Mobile home parks are, at their most basic, parking lots. And a growing number of these parking lots are being torn down to make way for new development. In this Mobile Home Park Mastery podcast we’re going to explore what’s behind this growing trend and what the ramifications are for the mobile home parks left behind.
Episode 304: The Forces And Impact Behind Accelerating Park Redevelopment Transcript
If you read the weekly summary that I do of all the news articles on the Mobile Home Park Industry that I produce every week through MHU, you'll see a very frequent article right now, is that of the Mobile Home Park being torn down and redeveloped into another use. This is Frank Rolfe, the Mobile Home Park Mastery Podcast. We're gonna focus on why we're seeing so many Mobile Home Parks facing the wrecking ball right now, and what that means for those parks that are left behind.
So let's first start off with the reason of why Mobile Home Parks are being torn down across America at a faster pace than we'd ever seen before. Well, the first one is that land is going up in value. Mobile Home Parks are a very low level use of land based on that pyramid of price per square foot land values. Parks are nowhere near the top. At the top you have office buildings, cemeteries, shopping malls those type of places, and a Mobile Home Park although is a nice income-producing asset, it can't compare with some of those other uses as far as the value per square foot. And as those other developments have come on board, particularly apartments, it's made a new focus on potential pieces of land that you can develop these other uses on that are in fact more valuable.
And it turns out that Mobile Home Parks are very well situated for redevelopment. The average Mobile Home Park is a land mass of probably somewhere between two and 15 acres, which means it is ideal for a lot of uses. Perfect size for a new apartment complex, perfect size for a new Home Depot store, perfect size for that new RB's pad site. So that's item one is that mobile home parks are the correct size. The next issue is they have the correct location. Because they're predominantly on frontage, that's either on a highway or a major secondary, which is very attractive to those users. So with a Mobile Home Park typically you have built in a good location and a good size, and that makes them very, very attractive to developers. And then of course, also the fact they typically already have water sewer there, so every use you can think of that's a hire use, it needs it.
If you're building an apartment complex you certainly need access to water sewer, and in fact Mobile Home Parks provide that too. Also Mobile Home Parks have some unique feature that virtually no other form of real estate shares, and that is the fact that cities hate them. They hate them with unrivaled passion, and the reason they hate Mobile Home Parks so bad is, not just because they tend to house residents who many cities do not feel are the most enlightening and welcoming group to the community. But actually it goes back to tax revenue and the associated cost. The typical Mobile Home Park is taxed in two ways. Real property tax on each lot, and personal property tax on the mobile home that sits on the lot.
So let's just model that for a moment on a typical Mobile Home Park in Missouri. The mobile home let's say is valued at $20,000, and the lot underneath it is valued at $50,000 for $70,000 total, and in Missouri the tax rate is predominantly 1%, so my total tax for both is about $700 per year. Now in that mobile home however, let's assume there's a family that has two children each of which go to public school. Well, that's going to cost the school district probably about $16,000 a year for those two kids. So the net loss to the city and county is about $15,000 just on that one lot. Multiply that now by 10 lots, 20 lots, 50 lots, or by 100 lots, and it's very easy to model the fact that many Mobile Home Parks cost cities up to and exceeding $1 million a year to have them inside your city boundaries.
That's a giant loss at a time when most cities are running short of cash and trying to find ways to cut it. You know it drives them nuts when that Mobile Home Park sitting there is costing them that much money. And all the other uses in the city, the office building which is property tax, no cost. The shopping center which is property tax and sales tax and no cost. The hotel which is property tax, lodging tax, maybe liquor tax, no cost. And then here's this Mobile Home Park that's just killing them. And that's really why they hate them so bad. But of course they don't just hate them, so does the surrounding neighborhood. There's no one in America that really wants to have a Mobile Home Park next to their stick-built dwelling, and realtor.com proves why.
