Mar OtR XS: Transaction prices falling but not all sectors suffer
Volume 17 • Number 3
2017 Sales Transactions Review Reinforces
"Economic Gravity" Inevitability
Leisure Investment Properties Group (LIPG) recently released their 2017 Investment Report which covers a range of topics related to golf investment of which the annual segment on Sales Activity is of particular to an analyst like me. The overall report starts with industry macro factors (citing elements from Pellucid's annual State of the Industry for Utilization, Playable Days and Supply Change) and works its way down to the quantity, mix and valuations for a universe of annual transactions for which they have knowledge and ranging from 6-figure transactions on the lower end to the occasional 9-figure transaction on the high end.
In the midst of that, they provide some guidance on the overall direction of golf transactions with the clear understanding that they're in the business of making transactions happen so it's more often than not the "glass half-full" perspective on what's changing hands and whether it's trending up or down. As is my habit, I'm interested in taking apart the easy, summary answer and trying to figure out what the undercurrents are and the slightly more nuanced analysis and interpretation of the numbers.
So, with their permission, in this issue we'll look at the historical timeseries from '06-'17 at the summary level (all transactions they tracked) as well as breaking down the '16-'17 results by the Sale Price into 5 subgroups and focusing on the Median Sale Price metric:
- Using Median Price as the cardinal metric, that value has decreased by 66% from '06 to '17 on the transactions tracked by LIPG. Slightly more encouraging is the fact that the 5-yr trailing Median Sale price has only declined 23%. As I'll outline in the discussion section, this can be heavily affected by changes in the price range mix on the market annually (which is why we prefer the Median vs. Average metric) but, even after factoring that in, it's still not a pretty picture.
- Looking at the most recent year comparison to prior year ('17 to '16) the picture isn't any more encouraging as LIPG shows a 34% decline in their National Golf Course Sales History summary timeseries table. Within that universe, the core $1M-$10M tranche is "only" down 11%. Breaking that down 1 level further into 3 price ranges within that tranche shows that the weakness is concentrated in a few price ranges vs. being uniformly distributed across high and low-priced facilities (hint, if you're selling something above $2.5M the figures are more favorable). We also take a look at the change by facility types (Private, Public, Resort) and, again, see that the pain isn't uniformly spread across these groups (hint, Public was relatively unscathed).
- As LIPG points out however, the current market appears to be "picked over," interest rates are rising and the gap between sellers' expectations and buyers' appetite remains significant and someone's going to have to give in '18 and beyond for any meaningful uptick in either the volume or values of golf course transactions.
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