Mobile Home Park Mastery: Episode 7

The Current State of the Product


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We’ve talked about the past and the future – so let’s focus on where things stand today. On this podcast, we’re going to go over the stats on where the industry sits at this very moment. And we’re doing this in a three part series reviewing the product, the economics, and the investment environment we are currently in. While history is important – and the future is exciting – it’s the here and now that determines our current returns as mobile home park investors.

Episode 7: The Current State of the Product Transcript

We've talked about the past and the future of the industry. Now, let's get down to business and talk about the present. We're going to now go over the present state of the Mobile Home Park industry and we're gonna do it in a three-part series. We're gonna talk about the current state of the product, the current state of the investment type, and the current state of the environment.

Let's start off with the current state of the product. What is a Mobile Home Park today? We know what it was back in the 50s. We know what it might be in 2040, but the most important thing to anyone right now, I'm sure, is where we at right now? Let's go over that.

First off, let's go over some facts, things that we know for sure. We know for sure there are roughly 44000 Mobile Home Parks in the US and we know that they're in every state of America, other than Hawaii. Hawaii, in fact, has none because there are only two mobile homes in Hawaii and no-one actually knows where those were delivered to. Now, some people say there's 5000 parks in the US. Well, I know for a fact there's not because we took the time and trouble to assign two employees to build the list and it took two years to do it. We learned in that adventure that everyone was wrong. There are not 50000 Mobile Home Parks, there are 44000.

Now, however, let me put a big asterisk on that. All you have to have to have a Mobile Home Park, by definition, is two mobile homes on one plaited piece of property. That means there's a lot of farmers out there who have their sons or daughter living in mobile homes on the farm and those farms qualify as Mobile Home Parks. However, obviously, that's not something we care much about. Those are not investment grade Mobile Home Parks. So, when you take those off and, heck, those might number into the thousands on their own, there are roughly 44000, what we would traditionally call, Mobile Home Parks.

Another thing we know is that all of those 44000 have current mom-and-pop ownership or, until recently, mom-and-pop ownership. There has not been very much consolidation of the industry until just recent times. What you have is, you've got a lot of parks that are owned by the original builder. If not the original builder, then someone who bought it decades ago as an investment. But that's why you can get such great deals in the industry is we're buying not from second, third, fourth generation owners, portfolio owners, professional owners, we're buying from moms and pops. The same thing that self storage used to be able to claim years ago, but, today, they're so consolidated everything is Public Storage or extra space or some other large group. In our industry, it's still all about the moms and pops.

Another thing we know, another fact we know about Mobile Home Parks is the lot rent is roughly about $280 per month in the US. So, $280 per month. What does that mean? It means not very high is what it means. It means there's a lot of room for growth in the rents, which we've already talked about. It means a lot of the studies you're gonna read are wrong because a lot of people who write market research reports are doing so by taking the course of least resistance, which is calling the big operators, like Sun and ELS, getting their numbers, getting their stats 'cause, hey, they answer their phone and they're always friendly. But that's not real accurate data. Real accurate data comes from calling, painstakingly, all those moms and pops that own all those parks and getting their input on their rents. When you do that, what do you find? You find that if you average it all together, it's a little under $300 per month.

Now, if you're in California, if you're in Los Angeles, you'll find it's over a thousand, but if you're down in Mississippi, you'll find it's often under $100 per month. So, the state of the industry on the rents is that the rents are still very, very low and until such time as the industry consolidates further, they'll probably remain very low.

Next fact we know about the industry is that, roughly, 90% of those 44000 Mobile Home Parks out there are catering to what we call affordable housing, while less than 10% fall into a thing called lifestyle choice. Now, what does that mean? What is affordable, what is lifestyle choice?

When you are in the affordable housing business, which is what our portfolio is, we try and be that affordable substitute to very high, median stick-build pricing, and another great substitute to very high apartment rents. So, in a market where the stick-built homes median is $100000 and the three-bedroom apartment rent average is $1000 a month, we are the affordable alternative, giving people a nice, safe, clean place to live at a price they can afford. That's what affordable housing is all about. However, there is a subset of the industry called lifestyle choice. They have a different model. Their model is that you'll like their park so much that you are willing to live in it, despite the fact you could afford to buy a stick-built house.

So, picture that for a moment. People trading in or choosing a mobile home over a brick house. How is it possible? Well, to affordable housing people, such as ourselves, we find that a little crazy because we can't fathom the average American who has the ability to choose between a brick house and a mobile home choosing the mobile home. But there are certain parks out there that have such great locations and such great amenities that people will make the swap. If you look at some of the communities in coastal Florida and California, often, right on the water or near the water, all the homes having, typically, detached garages, car ports, all the trappings of a typical sub-division. Then you lay on top of that all these amenities, jogging trails and clubhouses and organized community events, you can kind of see how some people would prefer that kind of community-oriented living to a brick house.

