His company, Carefree RV Resorts, has continued to grow into the RV sector across North America, adding 20 properties — valued at more than $300 million — over the last year or so.
While he’s an attorney by trade, Napp and his business partner, Colleen Edwards, have gotten to know the RV sector well, having previously founded Encore Communities.
Napp shared his perspective on the biggest challenges and rewards facing his company and the outdoor hospitality sector as a whole, as well as his thoughts on the future — which can be very bright, he thinks.
WCM: What was most surprising to you entering the industry, and what do you think would surprise most people who aren’t familiar with it?
Napp: I think most outsiders looking at the RV business have a predetermined business model in their minds that the entire RV sector is focused on short-term stays, such as weekend camping and tenting, on underdeveloped properties. People unfamiliar with the RV business visualize the industry on a whole as being rustic campgrounds with lean-tos and outhouses and, of course, rain. So I would say that what surprises people new to the industry the most is the financial stability and quality of destination RV resorts with a high percentage of park models.
Once they understand that you have this very attractive demographic customer owning a vacation cottage that’s blocked, strapped and skirted and doesn’t go anywhere for 20 to 25 years, on leased land – you see people’s eyes light up. We went out last year and raised investment capital and had conversations with a number of institutional investors. We talked to some of the largest private-equity firms and largest pension funds in the country, and to a firm, the surprising point for them was how stabile our business is. When you talk about the type of debt financing that we can get, how solid the foundation is of this business model is, and how well we did through the worst recession in 75 years — that was the most the surprising aspect of the business.
WCM: What are some of the most important lessons you’ve learned in this business?
Napp: Well, that I’ve still got a lot to learn.
WCM: You’ve never got it figured out completely, right?
Napp: Far from it. Listen, you have to challenge yourself. For me, that’s the main thing in life – to push yourself to get better every day. You have to have passion to be successful; you have to love what you’re doing in order to embrace it. A life without passion isn’t worth living and you have to be passionate with any part of your life to be successful at it. If you’re passionate about your work, then I think you’re able to adjust as circumstances and economic conditions change. Passion doesn’t guarantee success – but a lack of passion gets you nowhere fast.
WCM: Carefree recently purchased 13 parks in Ontario, how does that fit into your business model?
Napp: There is a thoughtful strategy behind that. We acquired 13 properties in January in Canada, a little over 3,000 sites with additional development potential of another 1,200 sites if the market conditions and demand warrant it. We bought Sherkston Shores last year, it’s 650 acres, 20 minutes outside of Buffalo, an hour and 20 minutes from Toronto with two irreplaceable miles of waterfront on Lake Erie. It’s an absolutely tremendous property with 1,700 sites and a high percentage of park models, probably about 70%, so it totally fits our business model.
While we were at Sherkston, the weekend after we bought it, we had a meeting with their customer committee and most of the people that were in the room were from Ontario. There were about 15 people there and 12 of them owned winter homes in Florida. Our Canadian customers said it’s every person’s dream in Ontario, as they mature, to spend their winters in Florida. And we said, well that’s Carefree’s dream, too! Carefree wants you to spend your winters in Florida.
So we really started looking at the market and John O’Brien, our Sherkston general manager, came up with the opportunity to acquire 13 of the Castle Vacation Parks. Although those parks serve more of a family market, certainly more of a weekend market, they were 65%-plus park models, so that aspect fits our business model, but what it also does is it introduces the Carefree brand to a younger person who is ultimately going to mature into someone who wants to spend their winters in Florida. The Canadian customer will get to know the Carefree brand as they mature, Carefree will have the chance to earn the Canadian customers’ loyalty, and then if they do want to spend their winters in the sunbelt, they’ll think of Carefree first. There were a lot of compelling reasons to acquire that portfolio.
Two weeks ago we acquired three more properties in Florida. All senior manufactured-home communities, all a mile from properties we already owned, so we were able to fold those into our regional management infrastructure pretty easily.
WCM: What’s your strategic vision for the future?
Napp: We’re not going to sit here and put dollar-amount benchmarks on how big we want to be because I think that’s a limitation. We are going to keep buying in our core markets, we are going to remain cash-flow buyers, and we’ll never be anything other than that. I would say the real goal is to be great organizationally and I do believe that asset size will come as a result of being a great company.
WCM: What would you say are the biggest challenges in the industry?
Napp: I think right now, the biggest challenge is the lack of retail financing for the park-model and manufactured-home buyers. There just aren’t a lot of options out there and we are operating in a more regulated environment which is restrictive to getting business done. The lack of lenders in the space and restrictive government regulations have collared the ability to grow sales by limiting the availability of retail financing to home buyers.
