Modeling like a Deal Seasoned Pro- Adventures in CRE

In this episode of the A.CRE Audio series, Michael walks Spencer and Sam through the RV park development model used to analyze Michael’s current project with Firm Ridge, RV@Olympic, spotlighted in episode 8. Michael also shares additional insights on the overall strategy, supply and demand dynamics, the strategic location, and market positioning of the RV@Olypmic project for a comprehensive understanding of the factors driving its potential success.

You can download the underwriting model discussed in the video here: RV Park Development Model

If you’re intrigued by the potential of RV@Olympic and wish to explore co-investment opportunities, we invite you to reach out for more detailed discussions: More Info

Watch, listen, or read this episode to learn more about how to pinpoint a potential real estate strategy, support underwriting assumptions in a financial model when discussing with potential capital partners, and the RV@Olympic project.

Modeling Like a Deal Seasoned Pro

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Episode Transcript

Sam Carlson (00:00:08):

Hello, and welcome back. This is the final episode of season four, which season four was a ton of fun. We were actually on site in Washington. This particular episode is about, let’s see here, it is January. So we’re about five or six months removed from our time on site, and Spencer’s going to talk about why that is. But I’ll just say before we jump into any of that discussion, the season was a ton of fun. It was a ton of fun for me personally to have a bird’s eye view of the project, of watching two professionals go at it in terms of just analyzing, evaluating these models. But today, we’re actually going to walk through the actual model that is constructed for Deer Park. So Spencer, before we jump into the model, maybe talk about why we are removed five, six months from our time on site, and then what we’re going to be doing today.

Spencer Burton (00:01:09):

Yeah. Thanks, Sam, and as a recap, Michael is launching a national development strategy. He has his first development in the Pacific Northwest, just outside of Seattle. And so this season, we talked through some of what Michael’s learned and some of our own experiences. We also delved into other areas like super forecasting and AI. Nevertheless, as this came, as we came back from Washington, as it went into production, as is the case with all development … I spent the first 10 years of my life in development. This is the case with all development. Almost weekly, up until the point where you really break ground, things are just constantly changing.

(00:01:56):

Enough changed from Michael’s first project around economics, around timeframes that the last episode we recorded on site, where we dug into Michael’s model, and I acted as if I, pretended as if I was an LP, and I was vetting his assumptions, and pushing back against certain conclusions, those assumptions have changed sufficiently where we decided we would just go ahead and rerecord this in a virtual fashion. So I think the first point, I’m going to put myself in the shoes of an LP. I spent a portion of my career as an LP putting LP capital into developments such as what Michael has underway in the Pacific Northwest.

(00:02:41):

One of the first things you ask, even before you get into the numbers, is, what’s the story? Why even do this? There’s a story at, call it the strategy level. Why apartment development, if someone’s in apartment? Why hotel development? Right? Then, there’s a story at the asset level. And so Michael, I guess the first question for you is, what is the strategy level story here? To help with that, we’re going to share a screen, and you’ll see just some notes that Michael has made as he’s prepared his strategy. So pretend, Michael, like I’m an LP, explain to me why this even makes sense from a strategy standpoint.

Michael Belasco (00:03:22):

Yeah. Well, let me even back up just a little bit before we go right into the strategy. This is something I learned. It’s funny. This is something so simple and so intuitive, but someone had to hit me on the head with it to really bring it to the foreground. I want to discuss a concept that I picked up actually at my time at Stablewood and working directly with Glenn, Glenn Lowenstein, who is the CEO, founder of Stablewood, where Spencer is today. It’s something we all think about. We all do it indirectly, and I want to just make this very clear. For anybody out there that’s thinking about doing an investment strategy, whatever it is, no matter how sophisticated or how complex your strategy is or how simple it is, it all comes down to a basic fundamental concept.

(00:04:21):

That concept is this. Demand has to be a lot greater than supply is part one, and the second part of that is that there has to be attractive pricing. So you can have demand greater than supply, and if everybody’s in there trying to buy … This is something that’s happening in the multifamily space right now, where there’s just so much competition that yield’s kind of squeezed out. Yes. You can still go, and if you’re a long-term investor, it might not be a problem. But yield has been squeezed, because the attractive pricing piece is missing from that.

(00:04:58):

So that is a concept I’ve taken with … and you think, “Oh. Supply, demand, everybody talks about that,” but just having it said to me that simply … That’s the beauty of people who have gotten so successful in any industry, is that they could take concepts that you might, I’m going to use the word complexify, if that’s even a word, and they can boil it down so simply that they can communicate it so effectively that that’s the model of their … That’s how success permeates. So a lot of these people that I’ve seen and I’ve met over the years, and Glenn Lowenstein is one of those people, and when he said that to me, I was like, “Man. That is just so simple and so basic, but it permeates.”

(00:05:36):

I left Stablewood back in July, and I had gone through a couple strategies, deep thinking, thinking long and hard about opportunities. This opportunity and larger strategy smacked me on the forehead. This project in particular, which we’ll get into after we talk about the major strategy, is one that’s right outside of Olympic National Park, and it’s an RV park. The macro strategy here checks all the boxes. So again, you could be a Stablewood Properties, where you’re out there using the most sophisticated tech and data, or you could be a simple mom and pop investor. If that fundamental holds true, you’re going to do well.

(00:06:20):

Here’s the strategy that I want to share with everyone that is currently in that state of being, so to speak, where demand is greater than supply, and you have attractive pricing. We’ll walk through at a macro level here first with this presentation, was what I wanted to share, to show you that. It’s very simple. It’s a couple graphs. There’s nothing complex about it, which, again, lends to the idea and the validity of this idea, is that you don’t need to present this complex concept to get to the point. It’s just all smack right in front of your face.

(00:06:55):

So what I want to show you here in this first slide is a slide that it talks about demand, which is the first checkbox in this broad and simple concept. So here you have, and again, we’re talking about the strategy, which is RV parks and campgrounds. This is not manufactured housing where people come and they stay long-term, which, there’s another strategy that is viable today, also. But we’re not going to talk about that. This is transient. Think of hotels where people are showing up with their RVs, and they’re staying, and they’re leaving. This is not long-term. This is transient RV parks. So this first graph here shows a growth in annual active camper households. Now, I’d like to hone in. Before I even go in, any questions, comments, things you’d like to add, specific-

Spencer Burton (00:07:44):

No. No. This is fine. So this is the demand side of the demand exceeds supplied attractive pricing.

Michael Belasco (00:07:49):

Correct.

Spencer Burton (00:07:50):

I see It’s active camper households. How does it relate to RVs, or are they one and the same?

Michael Belasco (00:07:56):

So we are going to hone in. So between RV parks and campgrounds, the idea is that there’s this outdoor hospitality sector that is, from the institutional perspective, nascent, but it is growing rapidly. And so what I wanted to show you at the macro, macro level before we hone into RVs is this growth in active household campers. I’d like to-

Spencer Burton (00:08:17):

Interesting.

