Month: January 2022

Bubble, bubble: part two

Sometimes, it seems scarcely a week goes by without yet another announcement of an investment group with deep pockets jumping into the RV campground business, adding to a bewildering mix of players that can’t be kept straight without a detailed scorecard.

Last week, for example, Halmos Capital Partners announced the formation of Cedarline Outdoor, “an outdoor hospitality investment platform focused on the RV park industry.” Cedarline says it wants to create a “diversified portfolio of properties unique to the industry in terms of infrastructure, scale and visitor experience.” No telling yet what that means, but use of the word “unique” is always a grabber, especially in this context. We’ll have to stay tuned.

Just a couple of days later, NAI Global–a commercial real estate juggernaut that “maintains its competitive edge through a well-established culture of learning that informs decision making at all levels” and thereby demonstrates why it will never ace the SAT verbal section–declared it has “expanded its offerings” via a “brand-new service,” NAI Outdoor Hospitality Brokers. The Colorado-based “team” will specialize in purchasing and selling RV parks, campgrounds and glamping resorts across the U.S.

And so it goes, week by week.

What’s intriguing about all of this belated attention is that it’s coming just as interest rates have started an upswing, with inflation worries overshadowing the markets. For those with a cautious bent, this might be seen as a good time to pull back from any real estate investing, especially in as overheated a niche market as RV campgrounds, as briefly described in my last post. In times of economic uncertainty, goes the timeworn refrain, cash is king. Keep your powder dry, and wait for valuations to tumble.

Not so for the folks at the circus known as RV Park University, however, which mercilessly flogs a “home study course” aimed at middle class Americans yearning for a lucky investment break. Head ringmaster Frank Rolfe–who most assuredly is not speaking to the likes of Cedarline or NAI Global–contends that the stock market currently “is more overvalued than at any other moment in American history,” making this precisely the right time to invest in a niche “that is built on the fundamentals of income and cash flow and not PR and logo design”–that is to say, in “the simple RV park.”

The key to this great opportunity, Rolfe wrote in a recent broadside titled, “With the stock market collapsing, time to buy an RV park?” is that campgrounds are “a very simple business that anyone can understand quickly. You rent spots to park RVs–it’s simply renting land.” Even an idiot presumably could grasp that once you own an RV park you can just settle back and watch the money roll in–and to help you get there, Rolfe is ready to sell you a bunch of CDs and an outdated paperback for $400 or so.

Of course, nowhere in this come-on does Rolfe intimate that the campground biz is every bit as overvalued as the wider stock market. Or that whatever their other shortcomings, the rapidly swelling ranks of real estate investment pros are not going to leave much more than bleached bones for the small investor to pick over. That wouldn’t help his business one bit.

Bubble, bubble, toil and trouble

As 2021 numbers start rolling in, it’s clear that real estate investors racked up a record-setting year for commercial property sales, at $809 billion–nearly double the previous year, and readily exceeding the previous record of about $600 billion, set in 2019. As reported by the Wall Street Journal, buyers loaded up on warehouses, which serve as fulfillment centers for the e-commerce boom; apartment buildings, to capitalize on record-high rents; and resorts and vacation-oriented hotels, because of the resurgence in travel to leisure destinations.

What do all these real estate segments have in common? The belief that they’ve picked up powerful tail winds from the pandemic, which has changed so much of what and how we do things. But overlooked in this summation is possibly the most rapidly appreciating market segment of them all, that of campgrounds and RV parks. Although reliable numbers are hard to track down, I’m betting that the campground sector is punching way above its weight class, and for much the same reason: the pandemic has made RVs cool. They’re the perfect cocoon for the pandemic-skittish crowd. And they’ve got to be parked somewhere at night or for a month, and Walmart’s parking lots just won’t cut it in the long-term.

Potential campground sellers aren’t oblivious to these dynamics, which is why the latest set of listings I received from Campground Marketplace–a Michigan based nationwide campground broker–features a slew of jaw-dropping asking prices. A nine-acre seasonal campground in Alaska, with gross sales of $23,315, wants $385,000. A 17.5-acre property in the Midwest with gross sales of just under $300,000 can be yours for $2.5 million. A KOA Journey with 62 sites, 6 cabins and $178,156 in gross revenues–but “situated off a heavily traveled interstate”–is up for grabs at a smidge below $2 million.

