KOA RV Park Business Investing Webinar

Far so. All right, I'm going to go over the deck. It's pretty straightforward. Most of our deals look about the same. Our whole strategy is to buy parks that are already performing well. They're probably under market on rents and they're probably pretty full or close to it. And those two things are correlated. And then we, we like to buy parks that are solid on day one and then add value over time. And so we will not buy a park that does not have the potential to get to 750gr and top line after expansion. We want to always have expansion opportunities in the park because we are confident in our ability to fill the park. So under market rents, good location, preferably waterfront if possible, preferably amenity rich if possible, and definitely the ability to expand and get our top line NOI or our top line revenue to 750. And with an average 45% expense ratio, we know that we can get our net profit to the 3 to 4 hundreds range. Plus we'll take bigger parks, but it's harder to find bigger parks at the cap rates that we look for. John just joined, so I'm going to unmute him. Hey John. Welcome.

Hey. Hey. Thanks Chris.

Good to see you. No problem. Yeah, you too. I just got them started. I just showed him where it was and I just kind of started to talk about our overall thesis and I'm gonna go through the deck. Cool. So this is what the financials of this park look like. John, I'm pretty sure this is one of our smallest raises ever and someone asked a good question and he's saying what's the point? Like why, why raise 750? Is that even worth the paperwork? And my answer, John, tell me if I'm wrong is we've got a machine. We've got a well oiled machine and a good system that we can plug these parks into. And this park fit our buy box and it's really efficient, even at 50 grand chunks at a time to raise 750 on parks like this. Am I right?

Yep.

Okay, so 8% prep. So first 8% of the return goes directly to the LPs. We're targeting a 3x multiple within three to five years. Our strategy on everything is to refinance within two to three years, assuming that rates eventually come down. And at that point LPs would receive the majority, if not all of their principal back, wherein they can stay in the deal for perpetual returns. This is kind of a higher IRR park for us, which is great, 30%. We're usually in the mid-20s, the. And it's a very, very straightforward park. There's not a lot of hair on it. It's. It's a. Well, performing a good park on day one with the opportunity to expand starting next year. Pretty amenity, Rich. We've got a pool, river deck, game room. It's been well cared for. Good pride of ownership. We actually found it. Chris, our acquisitions guy, found it because he, he saw a nice park in Georgia that looked really good and the owner knew of another seller in North Carolina that was listing with a broker and it was about a week away from hitting the market. So we were able to snag the broker before it ever hit the market, put in an offer and never hit the market. So that's a testament to Chris Haynes. He's our acquisition guy. And John, I think he might be our secret weapon. I spoke to him for a while yesterday. He was in law enforcement for 31 years doing investigations. He's got the southern twang. He drives a big truck. He's got the fifth wheel hitch on the back. He is kind. He, he's a straight shooter and he just speaks so well to these park owners. About right, John.

That's it. You got it.

Really likable guy. It's interesting how. Well the crossover is, how seamless the crossover is between a career police officer and someone buying RV parks. It just works, it just fits.

He and I visited a lot of parks together too, and they're every, you know, really nice parks to parks where I was not. I was a little nervous about getting. I let him get out of the car.

I bet. Yeah, I bet he wasn't scared. He probably seen a lot worse. It is a 56 unit site. Two of those units are campgrounds along the river. 54 of them are RV pull through sites. Got your standard 30, 50amps, 70 foot max length, which is nice because that's, that's longer than normal and it's just a good park. It's the closest metro. Is Chattanooga still a couple hours away like I showed earlier. It's just in the dead center between Dollywood, Chattanooga, Atlanta, Knoxville, all those beautiful cities. This slide talks about our overall strategy. It's the same deck or it's the same slot on every deck. We, we strive to return all the principal within three years and then, and keep everyone in the deal. John, did I miss anything here?

