Record demand for RVs is dramatically intensifying both the buying and selling of campgrounds and RV parks across North America, creating unprecedented business levels for real estate brokers that specialize in the private park business.
“I’ve never seen anything like it,” said Randy Hendrickson of Westlake Village, Calif.-based United Park Brokers, noting that both buyers and sellers of parks recognize there’s money to be made in an industry that has proven itself to be profitable even during a pandemic.
“As we know, the pandemic, for all the terrible effects it has produced, has been the catalyst for increased demand for the outdoor hospitality experience,” he continued. “With that, existing investors already familiar with this asset class have been joined by an ever-growing number of new investors and investor groups entering the market. This new competition, combined with the scarcity of desirable inventory as acquisition targets, has resulted in higher valuations. And yet, outdoor hospitality assets continue to provide extremely attractive returns for investors, and I don’t see the appetite diminishing any time soon. This includes not only competition to acquire existing parks, but also the development of entirely new ones.”
Indeed, there is plenty of readily available data to drive ever-growing investments in campgrounds, RV parks and resorts. Advance reservations for parks affiliated with Kampgrounds of America Inc. (KOA) and Yogi Bear’s Jellystone Park Camp-Resorts are at record levels for 2022, for example, with many other independent parks across the country reporting similar demand.
Meanwhile, existing park operators and investors are scrambling to add more RV sites and other amenities to their parks to capitalize on rising market demand. WOODALLSCM.com (WCM) has recently documented the construction of at least 54 new campgrounds and RV parks and the addition of at least 15,500 new RV sites across the country between 2021 and early 2023.
Hendrickson cited KOA’s 2021 North American Camping Report, which indicates that 76% of first-time campers earn $50,000 to $100,000 per year. “Of those same first-time campers, a combined 83% were GenX, Millennials and Gen Z, and they are part of the over 10 million new first-time campers,” he said. “No one can ignore this and other data. And although CAP rates have become compressed in recent years, parks still produce a higher yield on investment than alternative asset classes like self-storage, mobile home parks and multi-family (housing). Many new buyers come from those other investments. Put it all together and it’s not hard to see why this market is very, very lucrative and competitive.”
But for all the intensifying excitement over the money to be made in the private park business, many existing park owners are not in a position to command the best price for their parks, for a variety of reasons. This is particularly true of parks that have been owned and operated by the same family for many years, brokers say.
“We find that, unfortunately, people don’t plan enough in advance to sell, ever,” said James Cook, national director of brokerage for Yale Reality and Capital Advisors in Miami, Fla. “Our experience is they don’t want to sell until they need to sell. I would say, generally, if people planned to sell a few years in advance, they would get more out of their properties.”
The Achilles heel for many private park operators, particularly the less sophisticated ones, is missing or incomplete financial data.
Hendrickson said he likes to see at least three years of profit and loss statements “with line-by-line detail, on a month-by-month and not aggregated year-end format, and in Excel, preferably. Same with occupancy reports, same format, and a T-12 or trailing 12-month version as well. Investors may love your park and the location and the potential, but they have to understand the financial health (of the park) in detail. There is a lot more to this, of course, but the easier you can make it for investors to understand very quickly how the park is performing, and track your financials in what we call ‘seller ready’ condition, that’s the key to the least stressful and most beneficial transaction for all involved.”
“We recommend that park sellers have their paperwork in order — financials, equipment lists and due diligence items — and to be prepared for a large amount of interest from buyers once the property is on the market,” said Phil Artz, marketing director for Parks and Places, which has offices in Grand Rapids, Mich. and Tallahassee, Fla.
The challenges for sellers, however, often go beyond having proper financial documentation. This is particularly true for parks that have been owned and operated by the same family for decades.
“The majority of the owners we do business with have owned (their park) for 20, 30 or 40 years and the patriarch, or the founding members, are ready to retire and the kids are not interested (in taking over the business). Usually, by that point,” Cook said, “the park needs improvements, the website is outdated, the marketing is outdated and the rates are below market.”
In other cases, parks perform poorly when the owner has turned over management of the park to a manager who develops personal relationships with his guests and “would rather have his friends come back each year than push out the bottom 10%.” The problem is that these kinds of issues, if not addressed, will reduce the selling price a park owner is able to command, even in today’s market, noted the experts WCM spoke with.
The biggest issue, however, is the condition of the park before selling. Cook described a recent situation involving a client who wants top dollar for his park.
