A year ago, demand for private parks was so strong that buyers were often at the mercy of the seller. This year, with higher interest rates, prices are down 15% or more, and buyers have more room to negotiate.
“What’s obviously got the market roiled is the ability to get things financed. The cost of money is up by 50%,” said James Cook, national director of brokerage for Yale Realty & Capital Advisors in Miami, Fla., citing interest rates that have risen from 5% or 5.5% to 7%.
Richard O’Brien, CEO of Athena Real Estate in Orlando, Fla., said RV park values are down about 20% as a result of rising interest rates and CAP rates.
“Many of the new players are experiencing buyer’s remorse due to this value decline, coupled with unrealistic underwriting and financial projections,” he noted.
Brokers are seeing the impact of higher interest rates on sales of campgrounds, RV parks and resorts across the country.
“A year ago, a park that sold for $1 million and may have had two or three competing offers will likely have to be priced at $900,000 or less, just to attract one good offer today,” said Mark Whitworth, president and associate broker of Parks and Places, which has offices in Tallahassee, Fla. and Grand Rapids, Mich.
“Prices are directly tied to rates, so as rates go up, prices come down,” said Russell Baehre, of Baehre Real Estate in Kerrville, Texas.
Higher interest rates and lower prices are not the only changes affecting today’s private park sales compared to a year ago.
“Lenders are also requiring higher down payments (of) 20% or more, a good business plan and a solid bottom line that provides the buyer enough income to pay the mortgage and leave some money on the table to live on,” Whitworth said.
Cook explained that even more money down is often needed: “30-40% down, instead of 20% or 25%, if you don’t fit the box for SBA or USDA guaranteed loans” he said.
Jesse Pine, of NAI Outdoor Hospitality Brokers in Basalt, Colo., noted that today’s transactions are taking longer than those of a year ago.
“The market is still strong for private parks, but, generally, transactions are taking longer, mostly due to challenges for buyers securing a lender with reasonable rates and terms,” he noted.
“There is no shortage of capital,” noted O’Brien of Athena Real Estate, “but investors are becoming more discerning.”
Despite these changes, John Sheedy, of Park Brokerage, Inc. in Phoenix, Ariz., said park values are still higher than they used to be.
“Prices have receded due to higher interest rates and income for most parks plateauing (and) things are slowing down, but overall park values are still significantly higher than five to 10 years ago,” he said.
ACTIVITY STILL UP
Brokers also tell WOODALLSCM.com that there continues to be plenty of activity in today’s market.
“We have just as many new buyers contacting us as we had a year ago and our inventory of campgrounds to sell is still strong,” Whitworth said. “The only clear changes have been the rise in interest rates and the price (that) buyers, both big and small, are willing and able to pay for a park.”
Pine, for his part, said he is seeing even more buyers than last year.
“There are now more buyers than ever, mostly larger investment groups or new buyers coming from other property types now wanting to jump into RV park ownership,” he said.
At the same time, however, Pine sees fewer sellers.
“There are, perhaps, fewer sellers now than 12 months ago, mostly because values of parks have gone down in the last year as interest rates increased (and) cap rates subsequently increased, which lowered park values,” he said. “High interest rates have squeezed margins, so buyers are looking for parks with significant upside, such as expansion or repositioning (opportunities).”
Baehre is also seeing fewer sellers.
“We still have a lot of buyers, but need sellers,” he said.
Brokers have differing perspectives on who exactly is buying parks, whether it’s institutional investors or investor groups or mom-and-pop operators, reflecting their differing client compositions.
“To be honest, we really have not seen a change in demand from either category,” Whitworth said. “We did see a rise in investor groups and big buyers over the last two or three years overall. That demand is still strong. They will buy parks that make sense. Mom and pop buyers have always been in the market and continue to seek the lifestyle change associated with RV park and campground ownership, as long as the price is right.”
Pine, for his part, sees fewer mom-and-pop buyers and more institutional investors and investor groups coming into the private park market.
“Major capital is moving into the market and, as a result, it’s hard for mom-and-pop buyers to compete, especially on parks that are $5,000,000 or more,” he noted.