No, no, I think that's good. And this, this area of western Carolina, it's about 30, 40 minutes from. You see Brasstown there And some of. Yeah, and some of the brat. So. And actually right. Right down into Georgia is near. There's Brasstown Bald, Blairsville, Georgia, not far from there. That's my. I grew up, spent a lot of summers there. My grandmother had a bed and breakfast and my family still owns the property. A decent. A pretty big property there. So I. I've been to Murphy a bunch of times as a kid, and it's just. It's a really pretty part of the country. You get a lot of, you know, obviously a ton of RV traffic passes through there. Up, you know, going Knoxville, Eastern Smokies, Asheville down to Atlanta. It's just. A lot of the roads pass through, but. So it's a nice place to stop. And it's a growing area. You get a lot. You get a lot of down and backers, they call them, where people moving from New York down to Florida. You know, the north up north from down to Florida, and then Florida's a little too hot. And then they come back to North Carolina like half. Halfway back. And so it's. It's that kind of. That kind of. That kind of place. But I think. I think it's one of the prettiest parts of the country. And there's. There's pretty steady growth there. And some of the comps. There's not. There's one other park right near a casino near here that has significantly higher rates. So there's. It's.

It's.

It's a nice park. Really. Nothing. We don't need to do anything. And it'll still cash flow out of the gate.

I was surprised by how low the rates were. I even pulled that up. 50 bucks a night for something along the river in the Smokies. That's pretty crazy.

Yeah, yeah, it's.

It's low. Yeah. What is their average occupancy been lately, John? I didn't see that on the deck.

So they'll. So they'll. They'll. Summer. Spring. Summer. Fall is a season there you. It's obviously be. The fall is actually beautiful, but if you think about the summer, they'll. They'll run higher. 80, 90% plus. This is a more transient. You're going to transient park than some being a K. It's a koa. So KOA parks are typically more transient and meaning people come in and go in and it's. It's an area where in the summer It'll. It'll be 80 to 100%. July 4th weekend, memorial, labor Day, all those. It'll be. It'll be full and you know, you charge more, more, more per night. I would, I would, we would increase the nightly rates, especially on those holidays. If you're 100% of the summer, you think of a year, the summer is basically 30% of the year. So if you stay full just for the summer in a transient park, you're only at 30, 29, 30% occupancy for the year. You know, if you annualize that just that, that part of the summer is, is about that. But if you do well during that season, you can, you, you can basically hit your revenue target and make money. So if you just kill it and optimize your rates during the season, you'll do well in the off season. You could pick up some monthly. That's typically what we do. Maybe about 30, 40% will keep as monthly and then you'll, you may only be at 50% occupancy. Six, you know, maybe 60% on weekends in some of the off season. So bouncing 40 to 60% occupancy offseason and so on average, you know, you're maybe depending on how you calculate the transients, you know, you know you're, you're 50, 60% kind of annualized there.

Okay, thank you. While we're on this slide, would you mind talking about the team a little bit and what we built here at Blue Metric?

Yeah, yeah. So we, I mean we have, it's, it's, it's a in house property management company. We have director of personnel, a lot of hospitality experience. I don't think there's many folks out there. I know some of the, our competitors which are heavier in other markets. But in, in the Tennessee and surrounding states, there's really not a whole lot of anyone building an organization like this. So we have a land development director. His whole purpose is to maximize the value of all our land. And like you look at this park, there's a nice creek there, there's some water, there's some areas to expand. You know, we can, we can site build tiny homes for 25 grand, which is great. And especially when you, you know, you can rent them. You could recoup your money fairly fast on a payback schedule there. And that's all he does. So we're seeing synergies doing the same type of model on different parks. And then we have a director of personnel who came from Darden restaurants and he oversees everyone. His job is really kind of leadership and oversee the team and make sure everyone's delivering and building the team over this park. This park will have Dean who's retired. Retired military. He. This is actually near his. His home base, which is, you know, we call. We basically deployed Dean to oversee a number of our parks. He rolls. He'll roll through Kentucky into Tennessee, but comes back here. So this is his. Kind of like his backyard. So this park will be close to him and he can. He'll come in and maintain. He's kind of an enforcer. You know, he'll enforce brand standards across. Across the parks. That's just some of the team. And then there's obviously people at the park level and we have digital marketing partner and other. Other. Other folks involved.

And we had a question in the chat if KoA provides any pricing guidance or oversight.

Yeah, they do. And they'll. They'll. On other parks. We've seen it. We have two other koas right now. Another one we're converting to a koa. They'll. They'll get. They'll do all. They have a whole. Every department. And we've done. I've been to Montana at their headquarters. Done. KOA University. We've had multiple people on the team do that as well. Yes, they'll. We'll sit down with them and revisit the rates. We'll have our. We have our assumption on the rates. They'll. They'll come through and they really help, especially with the dynamic pricing, looking at what else is going on in the area and how much we should fluctuate rates on. On the holiday weekends. And. And they'll even. And even things like firewood or propane or some of those other things they'll. They'll weigh in on. So they give a lot of guidance.

