The REITS and Trusts - Golf's Distorting Factors
COMPANIES, REITS, TRUSTS HUNGRY FOR GOLF COURSES - SCREWING UP THIS INDUSTRY!
UPDATE 2002! GOLF TRUST WAS A COMPANY WITH THE BUSINESS PLAN TO BUY GOLF COURSES AND LEASE THEM BACK TO THE SELLERS.
They paid ridiculous prices and apparently made endless bad deals.
They crashed like the Hindenburg. Gee! Who could have predicted that?
What’s worse, they caused major distortions in the industry. How many golf courses saw their property taxes soar based Golf Trust’s reckless business plan?
Financial groups are distorting the golf course business by paying unrealistic prices for golf courses. (You likely read about Golf Trust in Crittenden Reports)
One company recently paid over $7 million for a $5 million dollar Southeast U.S. golf course.
Another Golf Company recently paid a reported $36 million (Oops! Turns out it was closer to $45 million!) for a group of Southeast US golf courses that some say (I say) were worth less than $25 million. The group assumed that by raising prices across the board they would easily cover their enormous debt. Instead, price raises simply sent rounds elsewhere, and revenue immediately dropped (Gee! Who's surprised?). The company's upper management attached blame to local management for failing revenues - and fired them!
HOW, WHERE DO THEY GET THEIR MONEY?
Just because these people can break 80, they parade as golf course experts and schmooze others to invest money into the golf business. Many groups go directly to Wall Street looking for investment. Glossy Business plans and a little 'name dropping' is enough to tickle the emotions of 'near-golfers' to get at their venture capital (athletes are prime targets).
NO RISK - MEANS DISTORTIONS
Many riskless golf 'Golf Company Experts' have little or no fear of failure, because they're using other people's money. Company CEO's line their pockets with management fees, points, commissions. etc., adding as much as 10% to the cost of a golf course acquisition. Once a course is acquired, they drain the property's cash flow with outrageous executive salaries, bonuses, and 'head office' expenses. Operating without personal consequence (no vested interest), no-risk operators pay distorted prices for golf courses. But they're not just paying high prices, they burden the courses with unrealistic overhead and debt. Today, many 'company' acquisitions are so over leveraged they can barely withstand one rainy weekend!
DISTORTING INFLUENCES
So, here's what happens. Golf Companies get all this money from Wall Street. Then they charge into the world to spend the money as they promised to buy golf courses. However, they soon learn that they can't find courses that meet their acquisition criteria (all laid out in their glossy business plan). So, the basic limits of their business plans are compromised just to make deals for golf courses. To dispose of the $millions they promised to spend, they make ludicrous offers for anything available. Meanwhile, golf course sellers know these buyers are desperate for properties and hold out for distorted prices!
(I reviewed a golf course in Georgia. The owner, a major player in the 'company' golf world, was desperate to dispose of his interest in the property. What a dump! It was probably the worst golf course I've ever seen. I my opinion, it had a negative value. The man purchased the course because he had to get rid of money to own a golf course. Hats off to whomever sold it to him!)
The scenario above is exactly what distorts golf course values.