0:05:00.1 Frank Rolfe: If you look at the value of the home near the mobile home park, let's say maybe beside it, and then you look at what the value is of that same home three blocks away, you'll see there's typically a price reduction of anywhere from 20% to 50% to have the right to be next to the Mobile Home Park. So people don't like the parks being near them. Not just the city, but the community at large. So what it means is if you wanna build something in any American city. Something that most people don't necessarily want. Your best shot you have of getting that permit is to replace a Mobile Home Park, because they'll do anything to get that park out of there. So that's pretty much how it works. So if I wanna go in and put in a high density apartment complex, and nowhere else in the city has it ever been approved, PNC says, "Nope, you can't build it anywhere, all the home owners come out in gusto at the city meetings and say, "No, we refuse. We do not want this thing in our neighborhood," so the Zoning or the city council turns it down. They won't do that on the Mobile Home Park.
They will do anything to get rid of the park. So it doesn't matter what you wanna do. If you're gonna be tearing down a Mobile Home Park to do it, you're gonna get the thumbs up from Zoning, from the council, and from all the neighbors at large. Now what impact will this have? The simple fact that Mobile Home Parks are well-built for redevelopment, people have keyed in on that, and now suddenly a whole lot of them are facing the wrecking ball and being built into new things. In fact the number one most popular use for the land the park was on is apartments, and why not, because apartments rent for an average of $2,000 a month and you can stack them two or three or four high, and the average mobile home lot rent in the US is only about $300 a month. So of course, it'll make infinite sense to build those apartments on that land. But what does it mean for the parks that aren't redeveloped, how will this trend impact those?
Well, first off, it's going to probably reverse a lot of the rent control discussion that you see going on in America right now, in our incredibly politically polarized country we live in. There are many groups who want to issue this narrative that basically landlords are evil and rents are evil, and therefore to combat the evil landlords we must adopt rent control. Well, when they see that rent control leads to development which it does, and that by blocking the ability to raise those lot rents up from those pitifully low current numbers of roughly $300 a month, back to where they need to be of five to $600 a month or more, that they're just basically signing the death warrant for that mobile home park and everyone's gonna go homeless. It's really going to rain on that parade.
So I see some degree of political pushback that will start occurring when people say, "Wait a minute here. I'm not sure what we're trying to do as far as restricting the free right of the owner to raise the rents is working out for us very good." Also it's going to increase the lot rent and the occupancy obviously on all those Mobile Home Parks that are left behind. Because if you have a Mobile Home Park you have a very rare animal, there's only 44,000 in the US. It's set in stone, they haven't let any to really be built in the last 50 years. So you take one of them off the table, let's say with a hundred lots in it, all occupied, those people are all gonna have to move to the remaining parks, which is going to push those parks into being completely full, or in some cases there won't be enough lots to even accommodate them.
And since we all live in a world of supply and demand, and it's that demand exceeds the supply, that's going to make occupancy obviously go up and so will rents. So that's one ramification you're gonna have. Also it's going to improve lending on Mobile Home Parks, because banks are going to realize that Mobile Home Parks have value beyond just being an income property, 'cause it's basically a parking lot for trailers, in fact it also has inherent value in the land. So you'll start seeing a lot of lenders say, "Wow, this is an even better industry than I thought. Not only do Mobile Home Parks represent the lowest default rate in all of commercial real estate, but on top of that now we have a circuit, a different back-door way to get our money back in the event there should ever be a problem with a borrower, is we can just sell the land for redevelopment.
Finally, what you're going to see is that this is going to be one of the many catalysts that allows Mobile Home Park owners to finally get those rents up to the levels they've always needed to be. Mobile Home Park lot rents are the only thing holding back redevelopment. When you read the articles on parks that are being torn down, to me, the essential question would be among the residents in the city at large. What would the rent have had to be not to tear the park down? Could it have been $400, $500, $600 a month? 'Cause there is a price in which the park would be saved. And it needs to start the dialogue with all of these people who currently trash park owners for raising rents to market levels. It needs to open the dialogue instead, "Wait a minute here. What would the rents need to be, because we don't wanna lose that Mobile Home Park." Maybe residents will realize going forward that since all Mobile Home Parks are on the cutting edge of redevelopment, then maybe they need to open a constant flow of the communications with the owner, as to what the rents need to be, the target, in order to make sure that their homes are safe and sound.
This is Frank Rolfe, the Mobile Home Park Mastery Podcast. Hope you enjoyed this. Talk to you again soon.