These are crazy prices, as are the other listings, all looking for sale price multiples of 7, 8 and 10 times annual revenues–or more than double historical valuations. They’re also unsustainable for anyone who needs a mortgage, since they won’t throw off enough cash to service debt and also cover overhead expenses (never mind capital improvements!), so the buyers either have to be flush and simply looking for a place to park their money–or they’ll be seriously hiking site rates and hoping camper demand will be strong enough to meet the higher costs.

This is, in other words, a classic example of a bubble, in which assets get over-priced in the belief that they can be unloaded at a profit as the bubble keeps swelling, but before it pops. It doesn’t help that this frenzy is being goosed along by the brokers and other charlatans who profit from an overheated marketplace, like the unrelenting promoters at RVPark University. More on that in the next post!

RVs: homes hiding in plain sight

Because the West Coast is so often a leader in trends that eventually sweep the nation, one acronym that East Coast dwellers should learn is ADU, for accessory dwelling unit. ADUs can take many forms, such as basement apartments, apartments over a garage or a second, smaller building adjacent to the main dwelling, but in all cases they are part of the same property and cannot be bought or sold separately.

Once more widely popular as housing for extended-family members, or to generate extra rental income, ADUs fell out of favor in the mid-20th century and in many cities would now run afoul of zoning regulations. But as real estate prices have exploded all up and down the West Coast, the idea of maximizing land use and building relatively cheaper housing has become irresistible. As one result, California implemented a slew of new ADU funding and related regulations just a year ago, in hopes of encouraging more such development.

The key word in that description, however, is “relatively.” When the median sales price of a home in Alameda County last year was $1.3 million, or $875,000 in Seattle, an ADU can look like a bargain–even though the cost of one built to code can run as high as $400,000 in the Bay Area and Vancouver, BC. Yet even at a more typical mid-range cost of $80,000 to $150,000, there is nothing inexpensive about this approach, and it hardly looks like a cost-effective housing alternative for the growing army of people living in their cars, vans and battered RVs.

Enter Portland, Oregon, an interesting case study of where the future may lie. As reported a few days ago by freelance writer Thacher Schmid, Portland and Multnomah County have been overrun by illegally parked vehicles serving as homes of last resort. Although the city is the third-highest U.S. metro area for cost of living increases, unlike 45 other cities it has not designated “safe parking” programs for homeless residents, forcing them into a stealthy existence of parking on the sly, under overpasses, in city parks and in industrial zones.

Yet Portland also has had a progressive profile on accepting ADUs, and in recent years had basically ignored a creeping erosion of what’s acceptable as auxiliary housing, notably by vehicles that don’t have a fixed foundation. Kol Peterson, who spearheads a Portland-based organization called Accessory Dwellings, in mid-2020 extensively surveyed the city’s Cully neighborhood and found 65 inhabited mobile dwellings among its 4,685 households, including 36 RVs and 29 tiny homes on wheels. Based on that finding, he projected that Portland as a whole had an estimated 3,273 such illegal dwellings, at a time when the city had only 3,139 legally permitted ADUs.

Less than a year later, at the end of April, 2021, the Portland city council unanimously passed new regulations to allow RVs and tiny homes on wheels to be used as ADUs. That means RVs, which in almost every zoned jurisdiction nationwide can be inhabited legally only in RV and mobile home parks, may become increasingly recognized by other city officials as a viable form of affordable housing–after all, a $20,000 used RV is a whole lot more affordable than just about any ADU that can be built.

Suburban and urban homeowners may not be thrilled at the thought of having someone living in an RV camped out behind a neighbor’s home, but then again, most people who have spent much time in an RV won’t be thrilled at living in one year-round, either–especially if it’s seen a few years and isn’t going anywhere. But until society as a whole come to grips with its burgeoning housing crisis, even this rock-bottom response is better than living in the muck and stench of the illegal encampments that have been springing up in every major city.

RVing public has a PR problem

I’ve written in the past about the “gasoline gypsies” label that was hung on RVers, back in the 1930s, by a public wary of transients. That prejudice may have ebbed, as RVing became identified mostly as the idiosyncratic lifestyle of a bunch of old codgers spending their grandkids’ inheritances, but the recent explosion in RV sales across all age groups–and most notably to those same grandkids, now young adults–has been matched by a resurgence in fear and loathing of travelers and itinerants.

