WS1913 Investing in RV Parks | Benjamin Marc Spiegel

Welcome back to the daily real estate syndication show. I'm your host, Whitney Sewell, and in today's episode, we had the pleasure of speaking with Ben Spiegel, a General Partner and Portfolio Manager at Redwood Capital Advisors. Ben brought to light the burgeoning asset class of luxury RV destinations, which is gaining more traction than ever before.

Ben shared some eye-opening statistics that set the stage for the potential in the luxury RV destination industry. The average age of RV owners has dropped significantly, and there's a stark contrast between the number of new RVs sold and the number of new pads built, indicating a ripe market for development.We delved into the lifestyle changes post-COVID, where millennials are opting for a nomadic lifestyle, valuing experiences over material possessions. Ben explained how this shift has led to a demand for luxury RV communities, which offer a more stable cash flow due to longer average stays compared to RV resorts.

Redwood Capital Advisors focuses on new construction of RV communities, emphasizing the benefits of horizontal development, which is less complex and quicker than vertical construction. Ben highlighted the advantages of building communities over resorts, such as lower turnover and operational costs, leading to better operating margins.

Ben also touched on the unique financing opportunities available through USDA loans for rural development, which offer favorable terms and help make these projects feasible. He shared insights into the profitability of these luxury RV destinations, including the potential for selling individual pads to owners.

As we wrapped up, Ben shared his outlook on the real estate market, expressing caution and advising investors to seek unique opportunities with clear competitive advantages. He also shared his commitment to giving back to the community through volunteering and mentoring underprivileged children.

For those interested in learning more about Redwood Capital Advisors and their work in luxury RV destinations, Ben invites listeners to visit their website and connect on with him on LinkedIn.

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Transcript

Benjamin Marc Spiegel: And even though we price our pads at probably about a 20% discount to the nicest RV resorts, they're probably getting like $1,400, $1,500 a month when we're probably getting $1,000 to $1,200 a month. Just the decreased turnover really impacts cash flow. And that accompanied with the decreased amount for need for staff, we're able to operate at close to a 60% operating margin with a much lower vacancy rate.

Whitney Sewell: This is your daily real estate syndication show. I'm your host, Whitney Sewell. Today, our guest is Ben Spiegel. He's a GP and portfolio manager at Redwood Capital Advisors, and since 2017, specializes in middle market commercial real estate, direct lending, and capital raising properties in Yeah, in numerous states, especially in the southeast, is where we're going to talk about today and dive into a specific asset class that's definitely getting more attention than it has in a long time, or maybe I guess ever. He's deployed over $500 million for various firms, previously a credit analyst at DG Capital Management. Our guest today is going to tell us about what he says is one of the greatest opportunities of our lifetime. And I'm looking forward to diving in. He's become an expert in this space. Ben, welcome to the show.

Benjamin Marc Spiegel: Whitney, thank you for having me.

Whitney Sewell: Yeah. Honored to meet you and looking forward to the conversation and diving in. I know we're going to get into some of your background and I want to quickly dive into your specialty, uh, and, and this, this greatest opportunity, right. That everybody's going to want to know about, but man, uh, being, you know, getting into this space, give us a little bit of background and let's jump in.

Benjamin Marc Spiegel: Yeah, absolutely. So I like to focus on special situations really that are contrarian, that are off the run niche, that a lot of people aren't talking about, where you could really try to get an asymmetric return profile. And one of those I feel is the luxury RV destination industry right now. Just a few fun facts that a lot of people aren't really aware of is The average age of an RV owner in the United States in the past 10 years has dropped from 62 to 32. On top of that, the average age of the existing RV destination is 40 years old. On top of that, 60% of pre-COVID office workers are now permanently remote. And to kick it off, finally, 450,000 new RVs were sold last year, but only 15,000 new pads were built. So when you throw those four fun facts together, you get the perfect storm for the ripe demand for new RV destinations, in my opinion.

