Why Investors Are Paying More Attention to RV Parks and Campgrounds
For years, RVs have been associated with retirees spending their golden years traveling the country. But that is changing and real estate investors have taken notice. Encouraged by these changes and seeking higher returns than those offered by traditional property types, these investors are investing more of their money in RV parks and campgrounds.
“We have seen investor demand for outdoor home properties explode as other sectors have continued to erode,” says Yogi H. Singh, partner at National Land Lease Capital (NLLC), a company private investment company that owns nearly a dozen campgrounds, RV parks and marinas across the country. “The national shortage of professionally developed, resort-grade assets, along with high barriers to entry, provide insulation to the sector that we find attractive.”
New generation of caravanners
Since the start of the pandemic, an increasing number of Americans are going on RV or camping vacations. After being locked down for months, people were looking for wide open spaces and the ability to see new places. Today, motorhome and camping remains a popular alternative to other types of travel.
While the traditional RV retiree segment has expanded, due to aging baby boomers, it is the younger generations who are currently driving much of the growth in the outdoor hospitality industry. air. Prioritizing experiences over possessions, millions of millennials and Gen Zers choose to spend their money on travel, both domestic and international.
“The underlying drivers of consumer demand for outdoor hospitality are strong,” said Carl Kruelle, chief investment officer of Blue Water Development Corp., an Ocean City, Maryland-based company that develops, acquires and operates resort-level outdoor properties, including RV parks. and campgrounds. “Consumers are increasingly interested in the outdoors and experiencing nature. This has been a constant trend for several years. »
Additionally, young people are also taking advantage of the remote work opportunities that have arisen throughout the pandemic. For many people, this newfound freedom means visiting new places. A growing number of Americans are embracing the transitional lifestyle that RVing offers and taking their jobs on the road.
“Because younger generations don’t need to be in an office every day from 9 a.m. to 5 p.m., being in one place and dumping their money into a house is no longer necessarily the American dream,” notes Tristan Farrell, President of Sunlight Resorts, a Georgia-based RV resort developer with 30 years of real estate development experience in the housing market. “I think the American dream is traveling now.”
Few similarities between old and new properties
Older RV parks were mostly just a place to park, and campgrounds were just a place to pitch a tent. Beyond shared bathrooms and showers, these properties rarely offered additional amenities.
Today’s new RV resorts and campgrounds couldn’t be more different. They often offer a level of comfort and convenience unheard of in the early days of RVing. Some even offer a range of luxury amenities, including swimming pools and fitness centers, as well as daily activities such as yoga lessons, kayaking, and golf.
For example, Sunlight Resorts implemented new design concepts for its two new luxury RV parks in Florida, notes Farrell. The Company’s Champions Run Ocala Luxury RV Resort features 482 oversized RV sites combined with park model cabins for short and long stays, premium landscaping and a 12-room clubhouse. 000 square feet with a state-of-the-art fitness center and a ballroom with a performance stage.
Other luxe amenities include a resort-style pool with two hot tubs and a rock waterfall, plus tournament-style recreation courts for pickle ball, bocce, shuffleboard and more. There is also a signature Tiki Bar.
Champions Run Ocala and Resort at Canopy Oaks both received a 10/10/10 rating from Good Sam, a leading RV industry member organization. The three-digit rating is assigned based on the property’s superior amenities, cleanliness, and environment. Less than 1% of all RV properties in the United States receive this recognition.
Sunlight Resorts plans to develop several more luxury RV parks in Florida and the Southeast. Currently, the company has two plots of land in Florida under contract and plans to develop at least two new properties per year, Farrell said.
Ultimately, Sunlight Resorts’ goal is to sell its RV properties once they reach stabilization, as the company has no desire to become an owner/operator, Farrell notes.
Now that Resort at Canopy Oaks has celebrated its first anniversary, Sunlight Resorts is beginning to attract investor interest. Farrell says he gets a lot of phone calls and unsolicited off-market offers.
