FINDING THE RIGHT LENDER FOR a golf course property can be a challenge. Many mortgage brokers and course-owners think the lending community does not understand this kind of loan request. Frequently, that is the case.

     Many banks view golf courses as collateral assets, serving only to support residential subdivision sales. Other lenders may only have experience dealing with private-equity clubs, which have dramatically different debt needs. They cannot readily identify the nuances of course-ownership or the business of golf.

     So how do you quickly and effectively find and secure financing for a client looking to acquire, construct, expand or refinance a golf course? Working with a financial source that has previously lended on golf courses can save you the steps of educating a lender about the business of course-ownership and the associated revenue streams.

     When dealing with a lender that focuses on golf-course operations, you must present your case as both a worthy credit risk and a viable business enterprise. While specialty lenders often have the latitude to offer creative financing solutions, they still rely on credit, income and collateral practices. Focusing on the following will help you evaluate the viability of your prospect and ensure the successful financing of a golf course project.

   Credit: The borrowers and principals must have good credit. Further, the principals must have a balance sheet to support the equity investment required for the project. They also must support project operations during seasonally slower periods.

  Income:  Net operating income (NOI) must be available to support debt service on the loan. In a construction loan, projections must show that the course is expected to reach an NOI supports debt service within two years of opening. The operation's debt-service-coverage ratio should be 1.2 or more.

  Collateral: The appraised value should be the discounted value derived from cash flow operations. All revenue streams are to be accounted for, including membership deposits minus the operations and maintenance expenses. The revenue and expense items are also compared to other area courses.

     Specialists in the golf industry generally look for a loan to value of 65 percent to 70 percent. In the case of an operating golf course, this is based on a "stabilized value." In a construction loan, value is determined by market-based projections and is evaluated based on an "as completed" value.

     Making an effective presentation of your case is as important to the financing effort as the merits of the project. Borrowers should be prepared to represent the entire facility's historical financial statements and a minimum of three years of financial projections. They also must provide their past year's annual financial statement and the most recent interim statement.

     The information package should include detailed breakdowns of revenue streams including the detail of cart rentals, greens fees, membership revenue, driving-range activity, outing business, pro-shops sales and concession sales. This will help the lender identify the profit available. In addition, operating overhead and costs should be itemized on a departmental basis.
 

The best way to position a golf course-loan request is to:

  Stress income generation: Have your clients tailor the course's financial statements to a format that lenders are accustomed to seeing from operating businesses. Borrowers should link rounds-of-play revenue with the other revenue streams. Seasonal operation flows and working-capital provisions also should be addressed.

   Quantify the entire loan: Prepare a detailed statement of the funding request including loan retirements, improvements and working capital. Explain how any capital improvements and expansions will affect the bottom line. A key component of this is a detailed "sources and uses" statement. This statement itemizes all funds available for the project including debt and equity. It also itemizes the use of the funds.

  Present the organization: The course-owners should provide a brief narrative of the operation's history and their experience in the industry. Their resumes should highlight their successes in golf operations as well as those of their critical management staff. This is particularly important for clients who are acquiring a course, proposing construction or who are new to the market. They should also explain why the golf operations will be successful and how it will provide sufficient cash flow to service debt. A competitive analysis of other nearby courses is frequently helpful.

    Provide projections and obtain permits and contractors (for construction loans):  Borrowers need to spend time forecasting detailed operational and financial projections.

     Further, before seeking a lender, clients must try to obtain necessary building permits. They must also ensure that there is an available source of water to irrigate the course. They will need to present the permits to the lender early in the process and identify contractors. It is advisable to have contracts in place before seeking a loan and starting construction.

     Finding the right lender to creatively finance a golf course property does not have to be daunting. Success can be found by identifying a specialized lender with a focus on golf courses or other leisure properties and by presenting the project, the borrowers and the principals as a viable business opportunity and credit risk.

     Remember that this asset class is not just about the game of golf or the beauty of perfect greens. The evaluation of a golf course property is about the business of golf.

Scott Mannes is Managing Director of First National of America, a leading lender to golf course owners. First National may be contacted at 908-604-4700.

From Scotsman Guide Commercial Edition and www.scotsmanguide.com, June 2006. All rights reserved. Third-party reproduction for redistribution is prohibited without contractual consent from Scotsman Publishing Inc.