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Lenders Still Stifle RV Park/Campground Sales

November 13, 2012 by · Comments Off on Lenders Still Stifle RV Park/Campground Sales 

Russell Baehre hopes the campground real estate market will pick after this month’s presidential election.

“I think after the election there will be a lot of people actively pursuing properties,” he said.

Baehre, who has worked as a Kerrville, Texas-based campground real estate broker for over 25 years, said sales always slow down before a presidential election.

And while the recession and tightening credit have slowed the pace of campground sales in recent years, campgrounds, RV parks and resorts are generating interest from investors because of their profitability.

“Our returns are better than other investments,” Baehre said, adding that cash buyers of $1 million parks could see returns of 10% or more on their investment each year, which is much higher than they could get from banks, CDs and other investment vehicles given today’s low interest rates.

“That’s $100,000 in income versus maybe $10,000 on CDs,” Baehre said.

Baehre added that campground occupancies are growing in many areas, fueled not only by travelers, but also by people who live and work in their RVs full time, including oil industry workers, doctors, nurses, accountants and other consultants.

The challenge, however, is convincing banks to lend money on campgrounds, RV parks and resorts.

John Grant, president of Park Brokerage, Inc. in San Diego, Calif., said most of his transactions involve seller financing.

“Unless the seller is in a position to carry the financing, the property often cannot be sold,” Grant said. “You have people who want to sell and people who want to buy. But it’s hard to find transactions that will work.”

And while the U.S. Small Business Administration is a worthwhile source for small business loans, the SBA will not provide financing for parks that generate more than 50% of their income from seasonal, monthly or annual renters, Grant said.

“At least 51% of your income has to be from transient guests,” he said. “Snowbird resorts rarely, if ever, qualify for SBA financing. Urban RV parks with year-round tenancy don’t quality, either.”

Grant said buyers of campgrounds that derive more than half of their income from transient guests may qualify for SBA loans, however, provided they can put about 25% down.

Some banks will also provide loans on parks in certain geographic areas, but in Grant’s experience they typically offer loans over shorter periods of time, like 15- or 20-year amortization periods with short five-year terms.

“This makes it harder for the deals to pencil because they have much higher monthly loan payments,” he said.

Tom Ossell of Orion Resort and Campground Sales in Bayport, Minn., has been selling campgrounds since 1973. In his experience, most of today’s campground sales involve either seller financing or SBA loans.

But he says the sluggish pace of private park sales reflects more than the limited availability of bank financing.

“(Today’s) buyers are so conservative,” he said. “In the old days, you looked at the physical attributes of the park and the market and the rate structure and what you could do to enhance it and there was a lot more optimism in the market on the buyer’s side.”

Ossell, who co-owns Timberline RV Resort in Sturgeon Lake, Minn., as well as Northern Lights Resort Outfitting in Kabetogama, Minn., said some sellers also have unrealistic expectations about the amount of money they can get for their parks, particularly if they haven’t continually made improvements to their businesses.

“A lot of the old owners judge value solely by the campground’s physical appearance. They have so much money into the buildings, but they forget they haven’t remodeled the bathroom in 20 years. They haven’t worked on their first impressions, their website, their stationery, their image when you drive into the place.

“A lot of them haven’t upgraded their utilities for bigger rigs. They still have 20- and 30- amp services. Sometimes they can’t go to 50 amps because they don’t have big enough wire in the ground.

“Many of them are not up on the computers. They don’t have websites that are adaptable for the small personal notebooks and iPhones. They are not as up on the technology for the kind of world we live in. They’ve maintained their properties, but as they get toward the end of their career, they don’t keep reinvesting in their properties. They put the money in their pocket.”

But this approach can backfire, Ossell said, if it winds up forcing park operators to lower their selling price.

“I think most of the properties for sale have some kind of deficiency,” Ossell said, adding that the campground buyer has to come in not only with enough money to purchase the property, but enough to cure whatever deficiencies have to be addressed to maximize the park’s earnings potential.

Steven L. Weinberg of The Brokerage Real Estate in Grand Junction, Colo., agrees that there is a direct relationship between the efforts of park operators to maximize the value of their businesses and their ultimate selling price.

Investments like park models and other revenue sources can serve as profit centers that can help improve campground income. “Park operators should continue making improvements if selling at the highest possible price is one of their goals,” Weinberg said.

Park operators need to have good records in place to document their income from every aspect of their business.

“Lenders do not understand the dynamics of the RV industry versus say, a mobile home, that has monthly tenants. In this context, it’s hard for a lender to believe that as one guest leaves another will be right behind him. That’s part of the education process,” Weinberg said, adding, “Lenders need to learn that RV parks are vibrant and cater to a recreating class of people with disposable income.”

However, if park operators fail to keep good books and records to document their income and expenses, it is much harder to prove their revenue potential, not only to potential buyers, but to appraisers and lenders as well.

Weinberg added that park operators who fail to document all of their cash receipts lose money in the long run because that’s income that cannot be used to substantiate their selling price.