“RV parks and campgrounds are cash cows, and they pretty much run themselves,” he says. “That’s what makes them so attractive to investors.”
Active industry veteran acquirers
Recent entrants to outdoor hospitality such as Sunlight Resorts join a handful of investors who have been in the space for some time. For example, the two largest investors in outdoor accommodation – Equity Lifestyle Properties Inc. (ELS) and Sun Communities – have been investing in RV parks for decades.
ELS owns and operates a portfolio of manufactured home communities (MHCs), RV resorts, campgrounds and marinas in North America in 35 states and comprising 170,245 sites, and Sun Communities owns and operates a portfolio of 662 developed MH, RV and marina properties comprising over 180,500 developed sites and over 46,100 wet locations and dry storage spaces in 39 states, UK, Canada and Puerto Rico.
Similarly, Blue Water has been active in the outdoor hotel business since 2002. The company prefers to invest in properties located on water, hence the name Blue Water. Moreover, it gravitates towards assets close to population centers, which provide a strong demand base.
Most of Blue Water’s properties have 200 to 700 sites each, which provides scale and allows for significant investments in resort amenities to further drive demand, according to Kruelle. He looks for assets that are under-managed or have significant expansion opportunities.
During the second half of 2022, Blue Water completed two significant acquisitions: Endless Caverns, an RV property located in Virginia’s Shenandoah Valley, and Badlands/White River KOA Holiday, an RV resort and land campground near Badlands National Park and two hours from Mount Rushmore. in South Dakota.
At the time of purchase, Endless Caverns offered 148 drive-in and rear-entry RV sites, nature trails for hiking and biking, a zero-entry pool and catch-and-release fishing pond, as well as kayaking, rafting, and tubing on the Shenandoah River.
Kruelle says Endless Caverns was a worthwhile investment for many reasons. “There are many levers to be pulled by applying strong operational expertise,” he notes, adding that the company has expanded ownership to more than 300 sites.
Meanwhile, Badlands/White River KOA Holiday, known as the “Oasis of the Badlands,” offered Blue Water the opportunity to add a “one-stop destination getaway” to its portfolio. The area is a popular dark sky location for stargazers and photographers, and visitors can view the Northern Lights from the site in late fall and early spring. The property’s 146 sites offer a mix of RV sites and unique glamping options, including a yurt with a skylight for stargazing, a teepee, and camping cabins.
Like Blue Water, most outdoor hospitality investors typically don’t disclose transaction amounts, perhaps because those numbers would be misleading without digging into operating metrics. Indeed, it is difficult to compare these properties on a per-site basis, given the differences in the types of sites they might offer. To this end, buyers always use cap rates to assign value.
NLLC’s Singh, which has tapped Blue Water to manage its outdoor hospitality portfolio, said valuations for RV parks and campgrounds have been in the dark for the past six months. , as the Fed raised interest rates.
“We’re just beginning to get a sense of where the values have settled,” Singh says. “A-plus assets in A-plus locations still record cap rates of 6.0% or lower. Cap rates for transitional or value-added opportunities have widened from 200 to 300 basis points. »
However, rising gasoline prices and inflation are beginning to weigh on the industry. “Inflation is a concern on both fronts,” notes Kruelle. High inflation means consumers are taking shorter stays or visiting less frequently. Typically, RV resorts offer inflation hedging given their ability to reprice daily. “It works unless demand drops due to an economic downturn.”
As fuel costs rise, so does the price of RV travel. This makes it harder for people to afford to take trips, and many are reducing their travel plans as a result. Additionally, inflation drives up the cost of RV parts and accessories, making it more expensive to own and operate an RV.
“When gasoline and diesel prices are higher, there is a tangible slowdown in transient camping activity,” Singh notes. “However, the fundamental fact remains that camping is the cheapest way to recreate domestically, so the outlook for the industry remains strong against inflation.”