Whitney Sewell: That's some incredible statistics. I was just trying to make some notes there. It's interesting when you think about even the average age of the owners going from 62 to 32. It says a lot about that space and even just what's changed over the last few years, right? And the majority of that's probably happened within the last three years, right?

Benjamin Marc Spiegel: Yeah, it's really post-COVID. Basically, a lot of millennials, it's all millennials now, basically, they can't afford traditional housing. The average housing price in the U.S., the house price has gone up to about $380,000, $390,000, and with interest rates at 7%. A lot of millennials are choosing to, what I like to say, put their equity on wheels. and live a more alternative nomadic lifestyle. They're beginning to value experiences more than materialistic items like they did in the past. And the post-COVID environment is enabling them to do that.

Whitney Sewell: I just want to jump right into this, but some of the risks of this asset class that maybe we wouldn't typically think of.

Benjamin Marc Spiegel: Absolutely. So like I said, the equity is on wheels. So unlike traditional real estate, where people are entering into long-term leases, people in RVs, they could leave at any time they want. And so you do have a much higher turnover than traditional real estate. And what I specialize in in my firm, Redwood specializes in with our joint venture with EOB Consulting, is we only do new construction. We don't buy existing RV destinations. So we're only building, we're buying land, but the best thing about RV construction is it's not vertical. It's only horizontal. You're dredging, you're laying plumbing, you're laying fiber, electric. And the only vertical structures that are being built are the clubhouse or the gym, doing some pickleball courts. And we always like to incorporate RV and boat storage into our RV destinations because a lot of times you have the snowbirds from the Midwest that come down during the winter And if you can build a destination that's luxurious enough that they like being at enough, they don't want to haul their RV to and from their home. It's aesthetically unpleasing to leave in their driveway. So they'll pay you year round when they're not even there to store it. And then you get a customer for 12 months out of the year. So we always like to incorporate the storage aspect into our destinations.

Whitney Sewell: Love that. And thinking of the obviously numerous sources of income as well, right? And getting that client 12 months as opposed to two weeks or a month or whatever it may be that they're staying somewhere, uh, including the RV and boat storage. Um, and, and even thinking about the, uh, it's all horizontal, uh, and nothing vertical. That sounds a lot better than some development projects, right? It's a lot of brain damage as it comes along with it.

Benjamin Marc Spiegel: Yeah, exactly. So I mean, I've done ground up construction and multi and commercial as well. And projects can take three to five years. And within luxury RV destination, the construction time is probably a maximum of just 12 months. And I want to specify that there's really two main types of RV destinations that have popped up in the past 10 years. You have resorts, and communities. Resorts are usually located near some type of main attraction like Disney World or they're on the beach. They usually have a lot of amenities. They're nice, but the problem with resorts is your average stay is usually only three to five days. So you have a lot of turnover. And on top of that, because you have so many amenities, you have to have a much larger staff to oversee the destination. So your OPEX is much larger than compared to a community that I'll get into next. You're probably only operating at probably a 40 percent operating margin compared to a community at 60. We at Redwood, we only build communities. We still have all the amenities that a resort would have, but we're probably located about 30-45 minutes away from that attraction. We really only build in Alabama, Mississippi, and Louisiana, and we try to stay about 30-45 minutes away from the Gulf Coast. And basically the difference is our average stay is between 60 and 75 days. So we have people that are choosing to stay with us for much longer periods of time. And even though we price our pads at probably about a 20% discount to the largest, I mean, to the nicest RV resorts, they're probably getting like 1,400, 1,500 a month when we're probably getting 1,000 to 1,200 a month. Just the decreased turnover really impacts cash flow. And that accompanied with the decreased amount for need for staff, we're able to operate at close to a 60% operating margin with a much lower vacancy rate.

Whitney Sewell: What's the draw to your properties versus the ones two or three miles down the road?

