2001: Business - U.S. firms target weakened Japanese courses courses
Sunday, November 27, 2011
By SCOTT KAUFFMAN
The economic boom that has characterized the Japanese golf course and real estate market for much of the last 30 years has hit a wall, much like the country’s overall economy.
For U.S.-based golf and financial firms, that has meant management/ownership opportunities like never before.
Two of the golf industry’s largest operators – Santa Monica-based American Golf Corp. and Scottsdale, Ariz.-based Troon Golf – are taking advantage of the depressed market by staffing new offices in Japan.
Other U.S. and foreign financial interests – Deutsche Bank, Lone Star Investment Fund and investment bank Babcock and Brown – are busy investing in the country’s estimated 2,400 courses, acquiring several select properties such as Golf Seiyo and J Club Kasumigaura in the Tokyo region, according to a July 18 article in the Financial Times.
“The reason they’re (golf and other firms) really able to do something is (Japanese) golf operators and real estate companies are bankrupt,” said Pete Williams, manager at New York-based Success Stories Media, which publishes an English-language guide to Japanese courses that welcome foreign players. “The economics of a lot of these golf clubs are out of whack.”
Williams estimated that more than half of Japan’s approximate 2,400 courses are experiencing financial difficulties with their respective lenders.
It’s a shocking contrast for a market that once generated publicly traded six- and seven-figure private golf memberships and featured green fees as high as $500. Now, many of those memberships can be bought for “five digits” and green fees have dropped as much as 50 percent,” according to Williams.
One report that underscores the intense interest in Japan’s distressed market is news that New York investment bank Goldman Sachs is in the final stages of negotiations to acquire Nitto Kogyo, one of Japan’s larger course operators.
Nitto Kogyo, which collapsed in 1997 under $2.8 billion of debt, owns 30 courses, including Oxfordshire Golf Club in the United Kingdom.
Meanwhile, back in the states, Japanese interests have been selling numerous courses.
It’s a role reversal of the 1980s, when Japanese companies rushed to buy U.S. and European courses, such as Pebble Beach Golf Links.
“It’s really fertile ground for everything,” said Troon chief executive Dana Garmany, whose company earlier in the year acquired its first Japanese contract at Oak Village Golf Club in Chiba. “Seven or 10 years ago, everything was being valued on escalating real estate.
“Today, they’re making the hard shift to valuing property on cash flow, which for years is the way it’s been done in the U.S.”
Garmany’s firm has had a staff in Tokyo monitoring the market for 30 months. Today, that office staff has grown to 12.
“All of this is part of our global expansion,” Garmany said. “We’re obviously making a big play there long-term. . . . We’ll end this year with 6-10 courses under management. Obviously, Japan is an expensive place so you need more than 6-10 to make any money.”
Last month, American Golf, the world’s largest operator with more than 320 courses in its portfolio, entered the Japanese market for the first time by securing the day-to-day operations of Aso Kanko Kaihatsu’s Aso Country Club in the northeast Tokyo prefecture of Ibaragi.
The deal follows the American Golf opening of its first office in Tokyo under the auspices of wholly owned subsidiary American Golf Japan.
American Golf expects to add 30-50 courses to its Japanese portfolio during the next five years.
“The Japanese golf industry has entered a new era – the era of professional golf management,” said Takashi Akeboshi, general manager/strategic assets management department for Kanematsu, the parent company of Aso Kanko Kaihatsu.
“We are confident that American Golf’s proven management capabilities and unparalleled operating strategies will greatly improve both the golf experience for Aso Country Club’s members and guests, as well as the club’s financial performance.”
Though the market is depressed, Garmany sees a bright future.
“The ratios over there are terrific,” Garmany said. “Here, there’s 25-26 million golfers for 16,000 courses. There, you have 16 million golfers for 2,400 courses.
“It’s the second biggest golf economy in the world. Even though the spending levels are down, and the play is somewhat down, we believe over the long term, it will remain the second largest.”