Golf’s in a Trap: Golf Course Valuation During the Decade of Golf’s Decline

North Carolina used to be one of the most popular states in the US to enjoy playing golf. But for the last decade, golf has fallen out of favor with a lack of interest from new generations and rising play prices. North by Northwest investigates how golf courses are coping with the cultural shift. And what happens to the land value of a course that’s no longer profitable?

The Changing Landscape of Golf Courses

In the 1980s through the early 2000s our media coordinator, Angela Carlton’s grandfather William Howard Carlton was a stakeholder at the Rock Barn Club of Golf. Now renamed to Rock Barn Country Club and Spa. Every month, he attended a stockholder’s meeting where the local group, led by John Hemmings, collectively made decisions about its future.

Back then, golf was a lucrative business, in part because informal business discussions often occurred on the course. One day in the 2000s, the majority of stockholders decided to sell their stocks to one man, Don Beaver who wanted to transform the course into a resort and spa, add more courses, and new facilities. Despite reports that further renovations will attract more players, the added facilities also have added costs to players and members which have caused many to reconsider the value of continuing to play the course. Consequently that has meant that would-be newcomers are deterred. This phenomenon has been happening around the country, and internationally, as interest in golf wanes and golf courses are stagnating. It will take more than building fancier facilities to entice new players to golf courses like Rock Barn Club and Spa. 

What’s Happening to Golf in North Carolina?

The world has 34,000 golf courses. 45 percent of them are in the United States. Out of those, 600 courses are in North Carolina, which has some of the best courses in the country. The state has the world’s longest hole. It’s located at Farmstead Golf Links in Calabash. Though players actually tee off in South Carolina. They finish the hole in North Carolina.

Additionally, North Carolina has produced some famous players. Including Arnold Palmer, who honed his skills at Wake Forest in the early 1950s before becoming the sport’s first superstar. All of that is to say, there has been a real investment in golf. But if the sport doesn’t make a real comeback, what will happen to all of North Carolina’s pristine courses? Especially, if they aren’t making money anymore. What will the land value look like? Will it come to the land being sold at auction? Let’s look further. 

Evidence of Golf’s Decline

Around the United States and abroad, millions of investment in golf courses are going bust as the public loses its long-standing love affair with the sport. The biggest hit for golf courses has been the lack of interest from subsequent generations. Since the price of play is too far outside most two-income families budgets. According to Golf Digest, the average cost of an 18-hole round at a daily-fee course can range from $15 to $150. The average annual cost of membership to a private golf club in the U.S. is about $6,245. That is not including initiation fees.

Moreover, fewer young professionals are taking their business chats to the green. Opting instead for leisure activities with shorter durations, no membership requirement, or lower costs. Examples of new popular sports replacing golf are cycling, rock climbing, yoga, and jiu jitsu. As Market Watch put it, “playing golf has gone the same way as the three-martini lunch.” Evidence of golf’s decline abounds and has for the last decade, at least. 

According to the National Golf Foundation, a high of 30.6 million golfers in 2003 had been reduced to 24.7 million by 2014. The number of golfers between ages 18 and 34 has declined by 30 percent over the past 20 years.

Sports companies are seeing the downward trend for golf, as well.  In 2016, Nike announced that it was ceasing production of golf equipment, focusing instead on golf shoes and apparel. The reason for the transition is to pursue “sustainable profitable growth for Nike Golf,” said Nike brand president Trevor Edwards, in a statement.

So without the income and revenue stream, how will golf courses maintain their expensive upkeep? 

Maintaining Golf’s Expensive Upkeep 

It costs a huge amount of money to keep golf courses lush and verdant. In California’s Palm Springs, golf courses use about 37 million gallons of water a day. While in Arizona they are taking as much as 80 gallons of water a day. The overall cost to achieve the condition players expect ranges from about $500,000 a year for a daily-fee course to $1,000,000 a year for a private club, estimates Bob Randquist, chief operating officer of the Golf Course Superintendent’s Association of America. 

This is largely because since the 1930s courses have steadily gained and cemented a reputation for snobbery that has meant courses are expanded and bulked out into almost herculean proportions. Rock Barn Country Club and Spa is a good example of this. “Golf courses were overbuilt, saturating major cities and secondary markets with ridiculous golf hole per capita ratios,” golf blogger David Hill wrote in a manifesto on why the sport, in fact, isn’t dying.

Repurposing Golf Course Land

The ultimate result is that more than 800 courses across America have closed in a decade. Some of these courses have become housing developments, others parks, and a few landowners have taken advantage of tax breaks by donating their properties to nature trusts. 

Of course, the housing development model does not make the golf courses easier to sell or more appealing when the sport is dwindling in popularity. In fact, golf course properties are selling at less of a premium when fewer buyers regularly play golf.  Many golf courses have been closed with some being converted to other uses. While some are just being fenced off or just sitting as vacant land. 

