Build New vs. Buy Old

Campground Management Myths
David Gorin

For some time, I’ve been on my soap box talking about the need for new product in the campground and RV park business. Why are there so few new parks being built? What’s the attraction to buying older parks and trying to modernize them to meet today’s consumer desires?

Well, the last two weeks or so, I’ve been hit between the eyes with two real life opportunities that have challenged and tested my ideas on new development vs. buying existing. Here are the two scenarios. What road is the best to pursue – developing new in an A location or buying existing in a B or C location.

Scenario One

The property is a 12 acre parcel located on a primary 4 lane highway less than a mile off an interstate highway exit in southwest Florida. The property is about 9 miles from the Gulf of Mexico beaches in a very prominent tourist area. I’d consider the location to be an A or an A-.

The land is approved for 109 sites including RV sites and cabins and no length of stay restrictions. The site is served by municipal water and sewer. Directly across the highway is a major high end residential and golf club and about 2 miles down the highway is the entrance to a very large and very successful residential, retail and recreational community. The curb appeal of the property is very good to excellent.

10 years ago the property owner and his son began building an RV park. 49 sites were developed, all with 50 amp electric and about 40’ x 70’ dimensions. An attractive entry road was completed and all the internal roads were asphalt. Individual sites were not paved. The park has never operated.

The owner’s son was the developer. Unfortunately, the son passed away suddenly at 44 years old. His father was devastated and for 10 years he could not bring himself to either finish the project or sell the property. The park was not completed and has never operated.

The seller is asking $2 million for the property and the improvements and is not interested in providing any financing. It is estimated that it will cost about $3 million to complete the remaining approved sites and rehabilitate the existing 49 sites. The existing roads need to be re-surfaced and the pedestals probably need to be replaced and electric meters added. The site also needs a swimming pool, restrooms, laundry and a clubhouse of some kind.

Because of the quality of the location, there is considerable demand for affordable RV sites. A review of the area indicates that monthly rental in the $500/month range is reasonable and annual leases could go for $4500 to $5000 annually. It is assumed that the park could be fully rented to RVs and park models within 24 to 36 months.

Scenario Two

This property is a 12 acre parcel located on a just off a primary 4 lane highway about 15 miles from a major interstate highway exit in central Florida. The property is located in a mid-size city and is along a commercial stretch of highway. While the area is known for its equestrian farms and there are many large equestrian estates in the general area, the park is not located in that area. Due to the commercial nature of the adjacent property and the uncertainty of future uses for the undeveloped land across from the park, I’d consider the location to be an B- or a C.

A road passing along the rear of the park is now being expanded from 2 to 4 lanes. How this will impact on traffic and noise along that part of the park is uncertain.

This is an existing and operating RV parks with 104 RV sites and 2 park model sites. There are no restrictions on adding more park models and there is no length of stay restrictions. The site is served by municipal water. Waste is handled with a septic system.

This park was developed in 1998 by an RV dealership that is located adjoining the RV park. The park was developed as a sales and marketing tool for the dealership. The dealership has used sites in the park for their customers taking delivery on a new RV or coming for service. They provide up to 3 nights for buyers of units and provide driving and RV maintenance lessons during that time.

The RV park is accessed down a road that runs a long side the dealership. The land opposite the dealership along this road is vacant. There is also direct access from the park into the dealership.

The internal roads are asphalt as are all of the sites. There is a 4000 sq ft combination office, store, clubhouse, restrooms, and laundry. This building is in good condition. There is a small fenced in swimming pool with a nice sun deck next to the clubhouse.

The seller is asking $2.1 million, and is offering to finance about $1.5 million at 5.5%, 30 year s amortization with a ten year balloon. In 2012, the park grossed approximate $330,000 including store sales (amount unknown) and about $84,000 in rent from the RV dealership for the use of the sites. Revenue was about $3000 per site. Occupancy from December to April runs about 85% and rental rates are in keeping with the surrounding area parks. There are 10 sites that are occupied on an annual basis. It is estimated that there is about $350,000 in deferred maintenance including upgrading the restrooms, resurfacing the roads and sites and adding electric meters to each site. The park is rated 9/8/8 by Good Sam.

Based on the above and assuming that financing was available for each scenario, which route would you take? Buy and develop the A property in a solid location but no current cash flow, or buy and upgrade the B/C property in a marginal location but with existing cash flow?

Thoughts? Comments? Please drop me an email with your ideas…..david@davidgorinassociates.com