Look, as I've talked about many times, Tony Hseih, there in Las Vegas, who swapped a very large and upscale, high-rise condominium for living in a small airstream in a Mobile home Park he owns. So, some people just do prefer that kind of living. But, let's all agree, it's a very, very small subset of the industry. The reason most people think of it as being as bigger thing than it is, is because the only public companies out there who've ever marketed anything about the industry are ELS and Sun, which are lifestyle choice providers. They've kind of convinced the average American or the average investor that a big part of the industry are what they have to offer, which are lifestyle choice communities, but we all know that's a complete farce. Again, I don't think, personally, there are anywhere near 10% of the communities in America that are lifestyle choice. I don't believe if there's 44000 that there's 4400 that meet that profile. I think it's an even smaller subset. But, just to be fair, I'll claim that it is 10%, leaving 90% of the industry in the affordable housing sector.

Next thing we know is that the average occupancy of Mobile Home Parks in the US is around 80%. Now, even the studies that people derive by talking to all the larger portfolio owners, their studies point to somewhere in the mid eighties, like 85, 86. I think if you throw in the real meat and potatoes of the industry and all the moms and pops, you're more like around 80%, which means that most of your Mobile Home Parks out there are stabilized. However, they still have room to go. There's still a lot of vacant lots to be occupied and I think that's a very important point as we talk further in further podcasts about the big boost of the industry, one of which has been filling lots. There are a lot of lots out there still to fill.

Now, another fact we know is the average age of a community right now is 50 plus years. So, about a half a century has been spent on owning these Mobile Home Parks, with the vast majority being built between 1950 and about the mid-1970s. Though it was the heyday for Mobile Home Park construction. Why was it so? Two reasons. Number one, cities were not hostile back then. As we talked about in the past of the industry, the demographics for Mobile Home Parks were actually higher back in the 50s than stick-built homes were. What it means is that the average American living in a Mobile Home Park was a better class of customer than the new folks who lived in the new thing called sub-divisions at that time.

However, over time, as we know, the demographics have shifted. So, a city saw the shift, as they saw that Mobile Home Parks were no longer a high yield demographic, they kind of withdrew their ability to pass anyone's plans to build any new ones. What you have is that the 50s through the 70s were the heyday as far as respectability. Case in point, the three movies that so positively portray the industry, Lucy and Ricky's, the Long, Long Trailer from the 1950s and Elvis Presley who lived in a Mobile Home Park twice. Once in It Happened at the World's Fair in 1963 and the other, Speedway, 1968. At that point, cities were more than happy to pass such projects. However, that's completely changed.

The other big difference today, from the past, is, of course, financing. New construction financing to build Mobile Home Parks was very attainable back in the 50s through the early 70s. One of the champions of the industry, in fact, was HUD. HUD had very attractive financing programs to moms and pops who wanted to take their land and make it into a Mobile Home Park, but that all evaporated in the 70s. That's why most of the parks you see out there were built between the 1950s and, pretty much, the early 70s. What does it mean? It means the parks you're gonna look at buying today are all old. They're about 50 plus years old and that brings with it a lot of issues, which we'll be discussing in further podcasts, but, nevertheless, the fact is the fact. There are very, very few new Mobile Home Parks out there.

Also, another fact we know is that the private utility situation in Mobile Home Parks still is not that big a percent. Some people get a horrible misconception of the industry, they think that it's all about water wells and all about private sewer, and that's simply not the case. There's a little of that, for sure, but I would say that, probably, only about 10% of the Mobile Home Parks in the US are serviced by private water and private sewer. By far, the majority are on city water, city sewer. Now, they may have not all started out that way.

We have a Mobile Home Park up the highway from here, in Arnold, Missouri, called Jeffco. When Jeffco was built, back in the early 50s, it was on a water well and a lagoon. However, as the years went by and the city developed around it, it ultimately became city water and city sewer. But that is the norm of the industry. If you're in a state in which you see nothing but listings of private water, private sewer, it probably has more to do with the state that you're looking in than the industry as a whole.

For example, if you're looking for Mobile Home Parks in Louisiana, you'll see an enormous quantity of them that are serviced on private sewer. I believe it's because Louisiana did not invest in the capital infrastructure back in the day enough for all these things to connect to. You can actually have a Mobile Home Park on private sewer in Louisiana right on the edge of downtown Shreveport. Why is it so? It's because they did not put in enough lines, nor did they build a large enough sewer system to handle the rapid growth that happened, starting in the later half of the twentieth century.

