Steve Katz
Hi, everybody, and thanks for taking time out of your busy schedule to listen into our Hilco Global Smarter Perspective podcasts. As returning listeners know, I’m your host, Steve Katz. And if this is your first time joining us, well then, we’re glad that you could tune in today, We’re going to be talking today about the real estate market and more specifically, the hospitality market. And more specifically than that, the hospitality market within real estate and the bounce back of the golf industry, that’s been taking place and a lot of you who may be avid golfers are kind of aware of what’s going on in golf, courses are a lot more crowded right now, and there’s still a lot of ramifications from the real estate side. So we’re gonna be talking about that, and with us for the discussion is Ryan Rafter from Hilco Real Estates Golf Advisory Team, which focuses on assisting both golf course, and resort owners to monetize their assets in a discreet manner that ensures maximum value. So Ryan, welcome to the podcast.
Ryan Rafter
Hi, Steve, thank you very much for having me on. It’s great to be here.
Steve Katz
All right. Well, it’s great to have you. And let’s just jump right into it. You know, the, as I alluded to, in the intro, there golf course plays way up, as compared with what was going on before the pandemic. And things across the industry. Were really looking pretty bad for a while. But there’s been a huge resurgence since COVID. And maybe you can just to get us started talk about what some of the drivers are? No pun intended, when I say drivers, and why this is happening right now.
Ryan Rafter
Sure. So, I mean, COVID was a seminal moment in golf history, and probably the biggest since Tiger Woods, in the early 2000s. And, you know, it really was a perfect storm for the industry based on, you know, it was one of the very few things similar to pickleball as something that people could get out and do. There also has been really a shift in culture, which, you know, I think it’s overlooked very frequently. You know, Golf has shifted from this old stodgy, you know, very exclusive game to, you know, celebrities across the board are very much involved in it, and they’re promoting it, you know, to a much younger crowd, and then you mix that with the PGA Tour and their First Tee program, which is phenomenal. And it really makes for a perfect storm of people flocking to the game numbers being higher than they’ve ever been, both from a, you know, fee rate, you know, number of rounds played, and also the golf entertainment space, which is absolutely exploded.
Steve Katz
Yeah, I mean, it’s, you know, all great points, I think, you know, everybody kind of was aware of the popularity that tiger brought to the game. But, you know, certainly, there’s been so much activity coming out of COVID. And then you’ve had all this sort of TV exposure with shows like full swing, and just the the general exposure that golf is getting related to what’s going on with the traditional tour and the new tour, but we won’t get into that maybe it’s another day. And I think it’s also interesting that you compare it to pickleball, too, because it’s true . And maybe, you know, that’s maybe something we’ll be addressing from a real estate perspective at one point in the future as well. But the things that you did talk about the top line, that are playing in the real estate market right now and creating that monetization opportunity for those with existing course assets. Can you talk a little bit more about that? And you know, what’s really happening there and what the what the opportunities are right now?
Ryan Rafter
Sure. So the focus really has been on the much more higher end assets in terms of the private side and the daily fee side, and then very heavily on destination and resorts. Those are the two areas that we’re seeing a lot of change in the what I would call lower to mid tier daily fee courses, they tend to be a little bit less in demand. And I think the driver for that is while they are getting the highest play that they’ve ever gotten, they’re all increasing their daily fee rates. Their food and beverage numbers are exponentially higher, that is creating an expectation in owners minds that the valuation of their asset should massively increase as well. And that in some cases is accurate. However, one of the things that we’re running into in that side is the fact that there’s very little room for additional growth, because they have essentially reached the maximum peak value. On the other side, going back to pickleball, and all of these other entertainment opportunities that people have on, you know, various resorts. We’re working on a project right now where somebody wants to introduce a wave pool, to a very, very high end resort in the Naples market. You know, it’s those things that are getting people active and having people stay for more time. They’re also, you and I have talked about this a few times is the ability to make golf courses, you know, six holes, 12 holes, 18 holes, and allow for flexibility in terms of the amount of time that people are engaged in it, which also, if you look at Pinehurst, as a great example, their second biggest revenue generating course is the cradle, which is a nine hole course, people play it barefoot, they bring cocktails out there. And that’s really kind of where you’re seeing the game go in terms of Sweden’s Cove and, and a lot of these short courses that people are moving towards.
Steve Katz
Right, so think so it’s evolving. And it’s, I mean, it kind of makes sense. When you think about people’s lifestyles and people, not everybody has, you know, four and a half, five hours to get out there and play 18 holes of golf. And I think most most of us who are a little bit older, kind of feel like the attention span of younger people is a little bit shorter than it was for us maybe when we picked up the game. So it does all make a lot of sense. But what you’re saying would suggest that you got potentially these people on one side who are thinking that properties are worth a lot of money. And it’s a great time to sell, it would suggest that there are a lot of buyers out there who are ready to acquire those properties at at the right valuation. So can you give us an idea of the acquisition activity that’s taking place now? And can you kind of what you’ve been seeing over the last year or so?
Ryan Rafter
Correct? I think you I think you hit the nail on the head in terms of the acquisition activity, private clubs are trading at multiples that, you know, are significantly higher than what they’ve been whether you look at it from a gross revenue standpoint, or you look at it from strictly an in EBITA multiple. Same thing actually with land, you know, land typically has not traded very well across the board, especially when the economy’s doing well, right now, there are a tremendous amount of clients of ours that are really looking in the southeast in particular, in states like Colorado, Utah, Arizona, even Montana, where they’re looking to acquire large parcels of land, you know, anywhere from 1000 to up to 5000 acres to develop these resorts from the ground up, because they view it as, you have an opportunity to create a destination unto itself, as opposed to trying to compete with the traditional real estate buyers on traditional assets that want to have, you know, hospitality or multifamily projects as close to the central business districts as possible. So you can go one of two routes, you can either create your own destination and area that people are gonna flock to the way that, you know what they did at Pebble Beach, what they did it Ben and dudes, what they’ve done at streamsong, what they’ve done open Wisconsin with the Kohlers, or you can pay a lot of money for very good dirt close to a central business district. But you’re probably going to be somewhat constricted with what you can do there.
