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Can Golf Club Real Estate, Walloped by the Recession, Rebound?

Welcome back to Property Lines, a column by veteran real estate reporter Alexei Barrionuevo. Each week on Tuesday, Barrionuevo will report on housing trends, real estate deals, and major business moves right here on Curbed.

The Grand Dunes Golf Club in Myrtle Beach is one of 22 courses that recently sold to a Chinese investment in the last two years. Photo via Grand Dunes.

In Escondido, California, the city recently settled a smelly legal tussle with a developer who purchased a private country club, shut it down and then proposed to replace it with 600 homes. At times, the land-rights dispute got downright gross. Last year, the owner of the former Escondido Country Club, near San Diego, incensed neighbors after he dumped an estimated five tons of chicken manure on several fairways.

Residents thought it was retaliation for their opposition to development plans by the owner, Michael Schlesinger's company Stuck in the Rough. Schlesinger insisted he was just doing some fertilizing. So perhaps it's not surprising that the settlement, reached in October, restored zoning on the club property to residential use—but only after Schlesinger agreed not to be the developer.

The dispute is par for the course in the world of private golf clubs. The niche segment of the real estate market is still struggling to crawl back from the recession—and likely never will be like it once was.

More golf courses have closed in the past decade than have opened, creating opportunities in the market for developers, foreign investors, and companies looking to consolidate portfolios of private clubs, said Jeff Woolson, managing director of CBRE's Golf & Resort Group. In fact, the trading of private golf clubs has been more active in the past two years than the previous two, reflecting an improving debt market, declining club memberships, and a general wane in interest in the sport, Woolson and other analysts said.

"It is still a buyer's market," said Larry Hirsh, president of Golf Property Analysts, a real estate appraisal firm. "The courses that are for sale are for the most part courses that have some challenge or [financial] distress."

What happened to golf? The building of golf courses took off in the late-1980s, and sped up a decade later, spurred by the popularity of Tiger Woods. Like every boom in America, it seems, golf-course construction soon turned to over-building. Then the recession hit, and suddenly golf and private club enthusiasts took stock of their priorities.

"During the recession it was really easy for people to cut golf out of the diet," Woolson said.

Golf clubs have had to adapt to survive in an age when time and work schedules no longer fit the traditional golf paradigm. "The club is a different animal than it was 20 years ago," Hirsh said. "It like the Oldsmobile ad; it is not your father's Oldsmobile anymore. Well, it is not your father's club anymore. There are very few clubs where dad leaves Saturday morning at 8 a.m. and goes and plays golf and says, 'I'll be home for dinner at five,' and sits around and golfs and drinks beer all day." But Hirsh doesn't think golf is dead. "We got a whole lot of oversupply, and it is correcting itself."

Even Donald Trump, who publicly expressed his dislike of footgolf, allows footgolf at some of his courses. Photo courtesy Getty Images.

Clubs have added fitness centers, more spa facilities, and kids-focused areas. They have even turned to promoting Footgolf or "Soccer Golf," a sport where players use their feet rather than clubs to get the ball in the hole (albeit a 21-inch hole in place of a regular golf hole). "People are making money off of it," said Hilda W. Allen, a Georgia-based top broker of golf courses.

But for many clubs, with declining membership and sliding interest in the sport among young people, the burden of managing clubs successfully has become too great. More than 600 clubs have closed around the country since 2006.

Many struggling clubs have turned to professional management companies like Dallas-based ClubCorp, Concert Golf Partners (a subsidiary of Morgan Stanley Private Equity), and San Diego-based Heritage Golf Group, which have been on golf club buying sprees. ClubCorp, which went public in 2013, owns more than 150 golf and country clubs in the country, acquiring 52 of them since 2010 in a $386 million wave of buying. Its recent acquisition of Sequoia Golf included clubs in Atlanta, Denver, Houston, and Chicago.

ClubCorp isn't trying to shut down golf clubs and push to convert them to development land. They are creating a sort of national club experience, like Equinox does with fitness facilities, where members can have access to the links on ClubCorp clubs all over the world."Our strategy is to buy under-performing, private golf and country clubs and reinvent them and make them relevant to today's private club member, regardless of age," said Tom Bennison, ClubCorp's senior vice president for new business development.

Groups of foreign investors, particularly from China, where golf remains extremely popular, have also swooped in and bought golf clubs at well under replacement value. Yiqian Funding, a Chinese peer-to-peer lender, now owns 22 golf courses on the Grand Strand, a 60-mile stretch that includes Myrtle Beach, South Carolina. The Chinese firm paid cash for the courses over the past two years, becoming the biggest owner on the Strand, Bloomberg reported.

Another big player has been Pacific Links. Du Sha, a Chinese national who lives in Canada, founded the company in 2009. It has since bought more than 100 courses around the world, including in California, Hawaii and Nevada.

Doral Country Club. Photo via Trump National Doral Golf Club.

On the highest end, golf aficionado Donald Trump has bet big on the private club business. The Trump Organization has been on an international buying spree since 2007 and now owns 17 courses, with a new golf resort in Indonesia announced in September, said Eric Trump, vice president for acquisitions and development. Trump seized on the real estate crash in Florida to pick up the 800-acre Doral Country Club for $150 million, considered a steal by many. In the case of Doral and Turnberry, the famed course in Scotland he picked up last year, Trump is sinking close to half a billion dollars into renovations and upgrades to re-brand the clubs as resorts for the super-wealthy, Eric Trump said.

"A lot of people built for the sake of building a golf course so they could sell residential real estate," the younger Trump said. "And then they are surprised it doesn't work. Our courses have to work as courses."

But not everyone wants to invest in turning around a club. Developers around the country, including in Long Island and New Jersey, are buying up courses and shutting them down, often with another strategy in mind. "They don't legally have to keep a golf course open," Woolson said. "Then they go back to the municipality and say, 'We had to shut this down, let's open this up to development.'"

Such was the case in Escondido, where a three-year battle over the club's fate turned ugly. Neighbors tried to permanently preserve the property as open space, winning approval for the idea from the city council in 2013. Schlesinger sued, alleging an "illegal taking" of his property. A judge ruled in his favor in March, leading to the settlement.

If Escondido doesn't work out for residential development, Schlesinger may have a backup plan. His lawyer, Ronald Richards, recently bought the Silverstone Golf Club in Las Vegas for an undisclosed sum and announced plans to close it down. The course's previous owner, Paul Jaramillo, cited financial struggles and the rising price of water in Nevada in explaining the sale to his members.

Richards didn't deny that residential development was in the offing. "I hope to work with my neighbors to come up with a new direction that doesn't require an operator to subsidize someone else's luxury golf game, at an unsustainable loss that does nothing for the community at large, and for all non-golfing residents and neighbors," he wrote in an email to the Las Vegas Review-Journal.
· Escondido Country Club Case Settled [San Diego Union Tribune]
· Property Lines archives [Curbed]