[Rob Waldron]

Gentlemen

I find this discussion very interesting.  ;)Yes there are many courses struggling to keep their heads above water.

The key for many courses is the basis cost in the course. The higher the basis the higher the required cash flow. It is true that many courses are highly leveraged with Loan to Values in the 60%-75% range. This means high debt service. If you can not cover operating costs and debt service .....sayanora.

In general, courses begin to cut costs (read maintenance expense) and the quality of conditioning suffers. This results in deferred maintanance and lesser value for the property.

As the guy on the FRAM commercial says "You can pay me now or pay me later". Owners who are losing money must decide to bite the bullet over time with annual losses or take one big hit and sell at a loss.  

The new owner can charge less since he has a lower basis in the property. The economy is going to hit the high priced courses first. Golfers will continue to play "X" rounds per week and month, however they may adjust their budget by moving to less expensive courses.

As a golf course broker I would like to see some of the owners make the decision to sell. Unfortunately most of the owners of the CCFAD facilities have large egos and deep pockets.

The large ownership groups and REITS have taken $ out to pay corporate or investors limiting the reinvestment of funds back into the courses. Why do you think the best courses are generally private clubs? The members do not receive dividends, the cash is typically put back into the facilities.

[Mike Trenham]

I saw this coming three years ago, everyone was banking on

Baby boomers growing old and moving from 15-20 rounds per year to 40-50 rounds per year.  How many people on fixed incomes are going to pay $75 per round?  But that is the courses getting built.

Wall Street was intrigued by the fixed cost nature of the business and thus with increased demand as rounds per course grew from 30,000 to 40,000 the properties would be worth tons more.  They assumed that if a course is breakeven at 30,000 rounds the other 10,000 rounds is pure profit.  Wall Street loves fixed costs.  Wall Street and the banks have financed this overexpansion, if only they had focused on aquistions and not development it probably would have worked.

Hubris, most of these financial operators play golf and they never see what it takes to operate a first rate golf course.  It is not the low paid staffs they utilized.  Secondly, since everyone they associate with plays golf they begin to think everyone plays 30 rounds a year.  Too much money flowed into the industry because too many people thought the understood the game.  They didn't.  If more people on Wall Street understood what urban minority kids with a couple of bucks in their pockets want, they could make a whole lot more money than from golf.  (Anyone have any ideas, I don't because everyone I associate with plays golf...as I play an embarassing number of rounds a year).

I agree most of these courses will not go out of business but rather change hands at lower and lower prices until profits are available.  Unfortunately for those of us that are members at private clubs we will absorb the cost of excess supply of golf courses (esentially tee times) in the forms of lower guest and outting revenues and thus higher dues...

[Lynn Shackelford]

A few rambling thoughts on Bankrupt golf courses.

Many are building courses which are too tough to play.  If one is going to shoot 100 plus and lose 5 balls, it will not be a weekly round of golf.  Therefore the projections of 50,000 rounds is too optimistic.

When "experts" project 50,000 rounds at $75, they are wrong.  They have not included enough twilight, senior, junior or comp play in the 50,000 rounds.  In order to accomplish 50,000 rounds at $75, one must be charging and receiving $100 on weekends.

Since the number of players has leveled, but new courses keep opening, especially publics, play has spread considerably.  I feel the privates and municipal types will be okay.  The CCFAD's while fun to brag about at the cocktail parties are tough deals.

Lastly, people need to realize courses do 50,000 rounds when they are in a heavily populated area or have a hotel bringing customers to them.  Courses built slightly outside cities have trouble generating heavy traffic.  I can open another 18 hole course tomorrow in Long Beach, CA., at $25 and it will do 90,000 rounds in year one.  The population in a 10 mile radius is 800,000.
The projections have been crazy, but had to be to convince lenders.

[mikep]

Lynn,

You are right on tartget about the projections given to lenders. I work with financially troubled companies and regardless of the industry, real estate, retail, telcom, oil & gas or golf courses, the issues are the same.

The industry starts to enjoy increasing profit and growth rates. Analysts start to weave industry projections of more growth. Investors run to jump on the bandwagon using spread sheet magic to justify the acquisition or project.  Lenders are looking for fees and are happy to lend.

New players to the party overpay to acquire or build.  The supply soon grows larger than the professionally projected demand.  Mismanagement takes place in many forms and makes the situation worse.

The company or in this case the golf course, can no longer make the required principle payments to the bank. The bank has other similiar loans made toward the peak of the cycle that are non-performing.  The bank decides to get out of golf course lending and doesn't want to work with the owners.

Soon the bank takes over the course. Maybe it is in an area where the supply is so much greater than the demand that the course is profit proof. Banks don't like assets that eat or grow; too much effort to maintain.

So now the bank puts the course up for sale.  If it has some prospect to generate a decent operating profit with some additional investment, new management and a new operating model, then maybe it is sold and maintained as a golf course.

If there is little profit making ability, it probably gets sold for some alternative use.

Obviously, this happened quite often during the Depression.  As I remember from your CPC book, Morse kept the club afloat during that time.  While other clubs, such as Olympia Fields, I was told, had to sell two courses in order to keep the two they have today.

[Tommy_Naccarato]

Mike, Sounds like your describing Environmental Golf to a tee!

(Also, please note that Lynn is in fact Geoff's (The author of the CPC book) father.

Lynn, Any chance of you aquiring the cash cow known as Recreation Park? Could you imagine the psossiblities there?!?!:)

[Mike_Trenham]

Bump - From 2002

[Tags:]

Tags:

[Tags:]

Tags:

Call to undefined function theme_linktree()