takes. I was going to include private clubs in with this, as there already is reckoning taking place there in the form of fewer golfing rounds and clubs no longer having waiting lists. Yet, as with resort courses, there's nearly as many private courses in some phass of development. Where are all these people going to come from to fill these places? Even amongst the millionaire class there's a limit to how many private club memberships are practical.

Mike,
I'm curious where is this taking place?  I think it is the opposite still with a strong demand for private clubs.

Supply demand is a balance, with imperfect projections and business plans. Most people won't know it typically until it happens, absent a black swan event.

I agree with Jeff - this is NOT my experience.  My club in Toronto struggled to attract members from about 2008-2020. Toward the end of that period the supply of private clubs dropped in this area as some clubs were sold to real estate developers.  Since Covid hit our membership filled up and we have a large waiting list that continues to grow.  And the initiation fee has more than doubled over the last five years.  No signs of slowing here, despite the fact that the Canadian economy has been much weaker than the US economy in the last couple of years.

Rare if not unique set of circumstances there.

[Wayne_Kozun]

Chris, love your takes. I was going to include private clubs in with this, as there already is reckoning taking place there in the form of fewer golfing rounds and clubs no longer having waiting lists. Yet, as with resort courses, there's nearly as many private courses in some phass of development. Where are all these people going to come from to fill these places? Even amongst the millionaire class there's a limit to how many private club memberships are practical.

Mike,
I'm curious where is this taking place?  I think it is the opposite still with a strong demand for private clubs.

Supply demand is a balance, with imperfect projections and business plans. Most people won't know it typically until it happens, absent a black swan event.

I agree with Jeff - this is NOT my experience.  My club in Toronto struggled to attract members from about 2008-2020. Toward the end of that period the supply of private clubs dropped in this area as some clubs were sold to real estate developers.  Since Covid hit our membership filled up and we have a large waiting list that continues to grow.  And the initiation fee has more than doubled over the last five years.  No signs of slowing here, despite the fact that the Canadian economy has been much weaker than the US economy in the last couple of years.

Rare if not unique set of circumstances there.

Is it?  I thought that in the post-GFC period from 2008-2019 that the number of golf courses was actually shrinking.  Development of new courses pretty much stopped, other than resorts, and some existing clubs closed, some due to bankruptcy.


The reasons for courses closing in Toronto was more related to the real estate boom, which may be somewhat unique.

[Mike Bodo]

Tom and Steve,

Excellent, well thought out posts by both of you. You delved into the minutae I was hoping someone with intimate knowledge and experience would elaborate on when I originally posted and went over and above that.

Tom, to your remark, "The fact that prices are still rising means we have not hit the saturation point just yet.  But the fact that golf courses take 3-5 years to develop means that some people will be left naked when the tide goes out." I thought much the same when I made my initial post that we're witnessing a game of musical chairs and once the music stops there will be a lot of people left holding the bag.

I don't think the rabid growth we are seeing in destination golf travel and course creation is sustainable long-term, as there wont't be enough Millenials and Gen Z'ers replacing and or surpassing the ranks of the Boomers and Gen X'ers supporting the current destination resort golf boom now to feed it's continued growth. When the bottom falls out is anyone's guess, but I can see a scenario five years from now where a lot currently popular desintation resort properties struggle to attract enough stay and plays to keep their heads above water and there will be a lot of discounting going on to fill tee times and rooms, which should benefit those who have gotten priced out of these properties recently.

[DFarron]

I was thinking of going to Pebble next year because I haven't been there in about 20 years. I was willing to swallow the green fees but saw that a room was $1000 a night. I won't be going there.

$1k to stay at the Lodge or Spanish Bay?

[Jeff Evagues]

Spanish Bay. The Lodge was more.

[Michael Morandi]

It would be interesting to know how the "destination golf" resorts/clubs have been financed and how leveraged they are on an operating basis. My guess is many of them (Bandon, Streamsong, Barnbougle, Cabot Trails/Cliffs, Sand Valley, etc.) were able to acquire their sites at very reasonable prices. It is not like those sites were high value or high use real estate. Not having a big monthly mortgage payment can give these places some breathing room if/when there is a downturn in their revenue stream.