Yeah. It seems like our strategy is less dependent on increasing rates and more dependent on expansion. Because if we add a new pad site, that's an extra 60 bucks a night, whereas a 10% bump is an extra 6 bucks a night. Right. So it's kind of like our pro formas don't even budget for that many rate increases. It's just the cherry on top. Yeah. Okay, so we are big believers in the RV sector. We saw mobile home parks start getting chased down about seven or eight years ago by private equity. Marinas started getting chased down three, four, five years ago. Campgrounds are getting chased down above 10 million. But we're not seeing a lot of competition in this, what we call the messy middle parks, between 2 and $10 million. It's too big for a single family home investor or for your. Your average investor. And it's too small for private equity to really care. So this is where we're thriving the most is on these amenity rich parks that people like me. When I was buying parks in 2019, 2020, frankly I was scared of these parks because it takes a big management team to take care of all of these am whereas we already have that. So we might as well keep rolling more parks into this machine. RV sector is growing. It's taking advantage of four to five different megatrends all at the same time. Retiring baby boomers, millennials love RVing and we consider it a hedge against the economy. Right now the economy is doing well. People are buying RVs and they're traveling and we have a higher ratio of short term stays which are more profitable. Whereas if or when the economy tanks, these are the cheapest form of affordable housing. People unfortunately will have to live in these full time on a month to month or yearly basis. You can dial back the amenities and you can still cover your occupancy rate by converting them to more long term parks. So it's just nice to have a hedge against either type of economic situation. These are almost exclusively mom and pop owned parks. Most of them are single park owners. We've come across a couple parks that owned two or three. As I said in the beginning, we're really committed to expansion. We want the parks to say 80 to 95% full and we want there to be room to expand so we can get our top line over 750. It needs to be big enough to justify full time management. This park is on the smaller end of our parks, but it's also close to our Tennessee parks. It's close to one of our employees. It's much easier to roll park on the smaller side into our system than it would be to roll a smaller parking door system on another part of the country. This is our track record so far in business for 16 months. John, you've been in commercial real estate for 20 years.

Yeah, rounding up from 19, we'll go with 20.

19 years. I've been in real estate for 13 years in the, I've been in the RV mobile home park space for five years. Last year we acquired 30 million dollars worth of parks. That has like the 50 million dollar basis at this point. We, we find a lot of sellers somewhat offended by our, our offering or asking prices because we, we almost always buy at a 10 cap and Montana was an exception because it was a 9 cap and it was appraised at a 7 cap. That was still a great buy in a very supply constrained area. But most of these parks are 10 to 13 caps, which is just a testament to Chris and our acquisition team. Chris has a couple of cold callers working for him. And Chris has a goal to talk to five people in the space every single day. And so he's just planting seeds all day, every day and finding parks. And a lot of these parks that we've been finding lately, just like this one, are not necessarily off market, but they're just pocket listings. And I think in Montana in that case, that was actually listed on the market and just happened to hit our radar, right?

That's right. Yeah. And we were, we were, I told him, look, look, you know, sometimes it's looking near national parks or specific places, but and just being there when the, when someone's ready, when the, the time is right for someone to sell.

Yep. And Nathan asked, is this park mostly a short term park or a long term park? I believe it's about 80% short term.

That's right, yeah.

Okay, we depreciate, correct me if I'm wrong here, about two thirds of the purchase price year one 60%, right?

Right, that's right. Yeah. That's where it lands. And there's, there's been some bills floated in Congress to tinker to maybe increase it, but it'll be right around 2/3 of the purchase price, most likely.

Yeah. We have never missed a preferred payment to investors. We've been averaging over 8% cash on cash. Here is a just a graphic of where our parks are. We're trying to get this more and more dense as time goes on. We're closing another one in Alabama, just close one in Tennessee right over here. And then this is just. This outlines our strategy. Refinance two to three years, exit in five to seven. Whether that be to private equity or on an individual basis. This speaks more to the structure of this park. Most of our parks look about the same. It's a 7030 split in favor of LPs, up to 30% IRR in this case. And then it adjusts to 6045 to 7 year hold period, 3x equity multiple. I think it's 3.05x and 8% preferred. Return distributions are quarterly beginning at the next quarter after close. And formal updates are quarterly as well. K1s go out February, March ish.