Longtime park owners should also avoid closing their parks earlier than they usually do for vacations or other personal reasons, Weinberg said. Shoulder season business is difficult to build, he said, and if, for whatever reason, a park closes two or three weeks earlier than normal it could lose campers who may find someplace else to camp.

All of these are important considerations, brokers say, because everything a park owner does can affect the value of the business, its selling price and, ultimately, a lender’s willingness to finance a sale.

“The banks don’t care about the physical value any more. They put very little concern on that. What they look at is the economic value,” Ossell said.

He added that some sellers are subsidizing their parks’ selling prices by carrying below market terms. “Five percent on $1 million is the same interest as 10% on $500,000,” he said.

Ossell also said he knows of banks that will make 20-year loans on campground transactions. But he said they want to be able to readjust the interest rates on the loans every three years, based on current market conditions.

“They don’t want to be locked into a low interest rate for a long time,” he said.

Weinberg, for his part, said it’s important for park owners not to be too discouraged by today’s tighter credit environment.

“Markets don’t go away,” he said. “They just change and you adapt to them.”

For brokers, that means not throwing up your hands and being content with the status quo. “I really think that the few brokers in this industry have an obligation to educate lenders and their respective buyers and sellers so that everyone can have a greater understanding of how you pass the baton from one owner to the next,” he said.

“For me,” Weinberg added, “It’s exciting to be able to facilitate a transaction. They may not be easy, but it’s not impossible. A broker is probably the best emissary to educate specific lenders and to develop them as a resource within a specific locale.”

Of course, the extent to which a broker is able to facilitate a campground sale or purchase will also reflect the amount of experience he or she has in the campground business.

Darrell Hess, a Waynesville, N.C.-based real estate broker who is licensed in 10 states and has been involved in more than 275 campground and RV park sales during the past three decades, said there is a growing problem with unlicensed brokers promoting RV and campground sales over the Internet.

Hess, who frequently hosts seminars for prospective campground buyers, also questioned how operators of such websites can assist buyers or sellers of campgrounds when they are not licensed. “I am licensed in 10 states,” he said. “Each of those states requires that anyone who provides brokerage services be licensed.”

Hess said park owners and prospective buyers should also spend some time checking out the brokers of interest to them to make sure they are licensed as real estate brokers in the state where the campground or RV park to be bought or sold is located.

 

Campground Brokers Cautious in 2012 Outlook

November 1, 2011 by · 1 Comment 

Read this and other stories in the November issue  of Woodall’s Campground Management, now on its way to  more than 13,000 readers in North America.

Tight financing remains the major stumbling block in the buying and  selling of the nation’s RV parks and campgrounds.

Tis a pity because there is great interest across the country to get involved in this business and, for the most part, the rate of return on such investments is very good.

That’s the gist of responses to a survey conducted in October among campground brokers who advertise in Woodall’s Campground Management (WCM).

Their take on the state of the industry was almost uniform on these points. But how they’re faring in this challenging environment yielded varying answers.

“It’s hard to tell – these things are so cyclical and seasonal,” said Don Dunton, a veteran broker based in New Hampshire who also brokers deals in Maine, Vermont and New York.

He started the year on a strong note, experienced a soft summer but then noticed an upturn after Labor Day. All in all, he said it was a good year.

Conversely, Waynesville, N.C.-based Darrell Hess, who has brokered more than 270 campground sales in his 29-year career, said his business has been down 50% the past three years, compared to the good years of 2002-2008.

“It still can get worse and quite frankly I think it will,” he said. “We’re in for some tough times. From my perspective two issues I don’t see getting resolved anytime in the next year: it’s the uncertainty in the economy and the banking crisis.”

Hess, who brokers deals in the region including North Carolina, South Carolina, Tennessee, Georgia, Virginia, West Virginia, Indiana, Kentucky, Pennsylvania and Florida, said bankers “are not sure whom they want to loan money to and what kind of risk they want to make. They are in the business of loaning money but they really don’t want to do it. I’m sensing the banking industry has come under tremendous regulations and scrutiny. They’re being watched and being controlled. I had deals turned down this year that were ‘no brainer’ loans, great buyers, great cash flow, and banks still turned them down.”

Loan rates, such as for home mortgages (shown above) are falling, but only tell part of the story. Loan restrictions make getting these loans difficult for many commercial borrowers. Chart courtesy of bank rate.com.

On the West Coast, John Grant of Park Brokerage said, “Investment sales of RV parks and campgrounds are still very slow due to tight financing in the market. Some of our better lenders in the Southwest are no longer financing RV parks. They had the lion’s share of the business five years ago.”

Lenders that do make loans for park purchases are offering short amortization schedules of 15 years or less in some cases, he noted.

Even the federal government can’t seem to help. The Small Business Administration will underwrite loans for RV parks, Grant noted, but 51% of the guests must be transient or overnight visitors. The vast majority of RV parks in the Southwest get the majority of their income from extended stays, so most don’t qualify,” he said.

In Texas, where the economy has remained strong, the pulse of the campground market is good, says Russell Baehre, the state’s largest campground broker.