Michael Belasco (00:08:18):

We can hone in, really. Let’s talk pre-pandemic, 2019 to 2022. What you’ll see here is this dramatic growth of 42 million to 58.5 million households that are camping. Now, that’s a very interesting number in and of itself in the large scheme. You’re taking 42 to 58, 16 and a half million new users over the last, or new camper households over the last four years. But what I found particularly notable is if you go to the sticky customer base, let’s call it, which are these three-plus times a year, people who have really grown into this outdoor camping, RVing type concept, and continue to do it, and are doing it multiple times a year, that has grown from 18.9 to 28, so 9 million-plus, a little more than 9 million new active households just within those last four years.

(00:09:20):

So when you think about the demand, that was a first sort of green light to say, “Okay. That’s interesting. Has supply caught up with that.” Right? To me, when you think about the development and bringing on new product, the likelihood of being able to accommodate 9 million new households or camping households when the original number in 2019 is 18.9 million seems unlikely. You’ve almost doubled the amount, or you’ve almost grown it by 50%, the amount of new households.

Spencer Burton (00:09:50):

Yeah. You know what else is notable, Michael, if I can stop you? So one could argue that the jump from 2020 to 2021 is purely driven by people who are stuck at home, and there’s no other alternative. But what I find interesting is that you get from 2021 to 2022, a period where things really opened up, and in particular 2022, where the world was largely open, and the one time users actually fell, not quite to the 2019 level of 5 million, but it fell.

Michael Belasco (00:10:26):

Exactly.

Spencer Burton (00:10:27):

But the sticky piece, 25.6 and 28, increase, and what that says to me is people discovered outdoor recreation, whether it’s RV, whether it’s tent camping, and they liked it. And so because they discovered this new thing, it becomes a new norm. And so you could argue, and now I’m not playing the LP side, but you could argue that this will remain at the new levels because of the introduction to a new way of recreating that people perhaps hadn’t tried before.

Michael Belasco (00:11:00):

Right. So now, we’re kind of warming up to the demand side. Now, the next slide gets to an even stickier customer base or user of this type of space. So what you have here is growth in RV households. Okay? So the blue is active camper households owning RVs, and then RV households. So these are people who prefer RV camping. Now, while both are attractive and interesting, and you can read the slide, I’m not going to read it for you. I’ll share this. I think after we do this, we can put this document up. It’s nothing proprietary. What’s really interesting to me and fascinating and exciting is this growth from 7 million to 12 million active camper households owning RVs.

(00:11:55):

Whether supply was meeting demand in 2019, there were 7 million households owning RVs. You’ve added 5 million. You’re not exactly 2Xing, but you’re close. To this new RV owner group that now has an RV. They’ve, own it. They’ve significantly invested in this type of activity, and they have these RVs now. And so they are looking for opportunity and places to go, and you’ve doubled this new demand driver. Right? So now these people own it. It’s sticky. They’re invested now. They own these RVs. So that was another green light for me to say, “Okay. This is now even becoming a little more compelling.” Right? I’m kind of leading you down the path here on the demand side.

Spencer Burton (00:12:37):

So help me understand a little bit more, though, about the options that RV owners have. I’m not an RV household, by the way, but let’s imagine I was an RV household. I’ve got an RV in the side yard. What do I do with that RV? So describe. I mean, many on the call probably do know, but those who are listening to you, they don’t quite understand what the options for an RV owner are. What are they?

Michael Belasco (00:13:00):

Yeah. So if you think of RV, I mean, I’m just, I’ll be very basic here. It’s a house on wheels that you can take, and it’s varying levels of comfort. You can have your class A, B, C motor homes, your fifth wheels that you connect to your truck, and it’s just a way to increase your comfort when you’re going outdoors. I’m being very generic here, but you take these things to go experience outdoors. Right? It’s really made to help you be more comfortable when you’re going out into nature, so to speak.

(00:13:33):

So you can take these things locally, and you can go. Maybe there’s a campground with … there’s a lakeside campground. There’s things like that that are more local, and there’s a lot of those options where … For me, I’m right outside of Philadelphia, and between Philadelphia and New York, there’s the Poconos. Right? A lot of people will go and bring their RVs up there, and a lot of people just take these things around the country.

(00:13:57):

So you have people that use them sort of for vacation, and they’ll park them either in RV storage, which is another interesting asset class in the real estate space, or you have some people who live in them more full time. They’re retired. Sometimes, it’s like retired couples. They’ll go out, and they’ll do cross-country road trips. They’ll stay at different RV parks. So those are sort of some of the options out there for people who own RVs and what they typically do with them.

Spencer Burton (00:14:25):

Got it. Okay. So you want to get to the supply side now?

Michael Belasco (00:14:30):

Yes. Let’s get to the supply side. So what’s really interesting about this space in general, so what you’re looking at here is really the first national campground supply now, the results of the first national campground supply demand analysis that I think was ever done by RVIA. That says a lot if you think about this. When you’re looking in the RV space, you’re not getting CoStar reports. They’re not available. You’re not getting STR reports as in the hotel industry. This is an industry that has tremendous opportunity. Because you don’t have this sophistication here yet, and you don’t have the institutional money that’s flowing in here driving up prices and reducing yields yet.

(00:15:17):

Now, it’s on its way. There’s a lot of interest in this space, but it’s not there yet. So what you’re looking at here is one of the first studies done in 2021 that really kind of looked into the macro supply side of RV parks. What you’re seeing here is, and this is not in pristine bucket-list national parks, which is where we’re going. This is across the country. So you can take the most plain RV site that’s off to the side of the road down from your neighborhood, and this is capturing that. What you’re seeing in peak season is 76% occupancy. Now, if anybody that’s in the hotel industry, you know if there’s 70%-plus occupancy, it’s time to build new in any market. Right? There’s room for growth.

(00:16:00):

Here, what you’re seeing is you’re above 70%. You’re at 76% according to this study, and this is nationwide across the country. Annual 54%, very healthy, and then this is nationwide. So then, you go and select the markets. You’re looking at even higher occupancy. So again, another on the supply side, now, indicator. Okay. Incredible demand. Inadequate supply, and now I’m a … You ever see it with the guy from WWF, now WWE, the Jim McMahon, this meme where he’s sitting in a chair, and then he gets more excited, and he gets more excited. The last one, he’s exploding. Did you ever see this meme before?

Spencer Burton (00:16:38):

Yeah. Oh yeah. Yeah.

Michael Belasco (00:16:39):

So that’s kind of where I’m at now. I’m at the third still of that meme right here when I see this.

Spencer Burton (00:16:45):

So what data, if at all, is there around growth in supply? So we have a 2021 analysis here that shows that you have strong demand/supply dynamics, but is there 2019 data? Is there 2012 data where you can compare the growth in demand relative to the change in supply?