This deep prejudice is nowhere as evident as when a new RV park or campground is being proposed, or an established property is seeking permission for significant expansion. The usual concerns about any large development, be it commercial or residential, are predictable: traffic, noise, over-burdened municipal services, inappropriate use for the area, etc. But only campgrounds–unlike hotels or motels–seem to evoke a particular unease that goes beyond mere numbers.

When a new RV campground was recently proposed in Hinton, Mass., much of the public opposition focused on the transient nature of its prospective clientele. The town’s infrastructure is inadequate for “transient visitors who have no financial, moral or ethical ties to the community,” a local couple complained in a letter to planning officials. Another town resident, expressing her anxiety about an “invasion” of visitors, added: “The reality is, there’s no way to know who breezes into town and for what purpose. There is no accountability to the people who have worked hard to live here and live by the rules.”

The Hinton proposal was made by Northgate Resort Ventures, whose amenities and prices attract a higher-end demographic. Imagine, then, the paranoia that gets stirred up by a bare-bones proposal like the one in Larimer County, Colorado, where the owners of a 320-acre site want to put in 373 RV sites in the cheapest possible way, with gravel roads, porta-johns and no amenities beyond an “events building” several years hence. More than a thousand letters of protest have already been filed with county officials, at the earliest stage of a lengthy permitting process, and sprinkled throughout them is that same unremitting fear of the itinerant stranger.

“A temporary traveler will not have the same investment in the neighborhood as a long-term resident, which could result in an increase of crime,” one local couple wrote. They were echoed by many others: “A campground in an area of this size may also lead to an increase in crime and trespassing.” “The guests that will be coming and going from the over 370 camping sites have no ties to the community and no sense of pride.” “I am aware that sex offenders are often registered to the addresses of campgrounds, and that the transient nature of the occupants can provide a haven for other criminal elements.”

As fantastical as all that may sound, it also has more than a grain of truth–as underscored by local residents with RVing experience. “There is no doubt that this will attract at the very least transient individuals who are not vested in our rural neighborhood, and at the worst trespassing, drugs and stealing,” warned Tami Root, a former park ranger, who said that this kind of behavior had been “a consistent challenge” at the state park where she had worked.

Added local resident Kevin Blough: “As a family, we are avid campers who have camped almost every weekend for over 20 years during the summer months. During this time, we have experienced fellow campers who are conscientious and leave the area as it was when they arrived, however, more often than not this is not the case. Because the campsite and surrounding areas are not their personal property, campers often let their trash blow around, allow their animals to wander, use areas other than designated restrooms to relieve themselves, stay up all night, etc.”

Thus far, none of the major players in the RV sector–RV manufacturers, campground associations, RV media–have given any indication that they even see a problem, much less that they’re trying to deal with it. When they finally do catch on, they’ll be looking at a PR nightmare that will be so much worse for being so long ignored.

Housing squeeze makes RVs a default

The development struggle that’s been going on in Maggie Valley, North Carolina, for much of the past year is symptomatic of a growing problem around the country, as developers rush in to capitalize on the renewed interest in RVs and RV campgrounds. As with any boom investment, the financial shock waves thrown off by big money frequently buffet little people who have no skin in the game and are simply trying to get by–and when it’s their housing that’s at stake, the end result is immiseration.

In Maggie Valley, the conflict began when a Myrtle Beach-based developer unveiled a $200 million (!) plan to revive a defunct theme park, which many locals remember fondly from the latter half of the last century. But bringing Ghost Town in the Sky back to life requires a lot more juice than it once did, the developer explained; it requires a whole lot of ancillary development, from new restaurants to a hotel to a health clinic. It also will require finding at least 200 new workers in an area that doesn’t currently have them, and new housing for all those workers, because the area doesn’t have enough of that, either. That’s why reviving the theme park also means building additional RV campgrounds, he told the town, because that’s the cheapest and most flexible housing solution–even though the town has precious little flat land and at least a dozen existing campgrounds already serving the tourist trade.

