Written by Jai Thompson
I manage a private equity platform deploying $13M–$18M per quarter across multiple real estate asset classes, including RV parks, MHPs, MF, hospitality, and specialty income assets.
Our model is asset-based, income-first, escrow-directed, and execution-driven. We close fast, but we never close emotionally. Income speaks first, structure second, price last.
This article explains how to identify a Cat-3 deal — and how to handle it correctly so you protect your time, credibility, and broker relationships.
On paper, these deals usually check boxes:
Strong location
Real, verifiable NOI
Decent physical condition
Solid demand narrative
But once you slow down and underwrite the NOI, the story changes.
This is where discipline matters.
The income is stabilized. This is not a turnaround.
Growth exists, but it is incremental, not explosive.
Why it matters:
At a disciplined 10% cap, value is ≈ $5.1M, not $8M+. Income sets the ceiling, not marketing.
When pricing implies a ~6% cap, you are no longer buying income — you are buying cap compression.
Why it matters:
That pricing belongs to trophy assets with newer infrastructure, higher occupancy, and lower OpEx. This asset profile does not qualify.
Cat-3 = price divorced from income.
The seller is selling:
Narrative
Market hype
Future upside
Not what the asset produces today.
Why it matters:
Cat-3 deals mean:
Long negotiation runway
No urgency
Emotional seller anchors
Time gets burned if you chase them.
An expense ratio in the ~44% range is heavy for an RV park.
Typical inclusions:
Water
Sewer
Trash
Gas
Cable
Why it matters:
Best-in-class RV parks operate closer to 35%–38%. Utilities — especially in hot markets — quietly cap NOI growth.
Occupancy in the 85%–90% range is respectable, but not best-in-class.
Why it matters:
You are being asked to pay full pricing without receiving full utilization.
Older assets bring:
Underground utility risk
Sewer line exposure
Electrical system cycles
Why it matters:
CapEx does not ask permission. It arrives on its own schedule.
There may be rent upside, but increases are:
Politically sensitive
Tenant-dependent
Gradual
Why it matters:
This is not fast money. It is operational grind and must be priced conservatively.
Price-per-pad metrics can look fine on paper.
Why it matters:
Pads don’t pay lenders.
Pads don’t fund reserves.
NOI does.
When an asset is pitched as part of a portfolio, ask why.
Why it matters:
Often this is a liquidity strategy, not added value. Strong assets get used to justify weaker pricing elsewhere.
Extended DOM is not accidental.
Why it matters:
If pricing aligned with NOI, capital would already be deployed.
Price not supported by NOI
What to say: “We underwrite off NOI, not marketing caps.”
High utility burden
What to say: “Utilities materially cap NOI growth and must reflect in price.”
Older infrastructure without reserves
What to say: “We need protection for deferred CapEx risk.”
Fantasy cap-rate expectations
What to say: “We buy certainty, not compression.”
10% cap = disciplined value
9% cap = stretch
Anything beyond that is speculation.
Use clean language:
“This is a solid asset, but at this pricing it’s a Cat-3.
The NOI does not support the ask.”
You do not negotiate emotion.
You say:
“If ownership wants a certainty-based close, we can structure off NOI.
If not, we respect the position and step back.”
“At 10-cap math, this is a ~$5M asset.
We don’t bridge $4M with hope.”
This is:
A good asset
In a strong market
Being sold at the wrong price
Passing on a Cat-3 deal is not failure.
It is discipline.
Discipline keeps capital safe, lenders confident, and reputations intact.