Michael Belasco (00:17:13):

Not that I have found at the macro level, and now here’s where a bit of sophistication gets involved. Because there isn’t really perfect information out there that you can easily access. We’ll get into this when we get into the model. So okay. Fine. This is all well and good at the macro level, to your point. How do I believe my story when I’m going into bucket list national park? So yeah.

(00:17:39):

What’s happening right now is we all should be getting a feeling that there is great opportunity, and now it’s time to dive in deeper. It doesn’t necessarily, from my perspective, need to be on the national level, but at the market-specific level, yes. Okay. Now, it’s worth the time to keep going. Right?

Spencer Burton (00:18:01):

Got it. Got it. Okay.

Michael Belasco (00:18:02):

But no. I don’t have anything previously that said, what was it before, and how is the trend going there, at least that I have discovered.

Spencer Burton (00:18:07):

So you’re really describing, and for the listener, Michael’s strategy is developing RV parks in and around national parks. He calls it RV At. So his first project is RV At Olympic. What you’re describing is you saw this national trend, and your assumption, then, went to, and I’m assuming you have data to then support your assumption. Your assumption, then, went to, if demand at the national level, including all these ancillary less interesting locations, if the demand/supply dynamic is so strong, imagine how much stronger and better it is at the premier locations like Olympic National Park.

Michael Belasco (00:18:49):

Exactly. Correct.

Spencer Burton (00:18:52):

So what are we looking at here?

Michael Belasco (00:18:53):

Yeah. So this is something that I pulled from Dyrt, D-Y-R-T. They have over 30 million visits annually. They do a lot of bookings for campgrounds and RV parks, and these are … Just pulled out some of the notable findings from, really, that validates the supply/demand imbalance. So 58.4% of campers surveyed had trouble finding a campsite in 2022, which is a five times, 5X increase, the percent of campers who had trouble finding campsites compared to 2019.

(00:19:26):

Then, a little bit more data, camping on wheels, roughly 51% are camping in vehicles, and these people are 50% more likely to camp in winter. There’s the seasonality aspects, so whether you’re doing campgrounds or RV parks. Then, 20% more likely to report difficulty. So these people who we are catering to are having a subjectively harder time based on this survey. I thought it was notable to see.

Spencer Burton (00:19:51):

Yeah. That is interesting. So it’s not the sort of data that … in the major asset classes we have in real estate that has, down to the number of units, square feet of office, units of multifamily over the last 30 years. But you have a survey here that points to a demand, a supply issue. I live in Colorado. I’m an avid outdoors person. Love to camp. Love to backpack. It’s virtually impossible in Colorado to find a campsite.

(00:20:29):

When I grew up in Idaho, on a Friday night, you’d go, “Well, let’s go camping,” and you’d go up, and you could pick. You had the pick, where you wanted to go. That’s just not, at least in Colorado, and I think Sam, who’s in Idaho, can speak to it, that’s just not the case anymore. In fact, my son and I generally will backpack, because we don’t have occupancy issues there. But just an anecdote, but this survey does ring true for me.

Michael Belasco (00:20:58):

That’s sort of when-

Spencer Burton (00:20:59):

So talk about the national … No. Go ahead, Michael. Sorry.

Michael Belasco (00:21:00):

Yeah. When you get into these niche opportunity spots, I’ve had the same experiences. I’ve gone across. I’ve visited a ton of these national parks, and we had the same challenges. While the data isn’t there, because you become more engrossed in the community, there’s opportunity here. It’s sort of how these things evolve over time. Even when you think back to the Hineses of the world, when Gerald Hines was building his first office towers, I mean, he knew. They call it the big wave of office, that anybody could have built an office in any major city at that time. Because there was just this macro wave of white collar workers coming in. You maybe didn’t have the data then, but you knew. You were in the communities and speaking to … Gerald Hines, he was in Houston and knew what was there. It’s almost that feeling where, yes, when you’re presenting to somebody, this isn’t probably the best to present to an institutional investor, but it’s telling a story that’s here in absence of the perfect data that’s just not here yet.

Spencer Burton (00:22:01):

Well, and that’s why you have attractive pricing. Right?

Michael Belasco (00:22:02):

Right.

Spencer Burton (00:22:03):

So in obscure markets, obscure is probably not exactly the right term I’m looking for, markets where there’s a scarcity of information, the lower cost capital is less likely to come in at that moment in time, until the world becomes a bit more stable in a given market. Self-storage, take as an example. Up until the last five, 10 years, self-storage was-

Michael Belasco (00:22:30):

Single family rentals.

Spencer Burton (00:22:31):

Yeah. Single family rentals, another great example. As those became more mature, institutional capital flowed in. Cap rates compressed significantly. And so what you’re describing is a property type that feels very much like, to me, quite frankly, multifamily in the early two thousands was still a relatively nascent property type. Believe it or not. I mean, it’s credible to even imagine. But institutions were not heavy in multifamily in the early 2000s like they are today. It was all office and retail back then. Right?

Michael Belasco (00:23:06):

There’s another, while it’s not exactly manufactured housing, the concept of standing on the shoulders of giants or following the giants in, I mean 20 years ago, Equity LifeStyle got started, which was Sam Zell buying trailer parks. Now, we call them manufactured housing, but they have a significant percent of RV, too. If you look at the public REIT and you look at their data and their returns year over year, he wasn’t afraid to get into this niche area. You see him trailblazing, and so, you know. Even though it’s 20 years ago, it’s still early here, and I got quite excited. So okay. You see somebody like that coming in, and then you’re seeing the data to support it, and then the growth.

(00:23:47):

For better or for worse, when COVID hit, this just incredible growth, it seems to be sticky, and it’s being validated. Because now, we’re in 2023, and I have data that supports 2023 as an even stronger year for national parks than 2022 was. The data’s out. You can go and look at the national parks there. But anyway, we can keep going.

Spencer Burton (00:24:09):

Yeah. So let’s talk national parks, then. So this is the last piece of your demand exceeding supply at attractive price.

Michael Belasco (00:24:17):

Yeah. So this is my own cultivation of research that just points to … Now, you’re seeing a study that I put together, so to speak, with more higher-level information, but has come to ring true for the parks that we went deep on, this anticipated or expected without the CoStar reports and STR reports to tell us what their occupancy levels are. The more we dive into-

Spencer Burton (00:24:47):

So these are the national parks. Let me just ask some clarifying questions. These are national parks that you’re targeting?

Michael Belasco (00:24:54):

These are a handful of the national parks that we are targeting. After doing a lot of studies on all the national parks, these are a handful of them, yes.

Spencer Burton (00:25:02):

This is the occupancy rate of RV parks within a 25-mile radius of each of these national parks, and it makes sense that you’ve got peak season. Certain parks have a longer peak season, because of weather, than others. Olympic is where you’re at. So it looks like because Olympic, on the strait of … What is it called, Sam?