Many are "financed" by wealthy people who want to do something great, and know how to work the system to get tax breaks etc from localities eager to have a great project providing jobs and tourism $ in their backyard. 


I do not believe any of them are really "leveraged" in terms of financing, because banks have no interest in lending money for golf development -- they saw the carnage from 2008 and they haven't gone back.  [Honestly, it's the expensive renovations funded by local bankers which are more likely to result in a foreclosure event.]  But many do take on outside investors, who might take a haircut when the economy eventually has a hiccup.


Development itself [all types] is a boom and bust business; when someone has a working formula, others try to copy it, and that just accelerates until the model fails and the situation changes, because there is no such thing as central planning.  There is always a bubble, and it will pop eventually, and prices won't keep rising, and some places the prices will fall, and other places may fail entirely, depending on how they were financed.  [Although if they are really good courses, someone else will come in and buy them for 40 cents on the dollar, and they might wind up being a bargain.] 


The fact that prices are still rising means we have not hit the saturation point just yet.  But the fact that golf courses take 3-5 years to develop means that some people will be left naked when the tide goes out.


There are also places, like Fall Line or Tara Iti or Ardfin, funded by guys with so much money that they don't really need to be successful.  Is it a bad thing they spent some of their money on golf?


P.S.  I don't know the % of international revenue for Bandon, but I know at Barnbougle it's never been as much as 10%, and I feel secure in saying Bandon is even less than that, because the domestic market here is so much bigger.  You could also call Royal Melbourne a "bucket list destination" and their international business is a tiny % of the whole.

Great insight, Tom.

[Michael Morandi]

Tom and Steve,

Excellent, well thought out posts by both of you. You delved into the minutae I was hoping someone with intimate knowledge and experience would elaborate on when I originally posted and went over and above that.

Tom, to your remark, "The fact that prices are still rising means we have not hit the saturation point just yet.  But the fact that golf courses take 3-5 years to develop means that some people will be left naked when the tide goes out." I thought much the same when I made my initial post that we're witnessing a game of musical chairs and once the music stops there will be a lot of people left holding the bag.

I don't think the rabid growth we are seeing in destination golf travel and course creation is sustainable long-term, as there wont't be enough Millenials and Gen Z'ers replacing and or surpassing the ranks of the Boomers and Gen X'ers supporting the current destination resort golf boom now to feed it's continued growth. When the bottom falls out is anyone's guess, but I can see a scenario five years from now where a lot currently popular desintation resort properties struggle to attract enough stay and plays to keep their heads above water and there will be a lot of discounting going on to fill tee times and rooms, which should benefit those who have gotten priced out of these properties recently.

Is the game growing among teenagers or are they too hooked to their phones?  If it isn’t, then some destination  courses will be left holding the bag. And as many have already said, Covid bailed out many but the most highly regarded clubs. They weren’t in great shape going into 2020.

[Mike_Young]

I think the Bandons and similar will be fine as more and more young people choose destination golf over local private club memberships.  But I do think the ultra private destination clubs that play maybe 20 rounds per year etc could have an issue once the owners who are subsidizing them get tire of "plying in their sandbox"  .  These types can walk away from a 40 million dollar property in most cases but the issue is who is the buyer and how will the next guy make it work.

[Wayne_Kozun]

I think the Bandons and similar will be fine as more and more young people choose destination golf over local private club memberships. 

Has this happened?  My club gained a lot of members of all ages, including younger members, over the last four years.  We went from not being full to having a waiting list of over 100 people.

[Keith Williams]

"What is the story behind The Fall Line club?"

https://fescue.github.io/Fall-Line-Golf/

Just a head's up, the map location for The Fall Line Club in the link is woefully inaccurate.  The facility is located just southeast of Junction City, Ga and the first 18 as well as portions of the second now show up on Google Earth/Google Maps.

