Corporates Eye Rising Caravan Park Asset Class

Nina Hendy: The Urban Developer Plus (TUD+)

Corporate dollars are pouring into prized leisure parks as institutional investors corporatise an asset class traditionally favoured by mum-and-dad investors.

Developers aren’t fazed by the fact that revenue decreased by nearly 30 per cent in 2020-2021 during the pandemic. Instead, the land grab continues as transactions ramp up across the nation’s 2400 caravan parks.

After a tough couple of years marred by forced closures due to the pandemic, leisure park owners are keen to cash in, with 104 parks listed for sale across the country as of December 2021.

Increased demand for local travel, a burgeoning manufactured housing estate market and institutional appetite for land banking has stimulated investor interest for caravan parks as an alternative asset class.

Flow of deals a torrent

The deals are coming in thick and fast. Financial advisory firm BDO has been working on around 20 transactions in recent months while Resort Brokers has transacted more than $50 million in parks this quarter alone.

Tasman Holiday Parks plans to double its portfolio over the next three years after a $300-million private equity raise. The group has swooped on 21 holiday parks in Australia and New Zealand since 2019 in a $250-million land and asset grab.

HTL Property recently negotiated a two-estate sale on behalf of Alceon.

The real estate firm currently has Tuggerah Shore Caravan Park in Tuggerawong, NSW for sale by private treaty, which offers 65 permanent sites, 60 of which are park-owned. Financial turnover in financial year 2021 was approximately $662,000, and there are expansion opportunities.

HTL Property is also seeking expressions of interest in Queensland property Base Chinchilla, which is a 313-room accommodation village with 220 on-site car parks. It currently operates as an established large-format workers’ accommodation facility.

HTL director Andrew Jackson says the multi-asset sale speaks to a strong year of off-market transactional activity and confirms the objective for new capital trying to gain a foothold in this tightly held and rapidly evolving sector.

“This targeted strategy illustrates the metamorphosis of what has now well and truly evolved from a mum-and-dad cottage industry into being wholly corporatised and consequently widely recognised as offering institutional-grade investment attributes on par with any other asset class,” Jackson says.

New era for parks

The trend is towards the corporatisation of the tourism sector as institutional investors snap up assets that may have otherwise stayed in the hands of mum and dads is being experienced across the sector.

A spike in media interest—The Urban Developer wrote a feature on the asset class in June—is also driving investor attention, while prices are rising alongside the residential market, Jackson says.

“We’re seeing yield compression across the board in both the commercial park sector and permanent residential park sector,” he says.

Jackson put heightened investor interest down to the renewed interest in caravan holidays during the pandemic spurred by border closures.

“People are gravitating towards regional areas and residential price growth is enormous, and this is extending up and down the eastern seaboard generally.

“This is also flowing over into greenfield development. There’s simply not enough land around and people are recognising the demand for affordable accommodation options in these locations and seizing what they can.”

Exploring opportunities

Alceon confirmed that it has invested considerable capital into identifying and collating intellectual property in the asset class nationally.

Director Justin Reidy says further transactions would be announced in the coming weeks.

The strategy for the assets was to hold for the rental yield, however, when approached for a potential sale, the offer presented made a lot of sense to take, prompting a transaction earlier than had been forecast.

Several tourism and leisure-based asset businesses juggled the uncertainty and opaque nature of diminished trade and travel restrictions, but the manufactured housing estates (MHE) business model proved more resilient than most, Reidy says.

“We have felt that the MHE sector has been undervalued for a long time, and the past 18 months has seen a lot of activity in the sector that is providing the value we always knew to be there and delivering in excess of 50 per cent IRR return to our investors,” he says.

“MHE businesses have largely weathered the storm of the pandemic without so much as a cold, which has only proven to heighten interest from the broader investment community.”

Premium land grab

Premium parcels of land are hard to come by and prices are extraordinary, BDO’s director of business services Angus Strachan says.

“Capitalisation rates are about 5 per cent, which is about 20 times as high as I’ve seen in the industry before,” he says.

Strachan, who specialises in tourist parks and resorts, says buyers are seeking freehold premium locations on decent parcels of land in prime locations with the potential to grow and expand in the future.”

Investors are buying premium parcels of land that happen to be a holiday park or existing business that’s doing quite well, with the intention of hanging on to it for the time being until they figure out what to do with it,” he says.

An uplift in caravan sales in Australia and pent-up demand to travel bodes well for the sector, which is only likely to grow once international borders open, he says.

The chief executive of BIG4 Holiday Parks Sean Jenner says that there has been an exceptional level of interest in the asset class.

“Strong sales have been recorded in recent months, with buyers potentially paying over the odds of what the market might have seen previously, which is a strong reflection of how much demand is out there and how much of an opportunity investors see in this category long term,” he says.

While a lot of these corporate investors are investing in properties, they’re also investing in developing and improving the facilities, leading to better outcomes for the broader market, Jenner says.

AUTHOR: Nina Hendy