Ideally, the capitalization rate to be applied to value a golf course property arises from analysis of golf course sales within the surrounding economic area.  In reality, golf course sales occur infrequently and therefore the assessor has to go beyond their area for sales of comparable golf courses.  Establishing contacts with other assessment departments throughout the province is strongly recommended.  Sales from other areas can be analyzed and adjusted to provide reliable capitalization rate indicators.

If sufficient sales are found, the sales can be analyzed to establish economic capitalization rates.  It is important to follow the same process used to determine the net income of the comparable sales when valuing the properties.  This is the most fundamental procedure that ensures consistent valuations.

The basic premise followed when analyzing a golf course sale is identical to most other commercial properties:

CAP RATE = NET OPERATING INCOME / PROPERTY VALUE

 When current sales are not available for analysis, the assessor can use their expertise and knowledge from other income producing property types to adjust and review the capitalization rate applicable to golf courses.  The rates indicated by other properties that have transacted within a similar investment range, i.e. $3 million to $8 million, can be adjusted to reflect their risk level in comparison to a golf course.  From an investment point of view, the more similar the characteristics of the associated income stream are (i.e., frequency of payment, potential for growth, and risks associated with the income), the more comparable the investment and the more comparable the capitalization rate.

Where golf course sales information is unavailable, golf course capitalization rates are often established in comparison to mortgage rates and a combination of mortgage and equity rates.  However, this and other methods of establishing capitalization rates should be contemplated only when appropriate sales data is not available or as a check on the results of the sales analysis.

A sample of a golf course sale analysis, in which the capitalization rate is determined, is included in the Addenda of this guide.