My first LP check is going into an RV park fund and I cannot figure out what I'm actually buying

So I've been circling this for about eight months. I'm not an operator, I have never run a campground, never bought a park outright. What I have done is read probably forty decks in the last year and I keep getting stuck on the same thing: the fund says it owns "RV parks and campgrounds" like that's one asset class, and I don't think it is. One park on their list is a 180-site highway corridor stop in central Texas, three-night average stay, transient, almost all nightly rate. Another is a 60-site seasonal lake park in Michigan where 80 percent of the sites are contracted annually and the same families show back up every April. Those are completely different businesses sitting inside the same fund with the same cap rate applied to both. The Texas park is basically a motel without walls and the Michigan park is closer to a small apartment complex with a swimming hole. The revenue is stabilized differently, the management intensity is different, the guest relationship is different. I'm not saying one is better. I'm saying I don't know how to evaluate a blended return when the underlying mix is this opaque. The deck gives me a portfolio-level IRR and a single-page assumptions sheet and I'm supposed to trust that 11 percent is real. I have a meeting with the GP in three weeks and I'm trying to figure out what questions actually get me somewhere. Has anyone underwritten a fund like this, or am I the only one who thinks "diversified campground portfolio" is doing a lot of heavy lifting?

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kwame_asante CapitalPRO 12

The annual-contract Michigan park and the transient Texas stop should almost never share a cap rate, you're right to flag that. Ask the GP to break out occupancy variance year-over-year by site type, because the seasonal lake parks can swing 40 percent revenue between a wet summer and a dry one, and that kills a blended IRR fast if the fund is thin on the transient side to compensate.

The question that actually gets me somewhere in these meetings is: what is the weighted average lease term across contracted sites, and what is the renewal rate over the last three years at each asset individually. A fund hiding behind portfolio-level numbers usually can't answer that cleanly, and the hesitation tells you more than the answer.

Central Texas corridor stops are also genuinely interest-rate sensitive in a way the Michigan asset is not, because the nightly traveler base shrinks when fuel and financing costs squeeze road-trip budgets, so I'd want to know what 2022 to 2023 RevPAD looked like at that specific park before I believed any stabilization assumption.

kwame_asante CapitalPRO 12

My first LP check is going into an RV park fund and I cannot figure out what I'm actually buying

1 reply