The Covid-19 pandemic fundamentally changed our relationship with work. Some older workers nearing retirement age decided to check out early and travel, while younger adults saw the opportunity to work remotely, taking advantage of their new-found freedom to travel or get away for extended periods.
“These are people who have a primary residence in a place where they’ve been for a long time, and they’re looking for a spot along the beach, in nature or just in a warmer climate where they can be surrounded by new scenery but need access to the amenities like WIFI to stay connected.” says Florida-based Robert Wilson, vice president at the real estate consulting firm of Project Management Advisors, Inc.
Wilson notes that these groups are seeking simple, reasonably price accommodations, not a luxury hotel or country club, which is increasing demand for alternative lodging, especially RV parks and cottages or cabins. Since than the pandemic, investment in alternative lodging has been increasing along with demand, Wilson continues, noting that many investors are looking at smaller alternative lodging locations with access to lakes or beaches in places like Maryland, Florida, Texas, the Carolinas, and even Delaware.
“This kind of property is seen as a more controlled risk when compared to something like a $100-million ski resort in Vail,” he explains, noting that. RV parks near places that people want to be can generate a constant stream of income at a much lower risk, because the cost of getting these kinds of parks set up is lower and takes less time and labor than putting together a fancy hotel resort.
Boom time
Alternative accommodations, including non-traditional and experiential-focused hospitality, have boomed over the past three years, agrees New York-based Steve P. Michels, managing director on the Global Hospitality team at Cushman & Wakefield [Michels has since become a senior managing director at Berkadia].
“Overall, ‘niche’ real estate investments have accelerated since the pandemic, driven by institutional investors’ search for ‘blue ocean’ opportunities amid a crowded (investor) landscape in the more traditional real estate asset classes,” Michels continues.
He says that a change in traveller behavior, from reliance on big brands or traditional hotels for leisure travel, also has added tailwinds to this segment, and notes that alternative lodging has benefited from these trends.
In general, there has been a push from investors post-pandemic into economy scale lodging and the repurposing of roadside motels and cabins into “no-frills,” well-located boutiques that reflect the natural setting, Michels continues. He cites brands like Field & Stream hotells as an example of alternative lodging properties that are experiencing significant pipeline growth through major investments by institutions and private equity.
The Field & Stream brand is being launched by Starwood Capital and AJ Capital, which created a 10-year F&S Hotel Fund 1 that is targeting $300 million to acquire and develop properties.The firms’ prospectus calls for converting or building 30 – 40 hotels with 120 rooms each by 2030 that will rent for an ADR of $191—about $30 above comparable product in top markets. Starwood has also backed startup Getaway, which offers tiny cabins in the woods.
Other start-ups in the space include:
- Loge, which offers camp-style motel lodging with an outdoors and adventure sports theme
- The Evo Hotel, an adventure-themed hotel in Salt Lake proximate to the area’s natural splendor, but also provides activities, such as rock climbing;
- Basecamp Hotels in the Southwest, which are infusing under-appreciated buildings in great outdoor destinations with soul to provide an alternative to the cookie-cutter hotel experience, and
- Autocamp, which has nine locations, some of which offer a Field Station boutique hotel, but predominately offer Airstream rentals at campsites with amenities, such as coffee stations.
Location specific
Michels says, however, that some investors are focusing on luxury product to drive outsized ADR (Average Daily Rate) and provide more cash flow to the bottom line, especially in locations where there are minimal amenities and guests are focused on access to specific locations.
He notes that alternative accommodations focused on outdoor experiences have boomed due to the natural fit with the pandemic protocols. Since it’s challenging to develop lodging inside state and national parks due to building regulations, Michels says that alternative-lodging developers are focused on areas around parks, because they offer direct or adjacent access to park amenities, like hiking trails and lakes.
Wilson says that the aging population, which has a limited income base, is mostly responsible for growth in demand for RV parks, as these properties are a lower-cost alternative to joining a country club or getting a condo in a Sunbelt state, which is expensive and requires a lot more maintenance and upkeep.
He notes that seniors with a limited income also are looking for a safe, relaxing and convenient places to retire or vacation, and developers are attracting this crowd with amenities, like free Wi-Fi, fitness centers, club houses, pickleball and tennis courts, outdoor swings, upgraded fire pits, and swimming pools.
As a result, alternative lodging areas are evolving to multi-option accommodations. “Typically, we see a combination of RV units and cottages, maybe even with a limited number of single-family homes for sale in the $300-400k range,” says Wilson. ”Once you build the amenities, you’re going to have a wide variety of people who will want to come, so it’s good to have options for them to choose from.
Generational demand
While retiring Baby Boomers are driving much of the demand for alternative lodging, Michels says this trend has reversed in many outdoor recreational areas, including Marinas and RV parks, where post-pandemic demand is being driven by young adults and young families who escaped to the outdoors during the pandemic and found they really enjoyed the experience.
Wilson says, however, that prefab cottages and cabins are better income-producing options right now compared to RV parks, as they can be priced similar to hotel rooms and move up with market demand. He notes that cottages and cabins come in a wide range of prices, depending on size, location and amenities. Some of cottages or cabins are multi-bedroom, others are a single room. Some have a more robust kitchen than others, and each option can be priced accordingly.
Wilson contends that cottages and cabins generally aren’t luxury priced, because “the kind of person looking to stay in an alternative lodging location isn’t the same kind of person who is going to book a room at the Four Seasons. They want a reasonably priced getaway, where they can have a good time outdoors without having to dress up.”
Michels says, however, that some investors are focusing on luxury product to drive outsized ADR (average daily rate) and provide more cash flow to the bottom line, especially in areas where amenities are minimal and guests are focused on location and access. For example, cabins in South Lake Tahoe, Calif., and the Smoky Mountains are priced from about $600 to thousands per day.