Mobile Home Park Mastery: Episode 163

Megatrends Revisited

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In the 1982 John Naisbitt coined the term “Megatrends” to describe the major upheavals in American society that would influence the future for decades. But that was nearly 40 years ago. Since that time, many have already come and gone. So I’m going to make a new list of the megatrends that are ramping up in America and how they may impact the mobile home park as an investment vehicle. Grab your model of the Starship Enterprise because we’re going to look way into the future for direction on what 

Episode 163: Megatrends Revisited Transcript

In 1982 John Naisbitt wrote the book mega trends, it was a huge bestseller. I remember the book Well, I just got out of Stanford University with a degree in economics and started my billboard company, and the book had lots of really good ideas. It was the first book, as I recall it really showed what the thought might happen in the world at large and America in particular and how those mega trends would shape the future for decades to come. But you know, 1982 was about 40 years ago and I haven't seen any updates on the books so I thought here on the mobile home park mastery podcast weíd review what I consider to be some of the new mega trends and how those may impact the mobile home park industry.
1) Mega trend to demand for affordable housing. It wasn't really as true back in 82 when he wrote his book because back then Americans were basically a lot richer than they are today statistically, however, what's happened is, as we all know, you've got 10,000 baby boomers retiring per day. That was an item noted in his book that creates a lot more demand for affordable housing for people who are going to retire and the math of retiring in two was pretty much exactly as described in this book for getting  just enough to get by about 1200 dollars a month per person in retirement. Hardly any pensions these days or other things to fall back on.
Also, what she would not know when he wrote the book is that half of all the jobs created in America since the Great Recession have been paying $10 an hour or less, so as a result we become a nation of people who don't earn much money, a nation of people who did earn money who have now become retired and so that makes the demand for affordable housing strong it will always remain strong so I think we all agree that that mega trend is pretty much correct.
2) Mega trend which is gonna become very obvious during COVID-19 is what Zillow is now calling the great reshuffling. Thatís the movement from urban markets to suburban and exurban. Now whatís an exurban urban market? Well that is the ring of residential areas of beyond the suburbs, you can still commute from them to the city but instead of the typical suburban 30-minute commute. It's often about an hour commute to exurbia. I live in exurbia I'm about an hour away from St Louis half of everyone in my small town works in St. Louis. It's not that hard to get conditioned to drive an hour each way per day. And I think a lot of Americans going forward are going to find that the quality of life.
Those exurbia markets are so high, they're willing to drive a little farther for it so I think we're going to see the reshuffling going on for a long long time and that was not something in Naisbitt book back in 82, a lot of people were starting to get fascinated again with the idea of moving into the urban market the urban core. So I think that's a new mega trend that was not described in the book. I also think you're gonna have a little bit mega trend continuing on with self-driving vehicles. Let's think about that for a moment. So, in the car of the future, you program where you want to go and you push go and it drives while you simply sit around what looks like a booth at the back seat and in that booth you can watch movies on your computer, you can write reports on your computer, you can look at anything you want on your iPad anything you want to do to entertain yourself play video games it's all right there. It's kind of your own personal reflection pod. So what's going to happen is people are going to start liking that because one of the worst parts about community is having to stare out the front windshield and hit the brake and the gas pedal and steer the car you take those out of the equation is it really that much unfun to travel an hour. And I would say the answer is probably not. So I think that the self-driving vehicles which are coming to market faster than anyone ever foresaw are going to definitely change the appetite for suburbia and exurbia. And of course the good news on that is most mobile home parks are in suburbia and exurbia there's not many mobile home parks in urban greater metro areas, there are a few. They're typically very very dense typically have kind of sketchy locations. But the meat potatoes of our industry is to be found in suburbia and exurbia and since those remain the hotspot of the mega trends of the future, feeling very very good about those.
Another thing to think about. In addition, which is kind of a subset of exurbia and suburbia will be the expansion potentially of the United States metro areas. Now, as Americans perhaps start to live farther out. I imagine at some point it will be reflected in those Metro Maps Now I know that Metro maps in my own opinion are often chock full of corruption, I think people do all kinds of things with those tried to force Metro labels on towns maybe don't deserve it, because they're hoping that will bring in some kind of a social or governmental economic program. However, I do think as people push farther out and get out of those urban markets, those urban metros. Therefore, the metros will expand and that's great if you own a mobile home park and what is just outside today's Metro, and later gets gobbled up into it.
We have a couple of mobile home parks in Anderson and Indiana that did just that. We went to bed one night in the metro population of Anderson and Indiana was 100,000. When we woke up the next day it was almost 2 million. How did that happen? Well they decided that Anderson was part of Indianapolis.  I guess to some is an exurbia market it would be. So I think you'll see also some stretches of the metro markets which again will be great for mobile home park owners.
The next Mega trend which you everyone sees and everyone know but no one likes to talk about it because it's just too painful is the complete collapse of the retail lodging and office sectors of American real estate. They're huge. They're vast, there's billions if not trillions of dollars of debt involved, but let's all admit they're pretty hopeless at this point. And it wasn't just COVID-19. COVID-19 was the final nail in the coffin, where for the longest time we've all started shopping online.