Benjamin Marc Spiegel: So basically, the average age, as I said, the average age of the existing RV destination is 40 years old. And 90% of the industry is still mom and pop owned. So basically, they don't have the necessary CapEx to upgrade their facilities to the level that the millennial generation of RV owners needs. And so what I mean by that is most RV destinations can't even offer cell phone service or Wi-Fi or even safety or quiet, let alone a luxury pool, or pickleball courts, or a gym with Pelotons in them, a game room, amenities such as that, or a community house, or farm-to-table dining, and spa services. We're basically a hotel without the hotels. You bring your room.

Whitney Sewell: Yeah, love that. You know, you can think it through those amenities farm to table restaurant and some of those things that you wouldn't expect right at the typical RV park or maybe the way we thought of RV parks, five, 10 years ago, right is very different than than today.

Benjamin Marc Spiegel: It's no longer the 62-year-old lower middle class individual. It's really, it's the vast majority. It's a retired couple. Exactly. Right. 75% of our occupants are under 40 years old and are working. They're in IT. They're in a myriad of, they make most, the vast majority claim they make over a hundred grand a year. So they do well and they choose to live this lifestyle. And a lot of them could probably afford other alternative housing options that they just want to live an experiential lifestyle where they can experience different parts of the country as they please.

Whitney Sewell: Yeah. What about It's an ideal example, right? Yeah. Something recently you could- Yeah, of course.

Benjamin Marc Spiegel: Yeah. So the interesting thing about RV destinations is they qualify for a very unique loan program under the US Department of Agriculture. That's not really widely known. It's a rural loan program, but basically it gives you a very large competitive advantage because basically The U.S. Department of Agriculture will lend 75 to 80 percent loan to construction cost for a 12-month construction loan that immediately upon completion converts to a 25-year amortizing credit facility. at a below market interest rate. So you have to remember, so for right now, for example, in Mobile, Alabama, we're in contract on 40 acres for about $1.3 million, or a little over 30,000 an acre. And good luck getting a bank or a bridge lender to lend you the amount of money you need to build, which in this case, our construction budget is just about $15 million. We're doing 300 pads and a good rule of thumb for a luxury RV destination, amortized all in, I'm talking the pool, the gym, everything all included for each pad is about $50,000. So 50,000 times 300, you get the 15 million. And what's so unique about this industry and so attractive and really unbelievable is that immediately upon completion, those pads are worth between 90 and 130,000. And I know that because that's what we're currently, you can condo them out individually and sell them. We're doing that right now in Mobile, Alabama at some of our other destinations that we've built in the past. We have this destination in Theodore, Alabama that we built. We bought the land about three and a half years ago. It took about six months to get the permits, another 12 months for construction. Basically, We've produced about a two and a half X equity multiple, and we're putting off double digit free cashflow yields. Our 12 month forward, prepaid forward occupancy rate. So not even accounting for calls that are coming in on a daily basis is over 90%. So 90% of our pads are booked and prepaid for, for the next 12 months. It's pretty phenomenal. It just goes to show you how much demand there is for this type of destination or product offering. And that's really not available being offered in other RV destinations in the market.

Whitney Sewell: Yeah, yeah, it's, it's quite interesting to think about building a place like that. And I'm just in my mind, I'm comparing it to multifamily, right? You know, like, Oh, my goodness, you know, you know, speak to that a little bit, maybe some of the differences between a park like that, or community like that, versus the typical multifamily conversation that we would be having, or that everybody's been having, like you and I discussed, you know, for the last 10 years.

Benjamin Marc Spiegel: Yeah, so what's really interesting and why RV destinations are so attractive compared to traditional multifamily is there's no repairs and maintenance. The RV is the tenant's problem. It's their RV. So if something breaks, something goes wrong with the RV, it's not your dime. It's not on your budget. So basically you have very little repairs and maintenance expense, and that makes your management a whole lot easier. And basically on top of that, in my opinion, I just, you own the land, you just own the land and that's about it. And you are able to get incremental revenue by entering into relationships with repairs and service providers. And you could do absolutely nothing and give them an exclusivity agreement on all repairs and maintenance jobs in the park and take a good and take 25% of their revenue just for offering them the exclusivity agreement. So there's another revenue stream for you right there.

