The biggest topic in America right now is the impact of Covid-19 on our economy. As a result we are hosted a thorough discussion of the pandemic and how it is impacting (or not impacting) the mobile home park business. We go to go over both the macro and micro levels of the industry to illuminate the good and bad aspects economically, as well as predictions for the future. If you own or are looking at buying a mobile home park in the near future, this discussion should be an invaluable tool in assessing the real risks going forward, and how to maneuver your business to mitigate the risk and harness the opportunity.
The host will be Frank Rolfe, who is the “encyclopedia of all things mobile home park” according to the New York Times and, as part of the 5th largest portfolio of parks in the U.S., able to give data on how Covid-19 is factually impacting the American “trailer park” sector.
Everything You Need To Know About Covid-19 And Mobile Home Parks - Transcript
Welcome to tonight's lecture series event, Everything You Need to Know About COVID-19 and Mobile Home Parks. Now, first of all, we want not to make light of the national pandemic known as COVID-19, which has ruined lives across America. However, there's a lot of information flowing around out there, some of it good, some of it misinformed, and there's no information of any type relating to how COVID-19 is impacting or would impact or could impact in the future mobile home parks, so that's what we're devoting this lecture series event to, is everything that mobile home park buyers, mobile home park owners need to know about the true story of what COVID-19 is doing exactly.
Let's start off with some micro issues, and let's start off with a very important one, which, of course, is the impact on our customers, namely the residents in mobile home parks. First off, let's acknowledge that the hand has been tipped by the federal government, the states, I guess just about everybody, on what are the essential jobs in America versus those that are not, because it didn't seem to take very long for them to draw up that list. I think someone must've already had that laying around somewhere. These are the jobs now that you can depend on. These are the jobs, as far as our residents are concerned, that won't let you down.
I'm going to read you the official list. Healthcare, public health, and human service workers; law enforcement, public safety, and first responders; food and agriculture workers; energy workers; water and wastewater workers; transportation and logistics workers; public works; communication and information technology workers; critical manufacturing; hazardous materials; financial services; chemical workers; defense industrial base. Then it goes on to be a little even more in-depth on some items. Other groups that are covered are security staff to maintain building access control and physical security measures; elections personnel; workers to ensure continuity of building functions, including local and state inspectors and administrative support of inspection services who are responsible for the inspection of elevators, escalators, lifts, buildings, plumbing and gas fitting, electrical work, and other safety-related professional work; federal, state, local, tribal, and territorial employees who support mission-essential functions and communications networks; trade officials, FTA negotiators, international data flow administrators; weather forecasters; workers that maintain digital systems infrastructure supporting other critical government operations; workers at operations centers necessary to maintain other essential functions; workers who support necessary credentialing, vetting, and licensing operations for transportation workers, including holders of commercial drivers licenses; workers who are critical to facilitating trade and support of the national state and local emergency response supply chain; educators and staff supporting public and private emergency childcare programs, residential schools for students with disabilities, K-12 schools, colleges, universities for purposes of facilitating distance learning, provision of school meals, performing other essential student support functions; hotel workers; critical government workers as defined by the employer and consistent with the continuity of operations plans; construction workers who support the construction, operation, inspection, and maintenance of construction sites and construction projects, including housing construction; workers that provide services for or determine eligibility for public benefits such as subsidized healthcare, food and feeding programs, residential and congregate care programs, shelter, in-home supportive services, child welfare, juvenile justice programs, adult protective services and social services, and other necessities of life for economically disadvantaged or otherwise needy individuals, including family members; workers in sober homes; professional services such as legal and accounting services and payroll and employee benefits services when necessary to assist in compliance with legally mandated activities and critical sector services or where failure to provide such services during the time of the order would result in significant prejudice; Commercial retail stores that supply essential sectors, including convenience stores, pet supply stores, auto supply stores, hardware and home improvement stores, home appliance retailers, laundromats and laundry services; workers and instructors supporting academies and training facilities and courses for the purpose of graduating students and cadets that comprise the essential workforce for all identified critical sectors; and workers at places of worship.
After reading you this entire list, I'm hoping you're saying, can you name anyone in your mobile home park who is not in one of these industries? It's really hard. Think about anyone you personally know, any of your people who have recently applied to buy a home, rent a home. Mobile home parks are where all these people live, or at least many of them live. The first takeaway from the truth about COVID-19 in mobile home parks are we are super lucky because our residents are all in essential services for the most part.
Then you might say, "Who else lives in the mobile home park that might be impacted by COVID-19 if virtually everyone on this list isn't?" Well, you have to also not include in the list of those impacted people who are on Social Security, people who are on disability, government programs like that. Then the question is, who's left? Who out there is impacted by COVID-19 in mobile home parks? I'm not talking about people in other parts of America, other job segments. I could name 1,000 jobs that people make 100,000 a year and more with that are not essential under these definitions, but the only ones who typically work in mobile home parks fall into four categories, casino workers, retail store workers, wait staff at in-dining restaurants, and cooks at in-dining restaurants. Those are the only four that I can come up with legitimately that I see any significance of inside of mobile home parks.
The bottom line is it's not really impacting mobile home parks the way it is most of the rest of America. We do not have people in most of these jobs, let's all admit, who probably are paying the average American apartment rent of $1,500 to $2,000 a month. That is not our customer base. Our customer base are the very people that apparently had already been preselected by the government in the event this ever happened, because, again, I never even saw any debate. I never even heard any open-forum meetings, anything regarding who would be selected to be essential versus those that would not be essential. Somehow or other, it had already been preordained, and just through sheer luck, our residents were on the right side of those selections.