Michael Belasco (00:25:26):

Juan de Fuca?

Spencer Burton (00:25:28):

Juan de Fuca?

Sam Carlson (00:25:29):

Yeah. De Fuca. Yeah. Juan de Fuca.

Spencer Burton (00:25:29):

You don’t get snow, I would imagine, at this park, and so-

Michael Belasco (00:25:32):

No.

Spencer Burton (00:25:33):

But you still have a relatively low occupancy rate during the colder months, and as you hit middle, the summer, people are out of school. Is that what’s going on here?

Michael Belasco (00:25:44):

Yeah. We deduced this based on, now, what’s not included. So first of all, let me just back up a minute. You’re getting things where you see, if we look at Grand Canyon, for example, it’s fully occupied. It’s not only that the park is open or closed. It’s that there’s just some impossibly-high barrier to entry. Like Grand Canyon, I mean, you’re likely never going to build a park. Yes. Well, we’ll target it. I mean, the likelihood of us finding land there, that’s one. But so the other ones, yes. We are, in my opinion. I’ve looked deeply at Bryce Canyon. We had a deal that fell out there, but we know it. Olympic National Park. These are areas that I believe we’ve validated in terms of their occupancy rates. Rates.

Spencer Burton (00:26:32):

Got it.

Michael Belasco (00:26:32):

What’s not included here is that … So we did a study. I pulled in a ton of data. I pulled in all the parks within 25-mile radius of the main entry points of all these parks, and we literally went in and counted every single site. We deduced how many people come, and I have the study, which I’ll share with you guys. What’s not included here, some of these parks that are in here, the supply in this study that’s here is arguably oversupplied. Because what we found in Olympic and Bryce is some of these are actually mobile home parks, where you’re not staying in, but they’re included in there.

(00:27:04):

So once you refine the data a little more, it actually becomes a little more supply-constrained. But again, this was a directional study to say, does the macro thesis hold true? The answer was remarkably yes, and as we’ve gotten into the first couple deals that we’ve went after, it’s validating.

Spencer Burton (00:27:22):

So let’s talk now. So the macro story makes a lot of sense. As an LP investor or playing that part in this conversation, I would acknowledge that. Now, I might take issue with the management nature of … You could say it’s a heavier management element to this, more akin to not quite hotel, but it’s not hands off like other property types. So there’s a management component here. There’s also the seasonality that might get me, as an LP, uncomfortable.

(00:28:04):

But ignoring that, because that’s a whole different piece and one gets comfortable with this, because the overall story works. Let’s dig into to your first deal. So if I understand right, you own the land. You are fully entitled, permitted, and ready to build, right, and you expect to build … We’re in 2024, in January 2024 now. You expect to build this year.

Michael Belasco (00:28:33):

Yes. Yeah.

Spencer Burton (00:28:33):

Okay.

Michael Belasco (00:28:33):

Our goal is to build this here. Yes, and when we recorded this last time, we had a big hangover, which was, so this county’s Clallam County. Turns out we have the largest septic system in the entire county, and it was a little bit of a hang. What we thought was going to be like a checkbox, sort of, “Okay. Let’s go,” became a major issue that pushed us out. We had to commission a study and … which happens in development all the time. So we’re over that. We’re fully entitled. Everything else is sort of refinement now, but we’re fully ready to break ground, which is very exciting. We’re all super happy.

Spencer Burton (00:29:08):

So again, I’m going to continue to play the role of the LP. This is how I think about, now, the numbers. All right. So I believe in the strategy. I believe in the sponsor, the operator, in Michael, Cornell, Hines-trained, spent some time with Stablewood, well-capitalized and all that. Right? So I bought into the strategy. I bought into the sponsor and the operator, the developer, and now I want to say, “Okay. Does this deal actually make sense?”

(00:29:35):

When I say make sense, what I’m really describing is, do I believe the assumptions? Because a developer is not going to bring me a deal as an LP unless the numbers look good. And so then, the question is, do I believe the assumptions that ultimately lead to those outcomes? I start with the project budget. Right? Because there’s really two ends of this. What’s the stabilized income this will produce relative to the project budget? I divide that by this. That gets me my yield on cost, and I say, “What’s that number? That yield on cost, how does that compare to a stabilized cap rate in this space?” If there’s sufficient spread, we call that the development spread between those two. To compensate for the risk of the development, then it’s worth doing. Right? So that’s how simple this analysis is. And so now, it starts with project cost. So my first look at this-

Michael Belasco (00:30:22):

Well, allow me, if you don’t mind-

Spencer Burton (00:30:23):

Okay. Go ahead.

Michael Belasco (00:30:23):

Allow me to break the fourth wall for a second, as well.

Spencer Burton (00:30:25):

Please.

Michael Belasco (00:30:26):

So me, and this is true, this is happening right now, I am the GP. I’m presenting these numbers, and these are real numbers here. I have to take all my data, and as a GP, I want to be as aggressive as possible. But as me, Michael Belasco, I need to be, and maybe any other GP, I have to be realistic, because I need to be able to really sell these numbers. I always battle between what the data says and my conservative … I’m naturally a conservative person. And so the dynamic here is a GP’s aggressive, an LP’s conservative, and a good GP, in my mind, is honest and as conservative as possible. I like to think that that’s what I’m presenting here, but that’s sort of the dynamic from the GP perspective, so …

Spencer Burton (00:31:09):

Yeah. That makes sense. The other thing I’ll say, if you’re a newer LP listening to this, the closer you are to the go date, the more real the numbers get, and especially on the project budget side. And so when I look at these numbers, Michael, land value, a hard cost, which includes a whole variety of subline items, marketing, development fee, how many of these are fully bid out, meaning you have commitments from subcontractors to perform at that price?

Michael Belasco (00:31:43):

Yeah. So we bid all of these out. However, when we bid them out, it was in December of 2022. So we’ve been having ongoing … This has been taken. We’ve been getting the approvals, and we’ve engaged. So we are about 13 months out. Now, however, we’ve been engaging, and we’ve added escalators, even though we’ve grown the price by a little bit for each one. All of the subs we’ve talked to have told us the prices have held relatively the same. They’ve all been bid out. They know what they’re doing.

(00:32:23):

We’ve gotten the details out. However, they are, we’re, again 12, 13 months over, but we expect it to be roughly the same. I think this is conservative. We’ve upped all these numbers, and anybody that’s taken a hard look at this will see the original bids and the difference between them. But every sub has looked at this project and created a plan and strategy and bid it out. It just happened 13 months back.

Spencer Burton (00:32:47):

Okay. So there’s some uncertainty here, because you’ve got 12 to 14 month stale sub bids. Your argument is that, and by the way, it’s largely backed by numbers, there hasn’t been a dramatic increase in construction costs through 2023. Most of that happened in 2022. In some areas, there actually have been some reductions. I hear you. Nevertheless, if I understood right, you have included some escalators in these numbers from your-

Michael Belasco (00:33:18):

I’m rounding up. So anybody that sees these actual bids will see these numbers are rounded up.

