Industry expert Keith Cubba, Senior Vice President and National Director of Golf at Colliers International, argues that investors are significantly overestimating the risk in today’s golf course market, creating potential opportunities for informed buyers.
The Risk-Return Disconnect
“The risk in golf course assets has come down,” Cubba says, pointing to a dramatic compression in risk premiums that hasn’t been fully recognized by the market. While golf course cap rates have traditionally commanded enormous premiums of 16-17% compared to 6% for office properties, Cubba notes that spread has narrowed but remains disproportionate to actual risk levels.
“Golf course cap rates have come down a little bit, but they still end up being 12 or 13 percent,” Cubba explains. “But office and other commercial, core commercial assets are seven now. The spread between the two is not commensurate to the risk.”
Market Evolution Driving Risk Reduction
According to Cubba, several key factors have fundamentally altered the risk profile of golf course investments:
- Natural Market Cleansing: “The courses that were in areas that couldn’t make it because of the population or the demographics, they’re gone,” Cubba says. “They were converted to an alternative use, or they just closed.” This consolidation has left a stronger pool of remaining assets.
- Demographic Tailwinds: “We were gaining 28 to 45 year olds, unbeknownst to the industry,” Cubba notes, highlighting previously overlooked positive demographic trends.
- New Industry Catalysts: “TopGolf has been a feeder for newer players into the game,” Cubba observes, describing how entertainment venues are creating new pathways into traditional golf.
Current Market Dynamics
While Cubba characterizes today’s environment as a ‘seller’s market’, he emphasizes this stems more from limited inventory than aggressive pricing. “It’s not a seller’s market in the sense that there’s such an incredibly high premium being paid,” he explains. “It’s a seller’s market in that there aren’t a lot of assets out there.”
The main constraint on even stronger market activity, according to Cubba, is debt availability. “It’s still hard on golf to get more than 50% leverage. Maybe you can get 60%, you need a personal guarantee,” he says. However, he sees signs of improvement: “A lot of banks still aren’t doing it, but it’s changing a little bit, and they’re starting to loosen up because they see the risk is lower.”
Looking Ahead
While the buyer pool for golf courses remains smaller than for traditional commercial real estate, Cubba notes it’s “deeper than it’s ever been in the past.” This expanding investor interest, combined with limited supply and improving debt markets, suggests the golf course investment landscape may continue evolving.
For investors able to recognize this risk-return disconnect and navigate the specialized nature of golf course operations, Cubba suggests current market conditions could present compelling opportunities, particularly given the persistent gap between perceived and actual risk in the sector.