In the last few years, many golf courses have been opting to sell on multiples of revenue (<1). There aren’t the profits to calculate any type of return on investment.

– Unusual Investments

How is this affecting golf in North Carolina, in particular? By Thanksgiving (2021) two golf courses in the Myrtle Beach area, a popular vacation destination for many North and South Carolinians, will be hosting their last rounds: Farmstead Golf Links. Which is the same course referenced earlier with the longest hole in the state. And the other course closing soon is The Witch Golf Links. Indeed, no region has lost more courses (roughly 25) since the turn of the century than the “Grand Strand”. A 90-mile stretch from Pawleys Island, S.C., through Myrtle Beach and into the southern edge of North Carolina. Marsh Harbour was a local favorite until its land lease ran out, and the course ceased operations in 2005. 

In the last few years, many golf courses have been opting to sell on multiples of revenue (<1). There aren’t the profits to calculate any type of return on investment.  According to Unusual Investments, a 10% return might seem reasonable for buying a golf course. But the reality is that the return of many of these courses at the time of sale might be -10%.

So Who is Buying these Golf Courses? What is the Highest and Best Use? 

In many cases, the only way to turn a profit is for some or all of the land where the golf course is located, is for it to be redeveloped into other (non-golf) uses. Alternatively, golf course owners could reduce the number of holes from 36 or 27, down to 18 or 9. If they couldn’t completely exit the business model, or were reluctant to. Another idea might be to convert normal courses into par 3 executive courses. Then, if possible, the remaining land could be redeveloped into housing, a hotel, or apartments.

Owners could sell off some open space or a part of one hole to a residential developer. They might need the land for zoning or environmental purposes, which could effectively change the economics. A golf course only making $50K a year on a $1 million investment would have a 5% return. But being able to sell off $300K worth without affecting operations would yield an increase in the ROI from 5% to about 7.1%.

This partial repurposing is usually a better idea than doing a full conversion. Since neighboring homeowners would likely be unhappy with the entire golf course being converted for a different use. It’s the difference between living next to a fairway and living next to a five storey hotel. Thus, besides dealing with zoning laws and potential conversion moratoriums, extensive political aptitude is required.

Other Uses for Golf Courses

Depending on the neighborhood, golf course owners might need to offer to sell it to the neighborhood association first, before you sell it to developers. Adding greenbelt, open space or a walking path for those homeowners, in place of the golf course, is one thing that can be done to help mitigate a community’s possible wrath. And would provide a solution for maintaining a green space in lieu of the golf course. 

While some type of housing or residential use is the most obvious, other conversion uses include one or more of: industrial, office, farm land, timber land, concert venues, driving range, charter schools, parks or conservation easements (donated to lower tax basis), or just letting the land sitting fallow for land banking purposes.

Other income sources might include selling mineral rights, selling billboard or cell phone tower easements, or leasing the land for hunting or fishing purposes.

Golf Courses Selling at Auction: When Improvements Aren’t Enough 

As of today on LoopNet there are four golf courses listed for sale in North Carolina. They vary in price from $750,000 to around 6 million. Looking at the course with the lowest cost, its executive summary indicates that the seller doesn’t sound very optimistic about the future of the course.

“This 18 hole championship design is located on a beautiful parcel of land in the growing triad of North Carolina, just north of Greensboro. A total of 103 rolling acres with streams and ponds with bermuda fairways and bent grass greens. Clubhouse includes a pro shop, bar, grill, meeting and event rooms and more. Needs rehab as it has been CLOSED for all of 2021. Possible repurpose potential, family compound? Multi recreational? equestrian? campground? (no carts or equipment included) Call us for more information.” 

If there are no buyers then the courses might go to the auction block, as has Firethorne Country Club, and as many other courses around the country are doing such as Patriots Glen in Maryland, which the previous owner hoped to at least get $500,000 for, sadly he had no takers. Many golf courses such as Mississippi’s oldest golf course The Great Southern Golf Club had to file for bankruptcy earlier this year, the club owes nearly 5 million after much of the course was destroyed by Hurricane Katrina.

The Future of Golf

The previous owner is hopeful that the golf course can be retained as a golf course. “It’s been here so long that we’d like to keep it as a golf course, not see no condos, or houses or anything like that come in here, it means a lot to everybody in the neighborhood and on the Gulf Coast,” said golfer John Reynolds.

Ultimately, with all of the closures and dwindling interest in the sport, one has to wonder at Rock Barn’s alleged growth reports. Of course it could be down to Don Beaver’s personal wealth that is keeping the course afloat. And not so much the member fees. In fact, Beaver is being floated as a potential rescuer of nearby courses such as Firethorne Country Club. Regardless, it seems that expanding to golf courses might be ill-advised to shifting cultural sands.

Learn More

To learn more about North by Northwest’s commercial appraisal work or if you are interested in any of our newsletter features please contact us at info@nxnwconsulting.com. We regularly feature interviews from peers in the commercial real estate and infrastructure industry. Find out how you can be involved today.

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