Meadowbrook Golf Group Teeing Up to Become Major Player
As the golf world grows larger and more egalitarian, a Santa Monica company is making a bid to become one of top real estate players in consolidating the long-fragmented ownership of clubs and courses.
Late last year Meadowbrook Golf Group Inc. acquired 30 golf courses on the East Coast from KSL Fairways, a Florida company, in a $150-million deal that puts Meadowbrook among the larger golf course owners in the country.
With the closing of the KSL deal, Meadowbrook now owns 35 courses. That’s still far fewer courses than owned by such industry leaders as ClubCorp of Dallas and Santa Monica-based National Golf Properties Inc., but Meadowbrook’s acquisition is one of the biggest moves recently amid growing consolidation of golf course ownership.
Last March, Meditrust, a real estate investment trust, sold 45 golf courses in seven states for $393 million to a group formed by ClubCorp and American Golf.
Golf courses, despite the big chunks of land they occupy, have traditionally drawn little interest from big real estate firms. Investment groups often assemble huge portfolios of office buildings, industrial parks, apartment buildings and shopping centers, but few have focused on golf properties.
“Historically, golf courses were built one at a time,” said Meadowbrook Chairman Arnold Rosenstein, a longtime Los Angeles-area real estate developer. “Their owners usually were private clubs who didn’t think of them as real estate assets.”
Most real estate developers and investors weren’t much interested in owning golf courses, according to Meadowbrook’s attorney, Tony Ciasulli of Morgan, Lewis & Bockius in Los Angeles. Developers often built courses to help sell nearby homes, never thinking the courses would become valuable assets.
Consolidation of ownership is also a slow process because so much capital is required, Rosenstein said, explaining that courses sell for an average of about $5 million each.
“If you had $1 billion, it would get you about 200 courses, and you still would own only a small fraction of the [nearly 17,000] courses in the United States,” he said.
New trends in golf and real estate, however, are changing course ownership. Golf is enjoying one of its periodic surges in popularity, with aging baby boomers swelling the ranks of players, more women and younger players learning the game, and more minorities playing, thanks to the influence of Tiger Woods.
Golfers played more than 528 million rounds of golf in 1998, according to the National Golf Foundation, which projects that number to increase by 1% to 2% per year. An NGF report said construction is adding several hundred golf courses each year, most of them open to the public. In 1950, according to the report, nearly two out of three golf courses were restricted to members and their guests. Today, more than 70% of all golf courses are open to the public, the report said.
Total spending at golf courses on playing fees, practice range fees, equipment and clothing, and food and miscellaneous items has grown 12% per year since 1994 and surpassed $30 billion in 1998, according to the National Golf Foundation.
At roughly the same time the recent golf boom began in the mid-’90s, real estate investment trusts emerged that specialize in ownership of golf courses and resorts.
“When we formed Golf Trust of America in 1997, we thought it made a lot of sense, and we still do, to consolidate golf courses in a public vehicle, just as it made sense to consolidate other types of real estate in a REIT,” said W. Bradley Blair II, chief executive of Golf Trust, which owns 46 courses.
Another big change in the industry has been the rise in the number of “daily fee” golf courses.
Unlike a private club that’s open only to members, a daily fee course is privately owned but open to the public. Golfers typically pay $30 to $50 per round at the courses, although rates are considerably higher at popular upper-end courses such as Pebble Beach, where a round can cost $325.
About a third of the country’s 17,000 golf courses are private, about a third are public courses owned by cities and counties, and the remainder are daily fee courses, according to the National Golf Foundation.
Real estate investment trusts are restricted by law from operating the properties they own, so golf course REITs lease them to operators. Private companies such as Meadowbrook and ClubCorp both own and manage clubs and courses. ClubCorp is the largest owner-operator in the industry with 200 courses, according to Gerry Smith, a company spokesman.
Smith said ClubCorp, founded in 1957, has assets of $1.4 billion and annual revenue topping $1 billion. The company’s 200 courses are part of a portfolio that includes 234 properties.
In addition to ClubCorp, two of the biggest names in the industry are National Golf Properties Inc., a REIT, and a related private company, American Golf, both based in Santa Monica.
National Golf owns 152 courses, according to Paul Major, an executive vice president at the company. American Golf, which manages 150 courses on behalf of National Golf and 180 courses for other owners, is owned by National Golf founder David Price and his family.
“Course ownership is still very fragmented, even though the consolidation has been going on a while now,” Major said. The top 20 ownership groups combined still own fewer than 5% of the country’s courses, he said.
Although National Golf Properties wasn’t established as a REIT until 1993, Major said Price had been acquiring golf courses since the 1960s. He said Price and ClubCorp were among the first to recognize the potential in owning and operating groups of courses.
“ClubCorp and National Golf Properties both grew pretty quietly over the years, but what’s happened lately is that people have taken notice of their success,” Major said. “Other companies have started to focus on the demographic trends at work that are going to mean more demand for golf courses.”
Meadowbrook sees an opportunity to make money by focusing on what Rosenstein calls the moderately priced segment of the market. It owns membership clubs, with an average initiation fee of about $5,000 and monthly dues of $180, and daily fee courses, where a round of golf costs from $30 to $50.
Part of Meadowbrook’s strategy is to buy “clusters” of five to seven courses that are within 40 to 50 miles of each other, Rosenstein said. When a golfer joins one Meadowbrook club, he or she is automatically a member of the others.
Meadowbrook now owns 35 courses, has three under construction, leases 18 and manages 12 for other owners or lease-holders.
Rosenstein said Meadowbrook’s partner, Apollo Real Estate Investment Fund IV of New York, provided the equity capital for the company’s purchase of KSL Fairways and is Meadowbrook’s financial partner in other ventures.
Rosenstein is a former executive of Realtech Development & Construction, which built the World Savings headquarters in Brentwood and numerous other projects in Southern California.
He said he started Meadowbrook because he’s fond of golf and saw potential for consolidation of course ownership and operations, although Meadowbrook has no specific target in mind in terms of the number of courses it would like to own.
