Finance face off between owners and banks

Thousands of golf course owners with loans coming due face the harsh reality of today’s lending market, where tough financing terms add tremendous stress to an already strained golf market. As a result, many owners who could have serviced their debt under yesterday’s terms are struggling to get their businesses to pencil out when negotiating a new loan. As a result, deals that were once healthy on paper look toxic today.
“It’s the biggest problem facing the industry,” says one multi-course owner. “As it sits today, we don’t see any way out of this.”
The owner, who asked not to be identified, feels the pressure in his own portfolio. In one scenario, he has a $7 million loan on a course that appraised for $10 million several years ago based on $1 million in stabilized historical EBIDTA. Today, he is told the course that once appraised at 10 times EBITDA would be valued between 5 and 7 times and couldn’t get better than a 50 percent loan-to-value ratio on a refinance. To make matters worse, EBITDA on the course dropped by nearly one-third during the recession.
“[The course is] servicing its debt under existing terms, but you do the math on a new deal and there’s no way to make it work,” he said.
The extent of the problem grows every day. Given the slow pace of economic recovery nationwide, a large portion of golf course loans have reached the end of their terms and many more will mature before the industry sees significant improvement. Although some courses are financed through long-term deals, many owners took out “bullet” loans with five-to-seven-year terms, after which the principal — and possibly interest — would be due.
But finding replacement debt is a near-impossibility for many owners. Even if debt is available, the terms are too onerous, says a former executive with a golf course lender.
“If you take conservative traditional underwriting standards, I’d estimate that 90 percent or more of properties have more debt than they could underwrite with the cash flow they have today,” he said.
Some owners have found solutions, but not without feeling some pain first.
“We see local banks and national lenders working with borrowers to roll a loan over or to modify a loan if the property is well managed,” said Matthew Galvin, executive vice president and principal at RDC Group. “But there’s no free lunch. Banks need to see that management is heading in the right direction and in some cases they want a commitment to pay down the loan or other signs that the owner will stand behind that property.”
RDC Group recently restructured one golf course deal, paying down one-third of the loan in exchange for extended terms and a better interest rate.
For the complete story visit the digital version of Golf Inc. magazine. 

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