[Mike_Young]

While tour players may not like luck and randomness, IMHO it is a huge part of the mental side of the game.  It gets in a lot of heads and changes a round.  Only one dude had the mindset or lack of mindset to handle a putt moving at the 2016 US Open at Oakmont and still continue to play.  Unkept bunkers would do more to mess with half the pros than anything you could do.

[Philip Caccamise]

It would be interesting to know how the "destination golf" resorts/clubs have been financed and how leveraged they are on an operating basis. My guess is many of them (Bandon, Streamsong, Barnbougle, Cabot Trails/Cliffs, Sand Valley, etc.) were able to acquire their sites at very reasonable prices. It is not like those sites were high value or high use real estate. Not having a big monthly mortgage payment can give these places some breathing room if/when there is a downturn in their revenue stream.

Many are "financed" by wealthy people who want to do something great, and know how to work the system to get tax breaks etc from localities eager to have a great project providing jobs and tourism $ in their backyard. 


I do not believe any of them are really "leveraged" in terms of financing, because banks have no interest in lending money for golf development -- they saw the carnage from 2008 and they haven't gone back.  [Honestly, it's the expensive renovations funded by local bankers which are more likely to result in a foreclosure event.]  But many do take on outside investors, who might take a haircut when the economy eventually has a hiccup.


Development itself [all types] is a boom and bust business; when someone has a working formula, others try to copy it, and that just accelerates until the model fails and the situation changes, because there is no such thing as central planning.  There is always a bubble, and it will pop eventually, and prices won't keep rising, and some places the prices will fall, and other places may fail entirely, depending on how they were financed.  [Although if they are really good courses, someone else will come in and buy them for 40 cents on the dollar, and they might wind up being a bargain.] 


The fact that prices are still rising means we have not hit the saturation point just yet.  But the fact that golf courses take 3-5 years to develop means that some people will be left naked when the tide goes out.


There are also places, like Fall Line or Tara Iti or Ardfin, funded by guys with so much money that they don't really need to be successful.  Is it a bad thing they spent some of their money on golf?


P.S.  I don't know the % of international revenue for Bandon, but I know at Barnbougle it's never been as much as 10%, and I feel secure in saying Bandon is even less than that, because the domestic market here is so much bigger.  You could also call Royal Melbourne a "bucket list destination" and their international business is a tiny % of the whole.

Tom, the one recently built resort which I question how they will draw enough is Te Arai. [Unfortunately I only got to play the C&C course and not yours because of flight issues.] Obviously the location is truly incredible and the golf is fantastic, but it's pretty remote in an already remote and small country. Are they going to be able to turn a profit?

[Chris Hughes]

"What is the story behind The Fall Line club?"

https://fescue.github.io/Fall-Line-Golf/

Just a head's up, the map location for The Fall Line Club in the link is woefully inaccurate.  The facility is located just southeast of Junction City, Ga and the first 18 as well as portions of the second now show up on Google Earth/Google Maps.

I'm told the "club" is looking for 20 Founding Members @ $5M per, and another 100 Members @ $1M per.  Reportedly all those funds will/are be/ing used to construct the facility.


Folks I know who live close by are questioning Fall Line's choice of location.  While the land is ideal for building some really great golf courses, the climate is seen as less than ideal.

[Ian Mackenzie]

In short, I see a massive bubble forming where the build-up of destination golf resort properties is going to implode and leave a lot of owners/operators in finanical dire straits. At some point supply is going to outpace demand and there will be an overcapacity problem within this segment of the industry - especially with all the new resort courses set to come online in the next several years. Thoughts?

When this levy breaks, it will impact a ton of venues and industries in which rampant discretionary income is currently awash.


Golf destinations, higher end restaurants, private clubs, etc. will ALL feel the pain as they do every cyclical correction or downturn.
I trust Wayne and DT know much more than me, but this feels like 2006 all over.


In the GFC, the housing crisis lit the match. Maybe this time it could be more of a global conflagration.


Let's hope not.


In the meantime, smoke 'em if you got 'em....