The bottom line is that mobile home parks are perfectly positioned by our customer base for this new separation of essential and nonessential workers. We are in better position with our customers, our residents than any other real estate sector that exists. I can't come up with anything that even comes close to being as well-positioned as we are.
Then what happens to those folks who lose the job? What happens in just those four sectors, casino workers... By the way, casinos are now reopening, so I'm not even sure those would make the list unless you're in a casino that doesn't intend on reopening, which I can't figure out how that would be. Retail store workers. Although, retail stores are starting already to reopen. Wait staff at in-dining restaurants. Well, wait, those are already starting to reopen. And cooks at in-dining restaurants. Well, those are also starting to reopen. But if you did happen to lose your job because of COVID-19 and you were not in any of the essential services and you were not in Social Security or disability or any of these other functions, what happens to you?
Well, the first thing you do is you file for unemployment, and you get 45% of your wages in most states. But right now, they have a special going on that runs all the way through July, and that's you get an extra $600 per week addition. That 600 per week that they're giving you as this extra bonus is more than most of our residents make, period, in the same jobs. Even when that $600 ends in July, the 45% of wages will easily pay our rent, whether it's lot or it's home.
Let's also remember the jobs paying $15 per hour and under are by far the easiest to find in the U.S. In fact, every ad that I see on TV advertising that they're looking for workers, it's Amazon, it's Domino's, it's all these firms, and yes, they all pay about $15 an hour or less. In fact, if you look up the national stats, over 50% of the jobs created in the U.S., 50% of every single job created since the Great Depression began in 2007, has been in the $15-an-hour-down-to-minimum-wage arena. Our customers who do lose their jobs, well, once again, they're perfectly positioned because they are right where the hiring is.
And let's not forget about the stimulus checks that went out to everyone, whether they lost their job or not. A family of four received, under the stimulus program of $1,200 per adult and $500 per kid, that family of four just got $3,400, whether they lost their job or not. If they were on that list of essential services, which most of our customers are, well, they just got this unbelievable deal. They got 3,400 bucks on a family of four, $2,400 if it's just two individuals, $1,200 on one individual. You may remember an article and some stats that came out not too long ago that found that 70% of all Americans didn't have $1,000 in savings. Well, if that was true prior to COVID-19, the truth now is that there's a whole bunch more that do have more than 1,000, and a huge amount of those are residents in mobile home parks.
The bottom line of all this is that mobile home park residents are by far the best positioned group in the United States for this type of recession-depression. They just absolutely are. Is it the sheer genius of park owners that put them in that position? No, not whatsoever. Absolutely sheer luck. But there was a little skill involved. Most people saw the handwriting on the wall that affordable housing was what you wanted to be involved in, and it was a contrarian play against a new, poorer America, so I guess it wasn't all completely luck. The fact that the government would come out with a list that so completely encircled our residents, okay, we didn't have much to do with that.
Now let's look at collections in mobile home parks in COVID-19. Well, for the reason just listed above, mobile home park residents are truly in the best position of any group to be able to pay their bills, but mobile home parks also have an even greater ability to collect our money because we are the highest priority item for almost everyone in the United States. We are a roof over their heads. If you've lost your job and you're having to live on reduced means, you're certainly not going to give up your home. You might give up some other items. You might give up eating out. You might give up... Who knows? Maybe you would even give up having two cars in the household and drop back to one. But you're not going to give up on having your housing.
We are at the very, very top. We are kind of the essential service of the bills customers pay. We are right there at the top, and that's where you want to be in a situation like we have right now in COVID-19. You want to be at the top of that list, not the bottom of the list. I would not want to be owning a Rent-A-Center right now with lots of big screen TVs out there, that are only secured by the hope that I can get the big screen TV back. You're probably never going to get paid. But in the housing arena, we are right at the very top of the food chain. And even though the courts have been shut since April 1st in most markets, the courts are now reopening. April and May, yes, it was impossible to evict anybody, but now courts are starting to reopen and evictions can once again be filed.
Now, let's look at what happened, though, in April and May, because maybe some states will delay even longer when things reopen. What happens when you can't evict residents? What do you do when the unthinkable happens where you cannot do no pay, no stay collections? Well, for most park owners, ourselves included and everyone I've talked to from coast to coat, we've all found that our April and May collections were right on par with April and May of last year. We might be a little bit back fractionally, but by and large we've collected in the money we normally collect in. The only exceptions that I know from community owners that I've talked to are people who are in more challenged markets, which we'll go over here in a minute, places like Las Vegas, where there's virtually no employment because, with social distancing, they can't reopen almost anything. Although, now that's relaxing, and they are starting to open up Las Vegas again.
The bottom line is the impact of COVID-19 on collections has been very, very minor. Once again, is it great skill that put us in that position? Well, in that case, yeah, that's probably more skill than luck, because we all bet on an industry in which we have the ability to have no pay, no stay approach, where you have to pay your rent or you can't stay. Since most people want to keep a roof over their heads, it pretty much ensures that you are one of the top bills that they pay.
