The Pellucid Perspective - June 2011 - (Page 8)

SALES Reality setting in for course buyers, sellers Sale prices face downward pressure from distressed properties, lack of financing and declining EBITDA By Jim Dunlap he disparity between golf course sellers’ expectations and what the buyer market is willing or able to bear seems to be narrowing, but most of the give seems to be on the seller end of the deal. With more and more distressed properties on the market, virtually no institutional financing available to buyers, and disappointing on-course revenue figures, most buyers are finding that they’ll either have to revise their sale price downward, agree to take back some of the purchase price financing, or just hunker down, pull in their budgetary belts and, if possible, wait for the market to inch back upward. “A couple of years ago, the ask-bid differential between sellers and buyers was somewhere between 30 to 50 percent on the average,” said Steven Ekovich, vice president of investments for the National Golf & Resort Properties Group of Marcus & Millichap. “As distressed properties are on the rise, we’re beginning to be able to convince sellers that these are not distressed values, T this is the market today. If someone has a reason to sell, they need to be where the market is if they want it to sell.” Flexibility seems to be the word of the day in many, if not most, of today’s course sale transactions. Sellers not only need to be ready to give a bit on the price, but may also have to be willing to finance the difference between the purchase price and the equity that buyers can bring to the table. Art West, principal of Golf Course Advisors, said that all five course buys he has brokered in the past three years for Warrior Golf CEO Brendan Flaherty and his investor groups have involved some degree of seller financing. “There is just no financing out there,” said Chris Charnas, principal of Links Capital Advisors. “Buyers have to bring cash to the table. In a weird way, that sometimes makes deals easier to close, since they either have the cash or they don’t.” Veteran golf course lender M.J. Mastilir of Real Estate Capital agreed, saying “Sales are still pretty much all cash. Sometimes a buyer will say they’ll go back in a year or so and see if they can re-finance [based on] improved performance.” Valuation benchmarks changing Several veteran course brokers and appraisers said that the way buyers determine reasonable values for course purchases is changing. Whereas the often confusing “cap rates” were frequently cited in the past as course valuation benchmarks, both West and Larry Hirsch, principal of Golf Property Analysts, said gross revenues are a better way to gauge a course’s reasonable purchase price today than cap rates, EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) or net operating income (NOI). “One trend that’s been on for a while is a lot of buyers are evaluating properties on gross revenue rather than cash flow as they used to,” Hirsch said. “Everyone seems to think they can do better than the current operator.” “Today, most of the courses that are selling are at one and a half times gross revenue, not net,” West said. “Nobody is buying on cap rates today. There is a baseline these days, and two times gross [revenue] is pretty much unheard of.” Golf industry veteran Tom Frost of Tom Frost Golf, who recently exited his partnership in Synergy Golf Management, said the gross revenue is only part of the purchase decision equation, and a less critical element than a property’s cash flow. “Cash flow is still the number one thing,” Frost said. “The only time the gross revenue multiple comes into play is when [the buyer] thinks there’s an upside they can capture by operating it better. If someone tells me they bought strictly on gross 8 The Pellucid PersPecTive June 2011

Table of Contents for the Digital Edition of The Pellucid Perspective - June 2011

The Pellucid Perspective - June 2011
PGA, USGA Back Adams’ ‘Tee It Forward’ Initiative
The Price Is Right
Acushnet Transaction—Big Deal?
Reality Setting in for Course Buyers, Sellers
May 2011 YtD Weather Impact, Apr 2011 YtD Utilization
San Francisco/Oakland, CA Core Business Statistical Area (CBSA)
The Warrior Way
Comings & Goings
A Step ‘Forward’ for Golf?

The Pellucid Perspective - June 2011