Holiday Parks Funding

Holiday park on grass.

We can source funding for the purchase and refinance of holiday and residential parks. This is quite a niche area because not many lenders have good park operational knowledge, so we work with you to package your requirements up into an easy to digest format for the lenders.

Some of our clients approach us for the refinance, acquisition or heavy refurb of sites – we have seen it all.

Loan To Value

In good times, lenders can get to 75% loan to value on parks, but typical average is 60% and if you want to be in a position where you can change lenders at your choice then an LTV of 50-60% seems
to be the market norm currently.

Where a park is purchased to refurbish it is normally a lower say 60% loan to cost loan initially, rising to a higher LTV post completion. Some lenders will provide a staged drawdown to support base/pitch
development alongside a supportive valuation and can provide a bespoke service.

For parks converting from holiday use to residential the value of the park typically decreases to reflect a move to a lower sales turnover and reduced pitch fee, therefore repayment of loans for this type of conversion have to be stepped in line with unit sales to reflect the reduction in value.

Professionals Sat Down
Professionals Discussing Plan

Debt Service

Lenders look for a minimum capital and interest cover of 125% based on pitch fee income plus extras sales (gas, electricity etc) and a continuation of unit sales based on no more than a 15% churn of units.

Loan structure

Lenders have historically offered up to 30 years, however appetite varies. Alongside the stretched term clients often ask for a period of interest only if they are buying a site which reflects the time taken to establish it into their operational mould – for example a 2 year interest only period.

Lender Questions

A lender will want to fully understand the historic financial performance of the site, looking back at least 3 years if not longer. This should establish a “normal” pattern of business in terms of unit sales and pitch fee income.

Lenders want to understand if you have any other finance obligations and whether any of the units on site are subject to finance agreements (i.e. the owner has sold a unit to a customer and the customer has utilised finance) and if there is any clawback to the site operator for people who default.

Parks require capital expenditure to keep in shape – whether this is for new bases, drainage, sewage, electrical works etc there is always something to spend money on, so approaching a lender with a well thought out plan in advance of needing the funding is essential. Some operators take the view of matching long term infrastructure or expense with long term finance – this does make sense. It is often better to borrow for long term costs than pay for it out of the working capital generated from income, just in case sales are not quite as good as expected – this way you don’t risk running out of cash out of season.

Lender Requirements

Lenders love numbers, stability and predictability.

As well as the historic numbers, lenders will want a three year forecast based on similar metrics to those previously achieved, which demonstrate comfortable debt service. So if the park has historically achieved a sales rate of 10% of stock per year the lender would not entertain a sales rate of 20% on the forecasts.

During the loan a monthly P&L will be required detailing revenue by source together with a cashflow and balance sheet. Alongside this would be commentary on performance, including details of how
many pitches are occupied/unoccupied.

Loans often come with “covenants” i.e. parameters of performance. For parks this could be that EBITDA needs to be with 20% of forecasts, and that debt service costs are covered 125% by EBITDA – these metrics are then checked versus the monthly P&L pack. Non-financial metrics might also be included such as pitch occupation as a specific number of pitches – i.e. if there are 50 pitches there could be a covenant that 45 are occupied – if they are being scientific about it the number of pitches occupied would link back to the pitch fee income required to service the debt plus an allowance for sundry sales and unit sales.

Other Considerations

Typically for a heavy refurb (i.e. significant works on the site that mean the park is partially or fully closed) similar experience is required together with a source of interest cover from the outset.

In general lenders are looking for experienced operators, ideally with multiple sites.

As with all property related transactions there will be an arrangement fee, ongoing interest costs and legal costs to put the facility in place. Some legal works at purchase can be quite in-depth such as a review of the log maintained by the operator to prove the static owners on a non-residential park are registered for council tax at another address.

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