Now let's move on to the impact on sales and rentals in mobile home parks due to COVID-19. Our biggest sales month in company history for us, well, it was in April, right in the heart of COVID-19. Right in the middle of COVID-19 in April, we sold over a two-day period $2 million of homes. That's $1 million a day. We've never, ever had production like that ever, never seen anything like it.
Why would that be? Why would COVID-19, which happened in mid-March, translate to the greatest sales we've ever seen in April? Well, there's some reasons for that. Number one, people have grown to absolutely hate apartments due to the COVID-19 quarantine. Let's face it, our key competition in the affordable housing business are Class B, Class C, Class D apartments, and let's all admit they're pretty awful. Now, they weren't that awful back when you only went there to go to sleep and then you got up and left again, but when you're stuck in there 24 hours a day, it takes on a whole new dimension. Suddenly, it's a lot less attractive than it was before.
We found that there is just a whole bunch of people out there who hate, they just hate, the apartments that they're living in. They want to have a yard. They want more room. They want to be able to walk around the community. They want to be able to live a happy life, despite the fact that they may not only be quarantined now, but once again in the future. On top of that, a lot of people in apartments often had their own schedules, they came in and out at certain times of the day, and then being in there all day long and all night long, they suddenly realized, "Maybe this apartment is a little scarier than I thought. Maybe this apartment doesn't really live up to my expectations." The fact that apartments have gotten such a poor response from customers now has really helped our demand enormously.
Number two, the stimulus has given our customers a huge windfall of down payment cash. We just went over that. You're minding your own business. You're working hard. You've got a family. Suddenly, even though you didn't lose your job, even though nothing really else transpired, you get this giant check from the government or this giant amount deposited into your account of $3,000 or more, in many cases, with a household with kids.
You never had that type of money before. Some people will say, "Well, gee, I just got in $3,000. I'm going to go on a big old vacation," but you can't go anywhere. Everything is closed as far as the travel and leisure industry, which we'll come to in a minute. So what do you do with the money? "Well, hey, let's go buy a mobile home. We hate the apartment. Let's see what other options are out there. Maybe we'll go buy a mobile home." Basically, many people are converting that stimulus money into down payment cash.
Finally, a huge amount of America is contemplating more affordable housing to handle the new reality of job instability and lower earnings. All those people who lost their jobs and they were living in a $1,200-a-month apartment, and now they're on unemployment at 45%, well, they can't afford 1,200 a month anymore, but they can afford 600 or 700. So you have a lot of people right now, and this happened also during the Great Recession, who suddenly, because of housing instability and lower earnings, are looking more at our product. I think that's why we're seeing some of the greatest sales activity ever right now. This makes complete logical sense, so we're not really seeing any downside from sales and rentals because of COVID-19.
Now let's look at the property conditions side of it. Well, as you heard on the essential industries, most of the industries we use on property condition are essential. We can still buy things at home improvement stores. That's on the essential list. We can still find people who will mow. We can do all kinds of maintenance work. That's still essential. Basically, we're still being able to go out there and find people who can do the work that we need to keep good property condition.
We're also seeing a lot of people spending stimulus money and their quarantine time fixing up their mobile homes. I'm sure everyone has seen that. Just the other day, I was driving through one of our parks, and I'd never seen such things. There was a carpet company out in front of one. Someone had bought new flooring. I saw someone replacing a roof. You never saw that kind of activity in that kind of volume. You might see that occasionally, but not several cases of that in just one park.
What's happening right now is a lot of people who already own their home, who got the stimulus money, who are now very happy at their choice of living in a mobile home park because they actually have a yard and the ability to have a happy lifestyle despite the quarantine, they are spending their stimulus money to go ahead and improve the home. They're maybe even doing landscaping, putting in a carport. All these things are great for the park. The park benefits by having higher pride of ownership, a better-looking property, more capital investment from the residents. Again, it's a win-win.
Now let's look at the impact on amenities from COVID-19. Now, here it has had some impact, because residents must be socially distanced for their own safety so they don't spread the COVID-19 virus. Some of the things that they liked to do traditionally, they can't do right now. Most mobile home parks right now are keeping the pool shut because they're not certain what the rules are to reopen, and most, if not all, are keeping their clubhouses shut because, once again, they're not sure, they're confused, as everyone is right now, on what the rules are for you to safely reopen that clubhouse.
The real amenities that are getting used right now... It's a great test of what residents really like. We've been adding a lot of amenities over the last few years. We really have come to find out that people really like outdoor amenities, so that's proven again to be a really good bet on many community owners' parts. For example, one of the top amenities we've been installing are picnic tables and grills. We started doing that because the RV industry did a huge study of what people like about RV parks, this monster study of all these thousands and thousands of RV customers, and in the end they found the number one most-liked attribute of an RV park was outdoor cooking. We are more than happy to help people have their number one activity, so we've installed picnic tables and grills all over the place, and people are loving it. It meets the social distancing guidelines in most states despite COVID-19, so there's an amenity that you can still use even during this pandemic.
Another one are pavilions. Kind of an offshoot of the picnic tables and grills, it gives people the ability to now be under cover. If it's sunny out, they have shade. If it's raining, then they don't get wet. Once again, we're finding our pavilions are getting a lot of use because they can, once again, use that for social distancing, so it still works out great despite the pandemic, and it gives them another avenue, a good way to spend quality time with their friends and family, but in a properly social distanced outdoor setting.
