Golf Course Leases

[HeeBGBz]

So I just learned that this is a thing last night. I had a discussion with a friend and this came up. I understand what it is -one entity owns the course property, another owns the operations- but I do have a couple questions/thoughts about it.

 

First, I guess I'm not entirely sure what's in for the land holder. On the one hand, they own the actual property and don't have to actually run things. But, if the company/group running the course makes money, the property owner is effectively missing out on the extra gains. If the renter loses money, there's a chance they have to bail and the property owner has to find a new renter for a course that couldn't afford the upkeep. I'm honestly not sure what kind of active market there is for finding new golf business tenants. On top of that, debt obligations may follow the property itself too. So someone buys the land, gets the debts, receives "stable" income if the renters stay, but don't get anything extra to knock out those debt obligations.

 

Second, it seems like this comes up not because it's necessarily a great model but because the current course has debt it wants to shake off faster. I looked up a couple articles and, while sparse, the details seem to be related to increased debt and the inability to shake it off. Effectively "we want to do the business without the stuff that came with it." No one likes debt but this doesn't seem like a normal, healthy thing. Also, I don't own a business but I wonder how this could affect things like business loans. I would think that the easiest way to get a loan, if necessary, would be to put some of the property up as collateral. But, if you don't own it, you can't do that. So what do you borrow against if you don't have the cash, which you didn't before?

 

Third, when things get to the worst point, it seems like two entities are effected negatively instead of one. If the renter can't pay, they maybe file for bankruptcy or don't renew the lease and the property owner needs a new renter. Like before, I'm not sure how easily that'd work out, especially if the previous just failed. Maybe they take over operations themselves, but they were hesitant to before and will likely still have to turn things around. If things get real bad, the property owner sells it as a golf course, which still has the "recently failed" part. Absolute worst case, a developer comes and I wonder how much of a hit on the price compared to the valuation is. All of this also ignores any previous obligations (back taxes, liens, etc) the land owner may have and the losses there. Compared to other properties, it seems harder to sell. Residential spaces are always needed - everyone needs a roof over their head. Smaller commercial spaces could either find a similar business (e.x. restaurant to restaurant) or could be gutted and converted to something else. How the hell do you easily get another renter for hundreds of acres of golf course land?

 

I guess I'm just asking for feedback on how on-point or off-base my thoughts are. I hadn't heard of this until just recently and this is outside my usual scope of understanding.

[Murphy76]

 

I don't see how leasing a golf course is any different than any other commercial property.

 

If the renter can't make it work, they file bankruptcy and the owner tries to find someone else who can.

 

If someone leases a property for 5 years, and they fail after 3, they are still on the hook for the last two years.  In the meantime, the owner is free to look for another 'tenant' to run the course.

 

This is just like any other rental agreement, with just a few more location-specific particulars, i.e. the renter has to cut the grass.

 

As for the difficulty of the course owner finding another tenant, that's just how life in real-estate works.  

  

Edited February 18, 2022 by Murphy76

[uitar9]

34 minutes ago, Murphy76 said:

 

I don't see how leasing a golf course is any different than any other commercial property.

 

If the renter can't make it work, they file bankruptcy and the owner tries to find someone else who can.

 

If someone leases a property for 5 years, and they fail after 3, they are still on the hook for the last two years.  In the meantime, the owner is free to look for another 'tenant' to run the course.

 

This is just like any other rental agreement, with just a few more location-specific particulars, i.e. the renter has to cut the grass.

 

As for the difficulty of the course owner finding another tenant, that's just how life in real-estate works.  

  

Exactly.

 

While its a golf course, the prospective next buyers are very selective. Not quite like a multi purpose building. But while its operating, The owner gets his lease revenue and the land may (or may not) appreciate in value.

 

Owners aren't going to build a golf course  on spec. They are either gonna run them themselves, or have it pre-leased to an operator.

 

Depending on size etc. an 18 hole course is gonna run you a minimum $1,000,000 a hole, plus the clubhouse. Thats a lot of rounds to meet either debt or or lease payments.

 

Worse case, if payments cease and no new operator is found, bring in the Cats and turn it into a residential subdivision or whatever that locale allows.