News
Good news on the horizon PART 2
7/21/2006
“Go back in time and hotels lacked sophistication. They didn’t have any metrics, their brands were new and professional management was just beginning to be put in place,” he said. “Investors stayed away and hotels were not considered a mainstream investment class.” Once the hotels began to collect data on their operations and were under fiscally disciplined managers, investors began taking a second look. “Look at where they are today,” he said. “Hotels are a very sophisticated industry. The brands are very strong. Now they have great metrics not only from an operational standpoint, but from an investment standpoint. Investors clearly understand the lodging industry. It’s very robust and a solid investment class.” To emulate the success of hotels, golf course businesses must be able to demonstrate their business case with sound tracking measures instead of anecdotal information, Hinckley said. Another factor weighing in for golf courses as an investment are the demographic shifts taking place with the baby boomer generation, which numbers 79 million people. This year, a baby boomer turns 60 every six seconds, a trend that will continue for the next 18 years. “We’re seeing a change in our markets of age 50-plus home buyers who have an interest in golf and find it attractive,” said Henry DeLozier, vice president of golf for Pulte Homes and president of the NGCOA. “We also are seeing that people are seeking to find their social networks in residential communities associated with golf.” The mystery of how golf courses generate profits surfaced at a business meeting Hinckley attended with 13 investment bankers, private equity people and real estate brokers. “Half of them understood the golf industry and the other half didn’t. They asked questions like, ‘Do you make all your money at the bar, and what’s the cost per hole?’ ” Hinckley recalled. “I told them, you guys understand hotels and you understand apartments and you understand office buildings; look at a golf course the same way. A golf course is like a hotel: It has a finite capacity. It’s about occupancy and all about rates. Then they looked at the cap rates and they began see something there.” The NGCOA is spearheading the collection of key operational data with its “Financial Benchmarking Program” in partnership with Golf Datatech, a Kissimmee, Fla.-based golf industry research firm. The program is in place in 24 competitive golf markets, with an average golf course participation rate of 35 percent to 40 percent in each respective market. Golf Datatech co-founder Tom Stine reported to the group some interesting initial findings. The Las Vegas market is showing a $352,000 increase per course with rounds up only 2 percent. Orlando, Fla., revenues were up 11 percent with rounds played up only 1 percent. Both markets, Stine said, had raised their rates successfully. Dallas was another story. Revenues were up 10 percent, but the market’s rounds were up 19 percent, which showed owners were selling more rounds but selling them “too cheap,” Stine said. “We’ve never had these numbers before,” he said. “We’ve never known this kind of information before. We’ve never had market comparisons like this. The more operational (the numbers) are to the owners and the more impactful they are to the financiers, they can see whether it’s worth loaning you the money to buy that course. They can see if your numbers are in line with that of the market.” John Easterbrook, vice president of Scottsdale, Ariz.-based Troon Golf, told the audience, “I don’t know how any golf course owner cannot (collect data). We look at this information on a monthly basis and we look at our ratings and we manage by variance.” Easterbrook said that management discipline showed up recently in the category of food and beverage. “I was looking at the food and beverage data for a market where we have 11 properties, and it was up 12 percent,” he said. “I thought we were doing pretty good. Then I saw the food and beverage number for the entire market and it was up 19 percent. All of a sudden, I realize we’re not doing so great. This is an incredible tool from an operator’s or owner’s standpoint.” A survey of the multi-course owners revealed that 29 percent plan on acquiring more golf courses, 12 percent said they were looking to dispose of properties and 14 percent said they plan to do both. Hinckley pointed to the Goldman Sachs/Starwood’s $1.1 billion purchase of American Golf in 2002 as a possible foretelling of future transactions. “For Goldman/Starwood it’s a very good investment,” Hinckley said. “Was that an anomaly or the beginning of an investment shift?”