We've all started office in from home. We've all realized we no longer have to travel in business but we can just Face Time and zoom people and spare ourselves the unpleasantness of driving and staying in a hotel and don't forget that, at least in my opinion I think everyone listening would say you know it wasn't that much fun to do air travel, even before COVID-19. There was no service nobody cared anymore. Flying from point A to point B became one of the most miserable things you could imagine. As a result as retail lodging and office as real estate sectors basically die as they basically reshuffled there'll be some survivors will be a whole lot of failures, the estimate that at least a quarter of all suburban malls will close over the next five to 10 years. It's going to force a lot of people in those groups to find some other thing to invest in. Either the investors in those three sectors or those who work in those three sectors, basically become homeless as far as that sector they can't buy any more of it.
They don't want to own any more of it and they'll look for new things to invest in and that of course will lead many of them into the mobile home park industry. I've been writing articles on that for years now, never even knew COVID-19 was on the menu. But certainly, I was correct at this point because as those sectors are now declining we have more and more interest for private equity groups and others to invest in a mobile home park space and again that's going to be great for those who own mobile home parks and really great for the industry. I see the industry then becoming more mainstream. There won't be that many sectors left after those collapse right, the whole real estate sector of America will be all about housing single family multifamily, and then let's also stick Mobile home parks in there because in fact we do house 8% of the entire US population.
Next megatrend is you're not gonna see any help from the government and don't get misled on this. I know you can see articles out there from groups that want you to believe that in the future American government is going to mandate more mobile home parks to be built and relaxed uniform building codes allowing mobile homes to go even on residential lots. I don't see you there ever occurring. I think what you're seeing right now even with COVID-19 is the fact that states and local municipal officials still have a lot of rights and power. Federal government can make suggestions, they can sometimes give aid in the event of crisis but for the most part this is more of a local and state phenomenon. And I just don't see it happening. If you can show me one governor, one state official or local officials who champions the concept of changing the zoning to allow for mobile home parks that I would appreciate seeing next. I don't know any and I follow almost everything there is in the media.
However, I think we'll still see Fannie and Freddie Mac stepping up to the plate producing loans for the mobile home park industry. Why, because our loads are great we have the lowest default rate in the US on loans, I say next I will assume that self-storage will collapse. This year under the weight of COVID-19 and their own issues. So as a result, this will be the era apparent to the lowest default rate in American real estate crown, I assume, we'll be getting more and more loans, I think the program is great for everyone. It's great for the American public Fannie Mae, Freddie Mac injects very important capital back into the industry when they give those loans allowing people to make lots of improvements. I think it even raises the bar of parks because Fannie Mae, Freddie Mac's a little more selective in the park so finance and enforces pretty much all Park owners to try a little harder to make that all happen so I think really the government is not going to really do a whole lot to help the industry but they've already done the most important piece. And that's Fannie Mae, Freddie Mac financing in to the mobile home parks.
Beyond that this whole myth that they're gonna allow new parks to be built, it's just that it's a myth. It's brought on by manufacturers mostly trying to push their stocks to say ìOh don't worry at some point we'll be able to ship and manufacturer, tons of more homesî. I just don't see it happening. I was there in the heyday, if you recall back in the 90s, we had a moment in American history where manufacturers were producing about 400,000 units a year.
Today they're doing a little under 100,000. I don't really see that number changing. Finally, the final megatrend that we'll throw out that I think we're seeing right now what was really quite terrifying to just about everyone but mobile home park owners, is the return of stagflation, you saw in the news just this week, people started bringing out the term which is so terrifying to America.
We suffered through horrible stagflation back in the 70s under Jimmy Carter. Ronald Reagan stepped in and saved the day perhaps although we don't know really if he did it but certainly it did get cured while he was president. Stagflation basically reforms to the concept of rising inflation but allows the economy. It's always been assumed that the healthiest world is one where you have a healthy economy and the healthy economy creates inflation, but you can also have bad economy high inflation as they had in the 70s.
The term was brought out by Ian MacLeod over in Britain, because the whole world suffers from stagflation back in the era. The term was first used in the speech in 1970. And it proved that McLeod was a very good estimator of the future of the economy because he was absolutely spot on as to what was about to befall the world in general, you know as an economics major at Stanford I learned that everything in the world runs in cycles everything Oh yeah! Well that's never coming back it always comes back and unfortunately I think for America stagflation probably will return at some point.
I think we can see that right now in our monetary theory we're printing tons and tons of money that's one of the key parts you have of stagflation, then you have to have an interruption in raw goods which causes Raw goods pricing to increase of course that's called COVID-19, you add the two together and you can end up with stagflation. The good news is, it's probably a fine thing for mobile home park owners once again, it leads to inflation, which leads to increase in values of mobile home parks.
Remember that your debt remains constant. While the value of the asset increases during inflation. So inflation actually is considered a positive for the real estate industry but will only be a positive for our industry in particular because the bad economy portion is going to really really hurt the other real estate sectors that normally survived and prospered during the 70 stagflation epidemic. This time we're going to be producing a nation of poor people who just really need more and more affordable housing.  Weíll be one of the few superstars of stagflation.
Personally I hope it doesn't happen because it's a precursor to all kinds of terrible things in the world in the world economy, but at least I feel happy that mobile home park is probably the best protector to the downside of that effect.
This is Frank Rolfe the Mobile home park mastery Podcast Series Hope you enjoyed this. Talk to you again soon.