Another one are playgrounds. Now, playgrounds, that's a bit of a problem with COVID-19, so many parks have shut their playgrounds down. I'm not really certain myself what the COVID-19 regulations will be in playgrounds going forward. But it being an outdoor amenity, it's more likely to be able to reopen than an indoor amenity, that's for sure.
Finally, athletic fields. We've tried to turn a lot of grassy areas in mobile home parks, meaningless grassy areas that mom and pop simply left as grassy areas because they couldn't stick any mobile homes on them back in the day when they built it. We've been trying to make those into more meaningful things. We'll put picnic tables and grills on some, playgrounds in the corner of some, but on the field itself, we've been trying to make them usable. We've put in soccer goals, other things like that. Those, again, can get good use because those meet, in most states, a lot of the requirements for social distancing on an outdoor endeavor.
We've now learned from the pandemic the limitations of clubhouses because those have to abide by much harsher guidelines for social distancing, and it may just be, going forward, that in mobile home parks, given our new America with COVID-19 and the potential of this reoccurring on a regular basis, that the outdoor options really were a good idea. We find that most community owners, rather than the old days... Back in the '90s, all the time people would buy a mobile home park and they would bring in a double wide or build a giant clubhouse. I remember the ARC, which is no longer in business, they were huge on that. They would put in these big old fancy clubhouses. Most community owners today aren't doing that. They're building more outdoor activities. Were they able to see the future? I don't know, but it looks that way to some degree. It looks like in the future of splash pad versus clubhouse, I think the splash pad is going to win. I think outdoor activities are looking like a more and more better idea with mobile home parks in COVID-19.
Now let's talk about personnel in your mobile home park. What's the impact been on your personnel with the pandemic? Well, when it comes to hiring managers and rehab individuals, this is one of your best opportunities I've ever seen as far as the talent available out there. We're talking about in the U.S., we're going to end up, they say, at 20% unemployment. Some say even higher. Well, what does that mean? It means there's a lot of people out there who had jobs who will not have a job any longer in their old career, but some of them may be great people, great talent. If you're unhappy with your current manager or maintenance staff or home rehabber, perhaps now is a good time to look into some other options, because you probably have never had as many suitable candidates to choose from before as you do now.
Now let's move to financing on mobile home parks. How is COVID-19 impacting that? Well, this one is both good and bad. On the good side, it's going to keep interest rates low for years. I don't know if interest rates will ever go up again after this. We already saw them cycle once after the 2007 great crash, and they didn't go up very high before they came back down again. Now they've been talking about taking them all the way down to negative numbers. I'm not sure we'll see that, but it's certainly true that low interest rates are fantastic to mobile home park owners because it keeps the interest on our debt low, which makes our payments more affordable. I think one positive of the pandemic is it would appear to keep interest rates low.
Number two, it's still not impacting in any way seller financing, bank financing, or agency financing, except as far as timing, which we'll come to in a minute. Those three are still in pretty good condition, despite COVID-19.
On the bad side, it's disrupted hugely CMBS debt. This is commercial mortgage-backed security, also known as conduit debt. The problem with CMBS debt is whenever times get a little iffy, they always run for the exits. They cannot stand instability, instability in interest rates particularly. A lot of your CMBS debt has, as it always predictably does in every recession, depression, anything big that happens in America, they shut down for a while. If you're trying to get a CMBS debt on a mobile home park right now, that will be extremely difficult, simply because they're just not writing many loans right now. Again, seller financing is still out there, bank financing, Fannie Mae, Freddie Mac, agency debt. CMBS will return. No one knows exactly when. Some say in about 90 days; others say in 180 days. But it's kind of like the birds that fly away during the season and they return later after winter. They always come back, but right now they pretty much have left the building.
Now let's look at the impact on buying and selling mobile harm parks. Well, again, you've got good and bad attributes. On the good side, it's going to free up a lot more parks. Every time we have a major shock to the U.S. economy, it dislodges some moms and pops who just take this opportunity to decide they want to do something different with the remainder of their lives. The person who was just happy keeping the park, "Oh, times are great. The economy is doing terrific. We're at 4% unemployment," they suddenly get a little more dour where we're in a recession. They see unemployment rising. They may have residents now that are coming to them saying, "I can't pay the rent." They watch the news; it's always depressing. And they just say, "You know what, I don't want to do this anymore. This is not the future of where I want to be," so then they're going to just go ahead and basically move on to something new.
Also, you have the sellers being more flexible on price, terms, and timing. You have a lot of sellers now who are going to be out there saying, "Well, I know times are tough, so here's what I'm going to do. I'm going to go ahead and do something different. I want to get this park sold. I know times are tough, so here's the deal. I'll lower my price. I'll carry paper. I'll do whatever I have to do to forge a more attractive deal for you, Mr. Buyer." Right now, you're going to see a lot more flexibility than you do when times are good. When times are good, people get jaded. They get spoiled. They think, "I don't have to do anything different. I can sell this park. I don't have to worry about it." In many ways, perhaps they're true, but it's not going to be as easy, and they know it, to sell now. That's going to change the flexibility of how things happen.
Now, on the bad side, it's going to require a much longer diligence in financing period, which can make a lot of sellers mad. If you had it easy before, you thought, "Well, I only need 60 days of diligence, another 60 days of financing," well, think again now. You may have to extend your financing out significantly. Now, most sellers are going to do that because they know times are tough, but some sellers are going to say, "No, I don't want to do that. That's too far into the future." It may make it a little harder for some sellers to actually get something done.
