A seasonal park loan is a case study in why annual DSCR can mislead you on monthly payments

The interest reserve funded out of proceeds is the right structure for a seasonal asset, and it is worth saying out loud that it means the borrower is paying interest on money that is paying his interest. Cheap for the peace of mind, but he will feel it at payoff. Did he push back on the 62 percent?

The slow season is rarely where a seasonal business runs out of money. The dangerous month is the one right before the good season starts, when payroll and repairs and supplies all land at once and nothing has come in since October. March is exactly right. Ask anyone running a seasonal service business and they will name April as the frightening month, and it sits directly before the best one.

When you say you ran DSCR on annual NOI, was that how the borrower presented it or how you chose to look at it? The reason to ask is that an annual number passes most underwriting without anyone noticing anything is wrong with it, and the useful lesson here is where in the process the better question shows up.

Had to go through this twice. DSCR is debt service coverage ratio, net operating income divided by the debt payments, and tender's point is that a ratio built on a whole year hides the fact that the year isn't evenly shaped. Do people ever just write a note with no payments November through March?

Juniper, that's what tender described as a seasonal payment schedule. I've read about it on agricultural paper where everything hinges on one harvest. The lender's problem is that five silent months mean five months of no information about whether the borrower is still standing.

A 31 site park in a market with a four month season is a hard business to lend against at any structure. Rural seasonal parks tend to look excellent on the July numbers, and the July numbers are basically the whole story. What was your value opinion built on, comps or the income?

The other thing a five month off season does is hide deferred maintenance. Nobody is using the water system, so nothing fails, so the borrower reports everything is fine, and then the first hard weekend in May the pump goes and there is no cash. A lender on this asset should want an inspection scheduled in April rather than October.

The 1,800 for having default notices reviewed before sending them seems like the cheapest line in this whole post.

The interest reserve solves for the borrower's savings discipline, and it does not solve for the thing that actually kills these loans, which is a bad season. If May through September comes in 25 percent light, the reserve is gone and you are in the same conversation a year later with less collateral value behind you. The right structure is the reserve plus a covenant tied to gross revenue by a date certain in the season, something that gives the lender a look at the numbers in July rather than in March. Whether that is enforceable the way you want depends on how it is drafted and where, so drafting it is attorney work.

For anyone who comes to notes wanting income without a second job, this thread is a decent argument that the note is the passive version and the park is not. Even so, tender spent five months worrying and made a trip out there, which doesn't sound like nothing. Passive on paper still carries a floor of attention.