Episode Transcript
[00:00:00] Speaker A: Awesome. Pierce, I appreciate your time coming over here. We're at the OHCE conference. Both vendors trying to talk to a bunch of RV park owners and how we can serve them. So can you tell us about a little bit about who you are with Live Oak bank and how you can help RV park owners, whether they're looking to build their first one or strategies to refinance or just industry knowledge? Just drop it on me.
[00:00:19] Speaker B: Yeah, no. Appreciate it again. I'm Pierce. I work at Live Oak. I'm the head of our RV park outdoor hospitality lending group.
We are an FDIC insured bank. We're out of North Carolina, but that's our only branch location. So our founders back in 2008 said we kind of want to switch up banking. If you met your local lender, they'd say, okay, I'll make the RV park owner a loan because he's my friend, known him for 20 years, and then turn around, do the H Vac loan the next day and a vet clinic the next.
[00:00:48] Speaker A: Yeah.
[00:00:49] Speaker B: So you were the jack of all trades, master of none, in a sense. We clipped that. Where our founder said, you know what? Like, I only want Pierce doing one loan and one type of loan to one type of industry because I want him to know the accountants in the space, the lawyers in the space, the feasibility company, the bottleneck brokers, and the operational challenges that a person's going to go through when the owner calls the bank to say, hey, help me get a loan, and how can you help me solve this issue as well? Yeah, I hopefully have something. Sometimes we don't have all the answers, but that's the idea. Right?
[00:01:22] Speaker A: So, yeah, but you're helping them like a. It's all about getting to the closing table, but using that industry knowledge and experience, because you're focused on one asset class to make sure that you have a successful loan. Because life does happen and things go wrong. But if there's some kind of foresight, like I'm working on, like my fifth deal, and it's. I wish I know now what I. On my first, I was just doing it all on my own, just figuring it out.
[00:01:43] Speaker B: Yeah. So again, not there. It's not a cookie cutter process. Right. And so for us, we're doing senior debt and leverage to owner operators, and we're doing that through two different primary products, the SBA 7 loan and then just a conventional loan as well. We do an SBA 504 loan, but that requires a third party to be involved because we, as the nation's largest SBA 7 lender in the country. We can do all that in house where we don't have to rely on some third party. But we're doing a lot of financing, whether it's for acquisition, whether it's for construction and development, whether it's for expansion. Refi is obviously a component. But as maybe you and others are well aware, but for the folks who don't know a five year term, you're reaching that balloon period where at the start of COVID and after that you got really low rates. So right now's rate environment is very different. And so we didn't have a ton of refi's coming to us two years ago because they're happy with their low rate. And so that is obviously something we do, but it's not a huge piece of the portfolio to date just because of again, folks who had low rates. They want to hold on to them as long as they.
[00:02:49] Speaker A: Yeah, the timing of things.
There's cycles to this always for sure. So do you primarily do the sba, USDA loans or so we don't do
[00:02:57] Speaker B: USDA loans on our team.
Yeah. Majority of our debt that we issue is SBA related. We do conventional debt as well and that's something that we're not shy from. However, what we have found is that in most folks that come to us, it's either a first time or they have never done a construction project or never gotten construction financing.
And so sometimes they just don't have the necessary, let's call it credit factors that a bank may look for for a conventional financing. So SBA is a great option for plugging the holes.
[00:03:31] Speaker A: They gave me one when I didn't know anything. I was just figuring it out.
[00:03:34] Speaker B: Yeah. And so obviously like we look for, above all, we want to work with good people.
[00:03:38] Speaker A: Yeah.
[00:03:38] Speaker B: So character is a huge thing. But then we look for credit, credit worthiness in terms of a credit score, minimum of 650, no bankruptcies or any type of other issues that again, a bank may look at unfavorably.
[00:03:50] Speaker A: Right.
[00:03:51] Speaker B: We look at cash flow above all though, so we want to see that the park's going to be able to generate enough cash flow, meet the operating
[00:03:58] Speaker A: expenses, pay the debt, at least a 1.25 DSCR.