Right. By March 15th.

This is a pro forma. I don't want to get too into the weeds. I can send it out. I'm happy to send out the Excel version as well. You can just see our strategy laid out pretty clearly here. We're going to add 10 more RV pad sites and how many more cabins was it? Five.

We have five in there. It's, it's possible it could shift potentially we get one or two more in there but pro performer is five.

Yeah. And John could you speak about the, the loans that we're, we're taking over in this case.

Yeah. So yeah first there'll be a first mortgage of 30% down and then with the seller has, we actually have. Don't always get this but sometimes we'll pitch other financing. There was a, there's a, I don't want to call it second position really an unsecured line of 6% for five years interest only. So that would allow us to get more, get more leverage out of it, out of the property and do, do some of the capex. So it's kind of, it's kind of cool. We don't, we don't have to take it if we don't want it but that, that's something I pitch in our purchase agreement and depending on the property you usually don't get it but, but it is, it's an option for us here.

And Chuck asked is there a carry forward entity involved?

No, I, I don't. I, I assume he means there's not. There's not. This is just a one off. You know we do every deal. Every, every deal is a separate purchase, separate investors, same, same management company and team. But there's no cross collateralization. Now.

This is how projected returns would look. So this says 100k this is 750 because it's a total raise. So I went ahead to the financials and I fixed that. So this would be the projected returns on a hundred thousand dollar investment. You can see that they really ramp up in year two when we start adding the tiny homes and the additional pad sites. The refinance would recapture all of the principal at that point and then those would be the quarterly payments moving forward. So this would be for the entire raise and this would be for 100,000.

Yeah.

615 down payment 61 closing cost 22 CAPEX which is much lower than normal because we have that $500,000 line of credit available should we choose use it 6% 50,000 for the operating count and 800 total. Credit investor only. This, these are just kind of the, the benefits of investing in this park and most of the parks look the same. This is their team and, and that's it. Got a few more questions here. The power and sewer capacity exists for the expansion.

Yeah. So that, that's where I said we could do a little more but I, we haven't put it in there yet. So potentially we could have a little, get a little, few more in there. But yeah, that's, that's usually where the, often where the poo poo poop goes is the limiting factor. Without doing more, without getting into septic or leach fields or like your own private little pump, without adding a pump station which can add a chunk of cost. So we can, we can at least do the expansion we have on the pro forma.

Yeah.

And there's no, there's no, there's no repair capex needed. So that's what's nice. It's a pretty, it's a clean park. So we had very limited, we on the inspection report very limited touch ups coats of paint sort of thing. So that, that was, that was nice about this park. It's, it's been, it's been well, well maintained.

And Matt asked if we can talk more about expanding occupancy for the cabins and tiny homes.

Expanding occupancy? Yeah. Yeah. So they had good. They had good. So the strategy becomes they had good occupancy during the summer. Can we place in a perfect, in a perfect what KOA And I've been through the exercise with them before. In the off season, if you could fluctuate between 30 to 70% monthly versus transient and, and really get good at. In the off season have those cabins be monthlies and in the season have more of them be available open free for, for, for nightlies. That's how you can really. And then you, you have your, your peak season and your shoulder season and then your off season. If you can really play that game well, that's how you can really, really maximize revenue. And it really, you play with, you know, it could be, you could almost double revenue if you just do it just right. So that's a lot of times it takes a year or two to really, or maybe even two seasons to really get where people know and know some of the local and how do you do that? You know, it could be contractors, it could be getting in with some of the local, the local military. So Dean is really good at that. Like if you just some of the Facebook boards just where you're playing that game of hey, in the off season you could, yeah, we rent those cabins for the off season. You could you know, whatever 1200amonth. You just stay month to month. But you know, come come May the rates change and you can just fluctuate that with your rates. But it's, it, that's, that's a lot of the. I, I think that speaks to what he's talking about, the occupancy for, for the cabins and tiny homes. But if you think about it like in the summer you could charge 150, 200 a night depending. So you don't need a lot of nights to hit what you could be, you know, less than 10 nights, eight nights. You could be well above what you're charging for a monthly. So that's, that's the rate game.

