Today's RV Park Investment Market
Do's and Don'ts When Selling
By John Grant, President of Park Brokerage Inc.
It is by far the best time to be a RV park owner during my career. Record high recreational vehicle sales, flight to the outdoors during the pandemic, and overall increased interest in outdoor hospitality are causing record occupancy and rates for almost all RV parks throughout the country. Most California RV parks have doubled their gross incomes during the last 5-7 years.
Just like what happened in mobile home parks twenty years ago, RV parks have been discovered by institutional investors and large private capital groups causing tremendous investment demand with much lower capitalization rates and surging prices. The days of individual Mom and Pop owners are rapidly ending for 100+ sites RV parks as new Mom and Pop owners are priced out and cannot compete with the institutional and large private capital RV park buyers.
Lenders have finally discovered the strength of the RV park market. They no longer call RV parks “special use”, and financing is now readily available for most RV parks. Just five years ago, the only real RV park lender was the Small Business Administration.; now, there are numerous RV park lenders to choose from and excellent interest rates in the 4% range with 25-30 years amortization periods and 5-10 year terms.
Too many Mom and Pop owners feel debt is a negative while the institutional buyers and large private capital groups use debt to tremendously increase their investment returns. They know that debt is 4% tax deductible and RV parks and improvements return 10%+, so debt is “positive leverage” increasing their investment return. Use debt to upgrade and make your RV park more valuable by adding sites, WiFi, solar, asphalt streets, concrete pads, landscaping, clubhouse and store remodels, and other improvements. Quick example: your improvements allow you to raise your rates $20, you have 50 sites, and enjoy 50% annual occupancy. Your income increases $182,500 per year, and at an 8% capitalization rate, produces an increase in value of $2,281,250. Borrowing money to make improvements just makes sense!
My recommendations on what to do and not to do when getting ready to sell your RV park:
When Good Parks Go Bad
by Dyana Kelley, CampCalNOW CEO & President
As RV parks and campgrounds began to close their doors to tourism in 2020, many parks relied on the COVID rules of “essential” and opened their sites to more extended stay guests. There seemed to be no shortage of people interested in sheltering or living permanently in our RV parks, and this new wave of semi-permanent residents has created new challenges for park owners.
The CampCalNOW office regularly receives calls regarding removals and evictions, but recently the calls have become more serious in nature with the first question being, “How do I get them out of my park? Can you help?” That depends – “Why did you let them stay in the first place, or stay past 30 days?”
It happens all too often – a beautiful tourist park starts taking in a few residents for some additional winter revenue, and suddenly the park goes from pristine to disheveled with a confused and frustrated owner/operator. It starts with a few plants, maybe a storage bin or two, then a freezer, and a shoe rack. Soon a dog pen is added, and before you know it your “guest” has taken possession of your property. Yes, your property. That site belongs to the park, not the guest, and it should be an expectation that your site is treated as such.
So, why are parks so willing to overlook bad behavior, rule violations, general discord, and ultimately give away their property rights?
In most cases, it is simply good intentions gone wrong. Recently, a member shared a situation wherein a resident added a management-approved tarp to the top of their rig while waiting six weeks for a roof repair appointment. Other residents took note and tarps started popping up all over the property, creating the look of a homeless encampment rather than the beautiful RV park that it once was. It only took a few weeks for the park to start heading south when the owner had to step in and put an end to it.
RV park owners have a soft spot for the underdog and often overlook good rules to “help someone out.” Unfortunately, negating to follow your own rules can be seen as a negligent business practice by a good defense attorney and the judge. Developing and following good rules are essential to maintaining order and cleanliness in your park.
How many parks require incoming RVs and vehicles to be licensed and registered? Not many! These are simple California laws that everyone must follow, and you want guests that follow rules and respect order. Requiring these initial basics will immediately tell you what type of guest they will be in your park.
Do you request proof of insurance? If not, what if an uninsured resident starts a fire in their rig and it spreads to other vehicles that are also not insured? All of the damages and liability would fall to the park owner. Most parks self-insure the pedestals and equipment at each site, and would therefore be on their own for the debris removal and clean-up costs. If it is known among residents that you do not enforce the park rules and some element of negligence falls to the park, the claim could fall to the park’s liability or be denied altogether.
Considering your lease: is the owner of the RV or vehicle on the lease? Are they occupying the space? Are all residents on the lease? If not, ask yourself why – you have every right to know who is on your property.
Owners/operators frequently give up their rights because they are afraid someone will leave, and then they are left with an open space and one less monthly rent. Consider this as an option: change the overall culture in your park, and you will find yourself with an elevated quality of residents who are respectful and willing to pay more to live in a safe and well-maintained park where all rules are respected.
Our featured member in Vol. 47, Iss. 4 of The Spotlight is Green Acres RV Park in Redding. The park manager, Donita Kocourek provides every guest with a list of rules and what is allowed on each site. Any rule violations are pleasantly and firmly handed out by the park manager; if a third violation arises, the guest is provided the 30-day notice with no further discussion. Green Acres sees no loss in business and has a lengthy waiting list to get into their park. It can be done!
Can RV Parks Submeter Electricity?
Recently, questions about submetering have been swirling around the RV park industry in California. Can RV parks submeter electricity? Well, like all regulatory in California – it depends!
Utilities are regulated by multiple agencies; the Public Utilities Commission (PUC), regional utility departments such as Pacific Gas and Electric (PG&E) and Southern California Edison (SCE), local utility departments, and Weights and Measures.
Weights and Measures inspects the equipment – in this case, the electrical pedestals. The PUC offers code and standards to PG&E, SCE, and the local agencies similar to the way that a set of bylaws dictates how an organization can run. PG&E, SCE, and/or local agencies set the policies that get applied to the process.
Rule 18 is the section of code or policy that applies to submetering of RV parks, along with marinas, small craft harbors, and cold-ironing load. Each agency can apply to the PUC for a Rule 18.
So, yes, it depends.
Each agency can write Rule 18 to meet their needs. If you have parks across the state, you may be dealing with multiple agencies, each with a unique policy pertaining to Rule 18.
In the case of PG&E, Rule 18 states that:
Item B states that ALL spaces must be rented on a pre-paid monthly basis to qualify for service under Schedule ESR. ESR is the rate schedule. Item C gets more complicated:
So, to answer the question; you cannot submeter in an RV park in California under PG&E Rule 18 unless your park is 100% long term OR your long-term sites are on a separate meter.
SCE has a different set of guidance where Rule 18 is concerned. The SCE rate schedule DM special conditions (4,5) states:
4. Qualifying RV Park: An RV park which has at least 50% of its spaces on the same meter occupied at least nine months of the year by a tenant in a Qualifying RV Unit used as a permanent residence and renting on a month to month basis. Such meter shall not include nondomestic enterprises as described in Special Condition 7.
5. Qualifying RV Unit: An RV Unit that is used as a permanent single-family residence at the same location in an RV park for at least nine months out of the year. Baseline allocationsshall be based on the number of units that meet this criteria.
SCE will allow submetering as long as 50% of your sites are long term and you follow the rate schedule.
Here’s the bottom line: before electing to submeter, each park must check for a Rule 18 with their utility company to determine what policies have been set regarding submetering in an RV park, and you must follow the appropriate rate schedule. We will have more information about submetering on CampCalNOW.org very soon, but in the meantime, please feel free to call the office with questions.
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