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Investors take swings at unusual property niches and expect home runs.

Real estate professionals are playing a whole new ballgame by investing in such unique properties as golf courses and "death-care" facilities. With the growing need for developing or redeveloping such properties, many think that these investments will result in a grand slam.

Opportunistic investors are looking to generate higher-than-average returns through some unusual real estate ventures. Even death can be a rewarding experience for some.

Real estate is one of the many asset classes to benefit from the ubiquitous return of capital to the U.S. economy. Just as liquidity has fueled the unprecedented rise of stock prices, it also has put a premium on real estate, an industry in which little new supply has been added in five years. And, just as some stock market players with high-risk thresholds are investing in new companies with little or no cashflow history, opportunistic real estate investors are looking for unproven, high-growth property sectors to find this industry's version of Netscape -- the previously unknown computer company that produces leading Internet browser software and is a Wall Street darling, sporting a share price that's five times its opening call.

"There's a tremendous amount of capital that's willing to commit to real estate, but some of the capital has pretty stringent return requirements," says Michelle Roschelle, a partner in the New York office of Coopers & Lybrand Real Estate Practice. "Capital has tried to gravitate to non-traditional real estate because returns are higher."

Golf course communities and resorts, manufactured homes, environmentally contaminated sites and funeral homes and cemeteries are sectors that investors believe will create value and generate returns of 20% or more.

Even funeral homes and cemeteries, or so-called "death-care" facilities, are a lively sector. With high barriers of entry and steady demand for funeral services, deathcare facilities will continue to generate revenue and attract investor attention. New York-based Nomura Securities International recently completed a private placement for an undisclosed service provider, while owner-operators like Lufkin, Texas-based Equity Corp. International and Houston-based Services Corp. International continue to buy funeral homes and cemeteries to cash in on the enduring industry.

"There's amazing opportunity in death care because it is very fragmented, and there are sufficient barriers to entry," says Susan R. Little, an analyst with Raymond James & Associates, a St. Petersburg, Fla.-based investment banking firm. She says the industry is healthy because it's recession resistant, and death rates are expected to rise as baby boomers begin to pass the half-century mark.

The performance of the four publicly traded death-care firms is impressive, recording annual earnings-per-share growth of 20% in recent years. With the six largest death-care companies owning less than 20% of the 27,000 funeral homes and cemeteries in the United States, there is ample acquisition potential and significant opportunity to add value to facilities that typically are family owned and operated.

Equity Corp., the fourth-largest publicly traded death-care company, acquired 27 funeral homes and 13 cemeteries last year. In the process, it boosted revenues 60% to $23 million and income 73% to $4.7 million compared to the previous year. This spring, the firm raised $73 million in a secondary offering. The proceeds will pay off all of the firm's debt as well as fund future acquisitions.

Another fragmented industry targeted by real estate investors is manufactured home communities. The top 150 owner-operators own less than 5% of the industry. The communities are land-lease facilities where homeowners rent lots for their manufactured homes. Tenant turnover, default rates and operating expenses in manufactured home communities all are low. Cashflow, meanwhile, is expected to exceed inflation. And, according to Merrill Lynch & Co., the sector is the fastest-growing component of the nation's housing inventory.

Manufactured Home Communities Inc., a Chicago-based firm in which investor Sam Zell is chairman, has acquired and developed 66 manufactured home communities. The firm is the largest owner and manager of manufactured homes and continues to target sites of 150 acres or more in good locations, says investment relations manager Cindy McHough.

Golf courses, particularly those that are part of residential or resort developments, also are attracting the attention of real estate companies and investors.

"Golf is a land use that's more popular," Roschelle says. "And as land becomes more scarce, golf courses will increase in value."

Today, there are 25 million golfers in the United States, according to Jupiter, Fla.-based National Golf Foundation. To meet this growing demand, golf course construction rose 33% from 1992 to 1995.

A growing number of these new courses were developed in conjunction with residential communities. For instance, of the courses built last year, about one-third were part of communities, up from 27% in 1992.

"There's increased interest in golf courses as investments," says Richard Singer, senior project director for the National Golf Foundation, "but there also are many different ways to invest." One major way is identifying semi-private and public golf courses that are under-performing. These properties offer the most upside potential since capacity and rates can be extended easier than private courses.