Also, it's made financing, obviously, a lot more stressful, because now if you want to get a loan... Before, you thought, "Well, I can get a loan. I'll go ahead and go through the process, make my bank package. I'll go and talk to the various lenders, and then I know I'll get something done." Now you're not so sure. Now it's harder to reach the lender. "Oh, no, we're closed." Here where I am in a small town in Missouri, our banks are closed to walk-in traffic. You can't even walk in the bank. That's true all over America.
If you can't get in the bank, you can't meet with anybody, obviously it's much hard to present your loan package. Also, it's much harder on them to then evaluate your loan. They don't meet as much. The committee doesn't meet as much. It just makes everything a lot more stressful. That's the problem. That's definitely a bad item.
Another bad item is it makes it hard to determine which tenants are going to run off when the unemployment runs out. Bear in mind that unemployment typically only lasts, in most parts of America, 26 weeks or so. Now, with COVID-19, they're expanding that in many states to 39 weeks. Then, of course, you have the extra 600-a-week stimulus through July. That means there may be a lot of people out there who lost their job, who are still paying the bills, until that next clock runs out.
You can't really tell when you buy the mobile home park, when you look at all those mobile homes and all the residents, it's hard for you to really gauge how many of those are going to blow up when that time runs out. You may still have good collections today because they're able to pay the money out of the $600 a week or out of the 45% unemployment, but when those end, unless they're extended again or unless they can get a replacement job, they will not have any ability to pay the rent. Right now, it makes it far riskier when buying a park because you're not sure who's going to be able to pay and who's not. Therefore, you want to give yourself a lot more fluff.
Finally, it may make it harder to raise rent from a political perspective. Clearly, everyone needs mobile home parks, which they do, and the nation needs affordable housing, which it does, and mobile home park lot rents are ridiculously low, which they are. There's every reason you could raise the rent, but it may just be the optics of raising the rent, the perception of raising the rent. You've already had enough problem in America pre-COVID with people complaining, whining anytime a park owner raises the rent $10, despite the apartment complex raising theirs $300. Somehow, we're evil. We're the ones who take advantage of people, even though we provide the least expensive non-subsidized housing in the world. But once again, if you're buying a mobile home park and say, "Well, I'm going to buy this park and raise the rent $40 a month from the beginning," it may make it harder to do that. It may change the timing of how you can do that.
Those are some of the micro thoughts on COVID-19 impact. Now let's move more to the macro issues.
First, let's start with geography. There's now a lot of things to think about regarding the geography of where a mobile home park is located at. Let's start off with one giant myth I see in a lot of what the media is portraying as far as the pandemic and geography. Some people compare this to the Great Depression. In fact, they like to have a lot of slogans saying, "We're all in it together," which that's all fine and dandy from a philosophical perspective, but people who think this is like the Great Depression of 1929 haven't read much about the Great Depression of 1929.
If you read about the Great Depression of 1929, what you find is it started in the heartland. It really started out more of an agricultural disaster. You had a two-pronged problem. Number one, you had a huge reduction in the prices of agricultural products all at one time. You had some great years prior when they were getting really good pricing, and farmers put in a lot more crops to harness the power of that pricing. Then, suddenly, Europe wasn't buying food like they were before, and those prices began to come down. Then on top of that, you had the Dust Bowl, which we all know what that is.
Basically, you had a combination of low crop prices and the Dust Bowl, which just destroyed all of the rural parts of America. Then, meanwhile, we had the stock market crash, and so urban markets and rural, everybody was at one time, from coast to coast, broke and in trouble. Now, this current depression is different because it's hitting the cities really, really hard. It's really focused on urban areas, but not so much on the stuff in between, not so much in those rural markets, not so much in areas where people do not live in extreme density. You have this new thing where you have urban and less dense areas where they don't have the same similarities.
Where I am in Missouri is fully reopened now, and there's not a single large employer in my town who laid a single person off, but in New York City, everything is still on full lockdown. It's fair to say that the impact on mobile home parks is varied based on where the park is located. This recession, I think, more so than others, because even the 2007 Great Recession, it pretty much was an equal opportunity recession, it hit pretty much across all 50 states in about equal abundance, but this one seems different to me because it seems like where you're located at has a whole lot to do with how much trouble you have with the pandemic.
The good news for park owners is that most mobile home parks in the U.S. are not in dense urban markets. There is not a single mobile home park in Manhattan. When they talk about problems on Manhattan Island, well, you cannot include a mobile home park into that equation because there really aren't any, nor are there any in Chicago or Boston or San Francisco, and certainly not in any meaningful number. There might be one or two sandwiched in there somewhere, but that's not where most mobile home parks were built because people didn't like mobile home parks even back 50 years ago, so they always tried to push them on the outskirts of town. Well, that has now proven to be kind of a blessing, so we're not really in those urban markets.
It's very important to me to know that everyone who owns a mobile home park and who's buying a mobile home park should start looking at the various risks of geographic areas. Where am I in the spectrum of the future of this pandemic or the next pandemic down the road? Because you're going to see that all things are not created equal going forward or even currently.