Spencer Burton (00:33:23):

They’re rounded up. Okay, and then you, on top of that, have your contingency here.

Michael Belasco (00:33:26):

Correct.

Spencer Burton (00:33:26):

Which theoretically could provide for that. I would imagine before you finalize your capital stack, well certainly, before you finalize your capital stack, you’ll have updated bids here, which will cause them to change, move up or down.

Michael Belasco (00:33:43):

Yeah. The goal is to reengage the sub. So right now, we have about 27% of this budget invested. We’ve already put it in. The money’s there. We want to reengage the subs. There’s an expectation that this will not change much, and the idea is to get that capital partner aligned, get ready to go, reengage the subs at that point, all in that time. So that’s what-

Spencer Burton (00:34:09):

Okay. So that’s the first thing that I, as an LP, look at. I want to understand how real this budget is, and in fact, if I were investing with Michael, I would say, “That’s all great, Michael. Before I formally fund here, before I formally commit, I need this budget updated.” He’ll say, “Absolutely. Yeah. All right.” Assuming it doesn’t exceed some variance, I will likely commit. And so I might say, “Okay. As long as the budget doesn’t change by more than five or 10% from this stage,” and by the way, Michael may come to me as an LP a year before he breaks ground. The budget always changes. Anyone who’s been in development or construction know the budget’s always changing, and so it’s just trusting that there’s sufficient cushion and contingency and providing for my, as an LP, the ability to walk if things fall outside some variance.

(00:35:06):

So let’s proceed with this assumption that it costs 5.97 million to build this project. It’s a hundred units, and I know that because I look here, number of sites, a hundred units. Here, I have the property address and so forth. I see Michael has some assumptions around timing, which I’ll dig into some, because timing matters to the extent that I’m calculating, on my side, independent of Michael’s calculation, my LP returns. Timing is a factor in my IRR, at least. But I’m going to believe, okay, I got a $6 million number. Now if I’m understanding correctly, Michael, you are contributing the land, and you are contributing all or some of your development fee?

Michael Belasco (00:35:54):

We’ll do 50% of our development fee was the goal. So it’d be 1.6 million altogether.

Spencer Burton (00:36:00):

So of a $6 million capital stack, $6 million of uses that have to be … So on the sources side, there’s 4.4 million of LP equity or LP equity plus debt that would have to be raised. Right? So I would, as an LP, be a portion. Maybe I put up the LP equity. Michael goes out and secures debt. If I understand right, Michael, and I don’t want to get into this too much, you’re somewhere in between doing this all equity or bringing in some construction debt. It really depends on the market and the nature of that debt. Is that correct?

Michael Belasco (00:36:33):

Yeah. We’re going to go live with this. The preference is to go all equity and not have to deal with any risk on interest rates and all that stuff. Although we’re getting more comfortable adding debt, low leverage debt on this project, depending what type of terms are out there, but yes. We are looking, because it’s not such a huge all-in number, that 4.4 million. We’re hoping to go in equity construction, refi out at stabilization.

Spencer Burton (00:37:05):

Okay. So it’s no debt to build, and then it looks like you stabilize … Well, you begin operation January 2025. How long from there until you expect to stabilize?

Michael Belasco (00:37:20):

Yeah. The likelihood is that we’ll have to get a season in to show how the year went, and then from there, you have your first stabilized year in the books. Then, you go and refi there. So my expectation is we get that whole season in come October. We hit the market for … Depending on how the structures that we’ve worked out, if we do get construction debt, but the goal is go out, go to the market in August, September, start to warm people up, and then hopefully close on it by the end of that year, December or January.

Spencer Burton (00:37:51):

Got it. So if I’m an LP investor, I’m thinking about it this way. All right. It’s a $4.4 million check. The nice thing about going all equity is that we take debt risk off the table.

Michael Belasco (00:38:04):

Correct.

Spencer Burton (00:38:05):

The downside is that I can’t lever my returns quite as much, because debt doesn’t come in until about two years after I fund. Now, at that point in time, and I’ve already read this model, right, so, and I’m just talking this through at the developer, at that point in time, all of my equities return. Is that what I understand?

Michael Belasco (00:38:23):

Yeah. So if you scroll up a little bit to the top, and you go to the top right, the … Go up a little higher. So right here, where it says, “Business plan,” which there says, “Develop with all …” I’m in column F, by the way. “Develop with all equity. 5.9. Refi at stabilization. Proceeds back from the debt. Equity remaining in deal.” By the way, this model will be on the site, and if that wasn’t the case and there was equity, that would show up. Then, average cashflow to partnership afterwards, and then average annual cash-on-cash. If there was equity left, it would display there.

Spencer Burton (00:38:56):

And so at that point in time, your promote would crystallize, and I would stay in long-term at some … Or what do you have in mind for me?

Michael Belasco (00:39:07):

Yeah. If we hit that, it would crystallize there, and then the goal is to … If it doesn’t crystallize, the goal is to keep going pari-passu on the ownership structure all the way out until exit.

Spencer Burton (00:39:18):

Okay. So either there’s a crystallization at that stage, or you buy me out at whatever value it is, or I buy you out, or are you planning to stay in this long-

Michael Belasco (00:39:30):

No. I’m hoping to find a long-term.

Spencer Burton (00:39:33):

Okay. Got it.

Michael Belasco (00:39:34):

Now, I guess, yeah. If we exit out, and the debt covers whatever the required return is, that’s a conversation. But our goal is to go long-term. This is a 10-year hold for us.

Spencer Burton (00:39:44):

Okay. So this is a build the core. I crystallize your promote at refinance, which makes, that makes the most sense. Your promote’s crystallized at that point, and then we, me as LP, you as the sponsor, continue to hold this long-term. That makes a lot of sense. And so again, from a teaching moment, what I’m looking at is, okay, how realistic is that? It seems like the construction period is realistic, a nine-month construction duration, considering it’s an RV park. What do you have?

Michael Belasco (00:40:19):

Yeah. It’s all horizontal, meaning you’re doing the utilities underground. You got to build the septic system, and then you’re putting pads. These pads are gravel. So the road’s going to be paved and everything, but they’re gravel pads. And so constructions, there’s no vertical. Now, there is a welcome center, a building. I believe it’s roughly, I might be getting square footage off a little bit, about 2,000 square feet. It’s nothing big. It’s very, a basic concept, and there’s another bathhouse that’s being built, and then amenities. So all of that is not intense. You’re not building a high-rise or garden style apartments. It’s very straightforward, horizontal mainly.

Spencer Burton (00:41:01):

Okay. So a nine-month construction period makes sense, and then you have a year of operation before putting debt on. So again, from my standpoint, I go, “All right. I feel comfortable with the project costs.” Let’s dig into, then, the income and expenses.

