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!

Author: Andy Zipser

A former newspaper reporter who worked at a variety of newspapers, from small community weeklies to The Wall Street Journal, I finished my "normal" work life as the editor of The Guild Reporter, official publication of the union representing newspaper workers. On retiring, I and my wife bought a campground in the Shenandoah Valley and--with the help of our two daughters and their husbands--operated it for eight years, first as a KOA franchisee and then as an independent family-owned RV park. We sold the campground in May, 2021, and live in Staunton, Virginia, a short walk from our grandsons' home.

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