If we all owned urban high-rises, it would be a different deal, because we would be very much hugely impacted by the pandemic, but we don't own urban high-rises. There are no mobile home park high-rises. Actually, there was a guy who tried to build one once. It's in the MH/RV Hall of Fame and Museum. I've forgotten the name of it. He wanted to build a 10-story mobile home high-rise. It was going to be radially, where you have one central elevator, and they would put the hose up on these concrete slab floors 10 stories high with cranes. Never got off the ground. He did build a three-story that was a complete disaster and later was torn down. But unless you've got one of those two unusual parks, typically we are not really a dense urban kind of a business.
Now let's also look at the impact on employment and which industries you can rely on. This also has something to do with geography, because in many ways this is also going to tell you what's going to be happening, because you're either in a market like this or you're not.
People know that we have been saying forever, oh my gosh, for a decade now, that there were three key industries that we liked. Those three are education, government, and healthcare. We said all the way back then, you'll see in my articles from a decade or even more than that, 15 years ago, those were the industries we liked. You'll see I put in there over and over we like them because we thought you can't shut them down and you can't lay people off. You've got to have those three things whether times are good or times are bad. When times are bad economically, people still want to send their kids to college. When times are bad economically, if someone breaks their leg, they're definitely going to head to the emergency room. When times are bad, no matter how bad they are, you still have to have workers run the city water system.
We have always felt that government, healthcare, and education were the three pillars of the alternate stability stool of employment, but never did we anticipate anything like COVID-19 would happen. Now we've seen, the whole world has seen, what truly are the essential industries and which ones you can now bank on.
It's kind of like when they did the base closure list back under Bush. Bush had this idea they would close a bunch of bases and save a bunch of money and move the servicemen and women in those bases to other nearby bases to chop down the overhead. It was an interesting idea, but didn't go over very good. They published the list, and then the governors of those states said, "If you close my base, I will never vote for another of your Bush ideas," so they didn't go through with it.
But the damage had been done. They actually built the list. To this day, when someone is looking to buy into a mobile home park, I always tell them, "Look up that base closure list to see if the base is on it," because if the base is your largest employer, which it is in most of those markets, and it's on the list of bases to be closed someday, that's just too much risk.
Now they've done the same thing. They have created, basically, the permanent employment closure. They've identified some things which for some reason we now feel are essential, separate from some things which are not. It may seem unfair to many people. I think it is reasonably unfair in certain areas. There's certainly some things that are gray, some things that overlap which you can't exactly define why they are essential and another one that's very similar is not essential. Look at Hobby Lobby. Hobby Lobby tried to stay open during the pandemic under the argument it was also providing home improvement items, but they ultimately shut down because they weren't quite home improvement enough. But then if you go in a Lowe's store, Lowe's sells items that are not on the essential list, yet they still sell them.
What's happened here is the line has been drawn. You now know what's essential and what's not. We went over already what's essential. Let's now go over things which are nonessential and would be very scary to use as the linchpin of all of your employment in that market.
The first one, leisure and hospitality. Those are things such as casinos, amusement parks, restaurants, large hotels, Disney World, anything you can think of that you like to do on vacation or things that you always look forward to doing each year or whenever you do them. Well, those are no longer deemed to be important. Those are considered nonessential. That's scary.
Look at Las Vegas. Las Vegas, the minute the pandemic hit, they shut it down. They shut the Las Vegas strip down. They literally shut it down and turned the power off. Now, I know they're starting to reopen, but I don't know if they'll be able to reopen in a socially distanced manner enough that those things can ever make any money again. I don't know how many people they're going to employ when they come out of this thing.
Anything that has to do with leisure, hospitality, whether it's a casino, whether it's a giant destination amusement park, or even anything that's travel related, those are all not going to work as well as they did.
Then you have retail stores. What's going on with retail? Well, if it's Lowe's, Home Depot, Costco, Walmart, their sales are going up. However, there's a lot of stores which are not going up and, in fact, are going down. If you have a department store, if you've got a Macy's, JCPenney, Neiman Marcus, it doesn't matter, those are clearly no longer considered essential. They're shut now, and many may not reopen. If you're looking in an area where top employment is based all about retail, that's going to be a really tough thing to do going forward. If you were looking at buying a mobile home park next to the Mall of America, you might want to rethink that. Retail, again, scary employer.
Then you have the aerospace industry, not including the military. There are probably few industries that have been as heavily hit, in my opinion, by all of this than airlines. Even now, when I read what it will take to fly again, I'm not sure I want to fly again anytime soon. If we're talking the waits of the lines may be three to four hours longer than they were before, I think there's some airports I can't fathom how they will move people around the airport and maintain social distancing.
You look at the impact on the airlines' revenue, not being able to use the middle seats, having far fewer flights, and yet they have all this fixed cost from all these airplanes. Something has to give. If you're looking at a market where the largest single employer is an airline, that's going to be a problem. Then if the airlines aren't making money, they won't buy many new planes, and that means people who build airplanes will also be laying off. That's, again, a scary thing to have in your market.
Finally, oil and gas. Now, oil and gas is an ancillary collateral damage issue from COVID-19 because oil and gas already had the makings of a problem prior to it. What happened is, in our country, we'd been doing great at extracting oil using something called fracking, but fracking is expensive. Depends on what publication you've read, I've read a number of them since COVID-19 popped up just to get a better handle on it, it looks like to extract oil using fracking, you've got to get a price per barrel of $35 or something to pay for the cost of fracking. When oil dips under that, everyone is actually paying to produce a barrel of oil. That's a problem we have which other countries don't share because they don't do it using fracking.
