Le Camping / International Herald Tribune

Parks Move Upmarket but Investors Find Them Labor-Intensive
Saturday, July 28, 2001

Holly Hubbard Preston

For the investor who has never set foot in a motor home, the thought of owning a park catering to recreational vehicle owners might seem far-fetched. Until recently, most privately run parks and campsites were owned by enthusiasts who had spent a good chunk of their time in motor homes or trailers.

"Caravan parks used to be the last choice for a holiday," said Ken Buckley, owner of Ken Buckley Caravan Park, Motel Tourism Business Brokers in Batemans Bay, New South Wales, Australia. The 44-year-old Mr. Buckley, speaking from personal experience, recalled the caravan parks he visited as a child as being "really dreadful places."

In Australia, as elsewhere, a movement is under way to upgrade services. This, coupled with an industry-wide push to portray motor home travel as an upscale vacation alternative, is paying off for owners in terms of increased visitor numbers and park valuations.

When Mr. Buckley started out, Australian owners might be able to charge 10 Australian dollars ($5) for a night at a campsite or vehicle pitch. Now owners of upscale and or well-situated parks can charge closer to 30 dollars.

Mr. Buckley, a former real estate developer, has been brokering parks for 15 years. Australia, Mr. Buckley estimated, has approximately 950 privately owned parks, only 40 to 50 of which will be on the market at any time. He sells about 10 parks a year at an average price ranging of 1.5 million to 10 million Australian dollars. When he started out in 1985, the average price was around 1 million dollars.

Investors without extensive RV experience are increasingly calling on Mr. Buckley. For example, he said he recently sold a park to the owner of four hotels who was expanding into this allied business.

"The value of the properties has come to the stage that it is often beyond mom and dad buying and selling a caravan park," said Mr. Buckley, adding, "We are selling parks in the 10 million dollar range. At that level, you are talking about a full commercial enterprise that needs to be run that way."

When valuing a park Mr. Buckley focuses almost solely on its capacity to earn money, calculated by the return that can be earned per campsite.

It is the same benchmark used by Kampgrounds of America Inc., a company based in Billings, Montana, that runs a network of 500 company-owned and franchised parks and campgrounds in Canada, Japan, Mexico and the United States. The company's franchised park listings, which can be found on its Web site, generally range from $200,000 to $2 million, according to its communications director, Michael Gast.

Mr. Buckley has one listing, a 10-acre (4-hectare) property called Emerald Beach Holiday Park, on the market for 3 million Australian dollars. Situated on a beach, it has 120 pitches plus government approval to build 80 more sites. It also has 16 cabins. The 25-year-old property also has two homes, a large game room, a half-size tennis court, a volleyball court, an in-ground pool and a children's playground.

The park generates annual cash flow of about 380,000 dollars, Mr. Buckley said, providing a return of above 12 percent before taxes and financing fees at the 3 million dollar listing price. There is potential to boost those profits, particularly if a new owner adds accommodations.

The cabins can be more lucrative than the RV and camping sites, Mr. Buckley indicated. In Australia, they average a 70 percent occupancy rate, compared with 50 percent for the pitches, and the cabins can rent for 75 percent or so more.

A trend toward adding indoor accommodations to motor home and camping sites seems to be taking hold. Roger and Ina Darlington, recreational vehicle owners who have traveled extensively in Europe, recently visited Kijkduinpark, a park near The Hague, which had been totally redeveloped from their prior visit. There were still a couple of separate areas for tents and touring vehicles, the Darlingtons reported, "but the majority of the site is now taken up by these chalets," as well as a "small village-center of shops, burger bars, tennis courts and swimming pool." Similar reports came out of Britain, Japan, South Africa and the United States.

Abandoning the bucolic RV park, which traditionally would have a general store open during the daylight hours, central shower and laundry facilities and perhaps a pool, does not come cheap. Kampgrounds of America advises prospective buyers with redevelopment plans that include new construction to factor in $250,000 of expenses plus the cost of actual construction. This is on top of the $100,000 or so downpayment to buy the camp.

Then there are maintenance costs. It costs a typical Kampgrounds of America owner $1 to $2 a night for each camper, Mr. Gast said. "Think about inviting 10,000 to 20,000 people over to sleep on your front lawn. Plumbing needs to be repaired, grass mowed, light bulbs changed, laundry equipment repaired. If you are not able to do most of these repairs yourself, the cost can become prohibitive."

Franchisees pay Kampgrounds of America 10 percent of their registration income in fees, though they get to keep any additional revenue from stores and other services.

Prospective owners should remember that parks and campgrounds are generally not hands-off investments. Outside of the United States third-party service organizations that provide onsite park management services are rare, said Mr. Buckley. Owners will often find themselves playing active day-to-day roles in managing their properties.

There is a problem with biting off more than you can chew. Sebastien Cantais, who used to work at campgrounds and now owns a real estate agency near Montpellier in the South of France, said the bulk of first-time buyers have two big misconceptions about what they are getting into.

"Someone thinks they can buy something for 2 million francs [$270,000], and they hope to have 8 million francs credit for a 10 million franc resort. But that is not possible if they only pay 20 percent. They need to bring between 35 percent and 50 percent.

"In order to do this, you need to buy a camping resort that will work all year round." Only sites near attractions like a national park or a large city can hope to enjoy the year-round traffic necessary to generate income to repay the financing, he said.

"The second big misconception," he continued, was that "people think they are going to build something entirely new and original, something better than all of the others." This often leads to overoptimistic goals. "People build for four-star tourists, with swimming pools and fancy accommodations, but they forget there are two-star tourists as well." Mr. Cantais said that new park owners had to work to build their reputations with customers. Unlike businesses that have frequent transactions with their customers, parks tend to interact with theirs only once a year. Thus, it can take about seven years to establish a loyal clientele, he said. It can take even longer to pay off the financing, he added. Usually, mortgages run 10 years, but they can go longer. One positive aspect of buying a park in France, he said, is that it is relatively easy for investors outside the country or the European Union to purchase land for a resort. Legal fees run about 10,000 francs ($1,300), he said.

Bearing out Mr. Cantais's description was Huw Pendleton, a former hospitality industry worker. With two partners, he purchased Croft Holiday Park, near Reynalton, Wales, three years ago.

The 14-acre park has 50 pitches for recreational vehicles and trailers and 90 parked mobile homes that can be rented or purchased.

Mr. Pendleton, who had no experience owning a motor home or park, spends 17 to 18 hours a day managing the camp.

He acknowledged that it involved "a lot more work and stress" than he originally figured. The park also has consumed more cash than the three partners budgeted for their largely cosmetic redevelopment.

Mr. Pendleton, however, said he did not regret his decision. "It is really quite a nice environment to work, and I am my own boss."

Adam Berry contributed to this article.