The campground “solution” raises several issues, not least among them the suitability of RVs for long-term housing. But here’s an even more fundamental question: why isn’t there enough housing in Maggie Valley for the people who work there? And the answer, as just about all resort towns already know, is that real estate prices have gone through the roof. In Maggie Valley, located in Haywood County, home prices have jumped 33.7% in just the past year and 73.3% over the past five years, to an average of $338,316. Meanwhile, the average monthly income in Haywood County was just $2,454 in 2020, putting affordable housing out of reach of the people working in the tourist industry that is supposed to inject the town with economic vitality.

Ironically, while some of that upward pressure on prices is due to inadequate new construction, a significant part of it is the result of the pandemic-fueled return to the outdoors that developers are now trying to exploit. As local observers have noted, new visitors arrive, they fall in love with the mountain scenery and they decide to stay–sort of–by buying a vacation home. Sometimes two. That’s nice for them, providing a refuge from whatever claustrophobic cities they call home, but while their surplus homes sit empty most of the time, local workers more rooted to the area can’t find an affordable place to live.

This is not a problem peculiar to Maggie Valley, of course, although it may be more pronounced in mountain communities because of their additional topographic constraints on new home construction. Local news reported last summer that many workers in Jackson Hole, Wyoming, were living out of their cars in Bridger-Teton National Forest because there was no housing to be had. In the Idaho panhandle this past week, the Shoshone Board of County Commissioners heard numerous objections to a proposed RV park, including the fear that it would essentially become a magnet for “trailer trash.” As one local resident pointed out, a plummeting availability of rental properties is forcing area workers to turn to short-term rentals and RVs for their housing needs, with RV campgrounds at risk of becoming the next generation of trailer courts.

Indeed, short-term rentals are the other main driver of housing scarcity: real estate investors have concluded that the higher rates they can charge for short stays more than compensate for their higher risk compared to long-term rentals, and so have been snapping up houses and apartments that would otherwise be rented by working people. The short-term rental sector is so lucrative that newcomers like reAlpha–trolling for new investors with as little as $1,000 to buy in–dangle an irresistible set of numbers: Zillow’s estimate that long-term rentals are currently pulling in an average of $1,495 a month, vs. Airbnb estimates of $3,256 a month for short-term stays. “There’s a reason billionaires invest 20-40% of their wealth in real estate,” reAlpha croons.

Given those pressures, it’s little wonder that many RV campgrounds increasingly are headed in the direction of being dumping grounds for people with nowhere else to go. RVs are hardly designed for year-round living, and unlike regular housing they depreciate over time, so their owners never build up the equity that would allow them to escape their trap. But they are a step above living out of a car in a national forest–and they do enable developers with deep pockets and large ambitions to keep on getting bigger.

The RV park bubble is growing

If the pandemic has been bad news for many businesses, just the reverse has been true for RV campground valuations, with prices ratcheting steadily upward. But as is becoming increasingly clear, the buying frenzy is creating a real estate bubble of asking prices that aren’t supported by economic fundamentals.

Take, for example, the Tennessee RV and motorhome campground that just got listed for sale, scarcely more than two years after the current owners acquired it. The 8.1-acre Tiny Town RV and Motorhome Park has 54 RV sites, plus sites for 10 single-wides and one double-wide, and accepts only monthly rentals. That means it also has minimal amenities, but the park does include a 3,600-square-foot house, a laundry facility with bathroom and connected maintenance area, and a zero-turn mower and diesel tractor.

Asking price? $3.4 million.

Sound pricey? Indeed it does, and a quick back-of-the-envelope calculation demonstrates how much so. The campground’s current rates include $550 a month for 26 RV sites at the front of the park (where there’s more road noise) and $575 a month for 28 sites in the rear. The single-wides, whose occupants pay their own utilities, are charged $250 a month; the solitary double-wide pays $320 a month. Assuming 100% occupancy year-round–which isn’t really a thing–that works out to a maximum of $398,640 a year in revenue. In other words, the aspiring sellers want someone to pay them 8.5 times their maximum annual cash flow.