Steve Katz
Yeah, yeah. So So you have this sort of newer opportunity in some of these outlying areas. I’ve Streamsong’s a great example. I actually played there this past year. You know, it’s kind of in the middle of nowhere, really, you’re going there because you’re going there right? It’s true that it’s your destination so you have that and then you also have this other niche right with a golf entertainment or golf tainment business which is a little bit different because you’re not talking about properties, you know, that are necessarily gigantic footprints, or that had golf courses on them previously. So it seems like those would tend to be more traditional real estate deals, if you had to classify them in, you know, into a box, we have an owner of a parcel that’s suitable for development, but it’s not a gigantic parcel, is that kind of what you’re saying with that business?
Ryan Rafter
Very much. So. And it’s, it’s very interesting to see the market of where the entertainment side is going. Because there are groups that are trying to be, the holy grail for Top Golf is Vegas. You know, that’s, that’s where, and I think a lot of people Top Golf interesting, because they have set the bar in the standard so high, that people are trying to come in behind them, are trying to do the same things. But start, you know, top golf didn’t get to Vegas until later on in the process where they’re trying to get there very quickly. And the acquisition costs up front, or just in a lot of cases will just press you out of it. Because if you’re trying to go into Vegas, or Miami, or New York or LA, to your point, you’re paying a premium for the real estate asset itself. And you add on the additional capital expenditures to build out the facility, depending on what that looks like, you know, you’re talking in the 10s of millions of dollars. So, it’s a rapidly expanding market. And there are certain groups that are doing extraordinarily well. And they’re running. And they have a lot of private equity capital behind them to allow them to make some mistakes, but also, you know, move in the right direction quickly. And then there are other groups that are being a little bit more focused and deliberate with what they’re doing. And I think, in the next two to three years, it’s going to be interesting, which ones, you know which ones sank and which ones float. And not to mention the amount of capital coming in from players like Tiger Woods, and Rory and Jordan Spieth who are all themselves entering into the space.
Steve Katz
Yeah, big, big money. And it is interesting that the, you know, the pros themselves are getting into it, I’m sure a lot of these private equity deals intentionally try to incorporate they incorporate them because it lends credibility and interest in the property. And then we have these other situations where developers are trying to acquire existing courses that maybe are in financial difficulty, and I know that you talked about the sort of the, the opposite of that the courses that were more, you know, higher end, achieving, you know, very good revenue, based on hospitality, etc. But there are a number of courses around the country and a bunch of them are in Florida, where you, you know, you had courses where maybe they were membership optional courses, or for whatever reason, they’ve fallen into a little bit of disrepair, they don’t have the resources to bring them up to the next level. And those are becoming targets for redevelopment, either different types of housing or housing with a nine hole or you mentioned, like the six hole course configurations. Are you Is there a lot of that taking place? Are there a lot of properties like that, that are changing hands now?
Ryan Rafter
Yes, that’s that’s a great point. Because it’s, it used to be, you know, post, Tiger boom, everything would go, it went golf, right to multifamily. Like that that was that was the play, or several courses up by me on Long Island after after this boom, this revolution where the demand didn’t support the supply at that point it owners now are their number one, there’s a consolidation that’s happening. So owners are being very smart. In terms of where they’re identifying where does that demand still still exist, even though the demand from a high level across the country has elevated and continued to grow. Here there are certain areas certain pockets to your point, South Florida in the southeast being one of the probably the biggest driver where the courses are transitioning, but they’re getting a lot more creative in their use for it. So it could be, shorten the course up, add golf entertainment, add pickleball add, you know, all of these other options were there, it’s a, it’s a entertainment venue that’s being similar to retail, as opposed to, okay, we’re gonna close down this golf course and you know, use, you know, build 90 lot single family homes and sell those out. Now that is occurring in some instances depending on the market. But I don’t see it happening at the rate that it did in the mid to late 2000s.
Steve Katz
Yeah, it’s very interesting, I would, I would have thought that that would be the case. Because, you know, over the years, you have seen some of these courses simply be redeveloped as I don’t want to say necessarily tract housing, but more, you know, strictly housing oriented developments. But now, the at least the ones that I’ve seen in recent, in the past year or so that are going up to have all of these different amenities and options. And they’re just very interesting sorts of configurations. So Well, I’ll tell you what, I could talk about this stuff forever, because I love golf. And I think it’s very interesting. And I learned something today, I’m sure there’s a lot more to dig into. And I’m positive that some of our listeners are going to have some follow up questions. So for those who may want to talk to you more about this, how can they get in touch? Steve, thank you very much for giving me the opportunity to speak with you and your audience. Happy to connect with anyone who has questions or has a property they’d like to talk about. Given some of the topics that we’ve touched on here. Please feel free to email me at RRafter@HilcoGlobal.com Or give me a call on my cell at 631-514-9963. Again 631-514-9963 or you can reach me on LinkedIn at Ryan J Rafter at Hilco Global. All right Ryan, perfect. And listeners. As always, we hope that this smarter perspective podcast provided you with at least one key takeaway that you can put to good use in your business or share with a colleague or client to help make them that much more successful moving forward. And remember, you can check out more great podcasts and articles featuring timely insights from local experts like Ryan, at HilcoGlobal.com/smarter-perspectives. Until next time, hit him straight. For Hilco Global, I’m Steve Katz.