[00:04:01] Speaker B: So the, the one thing that most folks don't know is that SBA, they have a minimum of 1.15 DSCR. We as a bank have a little bit of a cushion on that and say 125, but that's something where again, if you're Preparing a pro forma or looking at existing cash flow and it's not at that, at least 1.15, then most banks are going to have an issue with that in terms of being able to place debt unless they can see through the lens. So that's where it helps to have an industry specific lender who knows for sure understands where some fluff may be.
[00:04:32] Speaker A: Yeah, my seven day loan was a preferred SBA lender, but it was like the first day. He's been doing it for 20 years, but it was just awful. Like they had me sign a contract that we were going to disperse funds at 25% of the construction in increments. And then as soon as we closed, they're like, no, we got to pay the vendors directly. I'm like, we just. I could fight you right now, but I don't want to because I'm not going to fight the person paying me. But it was a nightmare. Yeah. So working with somebody that does RV parks all the time would have been a great first experience that I did not have.
[00:05:00] Speaker B: And the other thing too is it matters not necessarily just in the RV park world, which is very important, but construction world too. Like construction world is there. And so we have in our bank, you have the lender like myself or others, you have an underwriter, you have a closer, you have a construction officer. All of those folks are on our team. So they all know the process, they all have their specialty. So I may not be able to answer every construction question, but sure, as the sun rises in the morning, you've got someone who. That's all they do every day.
[00:05:29] Speaker A: Yeah.
[00:05:29] Speaker B: So they know the GC requirements, they know the insurances you gotta have in place, they know how the pay apps work, supposed to look, they know how to have that.
[00:05:37] Speaker A: You can be proactive instead of reactive. Say, hey, we're trying to package this thing up, make sure and get this line. Yep. Instead of the opposite.
[00:05:44] Speaker B: So we're, we're blessed again, have all that help and expertise on the back end so that our jobs are easy to go, meet people, find good opportunities that hopefully again are the right ones to partner in. But. But yeah. And then we have some smart people on the back end to clean up some of the nuances that goes along with bank finance.
[00:06:00] Speaker A: Yeah, A little foresight goes a long way.
[00:06:02] Speaker B: Yeah.
[00:06:02] Speaker A: So I was curious on the feasibility study side. So like, I know it's not. Is it always required? I know if somebody's new and it's sba, I think it's required. How does that work?
[00:06:12] Speaker B: Yeah. So I'll first answer it from just the high level. Right. Is that most folks believe there is some value in a feasibility study. Now whether that value is $5 or whether it's 5,000 or 10,000, that's up to the borrower. Right. But from the bank's perspective, we believe it's twofold. One, it helps acknowledge and support what the borrower and what the operator is assuming. They may have gone out for two years and done everything they need to do about research in the market, competition analysis, financial analysis. But until a third party reviews what you've put together, you really truly don't know if the assumptions you've made are over aggressive or conservative or right on tap. So for us, we believe that a feasibility study is important and therefore we require it. The bank in our bank on every construction deal that we do.
[00:07:02] Speaker A: So even if they've done five or
[00:07:04] Speaker B: one, even if they've done five. And the reason being is because every market is different, every property is different. No one in this industry to what I have seen has the exact same part that does the exact same performance.
But we can point to that in terms of other facilities like self storage facility, we know in Tampa is going to do X amount and it's going to get this amount of money per month in rent.
[00:07:26] Speaker A: Yeah, I had a multifamily guy who's like, so with apartments we have this data, this data. So how do you do it for parks? I'm like, it's judgment, it's a gut feeling. You gotta go to the cafe down the street and the dollar store and the chamber of commerce and all the other parks in the area. And you gotta get a feel for it. Cause there's no data, there's no stats, there's no comps on sellable properties.
Appraisals are appraisals. They're cute and all, but like if you're gonna go a choir park or wanna build one in that area, you gotta hone into that hyper local partner.
