Observations continue to emerge that the growth of the golf industry has slowed, yet the selling prices of golf courses do not seem to be falling. Recently, there was a case of a golf course in Gwangju being sold for 11 billion won per hole. What is the reason for the high valuation of golf courses despite concerns about weakened demand?
Samil Accounting Corporation's partner, Jeong Seong-geun, leading the golf and institutional sector, noted, "There is always potential demand, the speed of cash conversion is fast, and most importantly, there is no high-end leisure alternative to golf." He explained that, even if profitability is somewhat lower, buyers have a strong desire to own, so the selling price remains unaffected.
Partner Jeong also presented various measures related to golf course value enhancement. He advised that by improving accessibility, remodeling ancillary facilities, or changing the structure of the tee boxes, the green fees can be increased to boost revenue.
Partner Jeong joined Samil Accounting Corporation in 1992 and has been providing advisory on golf course M&A since 2009. Significant deals he has handled include the acquisition of Jack Nicklaus Golf Club in Songdo, Incheon, which set a record at 16 billion won per hole, the acquisition of Lake Hills (now Hanlim Yongin and Anseong), the acquisition of Kumho Resort, the sale of Oxfield, and the sale of Japan's Atitaya. The following is a Q&A with Partner Jeong.
─ Is there a trend of increasing golf course listings these days?
"Looking at the last 1 to 2 years, there have been more listings than in the past. However, this does not mean there is a massive influx of inventory. Most golf courses are assets owned directly by entities for their operation, so they do not sell just because prices have increased like apartments. Some corporations are listing courses to improve their financial structure in difficult times, but it is being done very cautiously."
Selling a golf course is essentially a last resort for corporations. If rumors arise that a corporation is selling its golf course, the market interprets that as "this company is really struggling," leading to negative reactions from financial institutions, such as reviewing loan recoveries. Therefore, it is difficult to publicly announce a sale, and deals must be conducted quietly while maintaining confidentiality.
─ Do you expect many golf courses owned by corporations to be listed this year?
"The likelihood of a substantial number of listings is low. However, there are likely to be listings of land that has received permits but is not a completed golf course, as well as land currently in the process of obtaining permits. Many corporations that bought land late and pushed for permits during the pandemic are now facing difficulties."
─ What are the current transaction prices?
"There are significant variances by region. Many local golf courses are priced below 3.5 billion won per hole, while in areas like Yongin, Gyeonggi Province, some are listed at 8 billion won or even over 10 billion won. The high price in the capital area is due to the extremely expensive land prices. Furthermore, regions like Busan, Gyeongnam, Sejong, and Daejeon have become seller's markets, indicating scarcity of listings. The per-hole price cannot be simply compared like the per-pyeong price of apartments, as there are considerable differences depending on individual locations or conditions.
Expectations of a recovery in both the domestic economy and the global economy have led to a gradual increase in golf course acquisitions. I anticipate that M&A activities will also become more active.
─ What are the characteristics of golf course sales compared to other assets?
"Golf courses always have potential demand, and the transaction processes are relatively simple, which allows for a significantly rapid cash conversion. The reason there is steady demand is that while it is difficult to hit a "jackpot," projections regarding performance and market outlook can be reasonably predicted."
─ Why does demand for golf courses continue to be steady even after COVID-19?
"There are almost no high-end leisure activities that can replace golf. Yachting and horseback riding have insufficient infrastructure and poor accessibility, making them hard to popularize. Facilities like swimming pools or condos do not have the same popularity as before. Ultimately, only golf remains, so the demand is robust."
─ It seems that membership prices are also steadily increasing. Recently, a membership in a golf course was reported to have been sold for 3.6 billion won.
"The supply of members-only golf courses is decreasing, while demand remains relatively stable or is declining slowly. Almost no new members-only golf courses are opening, and rather, many are converting to public courses. If the supply is decreasing while demand remains unchanged, prices can only rise. Furthermore, golf course memberships are not subject to property taxes and can be easily converted to cash when needed, making them attractive as liquid assets."
─ Are there many golf courses held by financial investors (FIs) that could be listed for sale?
"Since just before the COVID-19 pandemic, private equity funds have been actively investing in golf courses, and even now, a considerable number of golf courses are owned by FIs. Notable examples include South Springs, Paganica, The Players, Owners, Stone Beach, and Kings Rock, among others."
Golf courses owned by private equity funds must be sold when the fund matures, but there have been some movements to sell in advance with extra time before maturity. However, it seems likely that the investors will be restructured, focusing on the actual owners rather than transferring to a new FI.
─ There are often cases where FIs and strategic investors (SIs) jointly acquire golf courses. How does the transaction structure work in such cases?
"Typically, the SI acquires 20-30% equity and has a preferential purchase right for FI equity. The FI consists of various investors, including first-tier banks, pension funds, and high-risk investors. They often demand interest revenue or preferred returns. After acquisition, revenues are shared in proportion, and if there are losses, the SI bears them last, taking the first hit on losses."
─ It seems that some golf courses are undergoing rehabilitation procedures these days. Is this trend increasing?
"The golf courses currently undergoing rehabilitation have typically accumulated excessive borrowings during the golf course development stage or during operations, leading to repeated efforts at rehabilitation. It is not a common case to see more of this."
Facilities like golf courses see their asset values plummet when operations cease. As soon as operations are halted, revenues, overall membership values, and real estate values all collapse simultaneously. Unless there is a situation where both member deposits and excessive financial liabilities need to be repaid at the same time, it becomes difficult to opt for rehabilitation.
When golf courses fall into financial difficulties, they often consider selling or restructuring before rehabilitation. If financial investors are involved, the preference is to liquidate assets before the fund matures. If the golf course is affiliated with a large corporation, internal fund transfers or sales to another affiliate are more common.
─ What strategies can enhance the value of golf courses?
"Raising the value of an already established golf course is not an easy task. There are roughly five main factors that influence golf course value: accessibility, back-end demand, the quality of the golf course (course design, scenery, etc.), brand awareness, and ancillary facilities.
Among these, factors such as accessibility and back-end demand are influenced by external circumstances, making it hard for the golf course itself to change them. However, sometimes the operating entity of the golf course can influence road infrastructure improvements. For instance, they may advocate for a highway interchange (IC) to be built near the golf course or add ramps to an already planned road.
In fact, in the case of A Golf Course, the value rose significantly after the Dongyeoju IC was established nearby. It takes less than a minute to get from the IC to the golf course. Because of this, demand and green fees have changed completely. A small piece of infrastructure can greatly affect a golf course's value.
Adding banquet halls or high-end facilities within the golf course is also an option. For example, B Golf Course houses a traditional hanok-style banquet hall next to the clubhouse, attracting demand for external events. This has elevated its value in terms of brand and quality. Another effective strategy is to connect tee boxes instead of laying mats on them, or to modify the layout to incorporate surrounding space into the tee box area without using mats.
Ultimately, value enhancement is about creating brand image and accessibility, as well as unexpected synergies rather than maximizing immediate revenue. When these factors accumulate, prices can rise, membership values can increase, and ultimately, the value of the golf course can enhance. Simply improving operating profit margins does not increase the value of a golf course.
─ What is the greatest competitive advantage of Samil's golf and institutional sector?
"It may sound obvious, but the greatest competitive advantage of our corporation is expertise. All members have experience in golf course M&A, and our accountants excel in financial and accounting senses.
Also, among our members are talents with excellent English skills. This enables us to carry out overseas golf course deals smoothly. Recently, we conducted a deal for a golf course in Thailand and also acquired one in Japan. We can professionally source M&A deals for overseas golf courses that Korean corporations might be interested in.