It was doing great when oil and gas was trading at 60 bucks a barrel, something like that, but now that it's dipped below the cost of production, it's put a really big brake on our oil industry here in the U.S. As a result, it could cause problems for park owners in areas who have high reliance. If you are in the shale oil fields of North Dakota or other parts of America, yes, it may have a real impact on those markets, on employment, on the strength of that market.
Now, oil and gas prices have started to rebound. They were negative, as everyone knows, there for a while. Now they're back up in the positive. They may be up, I think... I don't know whether they were today. I think they were almost at 30, so they're moving in the right direction. It just once again shows that oil and gas has always been a scary thing to pin your future on.
Dave and I learned that, saw that firsthand after the Texas S&L crash. We toured parks after the crash down in Midland and Odessa, for example, where you had 75%, 80% vacancy in these giant parks. You would stand in them, and you could not even fathom how you could bring this thing back to life. 500-space park, you'd have 400 empty. It would just be a giant empty field with concrete pads and utilities on it. Later, those became full again, but we could never forget what we saw back in the '90s on those properties.
Again, those are what I would consider to be the weak employment spots, leisure, hospitality, retail, aerospace, and oil and gas. But the biggest thing is just remember that basically anything that's a luxury is not good anymore when it comes to employment, that essential things are absolutely the clear winner. Again, our favorite essential things, as I've mentioned, we love education, we love government, and we love healthcare. We think those are the safe industries to be involved in.
Now let's move on to historical precedent. It's one thing to say, "Okay, COVID-19 is here. What do we do? How do we know where it goes from here?" Well, let's look at what happened the last time we had a major recession. It's been a long time now. 2007 was a long time ago, 13 years ago. Many people who are millennials, they don't even remember it because they were little kids at the time, so they're not even sure what happens when things go bad.
Here's my chronology of what happens with mobile home parks when you have a calamity like the pandemic. The first thing that happens is you have that event, whether it was the mortgage crash of 2007, the dot-com bubble, or COVID-19. You first have that event that starts the cycle, then you immediately have a decline of interest rates. People probably recall that, following the 2007 Great Recession, we instituted a concept called quantitative easing, which lowered our interest rates down substantially. It was a good moment for borrowing, because suddenly we saw interest rates decline, in many cases, by half. That's normally what happens. Now, this time it won't be as severe because our rates were already so low to begin with, but low interest rates, that's the first thing you normally see when you have the crash. The government tries desperately to try and bolster things by keeping interest rates low.
Then, as always, CMBS debt leaves the building. They always abandon ship. This is predictable as night and day. When things get tough, when things get unstable, they stop making loans. CMBS debt leaves the building, exactly what happened in 2007.
Next thing you had happen is you had new parks come on the market from depressed owners. That was one group. You had people who said, "You know what, I don't like the way things are going in America, so I want to sell my mobile home park and do something I want to do more with my life. I'm not going to do this anymore." Then you also saw starting to lift its head REO, real estate owned property, basically, park foreclosures, nonperforming loans. Those typically will start hitting the market. You get a lot more product that's dislodged from the recession.
Then you get some really healthy spread because you just add the two things I mentioned. You've got new parks coming on the market from the owners who are depressed, REO property. They just want to get it out the door quick. They don't want to hold it for a great sale, so the CAP rates go up slightly. At the same time, you have the interest rates decline. The interest rates go down slightly, which gives you really healthy spreads. We saw that during 2007 for sure.
Then what you have is you have rents start going up because we become a nation of renters. Now, that's what happened in 2007. It's hard for us to become even a more nation of renters than we've already become, but nevertheless that's probably what will happen. Once again, you'll have people who can't pay their mortgage on a single-family home or on the condo. People buy that and convert them into rental property. If things follow the 2007 cycle, then as people start owning rental property, they start raising the rents because of, simply, supply and demand.
The long and short of all these chronology of events from the 2007 recession was it is considered by many as one of the best periods ever for mobile home park investment, highest demand. We had rents that were going up healthy because, once again, our rents are insanely below market. I know it's a thing that's unpopular for anyone to talk about, but we must talk about it for a moment. We are a nation which has lot rents of about 280 a month, when our apartments are almost 1,000 a month more. When these parks were built back in the '60s and the '70s, if you inflation adjust the rents back then, which were typically about $50 a month, that's about $500 rent. Our rents will not stay as ridiculously stupid low as they are. They just can't. It doesn't make any sense if you redevelop every park in America to 280 average rent.
You're going to see rents going up, you're going to see greater demand for the product, lower interest rates, and more attractive CAP rates. That's just the way that it works.
Now let's move on to future predictions from the pandemic. Well, my first prediction... I've only got two, but they're both fairly large. The first one is going to be you're going to see a massive gain in respect for the mobile home park industry, and here's why. Every other person I know who invests in retail or in lodging or industrial or self-storage or any other form of real estate, they're getting killed.
Let's just analyze some of the people I have talked to and what they have going on. I talked to a shopping center owner. His collections since the pandemic hit are zero. He had marginal tenants, burger shop, bridal store. They didn't have any money. They can't pay him rent if they're not open, and they're probably not going to reopen. So the collections fell from 100% to zero in one month.