The Kerrville-based broker agrees financing is tough but not insurmountable.

“It’s harder to get financing but I wouldn’t say it’s impossible,” he said. “The only park that I couldn’t get financed had to do with the area. But if the park is in a good area where there is a selection of banks, we have been able to get it financed.

“If you’re a buyer, it’s a good time to buy. If you own a park and it’s doing good, it might be time to look at getting another park,” he said.

Mary Bedford, a broker with Parks and Places, a national firm with offices in Michigan, Missouri, Georgia and Florida, said the market for campgrounds is good “but our challenges are the pricing of it. The sellers are not getting the prices they were getting before the recession and they are expecting those prices, and the buyers are expecting prices just like what happened in the housing industry.”

Further, “The banks are giving us trouble. They are not releasing the money they were given to stimulate the economy. The ideal sale is with seller financing or with a bank that understands this industry, which has done well during the recession.”

That said, Bedford said, “We’re seeing more lease options rather than out and out sales. That’s new to us, anyway. It’s one way to get the sellers out and the buyer into the park to establish themselves before they go to the bank for their loan.”

The practice gives the buyer some equity in the park and shows the bank the buyer has a proven track record, she said. The firm has done just a handful of such deals but has additional ones in the works and is hopeful the practice will catch on.

“I think the recession put off some sales but now we have older owners who need to sell,” she added. In a companion development, “We’re seeing a lot more foreclosures in this industry.”

“There seems to be a renewed interest; quite a few people are looking for campgrounds,” said Ron Pisano, a broker with Coldwell Banker in the Lake George, N.Y., region. “Investors are looking for larger parks with 250 or more sites.”

In his area, there are three campgrounds on the market, one of which he recently entered a contract to sell. The 60-site campground on the Champlain Canal has been closed for five years, but the prospective buyer hopes to reopen it next season, Pisano said.

Campground Chains

Among the campground networks, two of the more aggressive buyers in the current market are Arizona-based Carefree RV Resorts and Memphis-based RVC Outdoor Destinations.

Carefree RV Resorts is a privately owned company that manages high-quality RV resorts and manufactured home (MH) communities for its own portfolio and for third parties. Carefree currently owns 58 communities containing over 13,000 sites located in Florida, Texas, California, Arizona, Massachusetts, New Jersey, North Carolina and Ontario, Canada.

Carefree has purchased six parks, all in the Florida Keys, in the past 18 months and plans to spend between $50 million and $100 million on RV and MH parks in 2012, says Charles Ellis, vice president of acquisitions.

“Carefree is the most aggressive buyer of RV and MH parks in Florida,” he contends. That might hold true for all of the U.S., as well.

A frequent WCM advertiser, Carefree fields calls regularly from prospective sellers, but remains selective in what it will buy, limiting its purchases to major markets and waterfronts, Ellis said.

Carefree is well capitalized: Most of its purchases are for cash, and closings are usually done within 60 days. “We have a very large line of credit with GE Real Estate and we are one of GE’s largest borrowers in their real estate division,” he said.

Like Bedford from Parks and Places, Ellis finds what he calls “a material disconnect” between what owners think their parks are worth and what the current market will pay.

RVC Outdoor Destinations has entered the market in recent years with an eye on acquiring existing RV parks and campgrounds and bringing them up to match the company’s upscale footprint of excellence.

The company’s holdings at present are all in the Southeast, but the goal is to expand nationwide.

“We’re looking all over the country from the Oregon and California coast to Jackson Hole, Wyo., and elsewhere,” said Yale Spina, operations manager. “We are going to expand in the states we are in now but we are looking at Texas as well.”

Spina said RVC is well capitalized and is unfettered by lending practices that stifle others’ purchases.

Outlook for 2012

Brokers appear mixed on prospects for campgrounds.

“I don’t think next year will be much different for me,” said Dunton.

Says Pisano, “A lot depends on the price of gas. If it continues to go down, it will benefit a lot of campgrounds. The other part is the economy. Sometimes when the economy is not as strong, campgrounds tend to do better because it’s a cheaper way to go on vacations. If the price of gas stays or goes down and the economy improves, I think campgrounds are a really good prospect for people to make money.”

Grant had little encouragement for a loosening of bank lending practices anytime soon.

“Banks have to recognize that RV parks and campgrounds are good investments,” he said. Until they reach that conclusion, he said, tight conditions will remain.

Baehre agrees with Grant’s assessment.

“Election years are never good years,” he said. “Being an election year, business will be off because people don’t know what’s going to come down the pike. Long-term is what’s scaring people and the banks. No matter who gets in, it usually busts loose after a presidential election.”

And RVC Outdoor Destinations will remain in its expansion mode.

“ In 2012, it’s safe to say we’re looking at as many as eight properties, but realistically there might be three or four we will add,” said Spina.

And Bedford said, “I’m positive about next year. I know of several park owners who have put off selling. They will wait it out a little more, but they can only wait for so long. That’s also true on the buyers’ side. I’m feeling good about 2012. The banking industry is going to have to put more money into the economy. I do think that will change and will loosen up a little bit more.”

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