In 2022, the prestigious Jack Nicklaus Golf Club in Songdo, Incheon, was acquired by the POSCO Group. The selling price was 16 billion won per hole. It was the highest price ever for a golf course transaction in South Korea.
The time of soaring golf course prices has quickly passed, and now the industry is saying, "The era of 10 billion won is over." It is a somewhat pessimistic outlook that the value of golf courses has already declined from its peak and that the overall golf market is expected to trend down.
ChosunBiz recently met with Executive Director Seo Kwang-deok, who leads the golf course advisory team at Samjeong KPMG, and asked whether this perception was correct. Seo concluded, "Not necessarily."
The Samjeong golf course advisory team consists of Executive Director Seo, a real estate expert who has worked with SK Networks, Director Kim Hyung-joo, and Manager Park Chang-hyun, who specializes in golf course mapping. They have advised on transactions related to South Springs, Anseong Luna Hills Country Club, and Yongpyong Alpensia Golf Resort. The following is a Q&A with Executive Director Seo.
─Is there a recent trend of golf courses being listed for sale?
"Transaction activity has steadily occurred every year. At times, the number can increase to 10 transactions, but looking at the trend over the past few years, it has remained stable at around 5 transactions per year.
Golf courses that were acquired by private equity (PE) firms 4 to 5 years ago are mainly coming onto the market. This is because funds have a set operating period. Therefore, over the past few years, golf courses held by PE firms have consistently been available on the market, and it is highly likely that a similar pattern will continue in the future.
─It seems that golf courses owned by corporations do not frequently come onto the market.
"Golf courses are among the assets where the owner's preferences and intentions are most reflected. Therefore, sales do not often occur. Unless a corporation like Taeyoung Group has to sell a golf course for strategic management reasons, it is not easy for them to come onto the market. Even Taeyoung's situation cannot be regarded as a complete sale. They conducted a transaction similar to "setting a leasehold" rather than an outright sale, with the condition that they would return within five years.
In particular, golf courses in the metropolitan area are even more difficult to list for sale. Overall, the number of listings on the market is limited, and the situation of having low supply compared to demand continues.
─The value of golf courses probably hasn't fallen much, has it?
"Pactum Private Equity acquired Pagani CC in Chuncheon, Gangwon Province, for 95 billion won in 2019, but now the price has risen to around 150 billion won. There is significant interest from buyers.
Public golf courses in the metropolitan area, located about an hour to an hour and ten minutes by car from Gangnam, Seoul (when there is no traffic), are currently valued at 8 billion to 9 billion won per hole. To the south of Seoul, this includes regions like Anseong in Gyeonggi Province; to the west, Incheon; to the north, Goyang; and to the east, Nam Chuncheon. As you move further out, the price per hole tends to drop by about 1 billion to 2 billion won.
─Since when has the 'per hole price' of golf courses become important?
"It is very intuitive and easy to understand, but it is also too simplistic an evaluation method. Even if a course is acquired for 8 billion won per hole, the subsequent reinvestment costs for grass restoration, clubhouse renovations, and other expenses vary greatly. When ownership changes, there are often cases where the facilities need to be upgraded, and if you include these aspects, the actual acquisition cost increases significantly.
For example, even if a broker suggests, "This golf course is worth 8 billion won per hole, so consider purchasing it," when you actually conduct due diligence, the necessary additional costs often surge, causing the per hole acquisition cost to rise to 9 billion to 10 billion won.
─Are there still cases of converting member-only golf courses to public courses like in the past?
"In the past, there were movements to convert member-only golf courses to public courses, but recently such cases have become rare. Membership prices continue to rise, so there is no pressing need to convert to public courses.
Up until a few years ago, there were considerations to receive tax benefits or improve operational efficiency through conversion to public courses, but now even member-only golf courses are accommodating a certain number of non-member users to supplement their revenue. The reservation rate has increased compared to the past.
For example, members pay between 80,000 and 100,000 won per round, while non-members must pay between 330,000 and 350,000 won for the same round. By maintaining revenue in this manner, it has become a situation where there is no need to give up membership.
