Most forms of commercial real estate are set in stone. You can’t easily convert a factory building into a hotel or an apartment complex into a retail strip center. However, RV parks hold the enviable ability to morph into a number of product lines based on market demand. In this RV Park Mastery podcast we’re going to explore the chameleon - like nature of real estate’s most adaptable business model.
Episode 116: The Remarkable Flexibility Of The Business Model Transcript
It's hard not to feel sorry for an office building owner right now. You have this giant structure, massively expensive, huge bills coming in for insurance, mortgage, utilities, yet nobody wants office space anymore. What happened to them all? Well, many of them work remotely. Many people have learned how to use their business and flourish at a laptop, maybe in a Starbucks. People are downsizing businesses. The federal government isn't even using about 80% of all their office space. And there's nothing positive on the future for that office building owner to even give him a glimmer of hope. He basically invested in something that nobody wants anymore and he can't walk away from it. He has a giant mortgage, yet there's really no way out of that mess. But for the RV park owner, it's an entirely different story. This is Frank Rolfe for the RV Park Mastery Podcast. We're going to talk about the strange, chameleon like ability for RV parks to morph themselves into any number of products. So they always have plentiful demand. Now, RV parks have been doing terrific nationwide because Americans love RVs and they've been buying them at a rapid clip.
Part of that was fueled by the fact that 10,000 baby boomers are retiring per day. But the other part is that the millennials, which is now the largest population segment in America, they also love the recreational vehicle product. And the average RV owner typically takes it out on the road 14 days a year on average. And that keeps many, many RV parks completely full, completely booked up. But sometimes you can have an RV park in an area where you don't have as many bookings, you don't have as much occupancy, you might have some vacancy. What can you do with that? What happens? Well, with RV parks, there are other things you can do than just your standard. Sure, put the travel trailer on lot number nine over there. One is the fact that more Americans than ever before are deciding to live full time in their RVs. This comes from both segments of the population, baby boomers who are electing to retire. And again, there's 10,000 of those retiring per day. Let's assume you own a big RV and you own a brick house, but the kids are all grown up and moved away. Some people are saying, well, why don't we sell the house, put that money in the bank and just live in the RV? We'll travel America and we'll see the world and we'll save a ton of money.
And of course, what happens is they get tired of traveling America. At some point, they've seen it all. Now they just want to stop in one spot. And that's kind of the long term RV model. Someone that may stay there for their whole lifetime. And that's great because that fills a vacant lot you may have with a customer who will probably never make you have to ever find another person to occupy that lot. And in other parks, you may have some vacant lots, but you may realize people come to the office frequently wanting to stay in the RV park, but they're there in a car and they don't have an RV. But yet they're not going to camp. They don't want to camp on the ground. They want to have a place with a roof over their heads with all the luxuries of home. And you may say, you know what, I think I'm going to buy a park model and I'm going to put that in this RV park. And then I can tell the people, well, you can stay here overnight, pay me X per night. And they say, great. They pay, you get the key, go over there, park, take the suitcase in.
Well, now you've had another business model and that's basically kind of an overnighter park model approach to those vacant lots. And then in other parks they have so many people who want to live there full time, but they want something bigger than their RV and if the permit allows on their property, they may start bringing in mobile homes. Mobile homes are much larger than RVs and they're much cheaper based on cost per square foot. So what the heck, if your permit allows for it, then let's bring in a mobile home on that vacant lot and that person will in fact stay there forever. Then you have tiny homes. The only place you can legally put a tiny home in America is an RV park. Now if they get a HUD code tiny home, you could put it in a mobile home park. Because in a mobile home park everything has to have the HUD seal on the back. But most tiny homes, at least the ones people want, the ones that are one off unique creations, they don't have those HUD seals. So as a result, there's nowhere any of those customers can go and park it other than an RV park.
There's a large RV park in Indiana, which about a half of the entire RV park is a tiny home community. It looks really cool, but you could not find that almost anywhere else other than an RV park. Then you have such items as glamping. That's basically Airbnb kind of classic RVs in your RV park. Again, based on consumer demand, you could put some of that in some of your vacant lots and fill that up. The bottom line to it is that RV parks have this unique ability to change, to adapt based on what people want. Most every other real estate segment can't do that. Look at that fully enclosed shopping mall near your house that you walk through occasionally. You ever noticed how vacant that thing is? It used to be full back in the '70s and the '80s, '90s, and then they invented the Internet and suddenly the occupancy fell off a cliff. Maybe a big anchor has left, or maybe the anchors are still struggling along, but a lot of the stores in between have now gone. There's not a darn thing that mall can do. Can't do a thing. If you look at the lease covenants in those big malls, they're not even allowed to morph that space.
They have all these crazy agreements, for example, that if one of the big anchors leaves, then the other tenants had the ability to cancel their leases because the anchor left and therefore they lost their foot traffic. Everybody is tied together. The only way that shopping mall owner can re-adapt that giant shopping mall is for everyone to go. And even then, what do they do? The capital cost to reinvent that mall into another use is staggering. What are you going to put in there that people want today? I don't know. They haven't found the solution. I saw a giant shopping mall over in Kansas City that was completely abandoned except at one end, like an old Macy's store. And the city, in desperation to make some use of the mall, had put in city hall down there. They'd taken the mall for unpaid property tax. Can't morph that kind of a thing. Going back to the office building example, the largest office building in St. Louis sold on the courthouse steps. It was a million square feet. It sold for under $4 million at auction. Why? Because the only thing they could figure out to do with the office building, which is basically empty, was to try and retrofit it into apartments.
And it was going to cost $100 million to make that building into apartments. Which means the total tag would be 100 million plus 4. 104 million for that apartment building. And that was absolutely the limit of what you could afford to spend to retrofit it into an apartment complex. Again, no ability to morph that business model. If you really think of most real estate, it's not, it's very non flexible. There's not a lot you can do. You can be behind the curve. You can have a product that nobody wants. But there's no adaptability. But that's not the issue with RV parks. And that's probably why RV parks have such a low, low, low, low rate of default on loans is because if your RV park isn't working with the initial intention that you had, you could morph it, you can change it, and you can change it whenever you want because people are free to come in and out. So based on what you see, you can run with that. For example, if you started having more long term RVs, then who knows, over time the RV park might be nothing but long term RVs.
There's a property down in Dallas called Hi Ho Campground. When I got in the business back in the '90s, people told me, oh yeah, you got to go over to Hi Ho. They got it all going on. Well, back at that time at Hi Ho, it was pretty much people coming there and staying for a couple weeks. Today at least, it appears to me that most people are living there full time. And that's a great part about the RV industry's ability that you can do that. If something's not working, if there's a market shift in demand, you can grab that, you can run with that. Now that's not to say that you definitely need to change things up. Many RV parks work fantastically well just as they sit. But nevertheless, it's that freedom that gives you peace of mind. Here in America, where we have all kinds of problems, all kinds of fractures, we're not even sure how to fix the thing. Heck, we got 35 trillion of debt. There are a few givens in life. One given is recreation, which RV parks definitely fit that bill. Another is the need for affordable housing. Well, RV parks fit that bill. And I really don't see anything on the horizon working against RV park and RV park demand. But what makes it extra sweet is the simple fact that you can change to meet that demand in whatever form it comes at you. Almost like a chameleon. This is Frank Rolfe, the RV Park Mastery Podcast. Hope you enjoyed this. Talk to you again soon.