It feels like every park we've purchased so far, the, the owners run it year round with no strategy like as if there are no seasonalities to it. Right. Whereas if you, if you do come in there and strive to get long term tenants during the off season, it can make a big difference and they just, they don't look at it that way.

Yeah, yeah. I mean and it's, it's a lot sometimes too. They may early on but they'll or a lot of them will try things and see what sticks and that's, that's, I think a lot of small business owners, I've been there, you just try stuff and see what sticks and what you can manage as like a couple or owner operator and you just roll with that. So.

Yeah. Kenny is asking what debt is in place for the loan, Fixed or variable? What is the exit cap rate projected in the pro forma? I know that's 8% and I know if there were a kind of private equity exit it could be theoretically lower than that. And then how much scan in the game is GP putting in? It's 10 GP commit on every part. What are the terms of the debt? I know the interest rate.

Eight and a quarter, 8.25 for the first and then six and they're both, there's five years. The first, the first one has a 25 year amortization but it's, it's five years. So. Well, it's, it's, it's fixed for, it's fixed for five years.

Okay. Eight and a quarter. Fixed for five. 25am 5% interest only at 6% interest. What would you say is the biggest risk? Only at 6% interest. What would you say is the biggest risk for this deal?

See, it's, it's, it's, it's that I'm not, it's an established park, it has a long history. We're buying a business and the real estate with a history. So it's really. Can we deliver on the Upside I'd say things don't go as planned in terms we can't. We can't really lease out those sites. It's. It's really that that you know the business is ah. We don't really operate. The expenses are what they are maybe a little above what we projected. Income's a little below what we projected. Then we're not really distributing what we intended. I. It's. It's that in running this business are we able to do it to pro forma. That's how I see it. I don't. It's not a. It's within a nice range like in terms of downside scenarios that that's when you play with the numbers you maybe it only distributes 3%, 5% and that's, that's that those are the reasonable business risks to me are the real risks. Not you know there's not a lot of natural disasters in the area. We'll have insurance. It's a pretty healthy desirable area. Pretty area to be. So I don't see major downturns in traffic, traffic trends or people needing housing or RV sites. So I'd say it's just that basic operational business risk doesn't go according to plan.

Insurance covers loss of rents for up to a year. Correct. In addition to the you know, casualty and damage. And then what I like about the risks in this business are there aren't as many occupancy risks as you see would see in like multifamily because you can convert these to more long term parks like John said they're more capex risks like just not being able to get the expense ratio to where we'd like to see it which is in the, in the 40s. Artem asked I can. I believe I can answer this one. Tell me if I butcher it. Sorry, this is a basic question but I've only ever done tech company investments before. Is this selling equity in the business or is this another mechanism I'm familiar with raises where you have pre and post money valuation. How does this work? So we are putting the park, the business, everything in an LLC and then there will be class A shareholders which are the LPs and the Jeep is and we are all equity holders in the LLC that owns the park. So a little different. Our owners going to hang on to operate after closing for a period.

No. You know and you don't.

You don't.

So this owner they actually have a team there and they, which is good now they didn't always they A lot of times you don't want the prior owner to hang around. There's a lot of. It's just in our experience it's hard. They do give us some hours of consulting but that's more so we could if something, you know this or that website or the utilities or there's a key to shed. You know we don't have like you just want to make sure. But we try to get all that by closing you really. It can be a little thorny in our experience just bringing on a prior owner to stay on. They do their things their way and they're attached and this is. These are. You know it's a. It's a business. A piece of real estate they. They probably have been attached to. Maybe it's been in the family a while. So it's better just. It's easier to have a clean break in. In our experience and some other operators.

Out there especially because we're rolling these up. We own two koas already. They all look about the same. I think the, the problems can be exacerbated if it is a long term park and the tenants are friends with the owners and it can get a little hairy. You're actually worse off if the owners hang around for a while. I think that's it. Do we have any other questions? If not then we will call it a day and I will send this out to everyone. The raise is going well so far. I think we're going to get full pretty quickly and it's a good. It's a good park. I'm. I'm excited and great. Grateful to be a part of it. Anything else from you, John?

No, that's great.

Yeah.

Thanks for. Thanks for giving us your time.

Okay, well thanks for your time John and thank you to you all as well for joining and we'll catch up via email.