Imagine people who own buildings that have a restaurant in it. Here's a restaurant who's been paying the rent like clockwork for years, now they're suddenly told that even when the restaurant reopens, they have to remove half the seating, so that means they can only have half the rent because they will only get half the revenue. Once again, you're going to see over and over, all the way up and down the charts...
Look what's going on with office right now. You have Twitter announce, "You're never going to go back to an office." They're going to keep all their employees out of their homes, cancel all their office space. How many do you know? Who on this call is now officing right now out of their home and loving it? They don't have the commute that they used to have. They don't have to spend all of the time getting ready, going to work, racing stressfully, can they get home in time to get to their kid's athletic event? Because now it's already built in. They're saving two hours a day. You're going to also see a lot of hit in the office arena.
As all these other sectors get crushed, and I mean crushed, we stand alone. We're the only sector that, at the end of the movie, had been properly positioned for the pandemic to occur. There will be other things in the future. The next thing down the pike may not be a pandemic. It may have just an entirely different function as to why we have the next recession after this one. Mobile home parks are the best situated to handle that kind of stuff. We just are.
Because we will come out of this being seen as the only stable, safe real estate investments, a lot of people will take note. People who used to turn their nose up to mobile home parks, people who thought that we were a goofy form of investment, are now going to suddenly say, "Well, you know what, it may be kind of goofy and it may be something that I personally have a stigma against from watching too much television, but nevertheless it's the only thing I can invest in, because nothing else can I truly depend on with my hard-earned money to not abandon me when we have the next recession, the next pandemic, whatever else is coming down the line."
I look for there to be much more respect, and I see that all the way up and down, all the way from the largest players, private equity groups who were already circling, thinking about mobile home parks as a new arena, about industry consolidation. They're going to come away from this saying, "Wow, I wish we'd started buying that sooner because maybe we would've saved all those billions of losses of all this other stupid stuff that we invested in that got crushed from the pandemic."
All the way down to just individual investors who say, "You know what, I was always investing in apartments until the pandemic, and then my collections fell to 50%. My apartment building got into real trouble, and I'll never buy another. Now I'm going to buy a mobile home park because I want to bank on the idea the future of America is a contrarian play on affordability." I would much rather own a dollar store right now than Neiman Marcus. Of course, that was an easy bet because Neiman has just declared bankruptcy.
The other thing on my future prediction list is the crash of the self-storage will crown mobile home parks as the clear number one winner in every category. For the longest time, we've been battling with self-storage neck and neck for the coveted prize of the lowest loan default rate. It's always been mobile home park and self-storage. We win one year. They win the next year. It's like the old dragster battle of the snake and the mongoose.
Well, storage isn't doing well. What happened to storage? Well, in 2007, they did pretty good. That's how they kept neck and neck with us in that Great Recession. The problem is they went wild recently in building. Man, did they ever build. They built about two billion square feet of storage. I see it myself when I go up and down Interstate 55. Just north of me, it looks like they went on a self-storage odyssey to see who could build the most empty storage, and I'm not sure what the winner actually won in that whole goal.
But storage has no restrictions. Mobile home parks do. What happened is, after the Great Recession, when we were both looking pretty healthy, they went on a wild building binge, and we built none. As the old saying goes, when the tide goes out, you see who's been swimming naked. Now, even though they fared great in the 2007 Great Recession, the odds of them faring well in this one aren't good at all. I talked to a number of storage operators. They're having, already, issues with collections, occupancy. Never be able to push their rents. I know people who have a lot of self-storage funds and other items where they're slashing dividends.
Apparently, storage is finally going to crash and burn, thanks to the pandemic, in relation to mobile home parks. It will still survive, but never again will be able to challenge what we do in the same way. Because of that, I think we'll come out of the pandemic as an industry viewed by most people finally, after all these years, with the respect we've always deserved. It's kind of like Rodney Dangerfield, who could never get any respect, and then finally got it at the end of his career after doing a lot of hit movies and other shows.
Once again, mobile home parks, I'm saying, are about to enter the new golden age where we finally get the respect that we deserve, not only from an investment vehicle, because clearly that's true, no one has weathered the pandemic as well as we have, nor will anyone ever weather it as good again, but just for the quality of the product that we produce. Most people are unaware, the average American who only watches TV, the shows that are perpetually negative on mobile home parks. I was watching the Disney Channel recently, and they have a cartoon on Disney Channel called Trailer Trouble, which shows in the episodes the problems of how bizarre people are in trailer parks. It's got the comic characters. It's got all the typical stereotypes. Unbelievable to me that Disney would produce a cartoon like that in the year 2020.
People just love that stereotype, but it has not and has never been true. We actually produce a fantastic product. If you haven't been in a mobile home park recently, go in one. Look how nice the entrance is. Look how nice the streetscapes are, the quality of everything, the amenities, the homes, the product that we produce.
Most importantly, we're the only ones who have and will ever produce good, solid non-subsidized affordable housing. Any idiot can produce affordable housing if the government pays for it. That's not a challenge. Every time you see a new apartment go up and they claim to be doing affordable housing through Section 8 with the government covering the tab, that's not really self-replicating. That's about as un-green as you can get. There's no sustainability in that whatsoever. Mobile home parks, however, are the only people on the planet Earth who are producing a detached dwelling at a price people can afford without having to have a handout, a subsidy from the U.S. government.
Those are my thoughts on COVID-19 and mobile home parks. Now I'm going to open the phone lines up to questions, so hold on here.