Whitney Sewell: Wow. Um, yeah, I, I, you know, my family and I just probably two years ago, uh, started doing some camping and we've really enjoyed it. You know, like we had never done it, had done that before. And so I could understand why people are enjoying, especially luxury places like you're, like you're talking about.

Benjamin Marc Spiegel: I want to emphasize that the difference is the word luxury. These are not what you think of when you think of a normal RV destination. They're beautiful, they're well-manicured, they're well-landscaped, the buildings are gorgeous. But instead, there's no building. You bring your own destination. You come and you go on it. And sometimes you leave it in our storage center year round. So I just think that there's just a myriad of benefits between the USDA loans that I was discussing before and the accelerated depreciation that comes with the construction dynamic. Basically, you're able to write off about 75% of your construction costs in year one, accelerate it, and then that net operating loss carry forward, carries with you for pretty much your entire cost of ownership till you sell. So you're not really paying really any taxes on your income, which really, really boosts your after-tax IRRs. We, for our investors, shoot for about a four-year hold period, shoot for about 23% to 24% levered IRR, and at least a 2.1X equity multiple over a four-year hold.

Whitney Sewell: Wow. Yeah.

Benjamin Marc Spiegel: Go ahead. And also, the numerous monetization options. Like I said before, you don't have to rely on selling the entire destination. If you want to, you can condo the pads out and sell them individually. There is a big demand for people that will buy that little chunk of land and they'll pay you $120,000 for it and they'll have it year round. And sometimes they'll only use it two months, three months out of the year. And but they want to have it and banks will finance it. You can partner with local regional banks, then they will give seller financing. And basically that it's not it's not and you're able to generate even more revenue that way by getting fees from the bank.

Whitney Sewell: I've seen people doing that even places we've camped or where they put tiny homes, you know, in places, you know, that were RV spots and selling them or even just Airbnb them as well.

Benjamin Marc Spiegel: Yeah, so we, it's funny you say that because we always, we are ratio, we usually put about 10 to 15 of our pads we build luxury cabins on because a lot of times you have families that come down and they have friends or extended family and not everyone can fit in the RV. So it's always good to have a little bit of an incremental living option for guests or sometimes if they want to upgrade and they want a little bit of a nicer living arrangement or a bigger living arrangement for a certain amount of time. And we're able to charge about $2,000 to $2,500 a month for our luxury cabins. The luxury cabins, they cost probably about between $110,000 and $120,000. So they're significantly, obviously, more expensive than just building a pad. And that's not our main business. We do that really just out of necessity because it increases retention and increases your occupancy rate. I mean, overall, it just brings your amortized pad count higher. It's still overall worth it and a cost benefit analysis.

Whitney Sewell: Yeah. And I could see us, you know, like renting a spot for to camp. Right. But then having more family, we want to come for at least part of the trip or something. It'd be a perfect option. Right. And then they're close. Right. We still get to enjoy those same amenities together as opposed to them staying off site somewhere else.

Benjamin Marc Spiegel: Oh, they're right next to the, they're usually in their own little section, but they're right on the destination, all in walking distance. And we, in our destination, we put a big emphasis on putting our pads far, making them larger and putting them at a farther distance than most. So most RV destinations are really right on top of each other. We try to target at least 15 to 20 feet of space between each pad. And sometimes we even put privacy walls up, individual storage solutions for each pad. And even our newest destination, where we're going even more luxurious, each is going to have their own grill and outdoor refrigerator with the patio and a sunshade option. It's really where the industry is going is very interesting. And in my opinion, there's just such a large supply demand imbalance and the need for an affordable vacation like this compared to a more traditional option like staying at a hotel is you're spending, you know, one-tenth the price. It's just, it's unbelievable.