“I documented that if he invests $2 million and fixes the things we identify, he could increase his gross annual revenue from $3.5 million to $5 million and the value of his park would go from $30 million to $40 million. In other words, if he spent $2 million in improvements, he could net $8 million.”
The problem is that many park operators who are at or nearing retirement age don’t want to make these kinds of investments or put in the amount of effort that’s required to command top dollar for their parks.
“The people that build a park are enthusiastic when they build it, and 30 years later they’re tired. Asking them to recreate themselves at this stage is difficult,” he said.
But for those RV park sellers who are interested in investing the time, money and effort to command the best price for their parks, Cook has several suggestions. Among them:
— Study your competition: “Do a rent study with all of your competition. Determine where are you are at compared to the market. Give yourself an honest assessment of your amenities and rents, even if you need to hire a third party to do so. Give yourself an honest assessment of where you stand and what you might be missing.”
— Look at your oldest RVs and your oldest tenants and consider saying goodbye to them if they are scaring off higher quality tenants.
— Invest in a modern RV park management software program to track your financials: Investors want sophisticated data tracking your park’s performance. “You can command a higher price with really good data,” Cook said.
— Be diligent in documenting your cash: Some park operators pull cash out of their business to lower their tax liability. But this practice undermines a park’s ability to maximize its selling price. “If you hide $20,000 or $30,000 a year, you’re losing $300,000 in potential value,” Cook said. “Hiding $20,000 to save $7,000 in taxes could end up costing you $300,000. You’re screwing yourself when you try to screw the government.”
While there are many sophisticated institutional buyers who are investing in parks, less experienced campground and RV park buyers also need to prepare to have a successful park purchase. For park buyers, Cook and other brokers offer the following suggestions:
— Start talking to brokers at least six months before you try to purchase a park: You need this time and the information you glean from brokers to determine what segment of the private park business you want to target. Do you want a campground or RV park that targets overnight guests or a park with long-term guests, or a mix of both?
— Create a resume for yourself that reveals who you are as a borrower: Lenders often require 30% to 35% of a purchase price in cash. “It is especially important in this market for buyers to be cash ready,” said Artz of Parks and Places.
— Identify lenders who are willing to provide you with financing for your private park purchase: “Sometimes, your local bank will follow you out of state,” Cook said. “Other times, you will need to use a lender where the asset is.”
— Once you identify a park you would like to purchase, hire a consulting firm that specializes in the private park business to independently analyze the park’s financial potential: Most private campgrounds and RV parks were built 40 or 50 years ago, and most of them need improvements of some kind, Cook said. Likening private parks to the hospitality industry, he said, “There’s a ton of Motel 6s and Holiday Inns, but there’s an abundance of (RV owners) looking for higher quality parks. The most underserved portion of this industry is the high-quality section. Go for the high road and you will find you have a longer list of (potential guests).”
That said, Cook said buyers should not only budget for the cost of purchasing a park but improving it. “Budget upfront for the improvements needed to modernize the park to catch it up (to current market needs and requirements) from how it was built,” he said.
“Look at the amps at all of the hookups. Look at how many spaces are just electric and water, but don’t have sewer. Today, people want full water, sewer and electric hookups. Find a good wireless Internet solution. That’s a major need. Even seniors who are retired want a fast Internet connection. Figure out how to solve any Internet issues at the property. Consider upgrading some or all of the spaces, from gravel to paved. That has a good return on investment.
“You can hardly over-improve a park,” Cook added. “There is such a shortage of good quality parks, it can only improve your bottom line to make your park stellar.”
— Identify a marketing team to have on standby to handle your marketing and branding once you complete the park purchase: They may need to create a new website and rebrand the park, depending on what’s needed.
Ultimately, Cook said, whoever invests in the necessary park improvements is the one who ultimately reaps the greatest financial rewards. Sellers and buyers both have opportunities to maximize their return on investment, if they choose to do so.
Meanwhile, Hendrickson sees no letup in demand for private parks. “If the pandemic has taught us anything,” he said, “it is that one day’s outlook is changed by tomorrow’s news. That said, even with volatility there is opportunity. The key in my mind is to be disciplined in the investment approach. Rely on fundamentals and do not be a ‘panic buyer.’ It takes a lot more work to identify acquisition targets than ever before. We work very hard to give sound advice and dig deeper because, ultimately, this benefits both buyer and seller.”
Hendrickson added, “While the crystal ball may be a bit fuzzy for us all, sound investments will always be sound investments.”