Michael Belasco (00:41:19):

Yeah. You can scroll over operating assumptions there, too, if you want. But yeah. You can do whatever you want.

Spencer Burton (00:41:22):

Yeah. What was it, here on the summary tab. Right? Oh yeah. Okay. So what I see here, and really here, it’s all about revenue and expenses that come down to my NOI, and my NOI divided by my project cost. The question is, how realistic are those income and expense assumptions? So the biggest, most important number is the rent, in this case, the average daily rate, the occupancy rate, which you’ll have to show me where I can find that, such that … We can get into other income, which other income can move the needle. But what I’m seeing here is you have a $62 average daily rate and a 68% average annual occupancy. It looks like on your monthly cashflow is where that is. How do you get to 68%, I guess, is where I’m … What am I looking at? Monthly H48.

Michael Belasco (00:42:21):

Yeah. So why don’t we go. There’s a last tab here, supply versus demand analysis, and I can kind of justify how I got comfortable with 68%.

Spencer Burton (00:42:30):

Okay.

Michael Belasco (00:42:33):

So just focusing down on this bottom piece with the green header, this is where you have to take a lot of time and I had to take a lot of time and really dig into some research and pull some numbers from places I trust like the National Park Service data. RVIA is a really great, reliable source that provides data on the RV industry. And so I backed into this sort of monthly. I anticipated occupancy based on, now this is where it differs from the big model that I showed you, based on truly comparable product types, which, to me, is modern full-hookup RV sites.

(00:43:19):

The interesting thing with Olympic National Park is that there’s really one, and I mean it. Anybody that’s interested, we can go do the tour. There is one really truly comparable RV park out there. The other ones that feel and seem comparable, when you go out there, they’re not even close to a modern RV park. So the supply is very dated, and so it’s not even close. So if you see at the top here, I have a total comps in the market, which is 834 sites.

Spencer Burton (00:43:49):

That’s sites. Okay.

Michael Belasco (00:43:50):

These are within 25 miles. Okay? You can argue, and Sam knows this area better than all of us. Some of these are out in Sequim, which you can almost say is a little, even, too far. But I needed supply, so I kept them in. I wanted for conservatism.

Spencer Burton (00:44:05):

Gotcha.

Michael Belasco (00:44:05):

I know I’m not making a sales pitch as a GP here. There’s a map. If anybody gets the OM, you can click on the map and see where these are. You can see one of these parks is even a parking lot outside of a roadway in or one of them. Honestly, that’s what you have here. Anyway, so total comps in the mark, 834. I’ll just walk you through the math real quick of how I backed into this. Okay? So take that. This is how many sites are available out of the year, if you were to take these 834 sites, which span over 11 different parks. That’s it.

Spencer Burton (00:44:37):

That’s on this comp set tab here, right?

Michael Belasco (00:44:39):

That’s on that rev comp set tab. Correct.

Spencer Burton (00:44:41):

Yep. That rev comp set. Okay.

Michael Belasco (00:44:43):

Yeah. Right here. These are the parks.

Spencer Burton (00:44:45):

So you multiply that by 365, and you get 304,000.

Michael Belasco (00:44:49):

That’s what you have every 365 days a year. That’s what you have available within 25 miles. Okay. So now, we have our supply side, and you have to figure seasonality and all that. But anyway, that’s your annual supply side. Then, I pulled out … Well, what I was trying to get to was, how many RVs are coming to Olympic National Park? There’s no data that calculates the RVs and what they’re doing there yet. Right?

Spencer Burton (00:45:15):

Okay.

Michael Belasco (00:45:16):

So I took the total National Park visitors in the country, and I took the total national park visitors at Olympic. You get this 0.9% of all national park visitors are coming to Olympic. Okay? So hold that thought.

Spencer Burton (00:45:29):

Okay.

Michael Belasco (00:45:31):

RVIA comes out with this great study every year. They say, “This is how many people are traveling. This is how many people are traveling in RVs. This is what percent of them are visiting national parks.” This year, 2022, I believe it was like 58% or 60%. The one assumption I had to make here was, what’s the average RV household size that travels in an RV?

(00:45:54):

So this is one you could play around with, any LP investor. I’d encourage you to mess with it. You get comfortable yourself. This is how I get comfortable, got comfortable with it. So from that, I said, “Okay.” Using that 2.5 average household size of the 39 million, number of RVs to visit national parks, 15.6 million, estimated number of RVs to Olympic, 142, taking that 15.6 and multiplying it by the 0.9.

Spencer Burton (00:46:22):

Got it. Okay.

Michael Belasco (00:46:23):

So I had to come up with some math to say, “Okay. Is this reasonable?” I looked at these studies. They’re as reliable as possible, so as they can be doing national studies. So I said, “Okay. Now, I have hard data from NPS,” which is what’s below. This is the seasonality. So if you look at, if you go to … Sorry. Starting in row 12. If you take all the national park visitors, they release it by month. So 3% of all visitors that come to Olympic in 2022 came in January, February, 3%, March, 5%, so on and so forth. Okay?

Spencer Burton (00:46:59):

So this adds up to a hundred, and this is the proportion of visitors in each month that visit.

Michael Belasco (00:47:03):

Correct. Correct. So then, if you go down, now, I don’t know how long people are staying in Olympic. Now, I know me, coming from the East Coast to Olympic, I’m staying for at least three nights, and people go to this national park. It’s not a one and done thing. You don’t just go there for a day in your RV and leave. You go there for a couple days. Right? Even if …

(00:47:20):

So I did a sensitivity, if you go down to row 27, on, okay, what if the average is two nights? What if the average is three nights? What if the average is four nights? Maybe click into one of those cells. You can kind of just see a formula just so we kind of get where this occupancy is coming from.

Spencer Burton (00:47:37):

I see. Okay.

Michael Belasco (00:47:38):

So click. Yeah. So you can kind of, if you see … So if it’s two nights, you have all these room nights, how many … What’s the average occupancy? The trend follows what the macro says, right, but now we’ve refined it. We’ve picked out the true comps. Even if there’s a site that’s like a class C site available, an RV At Olympic site’s available, people are choosing this site over that other one. Right?

(00:48:04):

So I got this degree of … First of all, we’re the second-closest RV park to the entrance of Olympic National Park, and we’re going to be the most modern. So even if these numbers, you could believe they are aggressive. If anybody had a choice in RV park to stay around Olympic, it’s going to be this park based on the quality, the vintage, the amenities. So nonetheless, this is how I got comfortable with our occupancy, which I put at 68%. So it’s under the three-night average of what I got here and a little above the two-night average. So I said, “Okay. If this feels aggressive, I’m going to err caution.” Now, we are the best new RV park in the area, and so therefore, maybe, I would argue it could get higher than 68%. So this is how I-

Spencer Burton (00:48:50):

So you’re assuming just a 68% occupancy. It could be higher than that based on that analysis you did, which makes a lot of sense. I see that you have no utility reimbursement, so any utilities used at the site, which that makes total sense, is included in the 62. But how confident are you in the $62 rate at 60?