Whitney Sewell: Yeah, I definitely appreciate the larger space. It's so hard to get in and out sometimes. I mean, it's so tight.

Benjamin Marc Spiegel: It's funny you say that because since the average age is 33 years old, 60 to 70% of new millennial RV owners admit to not being able to back up their pads. to back up their RVs. So that's why we meticulously design our destinations to have the majority of pull through sites. And so they don't have to even worry about backing up.

Whitney Sewell: What's your biggest, what's the biggest hesitation you hear from investors, you know, or their, you know, hold off to investing in an RV park?

Benjamin Marc Spiegel: So there's always a little bit of hesitation about construction when you're not buying an immediately free cash or a cash flowing asset. That's always a one of the main hesitations. And I'd say on top of that. also really, how do you quantify that the demand is going to be there for a site that's 300 pads? How do you know that where you're building it can accommodate that? And basically we do, my partner, my JV partner is a He's one of the top feasibility consultants in the country. If you buy a piece of land and you want to build an RV destination, he's the guy you call. You pay him a fee and he goes to wherever in the country you are. About a week later, he spends a week at your property. Then you get a 50-page report a couple of weeks later, and it basically tells you whether or not you should be building an RV destination there, and if you are, how much money you're going to make. He'll go to the bank with you, help you get a loan. He is crucial in our operation, and he conducts all our feasibility analysis for us. What we do is we usually take a 30-mile radius, and we look at every single RV destination within that 30-mile radius. What we like to see is regardless of the quality, we need to see at least an 85 or 90% occupancy rate at every single destination within a 25 to 30 mile radius. That's number one. Number two, we need to be within 10 miles of a Walmart. because Walmart, in my opinion, has the most advanced population statistical analysis in the country in terms of where they pick to put their location. So if you were within 10 miles of a Walmart, you know that you're in an area that at least is seeing some type of population growth, or at least this population is remaining steady. And then thirdly, you really, you wanna be in an area that's close to the highway. You need to be highly accessible. So you don't want to be more than a half a mile or a mile from the highway, a major transit route. So our newest destination, which is called Homestead 2, which is in also all of our destinations are in Mobile, Alabama, you know, basically we're about under 0.1 miles from I-10 and about 0.2 miles from I-60. And I-10 sees about 85,000 vehicles each day and the other highway sees probably about 65,000. So we pay a lot of attention to the amount of traffic that's going each way. And then we also, of course, pay consultants and get industry reports to see how the RV industry is doing in that specific location in terms of dealership sales and just overall traffic of RVs going through certain checkpoints.

Whitney Sewell: Yeah, now I love those just a list of those things like you just mentioned, even as an investor, just to think through, you know, as a passive investor, hey, you know, are these things checked off right before I invest in that RV park, especially as it's really a newer known asset class anyway, to the broad spectrum of investors, right? It's not as commonly known or talked about, like you and I mentioned, as multifamily. So that's some great things to consider. Ben, shifting gears here just a little bit as we're getting close on time. I always get asked this, so I love to hear from guests and experts like yourself. What's your expectations or predictions, right, over the next six, 12, 18 months in the real estate market? And you can be specific to RV parks or just in general, either one.

