Ownership options

Real-estate investors and golf course owners have a new relationship. In 2002, the Internal Revenue Service expanded the definition of Tenant in Common offerings, allowing multiple owners to purchase property, not as limited partners, but as individual owners for investment purposes.

TIC offerings aid investors who recently have sold real estate and are seeking tax deferral through a like-kind exchange. And golf course owners now can manage their courses without having their own money invested in it.

Stephen Burr, an attorney with Foley & Lardner LLP, recently completed an offering at Stallion Mountain in Las Vegas. In the agreement, the course owner sold the real estate and club to the investors who lease it back to him to manage the course. The investors earn a share of the income for the course and special events while the owner agrees to pay the investors a return.

The golf boom of the early 1980s led to hard times, according to Burr. Following the Tax Reform Act (1986), there weren’t many tax incentives available in the real-estate market. There were many people trying to avoid paying added taxes and scrambling to reinvest, but there wasn’t enough real estate to go around.

“People now are able to invest in a piece of a piece of property,” Burr says.

TICs shouldn’t be seen as get-rich-quick schemes. The typical investor is in his mid 60s, has made his money in real estate and now wants to retire without having to pay the heavy taxes, according to Burr. Investors can expect an average return on investment ranging between 6 and 12 percent.

Golf course owners, on the other hand, generally can get more money out of their course than if they sold it outright. Also, whereas banks might see a course as a risk and charge high rates for a loan, TICs can offer more money at a lower cost. The owner also maintains management control of the course and often can buy it back.

Is this the future of the golf industry? Not likely, Burr says.

“I don’t know about a flood, but there’s considerable interest,” he says.

One reason for his conservative outlook is the overall value of courses involved. Those worth less than $10 million aren’t likely participants. It also has to be a course in which people would want to invest. Is it in a good location? Does it have a good history? Who’s running the course? Is there an exit strategy if the market slips further?

Burr says TICs are so new in the golf market, that nobody has a track record and it’s too early to judge the success. That said, courses and the people running them generally have long track records. This will come into play as the system evolves and expands.

Burr says he expects four or five golf courses to be involved in the process this year and perhaps that number will double next year.

For more information or to locate a broker/dealer, visit the TIC Association Web site (www.ticassoc.org).