Michael Belasco (00:49:10):

Yeah. So go to the revenue comp set tab.

Spencer Burton (00:49:12):

Okay.

Michael Belasco (00:49:12):

So I had to get comfortable and confident, and this is … So I went and looked, and we checked seasonality. So we looked at all different dates for all these. So, for example, when we look at Port Angeles KOA, we’ll look in January, April, July, December, and we look at the full hookup sites only. Because we don’t have any partial hookups. We are 100% full hookup, and that’s how we deduced, what are these guys charging for their ADR, average daily rate, which is a common hotel term, and I’m learning not as common yet in the RV space.

(00:49:52):

Look, KLA is charging 66.50. They’re further away. Our amenities are going to be just as good. Everything that we have is going to be comparable to them, and I still am, in my mind, being conservative, partly because when I look at the returns on this, and I’ve revetted everything, it just feels like it’s incredible. This is the demand greater than supply, and wow, attractive pricing. It’s really attractive pricing. So I said, “Okay. Fine. If I went to 66.5 and tried to put that in the model, the numbers go crazy.” Right? So I went back to 62, and you could argue I’m pushing back on myself. But that’s fine. I’d rather underpromise and overdeliver, and I feel like that’s what this is doing.

Spencer Burton (00:50:36):

If I were just to do on-the-fly sensitivity, and I look here on my return, after promote and asset management fees, right now, I’m over, and this is a 10-year hold, I believe. Right?

Michael Belasco (00:50:48):

Yes.

Spencer Burton (00:50:48):

I’m a 31.5% IRR, but really, it’s a two … On this deal, I’m really looking at multiple. Right? I’m a two, four, five multiple. If you are only able to get $50 or a $50 ADR, I’m still almost a two, a multiple.

Michael Belasco (00:51:02):

Well, that multiple’s also misleading to the conservative side, too, because you’re going in, this is something really important, you’re going in all equity on your development.

Spencer Burton (00:51:10):

Oh. That’s true. Yeah.

Michael Belasco (00:51:11):

And so you have this weird thing where you’re putting out all this money, but then, all of a sudden, it disappears. Really, your equity multiple’s infinite after that point. Everybody that, and you know this, Spencer. We talked about this. We’ve had projects we’ve worked on where we were like, couldn’t figure … We were rattling our brain why the equity multiple was so off, but it’s when you’re always going all equity and putting debt on after the fact, there’s a little funny thing that happens with the equity multiple. It should be higher, but it is that, and it is attractive, even with that weird anomaly.

Spencer Burton (00:51:39):

Well, to that point, we released a blog post last month on a concept of a weighted equity multiple. Right? What that’s meant to do is account for this very thing you’re describing, which is, it’s really not fair to say this is actually an equity multiple on a weighted basis that’s higher than two, four, five, and why? Because my equity is actually only out for two years, and yet I get the benefit over 10 years. Well, what am I going to do with that equity for the next eight years? It’s going to go into a different investment that will get, likewise, get some multiple, and therefore the two, four … Okay. So that makes sense. So what you’re really saying is, “Hey. If I go a whole lot higher than 62, the numbers just become unbelievable, like unrealistic.”

Michael Belasco (00:52:22):

Yeah. I want to sell this thing, and it’s like, “Yeah. Okay, guy.”

Spencer Burton (00:52:24):

So let’s dig into the expense. That’s the revenue side. How confident are you in these different expense line items? What tools, what data are you using to support things like insurance, payrolls, supplies, taxes, and so forth?

Michael Belasco (00:52:41):

Yeah. Well, insurance, we actually got a direct quote from an insurance group.

Spencer Burton (00:52:46):

Quote. Okay.

Michael Belasco (00:52:47):

We went through all the details. It might not be in this model, but I have a model where all that’s worked out. We’re actually, we’re a little higher than what we think the quote’s going to come in at. So that, I feel very confident in. The other numbers come in from … So what started as a macro study from this broker out in the Southeast who’s been an RV park broker since the eighties, and he developed this study. It’s all different RV parks, and he aggregates them into parks that he sold for X amount of dollars, whatever. There’s maybe 20 or so parks, and he sells this report that shows their operating expenses as a percentage of revenue. That was my starting point, right, being new to this space.

(00:53:37):

Then, we, through our conversations with some groups, we have the benefit of knowing some institutional people in this space, we met two property managers, which we sent them, even paid them to review the model and make sure that these are accurate, both of which are in the Pacific Northwest. Both corroborated this was on target. Then, we have a third property manager who we’re going to be bringing on likely, actually out of the South, but he’s a great property manager, also corroborate the numbers and validate them. So we’ve had a bunch of people that do this every single day as property managers and vet and give their seal of approval on these numbers.

Spencer Burton (00:54:19):

So if I dig in, I look at your first stabilized year, that would be year two, I see 1.7 million of effective gross revenue against 734,000 of expenses. So I’m going to look at the expense ratio, right, and that’s 43%.

Michael Belasco (00:54:38):

Yeah. That line right below, you got it there.

Spencer Burton (00:54:42):

What’s that?

Michael Belasco (00:54:42):

Your OpEx ratio, row 51.

Spencer Burton (00:54:45):

Oh. You got it right there. Yeah. So your OpEx, so you stabilize at about a 43% OpEx ratio. Looks like your taxes are about 10% of your OpEx, which I don’t know Washington as well as I do other states, but that seemed realistic. Hospitality, the expense ratio is really going to depend on whether you’re limited service or full service or something in between. But 43% does not seem out of the realm of realistic.

(00:55:21):

Again, but I don’t know it like you do. It sounds like you have consulted with people that have helped you come to a number that’s realistic. So I’m looking at an NOI, in fairness, on a trended basis, two years in, 3% growth, I believe was your growth assumption, of just shy of a million. When we cap that at a 9% cap rate, that’s the attractive pricing. Is that really what cap rates are in RV right now?

Michael Belasco (00:55:50):

Not much has traded lately, but the cap rates we’re seeing are actually, they’re actually in the, they’re around eight or lower from what we’ve seen trade. What I really triangulated in on, I have the sale comp analysis tab here hidden, because I don’t know that I can divulge that. If we can share it and blur out the names, maybe. What I really looked at to validate was sale price per unit, which I put in here and column I, and there are sale comps today that are there and surpassing that that I have. Now, there’s not a lot of sale comps in Olympic National Park, but the sale comps are RV parks next to national parks that rhyme with this that have similar profiles.

Spencer Burton (00:56:38):

Got it.