How crazy is that? Let’s assume a buyer comes in with a typical 30% down-payment, or a smidge over a million dollars. Further assuming that the balance of $2.38 million is financed over 25 years at 6%, that means a monthly mortgage payment of $13,913, or $184,008 a year, leaving $214,632 a year to cover utilities, insurance, taxes, payroll (assuming the new owner can’t do all the needed work), maintenance and upkeep. If operating expenses can be kept to 40% of annual revenues, or $159,456–a highly optimistic assumption–the buyer will be left with annual income of $55,176 plus a home. At a more realistic 50% of revenues, or $199,320 in operating expenses, that drops to just $15,312 a year for the owner to live on.

Is it possible? Yes–if everything meets best-scenario expectations, nothing goes awry and there’s no expectation that the park will ever need capital improvements . Keep in mind, though, that buying an annual income of no more than $55,000 will cost the new owners a million bucks that they could have invested a lot more profitably elsewhere, and without years of hard work ahead of them. The more likely outcome is that if this property sells at anywhere near its asking price, it’ll be because the buyer is planning a sharp increase in site rates.

It might be time, in other words, for the park’s residents to start thinking about their next home.

Boondock–or boondoggle?

Back in the day, when my legs had considerably more spring in them and I could backpack all day long, I would head into the backcountry for a week or 10 days or–on one memorable expedition–two weeks at a time, carrying everything I needed on my back. It was a point of pride for me not to have to resupply, so the 45-55 pounds I allowed myself had to include not just my tent, sleeping bag and cooking stove, but all my food and stove fuel and sufficient clothing for any weather I might encounter. The only thing for which I had to turn to my environment was for water, and in those days, drought was less of a limiting factor.

The attraction of all that hardship, which I could never adequately explain to my non-hiking co-workers, was the solitude and self-sufficiency I could carve out for myself. I could go days without seeing another soul–or if I did, odds were it was someone just as willing as I to pass by with a quick smile and brief nod of recognition. Or to stop for a 15-minute chat about the weather or the country ahead. I could hike north or south as the mood suited me, spend hours just lazing beside a stream or put in a body-testing 20-mile day, stretch out at night to look at a star-studded sky or roll over to make the day’s journal entry.

I tried to pass through the high country without leaving a mark because I wanted to leave the land as beautiful and restorative as I had found it, but also because doing so fit my sense of what it meant to be self-sufficient. To me, it meant that no one else would have to repair or clean-up after me. It meant not taking that which could not be replaced. It meant being non-intrusive, in order to preserve that sense of solitude for which I had gone searching.

Yet even on those remote pilgrimages I would encounter disturbing signs that not everyone felt the same way. Fire pits that hadn’t been dispersed, rocks blackened and cracked from the heat. Slash marks and cuts on trees, frequently live ones, where someone had swung a hatchet for tinder or firewood. Most disturbing of all were the piles of human feces just lying in the open, often still festooned with toilet paper, with no effort made to bury this most arrogant display of human hubris. Or maybe it was just heedlessness.

I think about these things when I read or hear about RVers promoting boondocking as a way to get away from too many other RVers, from over-crowded campgrounds and from the high (and rising!) cost of finding a spot with a power pedestal and hydrant. There’s a lot of emphasis on self-sufficiency and how to make resources last, from gas generators and solar panels for electricity to capturing grey water for toilet flushing to various tricks for staying cool in the heat and warm when it’s cold. Sometimes, at the extremes, all the chatter takes on a somewhat paranoid survivalist sheen that makes me wonder about other people’s fantasy lives.

The uncomfortable fact is that some boondockers will be like the solitary hikers I would sometimes encounter with a nod and a smile, but too many others will be of the poop-on-the-side-of-the-trail variety. They’ll leave ruts across fragile or muddy soils, shatter the night stillness with their electric generators, dump their grey water (hopefully not the black!) wherever it suits them because, well, they’re out in “nature.” They’ll leave fire-scarred rocks and half-burnt stumps, demolished vegetation and food litter, like orange peels and egg shells, because that too is “natural” or “organic.”

The facts also are that even the most conscientious boondockers will be unable to avoid scarring the land on which they’re camping. Not when they’re driving 5,000- to 25,000-pound wheeled houses onto unpaved and uncleared ground, squatting in one place for five or seven days–if not longer–until they’re forced to move on in search of fresh water or a dump station. And while it may seem like there’s an awful lot of land out there for the boondockers to settle on, and so whatever damage they may inflict will be dispersed and only minimally visible, in reality the boondocker population is exploding and the land they’re seeking is much more limited than they imagine.

