Are Golf Courses a Potential Gold Mine for Housing Development?

Golf courses may be a potential gold mine for housing development. Assuming that developers can get around potential deed restrictions, these large pieces of land could be potential fodder for new housing construction. The State of California is experiencing an extreme housing shortage—and an affordability crisis—as a result, there has been a new trend of developers redeveloping whole golf courses or portions of golf courses into residential housing. Golf courses, which are operating businesses, are often sold at a discount to development land sites.

“One of the bigger trends we are seeing is the repurposing of golf courses,” Jeff Woolson, EVP and managing director of golf and resort properties at CBRE, tells GlobeSt.com. “The golf industry got way overbuilt in the 2000s. Developers were building more than a golf course a year for 10 or 15 years, and they weren’t building them because they thought it would successful. They were building the golf course as an amenity for residential community. That really cannibalized the existing golf courses because the sport has not expanded, yet the number of golf courses grew dramatically. Now, it is just the opposite. There are more golf courses closing a year for the last several years than opening, and developers are trying to repurpose a lot of the golf courses that are closing. That is a huge trend right now in the business.”

Private equity capital has been particularly active in redeveloping golf courses as a way to monetize portions of the land and create more value. “Part of their strategy is to look at the golf course and find ways to monetize parts of the property,” says Woolson. “They may not be able to completely repurpose or redevelop the property, but a lot of golf courses have small pieces of real estate that can be monetized. That might mean taking out a driving range and putting condos on the property or rerouting a hole to put three or four homes on the property. That could give you $3 million or $4 million in value.”

The trend is really only available to deep pocketed capital that understands the golf business. Golf courses are often on deed restricted land, and that is a major development challenge. “As a development opportunity, that real estate is probably worth twice what it sold for as a golf course, but you have to find golf courses that you can convert and it is very hard,” says Woolson. “Some older golf courses don’t have any zoning, so you have to find out if the golf course is deed restricted or if it is part of open space and density balance.” Some golf courses in San Diego have successfully been converted, like Carmel Ranch and Carmel Highlands.

Some more aggressive developers have forced the cities into lifting the restrictions by shutting down the golf course and creating a community eyesore. “To get around the deed restriction, some ruthless developers are buying these properties and shutting them down,” explains Woolson. “That has happened at the Stoneridge Country Club in Escondido. The developer creates so much pain in the community, and when they go to the city and pitch a redevelopment, the city is happy to approve a redevelopment they previously would have never considered.” This strategy, however, won’t work everywhere. “Some areas won’t get redeveloped at all. Orange County and some areas of San Diego wouldn’t get redeveloped no matter what the developer did,” adds Woolson.

Golf courses could be a major win for the housing crisis by providing a more affordable land option to developers, but it wouldn’t solve every problem. “A lot of the housing crunch is because of labor,” says Woolson. “If you can take one part of the equation, which is the price of land, and lower it, it does help.”