Commercial real estate industry insights.

Pandemic-Driven Demand Eases Golf Course Slump

by Lee Smalley, MAI | Sep 28, 2021

The COVID-19 pandemic is playing a big role in driving more golfers to hit the links this year, setting the stage for a revival of the nation’s golf courses.

Lately, private, public and country club golf courses have benefited from the pandemic curtailing participation in other sports and leisure activities that require an indoor setting or people being in close contact with each other.

Golf, however, is an outdoor sport that gives participants plenty of space to play on acres of well-manicured grassy land, minimizing the incidence of the disease’s transmission.

The pandemic’s social distancing rules also have impacted the way groups play on 18-hole or 9-hole courses. Golf courses generally required golfers to use their own golf cart to promote social distancing, which sped up the pace of play. This has made the game more alluring to golfers who can finish a round much faster than it took during pre-pandemic days.    

Golf’s upswing in popularity also may be attributed to the pandemic-induced work-from-home trend. Rather than trying to squeeze in tee times during the weekend, golfers now have more opportunities to play during the workweek. This change, coupled with social distancing measures, helped golfers to get back to courses faster than most sporting events.

According to market research firm Golf Datatech, U.S. golfers played an estimated 12 million more rounds in September 2020 compared to the prior year, representing a 26 percent increase.

Golf’s resurgence is bringing much-needed relief to the golf course industry, which had been in decline for more than a decade. According to the National Golf Foundation’s figures on golf course closures, there was a net decline of 169 18-hole golf courses, a 31 percent drop from 2019’s 246 courses, the biggest drop on record. There were more than 16,000 courses (including 9-hole courses) at the end of 2020.

Golf course closures were primarily caused by an oversaturation of courses across the country. During the industry’s boom years – the mid-‘80s to the early 2000s – nearly 5,000 new golf courses were added to the supply.

The impetus for building boom was due to the industry’s expectations that more golf courses were needed to meet growing demand at that time. The sport’s appeal also was given a big boost from golfing sensation Tiger Woods’ championship wins during the ‘90s. His success encouraged more people from all walks of life to pick up clubs to play the sport.

Ballooning demand in golf, however, deflated following the bursting of the housing bubble and the ensuing Great Recession of 2008-09, leaving many unprofitable courses in its wake.

A glut of courses led to developers transforming some of them into residential subdivisions, parks, solar farms, and other land uses. Those golf courses that eluded being repurposed  have profited from a pandemic-driven surge in demand, bringing in new revenue and improvements to courses. 

The current environment may likely trigger a buying spree for those golf courses that survived the downturn. For instance, a New York hedge fund that acquired courses in August 2020 from Dallas-based ClubCorp, an operator of private golf courses, has since sold two of those courses for nearly $18 million, more than 30 percent higher than their sale price a year ago.

Valuation Impact

As popularity and transactions of golf courses have increased, appraisers are evaluating changes in property value. Golf courses have their own unique characteristics which require special considerations to determine the property’s market value. For example, it is important that an appraiser have a thorough understanding of how courses are appraised for ad valorem taxation purposes. An ad valorem tax is defined as a tax based on the assessed value of an item, such as property taxes imposed on real estate.

It can be especially challenging to appraise golf course value for ad valorem tax assessments. For instance, municipalities can apply the same valuations to golf courses as it does with agricultural land, which is among the lowest tiers in zoning land.

On the other hand, golf courses can be zoned as residential, which would bring a higher valuation for courses and impact the property’s ad valorem tax assessment. In this case, the golf course’s value is worth more as a residential property than as a golf course.

When calculating the valuation of golf courses and country clubs, these properties are typically treated as a going concern. The value of the real estate property is only applicable for ad valorem tax assessments. However, the valuation of this asset class for a different scenario would include more analysis depending on the breadth of the golf operation.

Determining going concern values often can be complicated because the real estate piece of the golf course needs to be separated from its business operation, such as a restaurant, in concluding the value of the property.

Using simple metrics, such as a location quotient calculation, can help ascertain the demand for golf courses in a certain market. These calculations can help reflect the demand and supply characteristics of golf courses in a defined market area compared to the area’s population. A golf course with a location quotient score above 1 typically serves as an indication that a course has reasonably good odds of accumulating adequate demand to sustain its operation and continue with the viability of the operation.

It’s also important for buyers and sellers to evaluate all metrics, such as value per hole, per square foot and per acre, involved in the valuation of a golf course. Using statistical measurements will help identify the most supportable unit of comparison for the valuation of this asset class. These factors can also have an effect on the valuation techniques used as part of the property’s appraisal.  

Experienced valuation professionals will evaluate several methods for calculating value and will apply the approach that best fits the situation to establish a defensible appraisal.       

BBG has extensive knowledge and expertise in the valuation and assessment of private and public golf courses and club properties. Contact us today and find out how our professionals can assist you in achieving your financial goals for transactions involving this unique property type.