US BANKER - USB NEWS Industry

IS THERE GREEN IN GOLF COURSES?

Led by young stars like Tiger Woods and David Duval, golf is booming.  Golf marketing is everywhere, and baby boomers and women are taking the game to new levels of participation.  With affluent golfers spending money like water, lending to golf courses should be a slam dunk for banks, right?

Not quite, says one long-time lender in the business, Jerry Sager, president and CEO of First National of America Inc. of Martinsville, N.J.  Sager, who has been doing golf course deals for 20 years, beginning as an investment banker, pours a little cold water on the perceptions of skyrocketing growth.  The actual number of courses he says, has gone from 13,000 15 years ago to 16,000 today, and the number of participants has risen from 24 million to 26 million in that time -- hardly an explosion.

Sager's company is a golf course lending specialist, making fixed - and floating - rate loans to individual properties "that are not development-related.  It's a business loan to a cash-flowing enterprise," he says -- not a speculative land loan.  First National treats golf courses as an "asset class" that it understands thoroughly, recently adding private-equity country clubs as a target market; bank lenders have tended to shun such clubs because of complex legal issues involving hundreds of "member/owners."

At relatively conservative multiples, average 65% to 75% loan-to-value and 125% to 135% of debt coverage, "these aren't risky loans," Sager says.  Most carry 10-year terms; the average life is about eight years when sales and refinancing are factored in.  First National avoids "trophy" properties and specializes in fixed-rate loans made at about 300 basis points over 10-year Treasuries.  The company loaned slightly more than $300 million last year, most of it in refinancing, or about 10% of the national market, Sager says.

FNA can compete with banks in the golf market because bankers tend to put in too many restrictive covenants -- like preventing owners from taking cash out of the operating income -- or make ill-advised loans based on relationships with friends or top customers, Sager argues.  He mentions Fleet Financial Group, Summit Bankcorp and SouthTrust Corp. as banks with some presence, adding that Nations Golf and Recreational Finance - a unit of NationsCredit, now part BankAmerica Corp. -- has been an active lender lately.

FNA has made loans in virtually every state, and generally holds and services them.  Sager admits "First National" sounds like a bank, but says the company had a brand presence when he and his partners acquired  it in 1994.  They elected not to change it, he says, adding that there are no plans to expand into other banking businesses.