A major investor is National Golf Properties, a Santa Monica, Calif.-based REIT. The firm looks for under-managed golf properties or under-capitalized residential or resort developers that are looking to raise cash by unloading a project's golf component. The firm brings in its management affiliate, American Golf Corp., and creates enough value to generate a 20% annual return within five years.

The REIT, which posted a net income of $13.3 million on revenues of $45.9 million last year, acquired 10 courses totaling $84 million in 1995. National Golf triple net leases the properties to American Golf Corp., earning a base rent equal to 9.75% of its invested funds plus a percentage rent based on a property's revenue.

"Golf courses are a sexy investment now," says Neil Miller, associate general counsel for National Golf Properties Inc. But he warns that investors shouldn't be influenced by long waits to tee-off on weekends, adding that new courses often don't generate enough capital to justify new construction. "Developers see the tremendous volume on Saturdays, but they need to go out there on Tuesday when they have the course to themselves. Developers are often too aggressive on the revenue growth of golf courses."

But this aggressiveness feeds National Golf's growing portfolio as well as a many other investors. Opportunistic funds like New York-based Morgan Stanley Realty and real estate companies like Dallas-based Olympus Real Estate Corp. have acquired residential and resort properties with major golf components.

Another player in properties with golf components is Koll International, a division of Koll. The Newport Beach, Calif.-based firm is developing two resort communities on Mexico's Baja California peninsula that, in part, will be anchored by golf. The properties total about 2,700 acres in the town of Los Cabos and will include six golf courses, five hotels and 5,400 single-family and multifamily homes. Two golf courses and 200 homes are developed, and a 600-room Hyatt hotel is under construction.

"America's baby boomers are aging," says Koll International president Joseph Woodward, "and these 40-to 50-year-olds have high disposable incomes. Resorts will be a growing market for 20 years."

Golf community development also is getting the support of local municipalities. Last year the city of Oak Ridge, Tenn., issuee $6.2 million in bonds to finance a 540-acre golf course and residential project that is being developed in conjunction with New York-based Cowperwood Co. and Washington, D.C.-based Kapelina Co. "We've been successful in showing cities how golf courses can generate new income," says Peter M. Hill, president of Billy Casper Golf Management, which will manage the property on behalf of the public-private partnership.

Among the seemingly undesirable properties that opportunistic investors and developers are beginning to target are "brownfields." Last year, federal and state environmental protection agencies amended laws that linked an environmentally impaired site's cleanup to its proposed use. Now, the cleanup required for an industrial site is different from that required for an apartment building.

As markets improve and construction works its way back into the lexicon of downtown developers, demand for urban sites is expected to grow. But with too many of these sites contaminated, real estate firms have been scared off by potential liability. But developers and municipalities hope the brownfield initiative will make it easier to clean up sites and create investment.

"The brownfield initiative has brought some clarity to what used to be a very fuzzy subject," says Clay Atchley, an environmental project manager with Chicago-based LaSalle Partners. "The initiative will bring more entrepreneurial spirit to this type of real estate."

Identifying contaminated sites that can be cleaned up, repositioned and sold is "a real estate sector that holds the biggest opportunity in the United States," says Nicholas S. Patin, managing partner of Koll. In April, Koll announced the formation of a joint venture with Acton, Mass.-based ENSR Environmental Realty Advisers to tap this nascent market.

Corporations also are finding it harder to cope with the financial requirements because regulators require reserves to meet remediation costs. Additionally, the redevelopment of sites often qualify for property tax abatements.

"Environmental regulators who administer the law are becoming more realistic in approaching remediation, and financial reporting is making it impossible to hide these assets," says Patin. "Enough uncertainty is being taken out of the equation to attract capital, but enough risk remains to generate yields north of 20%."

The more capital that flows into real estate, the greater the variety of real estate deals being explored. Carey Winston, a Chevy Chase, Md.-based financial services firm, has targeted mobile homes, recently completing three financing packages totaling about $20 million.

"The return of capital has mined all the traditional real estate options," says Patin, "and, in the meantime, has generated an appetite for attractive yields."

To generate these yields, investors are looking for inefficiencies in sectors that can be corrected with better management, Roschelle says. And, to identify these opportunities, investors are putting on their well-worn entrepreneurial hats.

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