Baehre also sees more “hedge fund type buyers,” more mid-sized investment groups, and even investment groups from the apartment sector, but fewer mom-and-pop buyers.
Sheedy said he continues to see mom-and-pop buyers, but only for smaller parks.
SOME PARKS NEED WORK
Brokers also continue to see plenty of inventory of fixer-upper parks or parks that are not yet fully amenitized or need other improvements.
“Fixer uppers have always existed,” Whitworth said. “We haven’t seen a noticeable increase or decrease. Even a squeaky clean park may need upgrades in electricity, adding or upgrading sewer or septic (systems) and upgrading the water source. More infrastructure. Buyers have their own ideas on what to update or upgrade.”
Baehre noted that some parks can be improved with even minor upgrades.
“There is an upside to every park we sell. It might be as easy as adding online booking to a park that has overnight potential,” he said, adding, “Knowing these things is what makes us and our buyers successful.”
Sheedy said he is seeing “fewer and fewer parks in disrepair in attractive markets,” but there continue to be opportunities for investors who have the resources needed to take stable existing properties up a level or two.
While some mom-and-pop park operators are known to sell when they get to retirement age, if their children are not interested in continuing to own and operate the business, Pine said many of these mom-and-pop operators do a good job of improving and maintaining their parks.
“Just because a park is older doesn’t mean it’s a fixer-upper,” he said. “Personally, I see more parks owned by individuals who operate the parks themselves and they are the best kept and best-looking parks. Those owners take a lot of pride in what they have built and it shows.”
However, older parks often do require new utilities, more powerful Wi-Fi systems as well as improvements to amenity buildings.
Some parts of the country also have unique investment opportunities for private park operators.
For example, while wind insurance is impossible to obtain in some locations in coastal Florida, Cook said there are opportunities for investors to convert mobile home parks into RV parks with transient sites, which can be more lucrative because of the intense demand for transient RV sites in the Sunshine State.
“In Fort Myers, there’s never been enough transient spaces,” Cook said, citing the city as one example. “Demand is so strong for transient sites (in Florida) that it keeps the market resilient.”
Cook added that Florida is becoming more of a year-round market for RVers, rather than solely a winter destination, a trend that rising RV park occupancies have evidenced during the summer months.
O’Brien said his company likes to purchase parks that are in need of updating, expansion or site improvements.
“As the market consolidates and new capital is infused, there will be fewer properties in need of new capital,” he said, adding that Athena’s Applebrook RV Parks network has grown to include 14 parks and the company continues to be on the hunt for new acquisitions.
PREPARE TO BUY OR SELL
While market conditions have changed since last year, brokers said there are a number of things that both buyers and sellers can do to prepare for a smooth transaction.
“Get your financials in order,” Whitworth said. “Lenders are definitely looking for i’s to be dotted and for t’s to be crossed. Buyers need a plan to buy and sellers need a plan to sell.”
Pine says it’s important to clearly document the park’s financial and maintenance history.
“Having historical records, clean financial statements and maintenance records makes a property much easier to evaluate, lowers the overall risk for a buyer and lender, and leads to a higher sale price for a seller,” he said. “Consider having your park evaluated and get a valuation from a broker. It helps to determine the best course of action, even if that means just staying steady for the next few years.”
“There are always buyers who need to buy and sellers who need to sell. That hasn’t changed,” Whitworth said. “But both buyer and seller need to be realistic in today’s marketplace. Parks that are priced right with a plan to finance will sell sooner than later.”
O’Brien said buyers need to be careful in estimating their labor, insurance and property tax costs. Sellers also need to do their homework. O’Brien recommends that sellers conduct “reverse diligence,” conducting the same kind of due diligence a buyer would conduct on their property, to avoid issues before putting their park on the market.
Sheedy also encourages sellers to view today’s market in the proper context.
“Just remember that just because the price is 15% to 20% lower than it was 18 months ago, it’s still significantly higher than it was five years ago,” he said, adding, “It will likely be several years before prices rebound to 2021 levels.”