Recreational Property

Detailed Description and Characteristics

Recreational properties are unique in the commercial mortgage industry due to several defining factors that influence how lenders evaluate risk and provide financing:

• Revenue Volatility: Many recreational properties are seasonal in nature. For example, a ski resort generates the majority of its income in the winter, while a marina relies on summer traffic. Lenders require detailed historical financial statements to ensure the business can cover debt service during the "off-season."
• Management Intensity: These properties often require specialized management teams with expertise in hospitality, tourism, or specific sports operations. The success of the commercial mortgage is heavily dependent on the operational efficiency of the owner.
• Sensitivity to Economic Cycles: Because recreational spending is considered discretionary income, these properties are often the first to feel the impact of an economic downturn. This typically results in more conservative lending terms.
• Specialized Improvements: The collateral often includes non-standard structures such as clubhouses, docks, specialized irrigation systems, or grandstands, which may have limited alternative uses if the business fails.

Common Types of Recreational Properties

Commercial lenders categorize various assets under the recreational umbrella, including but not limited to:

• Golf Courses and Country Clubs: Including private, semi-private, and public facilities.
• Marinas and Boat Storage: Properties offering wet slips, dry storage, and often fueling or repair services.
• RV Parks and Campgrounds: Including high-end "glamping" sites and traditional motorcoach resorts.
• Ski Resorts: Mountain-based properties that include lifts, lodges, and often retail components.
• Amusement Parks and Water Parks: Large-scale entertainment complexes requiring significant capital for equipment and maintenance.
• Hunting and Fishing Lodges: Rural properties catering to outdoor enthusiasts, often involving large tracts of land.

Commercial Mortgage Considerations

When applying for a mortgage on a recreational property, borrowers should be aware that lenders view these as higher-risk assets compared to multi-family or office buildings. Key considerations include:

Loan-to-Value (LTV) Ratios: Lenders typically offer lower LTVs for recreational property, often ranging between 50% and 65%, requiring the borrower to provide more significant equity upfront.

Appraisal Complexity: The appraisal process is complex because it must account for both the real estate value and the business enterprise value. Lenders will focus heavily on the Debt Service Coverage Ratio (DSCR) to ensure the property generates enough cash flow to pay back the loan.

Environmental and Regulatory Factors: Many recreational properties are located in environmentally sensitive areas (such as waterfronts or forests). Lenders will require extensive environmental assessments and proof of compliance with local zoning and land-use regulations.