Putting for dough

With the recent opening of one of the world’s most expensive golf courses across the river from Manhattan, private equity and real estate investors are actively targeting golf properties in the UK and beyond. By Paul Fruchbom.

Last month, on July 4, while fireworks soared over the Statue of Liberty in New York Harbor to celebrate American independence, well-heeled golf aficionados nearby were celebrating a milestone of a different sort: the official opening of Liberty National, one of the most expensive golf courses ever built.

Set on the New Jersey banks of the Hudson River, just across the river from Wall Street and within spitting distance of Lady Liberty herself, the course reportedly cost approximately $130 million (€100 million) to build with another $20 million expected for the clubhouse. Financed by Reebok mogul Paul Fireman, the exclusive club, where the $400,000 membership is by invitation only, has already reached its quota of 50 members for the year. Membership will eventually top out at 250 golfers. No doubt a few titans of the private equity industry may make the cut.

In addition to playing on golf courses, private equity firms have historically been attracted to owning them as well. In Japan, Lone Star and Goldman Sachs have both built up substantial golf portfolios, which they acquired in the wake of the country’s economic crisis. Pacific Golf, the Lone Star portfolio company, went public last year, while Goldman’s Accordia Golf is expected to float on the Japanese market sometime this year.

In the US, KKR, via its affiliate KSL Recreation, built up one of the largest golf operators in the country during the 1990s, which it sold to Apollo at the end of the decade. (KKR co-founder George Roberts also owns an exclusive 100-member golf course, along with brokerage tycoon Charles Schwab, in Hawaii). And not far from Liberty National, another recently opened golf course on the New Jersey waterfront, Bayonne Golf Club, was partially financed by Cherokee Investment Partners, a private equity real estate firm focused on environmentally contaminated properties. (Both Liberty National and Bayonne required extensive environmental remediation.)

Trump: drives for show

Though private equity interest in European golf courses has not been as widespread, over the past several months things seem to be changing, particularly in the UK. In late June, London-based private equity firm Permira made an unsuccessful bid for hotel company De Vere, which owns the Belfry golf course, four-time host of the Ryder Cup tournament. That same month, Apollo Real Estate Advisors acquired the St. Andrews Bay Golf Resort & Spa in Scotland, which is not only located less than two miles away from the world-renown Old Course at St. Andrews, but which also comes with two 18-hole golf courses of its own. In fact, while visiting the Old Course itself several months ago, golf aficionado and real estate investor Donald Trump announced plans to build a $500 million golf resort twelve miles north of Aberdeen on Scotland’s northeast coast.

As many of these recent transactions highlight, private equity firms (and TV personalities) are not necessarily focused on the cash flows of the golf business itself, but rather on the secondary real estate opportunities that the courses offer. Hotels, condominiums, restaurants and retail opportunities are some of the ways in which investors are looking to boost the profile (and cash flow) of their fairways. At Liberty National, for example, the golf course is expected to lose money while a series of nearby condominium towers are projected to turn a tidy profit.

Private equity investors, who presumably have higher return thresholds than sneaker tycoons, are perhaps hoping to reap more than just a nice return. After all, mega-yachts, European castles, a Gulfstream? Wouldn’t you rather just own your own golf course?