It’s hard for many people to accept the fact that we humans, small and insignificant as we are, could possibly have so great an effect on this seemingly limitless planet as to cause global warming of catastrophic dimensions. So, too, will it be difficult for many boondockers to accept that their attempt at self-sufficiency will likewise destroy the very environment they’ve sought out, one rut and one splintered tree at a time.

Col. fire should be a wake-up call

Nearly a thousand Colorado homes just burned to the ground, not in a California urban-woodland interface but in an area far more typical of suburbs anywhere in the United States. That causes a problem for climate-change deniers, for whom it’s an article of faith that California’s devastating forest fires have nothing to do with extreme weather and are simply the result of poor forestry management. If only the state did a better job of thinning out its underbrush, they argue, those fires wouldn’t have occurred, or at least would not have been as extensive.

But what do you say about a wildfire that had nothing to do with poor forestry management because no forests were involved? A wildfire that occurred in December, far outside the “normal” fire season?

Unfortunately, where there’s a will there’s a way–and the will among this group is to deny any facts that would require, if actually confronted, some changes. Perhaps some personal inconvenience. Maybe even some expense, to finally pay for what the economists call “negative externalities,” like pollution and resource consumption. Because when you get right to it, what much of the climate-denying comes down to is, “I’m going to do what I want and no one is going to tell me otherwise, because I know what’s best for me.” Note that this stance makes no mention of you or the next generation.

A recent case in point is California’s recently passed legislation to ban the sale by 2024 of small, off-road gasoline engines, such as those found in lawn mowers, pressure washers and leaf blowers. The ban would then be extended to portable generators by 2028, as the latest step in the state’s aggressive effort to transition toward a carbon-free economy–carbon, as most people understand, being the biggest contributor to greenhouse gases and global warming. And small engines, it turns out, are enormously more polluting than car engines, which have become much more efficient (and therefore less polluting) after years of tightened emission standards.

How polluting? The California Air Resources Board calculated that operating a typical gas-powered lawn mower for an hour emits as much pollution as driving a car from Los Angeles to Las Vegas. Operating a backpack leaf blower for an hour emits pollution comparable to driving that same car from Los Angeles to Denver. In recent years, total particulate emissions from small engines began to exceed that of all of the state’s passenger cars.

Many RVers, however, understood only that their ox was being gored because of the coming ban on portable generators. When RVtravel.com ran a story about the legislation it got almost half-a-million hits, or ten times the readership of its usual most-read stories. The comments that flowed were so vituperative and obscene that the site’s moderators called it quits after cleaning up the language in more than 200 responses, announcing, “Comments are closed. Too many of you are just bashing each other. Take it elsewhere, please.”

Wading through the emotional maelstrom in an effort to understand its underlying logic is to scrape at a collective id of mewling self-entitlement. “I pay for the national parks in California and they are trying to restrict my personal use of them,” complained one reader, saying he wanted to find a lawyer to file “a federal suite [sic] against California on a pro bono basis,” which is nonsensical on its face. “The environmental nuts are going to cost us huge amounts of money, ruin our lifestyles and livelihoods with this totally unnecessary push to go green,” added another, who went on to claim that his air in Phoenix is just fine without such measures, thank you very much. Anyone who has been in that city during a temperature inversion knows better.

And then there was the curiously paradoxical response from a woman who wrote: “The elected officials in California couldn’t care less what the general public says.” Pause to absorb that, then: “Most of the people who live there voted for this crap, so they aren’t going to want any change.” And then, just for good measure: “Climate change is another scam, like the covids.”

There’s a lot more like that, and not much sense in pawing at it except to note that these kinds of non-factual temper tantrums make the difficult job of responding to climate change even more fraught. It’s all about the carbon, and keeping as much of it out of the atmosphere as possible, and yes, that’s going to require lifestyle changes–which, for a certain segment of the population, amounts to a transgression of personal sovereignty. It’s too bad that a disproportionate segment of the RVing public seems to come from that mind-set, because ultimately their self-serving ignorance could tarnish all RVers.

Next post: the inherent contradiction in boondocking