Michael Belasco (00:56:39):

Now, there is one down the street that is, I would argue, not even a comp, I think ours is much better, that has an asking price, hasn’t sold, that’s very attractive, at least in terms of us being in the space. But there are others that sold in and around Zion and Arches that go north of this and kind of hover right around this. So we’re 10 years out. Again, it’s another like, is this too good to be true, where all the data is saying this should be higher 10 years from now as long as the world goes in a steady, predictable-

Spencer Burton (00:57:10):

Oh. This is a price 10 years out there. Oh. I see. And so you have stable … Ah. I’ve missed it. So your stabilized value is 11.6. That’s that number, that just shy of a million NOI divided by … It looks like you have a refi cap of eight and a half. I get it.

Michael Belasco (00:57:24):

There you go.

Spencer Burton (00:57:24):

So you’re looking at 6 million project cost, 11.5 million stabilized value. This is when you take out permanent debt. That’s how you’re able to pull all of the equity out. If I look at this from an LP standpoint, and we’re almost at an hour, and so I’d like to wrap it up if that’s okay.

Michael Belasco (00:57:43):

Yeah. Please.

Spencer Burton (00:57:44):

This is my view as an LP. A very interesting macro story. I love the fact that you own the land already, and so you have 25% of the equity in this.

Michael Belasco (00:57:59):

Plus. Yeah.

Spencer Burton (00:58:00):

If we put debt on even more than that, right, if I’m able to talk you into putting debt on, and that’s ultimately up to you, but if you end up putting debt on, then you’re raising 3 million of equity. You already have a million and a half on top of that. No. You have a million and a half of that 3 million.

Michael Belasco (00:58:18):

1.6 total. We’re all in if we’re contributing to-

Spencer Burton (00:58:20):

1.6. So I would be half the equity. You’d be half the equity. So you have significant skin in the game. So I look at it and go, I go, “Okay. Well, Michael’s clearly committed to this. I’m not worried about that. He’s got the experience, so I’m not worried about that.” An interesting macro story at the micro level, second-closest property to Olympic Park. That makes a lot of sense.

Michael Belasco (00:58:48):

Six miles, right down the road.

Spencer Burton (00:58:49):

Where I see risk is I go, “Okay. Can Michael operate?” I’m sure that you’ve worked through that, so I’m not suggesting you haven’t. It’s just in the interest of time, I’m just thinking through risks.

Michael Belasco (00:59:02):

Yeah. Go for it. Yeah.

Spencer Burton (00:59:03):

Can Michael prove that he can operate, number one. Number two, this is a less liquid space. That’s why cap rates are as high as they are. And so I need to be willing to commit to a 10-year hold here. I’m just thinking myself, because I’m going to bank on this market becoming more institutionalized, as technology enters the space, as capital seeks yield in places like this, where the phenomenon that’s happened in single family housing and self storage and some of the other more nascent property types are now institutional, I’m going to make a bet that this is going to become institutional.

(00:59:41):

If I make that bet, and I know that you don’t want to do this, because you don’t want the returns to look any more ridiculous than they already do. I’m going to take the debt away already. Imagine that cap rates actually compressed, and you went to a seven instead of a nine. It starts, and then imagine you put debt on there. You know?

Michael Belasco (01:00:01):

You hit the ADR of what the actual top of the market is there, right, if you do that?

Spencer Burton (01:00:06):

Yeah, and now your upside scenarios become very, very, very, very interesting. I go, “Okay. Well, I put, in this case, 1.5 million in, and I got 9.6 million out.” Now, I know that’s not what you’re at all suggesting. I’m looking at the upside. When I look at the downside, I say, “Okay. Let’s assume that we don’t get any debt.” So I’m now putting up four and a half million if I understand right, 4.4 million.

Michael Belasco (01:00:29):

4.4. Yeah.

Spencer Burton (01:00:31):

Let’s say that you don’t hit your ADR number. Let’s say that it’s something closer to 55, and let me just put some big … I don’t know. Let’s add another 200, 150,000, so my expense ratio, instead of 44, goes to 50. Right? I’m still a two, a multiple over a 10-year hold.

Michael Belasco (01:00:51):

Yeah. Beat it up. That’s the thing. It’s like-

Spencer Burton (01:00:53):

I know. Right? You can beat this thing up like crazy.

Michael Belasco (01:00:54):

Add 10% to your contingency for development, right, just to play around.

Spencer Burton (01:01:00):

Yeah. Yeah. Yeah. So if I go to 50 in that, you can add … Yeah. You’re right. So then, you take the contingency to 10%, and I just took … I mean, I’m really beating it up. I just took the rent to $50. I mean, even then, I’m still at 187 over 10.

Michael Belasco (01:01:18):

Even then, it’s like, all right, that wasn’t great, but it’s a 13, 14. You know? I mean, it’s …

Spencer Burton (01:01:22):

Yeah.

Michael Belasco (01:01:23):

That’s what I mean.

Spencer Burton (01:01:24):

Take this back to nine.

Michael Belasco (01:01:25):

Starting at the macro, the story’s the demand greater than supply, and here’s the attractive pricing. So it’s really, I’m extremely excited about this. I feel like we found a great opportunity, and the goal is not to do this one, but to do this on a national level. There’s a lot of national parks out there, a lot of supply/demand imbalance, and what we need to find is attractive pricing. We talked on another podcast about the team and the sophistication around sourcing, and entitlements, and approvals that we have in place. So it’s exciting. It’s really exciting.

Spencer Burton (01:01:58):

Well, I’ll say first off, as a friend, I’ve known Michael now 10 years, 11 years actually.

Michael Belasco (01:02:04):

Right.

Spencer Burton (01:02:05):

I’m excited for you. I wish you well. I think this is really exciting what you’re doing with your RV At platform. I’ll be excited to continue to watch it and to throw in a few dollars myself when I can to contribute to what you’re doing. Either way, best of luck. To those that are listening, I hope that you learned something. Michael’s a pro, and it’s really cool to see, for us to dig in, me take the perspective of an LP and dig in and have Michael describe his process, both at the macro level, at the micro level, think about project costs and think about his pro forma. And so thank you for listening. Even if it is an hour, I hope it was worthwhile. Sam, maybe we’ll have you wrap this up.

Sam Carlson (01:02:52):

Yeah. I said this once before, but now I’m going to say it again. That is a wrap for season four. It was a ton of fun. Man. Just, again, a bird’s eye view watching you guys go through this model, go through the project was a ton of fun for me, very interesting. To all you guys, hopefully you enjoy it, like Spencer said, and looking forward to season five. Every season we seem to kind of up the game. We talked about deal making and deal doing, and then we actually went on site to do it in person. Who knows what season five looks like, but I’m looking forward to it. So thanks for watching this season, and we look forward to next.

Announcer (01:03:34):

Thanks for tuning into this episode of the Adventures in CRE Audio Series. For show notes and additional resources, head over to www.adventuresincre.com/audioseries.