[00:07:53] Speaker B: Yeah. And so we work with a lot of good partners in this industry, four primarily that are really good. They provide, provide great work eligible for SBA financing as well as conventional financing. So to round out my comment on the SBA side, they do require a feasibility study in any development ground up deal. So that is a requirement. Now they don't define exactly how feasibility study should look, feel besides a certain characteristic of financial forecasting and then a general market analysis. But they don't say this person has to be qualified with X number of years of feasibility work.
[00:08:28] Speaker A: So that government. Little gray area.
[00:08:30] Speaker B: Yeah. So there's a little gray area there. It's up to the bank to decide what they believe is right.
[00:08:35] Speaker A: Yeah. That's all good information. And another thing that we're hearing more and more about is that because we manage parks as well, is that a lot of times if somebody's their first park, that the banks or SBA is requiring them to have a partner on management before they'll even give out the loan. So do you see that a lot or is it more of a case by case basis?
[00:08:52] Speaker B: You'll hate this answer a little bit, but case by case. Yeah, it's one of those where it
[00:08:57] Speaker A: might be your first park, but you have comparable experience if they're comfortable doing this loan.
[00:09:01] Speaker B: Yeah. And some folks, they say, for instance, hey, I'd love. I've been growing up RV in my whole life and I'd love to own and operate one. And then when you get down to it, you realize that they've never had that direct customer service and hospitality experience and business operating experience to really know how this thing's going to run.
If that person's request, requesting a huge loan, the bank's probably going to get a little cold feet naturally about that.
[00:09:26] Speaker A: Yeah.
[00:09:26] Speaker B: Because you're just trusting in the hands of that person that they're going to deliver. Whereas others, we have never felt more confident in their ability to deliver on that because day one, they provided a business plan, they could answer every single question we asked.
They. We visited the site with them in person and they are just living, breathing rv. But yes, they've never owned an RV park before. But you more. You believe that profile a little bit more.
[00:09:48] Speaker A: Yeah. So there metrics to it. So.
[00:09:50] Speaker B: So yes, there is some grind and grit associated with it that's not quantifiable. But the short answer is it depends.
[00:09:57] Speaker A: Yeah, that. That is my saying for RV parks. Everybody's like the construction piece or this operation piece. What is the answer? It depends. Because it's a freaking RV park. Because they're always different. There's always quirks, there's always different of your avatar type of folks coming into your park for different reasons. Just. And it's always evolving. It's always changing.
[00:10:16] Speaker B: Yeah. So it is definitely always changing.
[00:10:18] Speaker A: Yeah. Awesome, man. I don't want to hold you up too much longer while here at the conference. We got a lot of park owners to talk to, but I appreciate you taking time coming over here and doing a slow episode.
[00:10:26] Speaker B: Yeah. Thanks, Jason.
[00:10:27] Speaker A: Sir.
Cool. Well capped up that and I'll share that with you. Whenever we get ready, we'll put it on our socials and whatnot.
And if we could ever be a resource on the construction or management side too, we'd like to be somebody in your roll of decks. Maybe we can work together in the future or something. We're based out of Texas but we'll definitely travel for management. Like construction guys, they like to be close to home, but we'll travel.
[00:10:49] Speaker B: How do you guys travel for management? Just so I'm better educated on that. So if you. If we have a person who's interested, they're not quite ready. Like who are.
If they're calling you for instance. What's the strategy there? Do you place a.
You guys look to place a general manager on side.
[00:11:05] Speaker A: You have to.
You have to have your on site people. So depending on it you're given a side or two for free. One person's there five hours a week. You got to be clean it.
[00:11:13] Speaker B: And are they your employee? Are they a 1099? Are they the parks employee? How does that work?
[00:11:19] Speaker A: Typically how it normally works is that with our insurance we're covering the defamation liability side and so they would be fall under our. My brain is going blank on insurance stuff. Workers comp. So that we would take that liability responsibility off of them putting them under our insurance and so we would help source them. So normally you're going to have a paid position for your on site person. With parks that's always different.