─What value-up strategies are there to increase the value of golf courses?
"First, value-up through operational efficiency is possible. For instance, companies like GOLFZON and MegaStudy are employing strategies to improve operational methods and raise their operating profit margin from the previous 50% to 60%. The key is to maximize existing operational revenue.
Utilizing idle land for development is also a good value-up strategy. Additional businesses can be conducted by building logistics warehouses or golf resorts and condos on golf course premises. However, recently, such development strategies have become challenging due to permitting issues."
─Why is permitting difficult?
"The government still tends to regard golf courses as luxury consumption items. The approval process from the Ministry of Culture, Sports and Tourism is stringent, and there are many complaints from local residents. In particular, to expand golf courses in the metropolitan area, environmental impact assessments must be addressed, and this process is very complex and time-consuming. It is essential for golf course investors to not only secure the land but also thoroughly assess whether actual permits can be obtained before deciding to invest."
─Are many golf courses entering recovery procedures?
"Volcano CC in Jeju is currently undergoing a recovery procedure. It was formerly known as Lakeside Jeju. The recovery process for golf courses shares some similarities with general corporate recovery procedures but is much more complex due to issues related to memberships.
First, it is necessary to analyze the golf course's financial situation in detail in collaboration with recovery-specialized lawyers and accounting experts, and then there needs to be a restructuring of existing memberships. Memberships must be organized at discounted prices, and a process of obtaining consent from members is essential. Creditor adjustments are also necessary. The process involves adjusting overall debts through the court, and if this process is not smooth, the deal may not go through.
Currently, Eden Valley CC, which we are managing the sale of, is also in the process of recovery. Initially, the sale was to be conducted through a stalking horse (a method of selecting a buyer in advance during the recovery process to fix the price), but the membership organization issues and creditor adjustments became more complex than anticipated, resulting in delays in the deal."
─Until the first half of last year, there were Korean companies investing in or considering investments in Japanese golf courses. What is the current situation?
"Originally, Japanese golf courses were generally sold at low prices, but as Korean investors increased their purchases, the market became active, and prices rose. A golf course that could have been bought for 10 billion won is now costing between 15 billion and 20 billion won. With the surge in purchases by Korean investors raising the prices of Japanese golf courses dramatically, local discussions have even arisen that "Koreans have ruined the Japanese golf course market." However, the situation has changed a lot now. Transactions have significantly decreased. It seems to be due to the sharp rise in prices."
─I hear that transactions of golf courses in the form of leases are increasing.
"Yes. In the past, it was common to own and operate golf courses directly, but recently there has been a trend towards entrusted or leased operations. The golf course operation market is becoming more specialized, and existing companies that managed grass are also expanding their businesses into entrusted operations.
─Golf courses located west of Seoul seem to be relatively undervalued compared to those in the southeast. What is the reason for this, and how can we increase the value of these courses?
"There are golf courses in the west that boast excellent facilities and accessibility. However, it is true that overall, they are less popular compared to southern or eastern regions.
I believe climate plays a significant role. Being relatively close to the sea means stronger winds and more severe weather fluctuations. Additionally, while the eastern regions have many mountainous terrains that make it easy to create golf courses naturally, the western areas have wetlands that can complicate drainage.
To increase the value of these courses, a differentiated operating strategy is needed. Rather than merely expanding the course, developing into resort-style golf courses or differentiating membership operations could be effective. Some golf courses in Songdo, Incheon, are implementing a differentiation strategy by offering premium services aimed at business clients. Establishing a strategy targeting specific customer groups is essential to securing competitiveness.
─What makes Samjeong strong in the golf course M&A institutional sector?
"We operate a specialized M&A team for golf courses and have extensive deal experience. We also actively leverage our network with accounting firms, tax consulting, funds, and corporate clients. Our strength lies not only in managing sales but also in providing consulting for operational efficiency, improving entrusted operation structures, and advising on asset management for pension funds and mutual funds."