Hole in one

In the film Caddyshack, Rodney Dangerfield's character comments, “Country clubs and cemeteries are the biggest wastes of prime real estate.” That might have been true in the leafy environs of the fictional Bushwood Country Club, but for a few private equity firms, distressed Japanese golf courses became very lucrative investments. John Grayken's Lone Star Funds, which made a name investing in distressed assets throughout Asia, hit an ace with Pacific Golf Management, a roll-up of Japanese golf courses that the firm recently took public with a valuation of more than ¥36.4 billion (€250 million; $317 million).

As golf increased in popularity in the Far East, all types of courses were built throughout Japan—perhaps not surprising since an estimated one in ten Japanese play the game. But in addition to being world-class golf courses, the assets were also saddled with debt, something that became troublesome when the economy went south. Enter private equity real estate firms, which were eager to pick up the distressed assets for a song.

Lone Star's golf platform started back in 2001, when the firm began acquiring the bankrupt and distressed courses. Under new management, Lone Star slashed green fees at the club and improved the menus at course restaurants. By 2005, Pacific operated 92 courses throughout Japan. The company's holdings included the Prestige Country Golf Club in Tochigi, north of Tokyo, which is considered one of the finest courses in the country. It also owns the Miho Golf Club, which was host to the Konica Minolta Cup in 1998.

As Japan's economy has rebounded—with land values bouncing back from historical lows—Lone Star sold a share of its investment late last year via a pubic offering. But while Lone Star might have beat others to an IPO, it is not alone. Goldman Sachs has built its Accordia Golf into to the second largest golf franchise in Japan and is also reportedly eyeing a listing.