Exit Considerations
In order to maximize value, golf course owners who are beginning to explore exit opportunities must understand how their course fits into the current market, recognize potential alternative uses, and seek to enhance the appeal of the property based on who the potential purchasers are. Increasingly, courses are transforming into multi-million dollar residential developments– this no more apparent than in the GTA where historic courses are trading fairways for freeholds. In fact, a large number of courses are being purchased by developers as loss-leaders, with the hope that adjacent real-estate development will attract higher values due to the proximity to a course.
There are a number of methodologies used to value a course, but since the land upon which a golf course resides can provide the potential for a variety of uses, a property with a higher value under an alternate permitted use should not be valued as a golf course.
Valuation
There are three basic approaches to golf course valuation. Keep in mind that valuation methodologies are mutually exclusive– you cannot have a golf course and development land at the same time.
- The direct (sales) comparison approach: Value is determined by the recent sales of comparable properties.
- The income approach: Value is indicated by a property’s revenue-earning power, based on a capitalization (multiple) of income. It is typical for the income approach to be the most relevant based on the historical income of the course. Depending on a number of economic factors, a property’s potential income may also warrant consideration.
- Cost approach: Value is determined through an analysis of the cost of replacing or reproducing the existing assets.
Preparing for Sale
The key to preparing for the sale of any business is to begin the arduous task of organizing and assembling the documentation. Owners often fail to appreciate the incredible amount of work that goes into due diligence and the sale process. In the eyes of a potential buyer, any information that cannot be presented will only serve to increase the perceived risk of the transaction and thus limit value maximization.
The exercise of assembling all pertinent information relating to the golf course will serve to provide a number of benefits:
- Help to identify potential gaps in records that will be necessary prior to and throughout the sale process
- A thorough understanding of the details of all relevant documents and agreements will bolster confidence and provide insight into the relative strengths and weaknesses of each party’s negotiating position
- Having ready access to all important information can help reduce professional services expenses and keep deal momentum high
- Reviewing all information can help to anticipate and evaluate factors that may be of concern to a prospective buyer during due diligence
- Preparation is reflective of the seriousness of a seller and projects a willingness to complete the deal
In summary, you will be better able to negotiate the details of a potential deal when you have an understanding of the risk factors and the buyers’ potential concerns. The length of the process and the amount of effort required to sell a golf course should not be underestimated. However, with an understanding of buyers’ motivations, thorough preparation, and an understanding of the course’s fit in the market, value can be maximized.
