Great question!  

I wonder how various parts of the country will do. Will areas with second homes do worse?  

Will projects on the drawing board be delayed?  Or will some builders taking advantage of cycles use this period to build while others are cautious.  

As an aside, my wife and I own a piece of property that we had been planning on building a home.  When the property was purchased a moderate home was in the neighborhood of $150/sq.ft.  We figured a 2250 square foot home to be about $350,000.  One year after we purchased the dirt, the building costs had gone to $250/sq.ft.  Making the same home $200,000 more expensive.  

That kind of boom in the construction and home building business was bound to slow things down.  Now that builders are begining to look for work, it may be time to think about taking advantage.  I wonder if course developers with access to cash wouldn't be thinking the same thing.  

"Don't you see, Potter is buying while you're all panicking." George Bailey

Getting a house financed will be harder. Which means developers will find it harder to sell lots and homes. Which means that the cash flow projections that developers and their banks have counted on are now probably way off the mark.

All that means - as far as I can tell - less money available for new golf developments.

That won't bother someone with unlimited capital resources like a Mike Keiser. But he's an exception.

Bob

 

I think it's awesome, actually.  If it brings to an end the era of the "McMansion", it's good by me.

As far as golf goes, it could also be a good thing short term.  The market is probably overbuilt today, and a slowdown would help.

Just my opinion..

Powell,
You make a thougtful post.  Thanks..

Shopping centers here in Chester County, PA may be indicative of the whole mess.  10 year old centers in very good locations have 50% vacancy, but new centers keep popping up.  

The ones I can't understand around here are the huge numbers of new banks.  I haven't set foot in a bank for 2+ years!

To me, this mimics golf in a way.  We have clubs in Berks County in deep trouble and a new course like Ledgerock pops up.  So Berkleigh and Moselem go searching for members while Ledgerock operates as an equity club with about 95 members on a Rees Jones designed course.  I just don't get it - why build new when good quality is locally available at less cost.

This from somebody that's been in his home since 2 months after I moved to Pennsylvania in 1994.  I guess I'm in the minority if you look at all the Toll Brothers McMansions around here.

The market is and was out of control It needs to settle back to rational growth.

Lotsa people get hurt when the housing market suffers.

Lotsa people get hurt when any significant segment of the economy suffers.

The far ranging consequences go well beyond seeing a few large homes go by the wayside. In fact, if anything, those people suffer one helluva lot less than the little guys out there.

For a very interesting story about a guy who got whacked by the subprime crisis, read http://tinyurl.com/2qott8

Note the average salary of the top 25 hedge fund managers (8th paragraph). It's also interesting that Harvard lost $350 million in a few weeks but that doesn't even warrant a mention until the end of the article. George is right . . . the rich will do fine, its the average guy who is going to see the biggest impact.

Richard,

If it were that easy we'd all do it...

But, the stableford analogy is the best I've heard for the comensation ...

seeing I do a little business in this area, all that is going on is a correction...too many people were taking on too much risk....there shouldn't have been that many no-doc loans given.....I have no problem seeing these risk takers take it in the rear...and if you were stupid enough to take out a no-interest loan or an ARM, you deserve what you get....

too many people in this country are/were living by their shoe-strings...sometimes those shoe-strings break

Community development financing starting getting tougher earlier in the year as home sales were slowing.  This may be the nail in the coffin, but is by no means the instigator.

The first time buyer is now probably out of the market. Where will he go? Into the first affordable apartment he can rent. Where on earth would you as an investor go? Obviously into a REIT that concentrates on nothing but apartments.

A couple come to mind.

Bob

Bringing this back to golf, it is very important to note that the "subprime crisis" has morphed into a massive re-pricing of credit risk throughout the debt leverage chain and will indeed have some immediate ramifications for the golf industry.

Financing for new projects will now likely face lower LTVs coupled with higher rates and no doubt, no decrease in fees. All of this, combined with the relatively static nature of the game will combine to effectively deter many, many risk-based golf developments. The yen carry trade, if continued to be unwound, will have a dramatic effect on the high-yield market and it is that market that has traditionally financed the aggregate purchases of groups of existing courses and will near stifle the bank-led financing for construction of new foreign golf resort developments. Yes, deep-pocketed individuals will surely go ahead and complete many of their dream projects, but the institutional market will likely face a severe tightening especially now that the selling & absorption curves of adjacent RE has slowed so considerably. Existing projects, with financing already obtained and intact, will survive their build-out, but I'd be hard pressed not to see a recession-like effect on many new, Phase I-like plans.

This credit crisis will also effect many others inside the golf food chain as historically, quite a few golf-related businesses have been reliant on the equity and debt markets and are hardly AAA credit risks (although given the rating agencies ability to ignore blatant risk might not stop them from issuing pristine ratings just for the cash fee?). Keep in mind that severe dislocations and re-pricing of risk in our equity and private debt markets ALWAYS has very real effects on industries that are marginally profitable, seasonal, and capital-intensive.

Forget the alt-a/subprime mortgage issue for the moment (although the peak of trouble won't come until late Spring 2008), and instead focus on the disruption of the liquidity process as it is a far graver concern for all reaches of debt-based businesses. This seizing up of the short-term debt (commercial paper, etc) markets can kill otherwise healthy business just based on the perception, not reality of problems thus creating even more risk for cash-needy enterprises.

Richard Choi gave a marvelous golf related analogy for the behavior and role of many fund managers who are in immediate trouble, but don't forget that they've (and their investors)been a large part of the luxury market hit parade for the past 5 years and now they are likely to spread a contraction much further down the food chain of consumers, right down to the prime golfing demographic.

Bob Huntley...be careful with the Apt REITs..they are already very fully priced and trade at very low cap rate related prices, thus not quite as defensive a play going forward as they might have been 6-8 mos ago.

Too many very decent Americans will suffer sever contractions and will get their "dose of reality" with too much pain. I really hope, for everyone whose lives are so impacted by this credit crisis, that the Fed and the government don't mislead them into believing that it is a non-event and that "everything is alright." Golf is still little more than a luxury of life and so very unimportant relative to the fate of those people who play it. Sorry to seem so alarmed, but I believe this isn't just a "blip" this time.