Golf Inc - March/April 2009 - (Page 10) Lenders in retreat FINANCE TRENDS Seller financing on the rise as traditional lending sources go to the sidelines “Guys who buy golf courses for the most part can afford the golf course, but if they want to get out of it and deploy that capital elsewhere, they’re willing to do seller financing,” he said. The reasons for the retreat of the major traditional institutional golf lenders are obvious – they and their parent companies have been hammered by losses in other forms of real estate or subsidiary investments that dwarf a golf division that has problems of its own. Their golf divisions are not lucrative enough to justify risking capital in those areas when other divisions are so desperately in need of shoring up. If sellers are willing to finance some debt to unload their courses, that doesn’t mean that buyers will merely sign their names and put their names on the prime clubhouse parking spaces. There will be substantial equity requirements, and in many cases, that will mean the formation of partnerships to provide that cash down payment. “We did two deals in December,” Arimitsu said. “One to Oki Golf (bankrolled by owner Scott Oki and the millions he made as a former Microsoft executive), who probably wrote a check and the other to partners at Trilogy Golf Club in La Quinta [Calif.]. They put a partnership together and still financed probably 50 percent. I don’t think they could get that deal today.” While asking the golf course seller to carry back some of the finance paper appears to be the current trend, and any purchase is going to require substantial buyer equity upfront, Arimitsu said prospective buyers of value-priced golf properties may have another avenue. “I think one ray of hope may be SBA [Small Business Administration] financing,” he said. “In the early ’90s, a couple of deals got done with SBA financing, and deals today for under $5 million might qualify.” So what does the immediate future hold? Arimitsu said he anticipates a banner year, focusing primarily on lenders who have taken courses back and private sellers who are willing to pony up financing to get a deal done. Woolson said his firm will be looking primarily at golf course deals with developable land options, including one property that is definitely not typical, the Yellowstone Club in Montana that carries a $309 million note from Credit Suisse that CB Richard Ellis is currently listing. He said he expects the current wave of economic turmoil to churn up a whole new wave of course buyers. “I think you’ll have a whole new breed of people coming into the business,” he said. “There’s a vacuum with the old guys trying to work out of their own financial problems, and there will be brand new equity.” Industry veteran Jim Hinckley, CEO of multi-course owner and operator Century Golf Partners/Arnold Palmer Golf Management, said this too, shall pass. “With the announcements by Textron, Capmark and GE, we should probably not draw any long-term conclusions,” Hinckley said. “In the short run, financing is mostly being done by deposit-based local or regional banks, but we’ve been through cycles like this before. If the economic stimulus works, we may start to see some credit free up. Golf has traditionally been a good lending opportunity and it will be again.” —Jim Dunlap he announcement in December that Textron Financial Corp. would no longer be originating new golf course financing confirmed what course buyers and sellers had known for several months: golf ’s traditional bankers have left the building, at least for a while. With Textron following Capmark and GE Real Estate in turning a deaf ear to golf financing requests, experts say seller financing is the way most course purchases will be consummated in the foreseeable future. “I would be shocked if I heard of any course being financed by the Big 3 [Textron, Capmark and GE Real Estate],” said Jeff Woolson, a broker with the CB Richard Ellis Golf Course Sales Division. “Financing right now is almost 100 percent seller, with occasional local banks, kind of like 20 years ago.” Ken Arimitsu of Grubb & Ellis said he’s also seeing a lot of seller financing. T 10 Golf Inc. March/April 2009
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