Benjamin Marc Spiegel: So, I think RV destinations in the Southeast, I think are going to continue to flourish. I honestly, I don't think we're in for a soft landing like a lot of other people think we are. I think that the odds of us entering a recession are probably a little bit higher. I don't think rates are going to come down as quickly as people think or are talking about. And basically, I just think that there's a huge gap in the market for affordable housing in general and just affordable vacations or affordable stays. And especially in the Southeast, which has really two things that nowhere else in the country has, which is power and water. You can't build a factory in most parts of the country anymore because they just don't even have enough water. The Southeast is seeing a huge population migration, a huge wealth migration. I mean, just for Alabama, for example, the deepwater port of Mobile, it's one of the only deepwater ports on the Gulf. And it's actually bordered by a county called Baldwin, which has been the fastest growing county in the United States three out of the past six years. And it's at the point where its utilities are at capacity. And what that is, it's resulting in a spillover effect. So you see, just all that development which is can take but Baldwin is contiguous to mobile and the most southern part of Alabama right right between the panhandle and Mississippi. You just see a lot of that growth coming into mobile and. Mobile is a little more dense than other parts of Alabama. So those USDA loans are much harder to get. So we've strategically snapped up most of the land that qualify for those USDA financings. So we're confident that we're not going to be seeing too much new construction competition just because it's really without those loans, it's it's unfeasible to build. But just to finish off on regular multifamily, I think that a rising tide lifted all boats the past eight years. When you can borrow at 80% LTV and a 3% interest rate, it's not too difficult to make money. But I'm doing a multifamily deal right now where I'm about to close and my market interest rate was going to be 6%. I got a call from the bank they're implementing a bank-wide policy that they're putting a new floor in at seven. It's getting more difficult and more difficult to make money in traditional multifamily, even though inflation is high and rents continue to climb in a lot of areas of the country. The cost to renovate The cost to repair and maintain is just going through the roof. Taxes are going up. Insurance is going up. Your expenses are going up 10 to 20 percent a year. So if you can't keep pace with that with your rent growth, you're looking at negative operating leverage. And now, especially that cap rates really haven't increase remotely to keep pace with interest rates. Normally, we were buying at a 6-7 cap and borrowing at a 3-4, and now you're maybe buying at like 7.5, but you're borrowing at 6. So that 300 basis point spread is now down to 150 or 100 bps. And then you really need to rely on increasing the rents really quickly. And if that doesn't happen, It's going to result in capital calls and unhappy investors.

Whitney Sewell: No doubt that's why this is pushing a lot of people to look at other asset classes, right? Like RV parks. Exactly. Ben, what's your best advice for passive investors right now?

Benjamin Marc Spiegel: To be very patient with your capital. Your capital is the most precious thing in the world. I would really try to hold out for unique, special situations where there is some type of dynamic in play that is giving the sponsor a really strong competitive advantage with that asset specifically, not just necessarily betting on a growing market or rising rents around the country, something very unique to that asset that makes it extremely undervalued and where the sponsor has a clear defined pathway to creating value there.

Whitney Sewell: Ben, how do you like to give back?

Benjamin Marc Spiegel: So I volunteer at a local center for children that are underprivileged, that don't live with their parents anymore. And I also give to many charities. I'm a mentor at the Pleasantville Cottage School, actually. I'm in Greenwich, Connecticut, so it's about 30 minutes away from me. I've been doing that for about 10 years. I also teach them a little bit about financial literacy and try to help them when they get out of there, learn how to manage their finances a little bit better. That's great.

Whitney Sewell: Ben, I'm grateful to have met you, had you on the show and appreciate you diving into really this asset class that's coming to the surface. It's been around a while, I think, but but not not in the luxury space as much as it has become over the last few years. Right. And so grateful for you diving in and showing us many things that especially as a passive investor that we need to be thinking about if we're going to invest in this space. Thanks. Thanks again. Tell them how they can get in touch with you and learn more about you.

Benjamin Marc Spiegel: Yeah, absolutely, Whitney. I appreciate that. So we're Redwood Capital Advisors. Our website is www.redwoodcapitaladvisors.com. Our Instagram handle is redwoodcapitaladv. We're on LinkedIn. We're on LinkedIn, Instagram, and Facebook. You can go to my website. I have Calendly. Just book a time to speak with me. I enjoy speaking with any interested real estate party, whether you're an interested investor or not. I just love talking about the industry. I love conversing about new ideas. It doesn't matter what your intentions are. I'll enjoy taking your call.

Whitney Sewell: Thank you for being with us again today. I hope that you have learned a lot from the show. Don't forget to like and subscribe. I hope you're telling your friends about the Real Estate Syndication Show and how they can also build wealth in real estate. You can also go to lifebridgecapital.com and start investing today.