The year is winding down, but business at Sado Capital continues to ramp up.

In September, my partners and I acquired Lamb City, a 240-site campground set on 67 acres in Phillipston, MA. Located just over an hour’s drive from Boston, the area is known for its scenic, rural landscapes and quaint New England vibe, as well as its proximity to the Mohawk Trail System and other outdoor attractions.

Why we like this deal

Lamb City was attractive for several reasons. First, it was being sold by a family that developed the campground in 1981. When a property has been run by the same owner for decades, it’s not unusual to see revenue stagnate — and Lamb City was no different, with rates sitting 25% below market.

Second, there’s stability. Nearly 80% of Lamb City’s sites are rented to seasonal campers who make reservations months in advance. These are loyal customers who enjoy affordable vacation property in an otherwise expensive East Coast market, a combination that’s not easy to find these days.

Then there’s the demographics. Per the U.S. Census Bureau, the Boston MSA, where many of our customers come from, has a median household income of $99,039 — that’s 43% higher than the U.S. average. In addition, the housing market in Worcester County, where the park is located, is strong, with a median price of $403k. Bottom line: Our customers have money to spend — hopefully at our property.

What’s more, the property’s infrastructure (including an onsite well, 19 septic tanks and 12 leach fields) is in good, serviceable condition, and the campground itself is just plain pretty. There are three pools, a large fishing pond, canoe/kayak rentals, a full playground, two recreation halls, a general store, laundry facilities, basketball and volleyball courts, horseshoe pits, bocce and disc golf.

How we structured the transaction

While the deal looked like a homerun, it wasn’t without its challenges — particularly when it came to securing the capital. The seller wanted an all-cash closing and was not receptive to providing financing, which was problematic thanks to spiking interest rates and the subsequent pullback by banks.

My solution was to leverage an existing relationship with a life company that agreed to provide the financing at flexible terms. The markets were in turmoil, but because I was able to provide certainty and offer an all-cash closing, I negotiated a 25% discount off the listing broker’s asking price.

And with an in-place cap rate of 8.5%, we had positive leverage from Day 1. This has allowed us to make meaningful, monthly distributions to our investors immediately.

Our game plan

Going forward, we have lots of plans for Lamb City. Our initial focus is to work through the transition (no easy task) and fill vacancies. Over time we plan to make a series of improvements and gradually increase revenue to drive towards an 11.5% unlevered yield on cost by Year 5.

We recently engaged a web designer and ad agency to create a landing page for the campground and a pay-per-click (PPC) campaign to help drive traffic so we can develop a robust waiting list.

Sometime in the next five years, we will be seeking a capital event via sale or refinance. Our objective is to generate an overall 21% internal rate of return and 2.3x multiple on invested capital.

In other news …

In addition to closing on Lamb City, I recently had my first “round trip” on a deal. I closed on the sale of one park and effectuated a recapitalization of another. These transactions generated substantial returns and I look forward to sharing more details about them in the next newsletter.

Finally, if you’re an Accredited Investor and interested in potentially partnering with me on future opportunities similar to Lamb City, please click here to register for my company’s investor portal.

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