Tag: Bob Kaplan

Increasingly, it’s about da Benjamins

For all the high-fives and back-patting on display at the National Association of RV Parks and Campgrounds convention last week, an undercurrent of anxiety rippled just beneath the surface. Yes, the 2022 camping season was one of the best ever. Yes, there’s a wave of new campers invigorating the industry. And yes, a lot of the new-timers are more affluent than the fuddy-duddy boomers who dominated the landscape for so long. And yet. . . .

And yet, as strong as business was this year, for the most part it barely improved on 2021. As observed at an afternoon cracker barrel session led by Larry Brownfield, assistant vice president for franchise development at KOA, franchise revenues were up about 3% for the year even as camper nights were flat—in other words, any growth came from squeezing money out of a static customer base, not from increased business. Meanwhile, as summarized by economist Bob Kaplan in a breakout session on the economic outlook for 2023, industry headwinds are still gathering strength, including higher operating costs, higher fuel prices and inflationary pressures on family budgets.

Indeed, if there was one recurring theme to all the dollars-and-cents discussions, it was the observation that camping is becoming a pricey pastime. Propelled by a high savings rate during the many months of pandemic shut-downs, households were “flush with cash to spend on leisure activities,” Kaplan observed, to which the industry responded with opportunistic enthusiasm. As the number of camping households with annual incomes of more than $100,000 doubled from 2019 to 2021, the average cost of new RVs jumped 20% in three years, site rates kept going up, and the campground industry’s compound annual growth rate soared by half, to 12.7%, “an awesome number” that transformed the staid sector into a growth industry almost overnight.

But as seasoned investors are fond of saying, nothing grows to the sky. A strong dollar has made overseas tourism increasingly competitive with domestic travel—and as camping gets more expensive, hotels and other resorts also are competing for the same now shrinking pool of pent-up savings. Indeed, said Kaplan, demand for quality hotel rooms is already outstripping supply. Higher interest rates and rising fuel prices are deflating the RV sales balloon. And campground buyers are taking note and pulling back, as evidenced by a gradual rise in capitalization rates of newly sold properties, a marker of higher investment risk.

More cautious campground owners also are paying attention. Judy Brown, owner of a Florida RV park, said her campground now is almost completely occupied by full-timers, a hedge against softening transient demand and a transition enabled by the state’s flood of hurricane refugees. And Eric Rasmussen, president and director of acquisitions for Spacious Skies, an aggressively expanding chain of RV parks in the eastern U.S., said the company has started evaluating whether some of its properties should start accepting more long-term campers to ensure steadier cash flow.

While KOA and Spacious Skies both claim not to be changing their acquisition strategies—yet—Brownfield forecast that 2023 would be flat or even slightly down from this year. The “prudent” thing to do in an inflationary environment, he said, would be to reduce debt—the implication being that KOA’s pace of acquisitions may in fact start slowing down. Rasmussen, meanwhile, suggested that campground owners should “fire” their lower-end customers to make room for those who can absorb higher rates, another hint of growing financial stress.

Yet if the RV park industry indeed is heading into a significant slowdown, that may—somewhat paradoxically—result in a renewed acquisition spree. There’s more than $365 billion in cash sitting on the sidelines of the private real estate sector, Kaplan noted, just waiting for good opportunities, and real estate traditionally has been a safe haven in inflationary times.

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Buying, selling hotels without walls

There are lots of reasons to be wary of the institutional investors that are tripping all over themselves to get into the campground and RV park business. They drive up the cost of entry for the mom-and-pop entrepreneurs who have been the industry’s backbone. They jack up prices for campers and RVers, transforming a formerly low-cost form of recreation into an increasingly pricey one. They tend to homogenize the business overall, chasing after the economies of scale that come through cookie-cutter standardization.

But perhaps the most worrisome aspect of this trend is that many of these investors don’t know what they’re buying. They haven’t been campers or RVers themselves. They may not know any campers or RVers personally. They basically know only that the campground industry is a still relatively under-exploited segment of the commercial real estate (CRE) market and that they have a chance to get in early. If they don’t really know the business, how hard can it be? How different can it be from other CRE “hospitality” segments?

No difference at all, according to Bob Kaplan of NAI Outdoor Hospitality Brokers, as quoted by Woodall’s Campground Magazine in its current issue. “If you’ve been a hotel operator, then certainly you can figure out how to run an RV park,” he assured senior editor Jeff Crider. “In my eyes, a highly transient park is like a hotel without walls.” Easy-peasy, and in all likelihood just the kind of reassurance Kaplan provides the investors who turn to him for guidance as they wade into this brave new world.

For someone who actually runs an RV park, however, Kaplan’s assurance is as nonsensical as declaring that anyone who has grown grapes can figure out how to run a winery. It certainly is possible. It’s just not going to happen overnight, and there’s a good chance there will be some bitter missteps along the way. Just as making the jump from vineyard operator to vintner requires sophisticated new knowledge, from soil chemistry, suitable varietals and fermentation to a host of other variables, running a campground requires–at a minimum–the skills and attitudes of a cruise ship director and a farmer in addition to those of a hotelier.

For example, most campgrounds have amenities and activities that are more common to Norwegian Cruise Lines than to Marriott Hotels, from climbing walls and laser tag to face-painting, live bands and bingo nights. True, not all campgrounds fit that description: some truly are just Spartan overnight rest-stops that cater to the traveling public, just as most motels do. But a preponderance of campgrounds market themselves to families, and that means kids in numbers that would set most hotel operators aback. Those kids and families require a level and kind of staffing that hotels don’t experience, a specialized repairs and maintenance budget for all those amenities, and a management sensibility more often found among elementary school teachers than among graduates of the Cornell School of Hotel Administration.

Even more critically, a “hotel without walls” is another way of saying “outdoors”–with all the blessings and misfortunes that entails. That in turn calls for a farmer’s temperament and outlook, for working with mercurial–and increasingly extreme–weather, with changing seasons and with a campground infrastructure that is far more exposed to the elements than any hotel’s. A hotel with walls doesn’t have to contend with wildlife wandering in or with guests who start campfires without respecting fire bans or with diesel fumes and the rumble of generators. A hotel without walls is by definition thrown open to Mother Nature’s unpredictable and uncaring whims, quite unlike the constrained and regulated bounds of a brick, glass and steel fortress.

A hotel without walls, in other words, requires more time and effort than most people looking simply for a place to “put their money to work” want to expend, so either they do a lousy job of it or–as Kaplan also noted–they turn to third-party management companies, like Blue Water Development Corp., Advanced Outdoor Solutions or Horizon Outdoor Hospitality, to do the heavy lifting. The ones that go it alone, believing that money is a meaningful substitute for long hours and actual work, tend to pump a bunch of it into their new property to justify hiking rates, even as previous levels of hospitality or maintenance decline. The result: a slow overall deterioration that may not be discernible for several years.

The others? Those are the parks that become buffed-up clones of each other, like so many interchangeable fast-food restaurants. They’ll fill you up, but a few days later you may be hard-pressed to remember what you tasted. And you might end up wondering why some people talk about camping as having been such a special activity.

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