So to answer your question, we'll do a strategy call with the owner. Whatever requirements. What are you looking to do? What are you looking to accomplish? We'll come up with an action plan. How do we uncover every stone? How do we. Is there any ancillary income generating type services we can add? What are some things that we can do to launch your park A Because from getting it Open to month 6 to month 12 it can be completely different. If you're aggressive. How aggressive you are.
[00:12:03] Speaker B: Yeah.
[00:12:04] Speaker A: And just put together an action plan and then follow through with it on sops to the T for your customer experience.
Getting feedback, making sure that your on site person when they get done cleaning showers, they take a picture and we have it stored in our database. We got a Rolodex of your on site or nearby plumbers and maintenance guys. If the water spigot breaks we'll have three people we can call and get them out there for you so you don't have to worry about it as an owner.
So we try to. There's a lot of corporate guys that have teams and process. We try to have more personal touch to it because we're not a big corporation.
[00:12:36] Speaker B: Yeah.
[00:12:37] Speaker A: So I own four myself and I'm in it, living it, breathing it.
[00:12:40] Speaker B: Yeah. Because we've got fairly good sized portfolio and every once in a while, whether it's new folks coming in or existing folks that we talk to, you know, sometimes like hey man, I'm just tired. And so that'd be a good maybe avenue where we could add you guys to the Rolodex to say hey, maybe give a call to some third party manager. She'll see what's going on.
[00:12:57] Speaker A: Yeah.
Because they're all a little different.
It's evolving industry with all this AI and the marketing side because you need Google to bring them in. But you also got to run a tight ship to keep them there and keep them happy, keep them coming back.
[00:13:10] Speaker B: Where are your four that you own
[00:13:11] Speaker A: Around Texas, southeast Oklahoma, Lake Whitney, outside of Lubbock.
[00:13:16] Speaker B: Did you build them or did you buy existing?
[00:13:18] Speaker A: Built two. Acquire two. So fifth one is the 70 site development in South Fort Worth. Just waiting on Tarrant county to give me that permit. And so I'm trying to build my portfolio.
[00:13:28] Speaker B: Some of these counties suck, man. I'll tell you that. They like we had one in Texas near Austin, I think like halfway through the construction project said this is more of subdivisions they may just do. Hey, the borrower. It's us too. Is where we funded it. But it made the borrower take on $450,000 extra and all this stormwater and like new curbing and routing. And I'm like, guys like this is ridiculous. Like we were permitted already.
[00:13:53] Speaker A: How's that even ethical or legal?
[00:13:55] Speaker B: Yeah. And so that. But that's the other thing too is you don't want to. The bar brought up, she was like I don't want to sue them or something because they're the ones that coming on our site.
[00:14:03] Speaker A: Yeah. You can politely try to change their mind. Don't poke them too bad.
[00:14:07] Speaker B: But it was also like cats have a bag now. Like they tell it's just frustrating some of that stuff. It's not coming up with a vertical structure. Like people they approve it and you're good. Those inspections every month make sure you're putting in the right electrical, plumbing and all that. But everything else.
[00:14:23] Speaker A: And if it's engineered, the drainage requirements are overkill. Even in the flooding disaster, they're overkill. Come on.
[00:14:30] Speaker B: So yeah. So we're Everybody's got construction horror stories.
[00:14:33] Speaker A: Yeah.
[00:14:34] Speaker B: Yeah, that's our horror story to jour.
[00:14:36] Speaker A: Yeah. Yeah, for sure.
[00:14:39] Speaker B: Thanks very much.
[00:14:39] Speaker A: Yeah.
[00:14:39] Speaker B: I appreciate having this.
[00:14:41] Speaker A: Yeah.
[00:14:41] Speaker B: Yeah. Good luck the rest of the way.
[00:14:43] Speaker A: Likewise.
