It wasn't even two weeks into the coronavirus pandemic that investors started calling up Steve Ekovich and his team, looking for bargain-priced golf courses to buy.
'The sharks smell blood already': There will be post-Covid-19 opportunities in Florida's golf course real estate - just not quite yet
It wasn’t even two weeks into the coronavirus pandemic that investors started calling up Steve Ekovich and his team, looking for bargain-priced golf courses to buy.
“The sharks smell blood already,” said Ekovich, a senior managing director with Marcus & Millichap in Tampa, who specializes in leisure investment real estate.
But opportunistic investors have a bit of a wait ahead of them before the pandemic brings about deals on distressed golf courses. The pandemic doesn’t change the valuation of properties currently on the market, Ekovich said; the deals will unfold several months from now, with golf courses that were already struggling to turn a profit before the pandemic. The lowest 25th percentile of clubs will be under “enormous stress” and are likely to face foreclosure or bankruptcy proceedings.
Most golf courses’ revenue is close to a 50/50 split between golf and membership fees and food and beverage sales. Tournaments and banquets are high margin events for those properties, where the in-house restaurant may lose money or have a slim margin on a la carte offerings. But they make it up with big events — events that aren’t possible right now because of social distancing guidelines meant to slow the virus’ spread. Courses are also losing money on the golf side, Ekovich said, because they’re spreading out tee times and limiting the number of people on the course.
Florida’s golf course real estate was among the hardest hit property sectors by the Great Recession of 2008 — values fell more than 50 percent and still haven’t returned to pre-recession levels, Ekovich said. For example, a golf course that sold for $5 million in 2006 would have been worth $2.5 million in the aftermath of the recession — and is maybe worth $3 million today.
“You are going to see distress, see them going back to lenders,” Ekovich said. “But I don’t think you’re going to see a tremendous compression in values because they’re already pretty low.”
The run-up to the last market crash was a very different environment for golf properties, which were being built primarily as amenities to residential developments. In the last decade, golf course operators have focused on strengthening their operations and investing in their properties. Before the pandemic, 2020 was shaping up to be a good year for golf.
“It’s too early to understand if there will be a value implication or if this is just a blip on radar,” said Matt Putnam, managing director at Colliers International Tampa Bay who specializes in leisure properties. “If somebody was struggling before this, this certainly isn’t helping.”
Putnam’s team is currently marketing The Preserve, a 274-hole golf club in Bradenton. It will be auctioned off at 12:30 p.m. April 23; on April 21, bids were up to $1.25 million, from a starting price of $750,000.
“It’s a positive sign to have early bids,” Putnam said. “Typically, we don’t see early activity.”
In Florida, Ekovich expects to see the most distress in Orlando, because many of its golf courses are tied to resort properties and are heavily dependent on tourists. The same is true in South Florida.
“Because of the wealth in Southwest Florida, in Naples and Fort Myers, they can probably weather it,” he said. “Tampa and Jacksonville would probably be third in line after Orlando and South Florida in terms of distress.”