Financing
Securing financing for new golf course development on terms that are acceptable to a developer is one of the biggest challenges of building a new facility. Without necessary funding and the proper investment, there are likely to be significant risks to complete a new golf course development. The goal is to understand these challenges and address them early in the process. The ability to overcome the obstacles to getting funding for a project will depend on many of the other steps being successfully resolved as described below:
Site Selection – The site for the golf development must be suitable for the development of the project, both for golf and any other proposed uses. The location, physical features and other elements of the land have to satisfy the lender as meeting their criteria for lending.
Feasibility – The market feasibility study must support the demand for a new golf facility and this report of feasibility should be prepared by a reputable third-party with high credibility in the golf industry.
Master Plan – A master plan that creatively uses the assets of the land and has the proper relationships between all the proposed uses such that high value for golf and real estate are generated is a must.
Permits & Approvals – Most financing terms will require all permits and other governmental approvals to be in hand before they will finalize any long-term construction loan.
Operations & Management – It is important for the lender to know that someone with successful golf management experience will operate the facility for which they are lending money.
Financial Strength of the Developer – This is probably one of the requirements that should be given priority at the beginning of any new golf course development. A significant amount of up-front capital will be required before the developer will be able to get the construction loan, the developer must realize the cash needs of the project he will have to provide personally. Typically, the developer of a new course will have to be prepared to cover the cost of down payments for the property, planning and design costs, hiring of consultants for environmental surveys, preparation of market feasibility studies, costs of acquiring permits and approvals and other expenses before getting permanent financing. In addition, most lenders will expect the developer to have a significant percentage of their own money in the deal and will only loan 60% – 80% of the total costs.
Type of Financing Available
Financing is needed for four key components:
- Land acquisition
- Pre-construction costs – Hiring consultants (market appraisers, environmental consultants, engineers, golf architect, land planner, attorney for zoning and permitting work and others) will be required to be retained before the loan for building the course can be finalized.
- Construction, grow-in and start-up costs
- Construction and purchase of ancillary items such as clubhouse, maintenance facility, on-course restrooms, maintenance equipment, course furnishings and other necessary items.
Of the four major financing components listed above, the 2nd item (pre-construction costs) is the most difficult to finance. The costs to go from project inception to having all the necessary work done that will meet lending requirements is very hard to determine because of the uncertainty of acquiring permits and approvals. Funding for this part of a project is generally done by the developer, either out-of-pocket or by sale of shares in the project to investors. These funds for pre-construction costs are high-risk loans as the money may be spent and key approvals may not be granted.
There are many ways in which the necessary capital can be generated for land acquisition and construction financing. Some of the more popular include:
- Traditional bank lending
- Bond funding
- Installment purchase contracts
- Enterprise funds
- Lease agreements
- Real estate development agreements
The details of financing a golf course are complex and specific to each project and developer. It is highly recommended by ASGCA members that the advice of financial consultants and other golf developers be obtained early in the process to help guide the project in the right direction.