Also, you'll see the same phenomenon up in the North East. If you're looking at Mobile Home Parks in the state of Maine, for example. Over and over and over again, you'll see nothing but private water and private sewer. Same thing. Maine never really had a lot of fast growth, so cities refused to go in and spend the money to put in a lot of city water and city sewer connections. But it doesn't mean most of the industry are that way. If you want city water and city sewer, it's out there in abundance. Again, 90% of the parks out there are on city water and city sewer. It may just not be in the areas that you have been looking for, and that may be the reason.

Finally, let's talk for a minute about the state of the industry on the product, as far as who the players are. If we're going to be launching into further discussions of getting into the business and buying Mobile Home Parks and things, you need to know who the competition is. So, let's just run down it real quick.

At the top of the pyramid, you have ELS. Sam Zell, the greatest real estate investor in American history, his company, Equity Lifestyle, it was kind of the originator of the whole idea of Wall Street investing in Mobile Home Parks. He's done a phenomenal job with it. He's, in fact, the largest operator. He has about 160000 lot roughly. However, there's one wrinkle to ELS that everyone should know and would know if you drove their properties or read their annual reports. They're a hybrid. They ran out of really, in my opinion, Mobile Home Park product that was left out of choice years ago, so they segment into RV. They now own a hybrid of RV parks and Mobile Home Parks. The plus of that for them, it gave them more stuff to buy. The downside, nobody like RV Parks as much as Mobile Home Parks. I have to believe, at the end of the movie, it will, one day, be a liability for them.

Next in the list is Sun Communities. Sun has about 100000 plus units, so they come in the second position. They're also a public REIT. They do a good job and they also have a hybrid of mobile homes and RVs. Why? Because I think, again, they could not find enough mobile home product in the left-out choice category to continue with their acquisitions.

In the number three position, you have a company called RHP, also known as North Star. It is more of a affordability company. It tries to masquerade as a lifestyle choice operator, but it's simply not the case. The properties they have, in my opinion, most of them, do not meet the profile of ELS or Sun to truly be lifestyle choice. I don't think most people who live in that RHP community do so because they choose it over a brick house. I think, more than likely, that it's because they are the affordable alternative to that brick house. They've done a good job. They've built a large portfolio. They come in the third position. How big is their portfolio? Not exactly sure entirely. They're very quiet about what they do, but I'm gonna guesstimate they have probably about 60000 plus lots, but, again, I'm not sure exactly where they're at.

Next is Yes. Actually, let me go back one step. One other interesting note on RHP or North Star is they sold out to Brookfield Assets, which is a public REIT, but it's based out of Canada. Now, they are, again, really a public REIT.

In the fourth position, you have Yes Communities. Yes Communities is a great player, they're a good operator. They, again, are an affordable housing group, although they do have some lifestyle choice communities, but the majority of their portfolio, I think anyone would honestly say is in the affordable housing arena. They've got about 40000 plus lots. They recently sold out to GIC, which is a sovereign nation fund of Singapore. I think that's important because it means, once again, Yes, they are, if not, a public company, they're pretty close to.

I think it's very important on Yes that they do that because I really think that Yes, over time, may prove to be the Public Storage of our industry. Public Storage is, as we all know, the largest owner operator of self storage, and they've done through that amassing a very popular product that appeals to the masses. I think that's also where Sun is heading with the backing of GIC. I believe they'll be able to expand rapidly and they are a fairly good operator, so I think it's a nice combination. I think it's also gonna be very good for the industry.

In the fifth position is us, MHP Funds. Frank and Dave, our company. We are in the fifth largest position. We're sitting here right now at a little under 30000 lots. We are truly an affordable housing company. We have a few communities, just a few, that look like lifestyle choice, but we're the first to acknowledge that's not our role. Our role is the affordable housing sector.

Now, you can go down the list and then, after us, you've got a series of other players, but it pretty rapidly falls off the map as far as size. If you look at the 100th player on the top 100 owners of Mobile Home Parks in the US, you're gonna see they only have about 700 lots. What's striking about that is just how unconsolidated the industry is, which we've already talked about, but there's proof in the pudding. At 700 lots, you would br the 100th largest owner in America of the Mobile Home Park product.

Compare that, for a moment, to the apartment industry where you'll find the numbers are ten times greater. To be in the 100th position in the Mobile Home Park arena, you have to have 7000 units. 7000 units. But in the Mobile Home Park sector, again, we are very, very unconsolidated and you can still be a very large player, based on the ratings, without that many Mobile Home Parks.

So, those are some items I wanted to go over with people as we begin our journey into the present, as far as how to make money with the product, how to run the product. The key items that you're listening in on, I wanted to set the precedent first off, the facts of where the product sits today. We'll be following this up with the facts about the investment type itself and also about the investment environment.

Again, this is Frank Rolfe. Thanks for your time. I hope you learned a lot and I'll be back soon.