Highway corridor park vs lake destination park, same price, completely different businesses

I have two offers I could write this week and they are so different I am not sure I am comparing them correctly.

One is 56 sites on a travel corridor, ten minutes from an interstate exit, in a stretch where the next park either direction is 40 plus miles. Almost all one nighters. Occupancy last year averaged 61 percent across the year with very little seasonal collapse because people drive through in every month. ADR 52. Gross about 640k.

The other is 44 sites at a reservoir with a boat ramp, 90 minutes from a metro. Average stay is 4.1 nights, weekends book out from Memorial Day to Labor Day, and the place is basically empty November to March. ADR 68 in season, occupancy 88 percent June through August and something like 9 percent annualized outside that window. Gross about 590k.

Both sellers want roughly 2.6M. The corridor park's expenses run 54 percent, the lake park's run 44 percent. I assumed the lake one was better because the expense ratio is lower and the ADR is higher, then I started thinking about how many check ins each place processes. Corridor park is doing something like 12,000 guest arrivals a year. Lake park is doing maybe 3,800.

So the corridor park has a lower ratio despite four times the turnovers, which either means their labor is cheap or their revenue base is doing the work. I do not know which and I do not know which risk I would rather own. Where would you push first?

Answer

5samantha_ruizAU4APRO6

Push on the corridor park's 61 percent occupancy first, because that is the number carrying everything. Corridor traffic is driven by things outside your control. A road project, a new park at the next exit, a change in through traffic, any of those move you five points and five points on 56 sites at 52 is about 53k of revenue that drops almost entirely to the bottom line.

The lake park's risk is the opposite shape. It is concentrated in twelve weekends, so weather and a bad Fourth of July hurt, and you have five months of fixed cost with nothing coming in. But its demand driver is a physical asset that is not going anywhere. Nobody builds a second reservoir.

I would rather own the thing whose demand driver cannot be replicated, and I say that having gotten burned assuming a location advantage was durable when it was really just a temporary gap in supply.

3 replies

0karen_whitfieldPG4APRO7

Ask both sellers how much land they are not using. On a long hold that matters more than either ratio.

1Rena Expert

The comparison you are missing is cost per occupied site night, and it explains the ratio inversion you noticed.

Corridor park: 56 sites at 61 percent is roughly 12,500 occupied site nights a year, and with one night stays that is close to 12,000 arrivals. Gross 640k over 12,500 nights is about 51 per night, consistent with the ADR. Expenses at 54 percent are about 346k, so 27.60 per occupied night. Lake park: 44 sites, 3,800 arrivals at 4.1 nights is around 15,600 occupied nights, but you cited 88 percent summer and 9 percent otherwise, which annualizes closer to 5,800 to 6,500 nights. Take 6,200. Gross 590k over 6,200 is 95 per night, well above the 68 ADR you were given, which means either the ADR is a shoulder season blend, or a meaningful share of that gross is not site rent at all. Store, firewood, boat slips, seasonal contracts, propane. Expenses at 44 percent are 260k, or 42 per occupied night.

So the lake park costs more per night to operate and earns more per night. The corridor park is a volume business with cheap fixed labor spread over many turns.

The answer depends on the revenue mix at the lake park. Get the reservation system export and the point of sale export separately. If 180k of that 590k is ancillary revenue tied to the boat ramp, you are underwriting a small retail and marina operation with different margins and different capital needs, and the 44 percent ratio will not survive your ownership if the seller's family staffs the store. Confirm who is on payroll and who is not before you price either deal.