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Executive Summary
Company. Coral Hospitality Industry. Hospitality Key. Golf courses can be profitable if well managed.

Golf courses have been among the most unloved real estate investments in the last decade.

It's easy to understand why: Courses are expensive to maintain, adverse weather can wreak havoc on the business and the food operation can be a costly drag. Plus, the recession forced many golfers to bag their clubs.

But a group of investors led by hotel-management experts at Coral Hospitality plans to spend $150 million to buy and operate golf courses from Tampa to Naples.

“For most investors it doesn't make sense,” acknowledges Lee Weeks, CEO of Naples-based Coral Hospitality. “Golf clubs have gotten such a bad name.”

The firm recently acquired Rosedale Golf and Country Club in east Manatee County and says it has more properties in various stages of contract. Terms of the deal for Rosedale and the names of the other properties were not disclosed.

“We have a formula,” says Weeks. “We probably look at 100 golf courses and choose one.”

Weeks seeks out courses that are financially underperforming, he invests in the course and improves the management by bringing in hospitality expertise. He says annualized returns can top 25% by the time investors are repaid after three or four years.

What's more, few developers are building golf courses today, creating an economic moat in some areas. “It's almost cost-prohibitive to build a golf course,” Weeks says.

Finding the fairway
Coral Hospitality looks for courses that offer opportunities for growth where it can add more golfers, social members and be located near schools with golf teams. “We like it when it's been mismanaged,” Weeks says.

When it acquires an underperforming course, Coral brings its hotel expertise to bear. For example, Coral plans to institute tee-time pricing that adjusts according to demand, much like hotel rooms that cost less during the off-season or certain days of the week.

The food-and-beverage operation inside the clubhouse offers opportunities, too. Because of Coral's hotel and resort management, it can purchase supplies at better cost and boost clubhouse revenues from catered events.

“Having a portfolio of golf courses affords you some economies of scale,” says Paul Metzler, senior director of research and global relations at PGA of America. That goes beyond the clubhouse to such things as fertilizer and equipment to maintain the grass.

Since Weeks and Founding Partner John Ayres started Coral in 1988, the company has managed hotels and resorts for institutional investors such as the state of Georgia, Credit Suisse and Starwood Capital Group. Its most high-profile property is the new Jimmy Buffett-inspired Margaritaville Hollywood Beach Resort on the east coast.

When it buys a course, Coral Hospitality invests $500,000 to $1 million in renovations. That generates goodwill with current members, who don't get hit with big increases in golf fees.

To boost revenues, Coral attracts non-golfers who pay social dues to belong to the club and non-member golfers to play. The clubs also try to attract younger players by hosting high school golf teams. “It's more about dues and bringing outside play,” Weeks says.

Shrewd buyers
Weeks says golf courses often aren't listed for sale because the developer or owner doesn't want to upset members. “A lot of times they're off-market,” Weeks says.

Developers who built golf courses to sell residential real estate may want to cash out if a community's residents don't want to take over a club. “We're a developer's good friend,” says Weeks.

In some cases during the boom, developers sold expensive initiation fees to new residents with the promise to repay them in the future. If residents agree to a buyout by Coral Hospitality, the developer's liability is eliminated.

Each deal is different and valuations are determined by the returns Coral can achieve. Weeks says a golf club it acquires generates little return the first year, but it starts generating income for investors in the second year. By the third or fourth year, Coral expects to boost revenues to the point where it can obtain conventional financing to repay investors, who might reinvest in another acquisition.

“We're turnaround specialists,” Weeks says.

Out of the trap
Players are hitting the links again.

From Tampa to Naples, data from PGA PerformanceTrak, in cooperation with the National Golf Course Owners Association, shows a net improvement in all areas of golf operations, from the greens to the pro shop.

The recession hit the golf industry hard from 2007 to 2010 when people kept their clubs in the closet. But when the economy rebounded on the Gulf Coast and elsewhere, golfers came out to play, bought new equipment and spent more on food and beverage in the clubs.

“We've been happy to see that,” says Paul Metzler, senior director of research and global relations for PGA of America.

The recovery has been most significant in the Fort Myers and Naples areas, which reported a cumulative growth in golf rounds of 13.6% and 14.9%, respectively, from 2010 to 2014. In Naples, golf facilities have posted four consecutive years of golf-fee revenue growth with revenues up 24% from their lows in 2010, Metzler's research shows.

This summer's exceptionally heavy rains put a damper on an otherwise sunny outlook for golf in Southwest Florida. For the year-to-date through August, the number of rounds played per day open grew from 2% to 5.3% from Tampa to Naples compared with the first eight months in 2014.

The data could have been even better. “What you don't see in this information is having a bad-weather day on Saturday and Sunday,” says Metzler.

Nationally, revenues at pro shops have rebounded even faster because consumers are replacing aging equipment (see chart, right). “People put off the decision to purchase equipment,” Metzler says.

The recession forced golf course operators to boost food and beverage operations to make up for shortfalls in golf rounds. “They're spending a lot of time focusing on ancillary revenues,” Metzler says.

Meanwhile, the PGA has been promoting the game to younger players with a junior league. In addition, it also has developed a program called Get Golf Ready to encourage non-golfers to try the game with a series of lessons for $99. Women have been particularly receptive. “Traditionally, that's an underserved market for golf,” Metzler says.