On the RV side, I would tell you that things right now are really looking up in the industry. However, one of our biggest challenges is that not enough people know about the fantastic, and affordable, retirement lifestyle the industry offers. We’ve got a good wind behind us with the Baby Boomer demographic finally retiring.
I do think that when the recession hit that many people delayed retirement but now that we’re seven years past 2007, I think we’re seeing more people retiring because they can’t, or don’t want to, postpone retirement any longer. Maybe some of these people have lowered their expectations in terms of what retired life will look like, but they are still retiring.
We look at this development as a tremendous opportunity for the industry because we offer such a high-value, low-cost lifestyle for retirees and semi-retirees to enjoy. The challenge for the industry is how do we realistically transition from looking at our traditional market of 9 million RV-owning households to set our sights higher on the over 76 million Baby Boomers who are, or will be, retiring over the next 10 to 15 years. If we can find a meaningful way to access just a small percentage of those 76 million people, 25% of the US population, the destination RV resort market will blow up – as will park model sales.
The destination RV resort industry has a great opportunity to play an important role in the evolving retirement patterns of the Baby Boomers. The concept of ‘retirement’ in our country is a relatively new phenomenon and is not even 100 years old. A lot of these initial patterns and systems for retirement were established in the 1920’s to 1950’s when the average person was going to be dead before the time they reached the ages of 70 to 75. A person who retired at 65 was probably only going to live another five-to-10 years. Well, fast forward to 2014, and it’s not unusual for people to live into their 90s. You tell me, how many people can retire at 65, not make another dime for 25 years, and live the way they want to? So the whole concept of ‘retirement’ is something that’s evolving and affordability and lifestyle will play an integral role.
I do believe that the lifestyle that our industry provides fits well with maybe a more realistic version of retirement, where people can take the winters off and live in a warm-weather climate that’s more conducive to enjoying yourself, and then return to work part of the year. It’s an affordable, alternative way of looking at retirement.
The other great thing that we provide is a real community environment. I’m 53, so I remember growing up in a neighborhood where people kept their doors unlocked and a lot of your neighbors’ houses felt just like your house. The destination RV park allows you to have that same sense of community you enjoyed growing up. So we’re not really leasing sites and selling park models, we’re selling a community where people form strong bonds and friendships that are valuable to them.
It’s the community that makes our business successful. Not the physical property or the physical home, it’s the people within the community fostering relationships and doing great activities together. The level of volunteerism in the RV community is unprecedented because people like the people they’re around.
WCM: For you, what are the biggest rewards?
Napp: The biggest reward I get every year is going to Carefree’s Got Talent. That is a companywide talent contest. Every park has a talent contest and then the winners go to a centralized, one-day event and this year we probably had 28 people compete for a $5,000 grand prize. And it’s not only fun to watch the people compete, but it’s as fun to watch the reactions of the crowd. We had a crowd of over 1,500 people this year attend Carefree’s Got Talent. We give them a nice lunch, we’ve got refreshments for them and just to watch people getting to meet people from other parks, watching people compete, seeing the crowd reactions is very rewarding. The sense of community, friendship and camaraderie at this event is the perfect example of what Carefree stands for. This year we tied Carefree’s Got Talent to the Disabled American Veterans program and donated over $15,000 to their great cause, and that was just so rewarding to help make all of that happen.
WCM: Where do you see the industry going in the future?
Napp: I would say the future of our industry is contingent upon finding a way to make our product more widely known for its lifestyle and affordability and to facilitate buyers being able to finance their new homes. There’s been a material adjustment in the market with primary-home prices falling and financing being more stringent, more regulated and harder to access for both primary homes and second homes. With the home equity loan market a fraction of what it was, a primary source of buyers’ liquidity has been taken out of the market. For many second-home buyers there’s no longer a very meaningful source of funds available to help fund a purchase.
So we, as community owners, have to find creative ways to make financing more readily available for our customers. Years ago, 70% of our customers paid all cash for a park model. Those days are gone now. Now we have to facilitate alternative means of financing park-model purchases if we want to increase our park-model occupancy.
One of the biggest challenges is where does that financing come from? We do some internally, but if there were legitimate third-party sources that provided financing on more flexible terms to our customers, that would be a big lift for the industry. It would be great to have a few lenders in the space to compete for business in order to make the terms more consumer-friendly.
The park-model customer is strong credit, looking for a second home, still wants the lifestyle, and the fundamental demand, if anything, is increasing while the actual park model product is a fantastic value and great housing product. All the best aspects of lending are in place, however, the buyer’s ability and/or willingness to pay all cash for the purchase of a park model has decreased due to the recession. So I think the future for a strong destination RV resort industry is in finding smart ways that are financially prudent to address the lack of retail financing available to home buyers.