Mobile Home Park Mastery: Episode 229

What’s Propping Up The Window of Opportunity

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There’s a time to sell and a time to buy. And that time to buy is called “the window of opportunity”. So what’s keeping that window open in the mobile home park business, when the apartment and single-family home niches are exhausted? In this Mobile Home Park Mastery podcast we’re going to discuss the window of opportunity in buying mobile home parks at attractive prices, and what continues to prop it open.

Episode 229: What’s Propping Up The Window of Opportunity Transcript

In real estate, there's a time to buy and a time to sell, and that time is called the window of opportunity. That's the time you typically want to buy, in this case, a mobile home park. This is Frank Rolfe, the Mobile Home Park Mastery Podcast. We're going to talk about what's propping open the window of opportunity for those who want to buy mobile home parks.

Well, there's two main items that I've always felt would bring about the end of the window of opportunity, the closing of that window of opportunity. The first one is the biological clock, the aging of the Moms and Pops. The other, industry consolidation. So since we have these two very factual constants that we all know and can identify, and we know that basically the aging Moms and Pops are those who have the ability through their transference of that asset to give you a really great deal with really great terms, yet they're dying off rapidly. And we know that consolidation would bring about mobile home park buying fever by large institutional buyers with big wallets and checkbooks who can then drive the CAP rates way down and prices way up. Why haven't they both occurred?

Not that many years ago, back in 2015-16, you had three $2 billion transactions in one year. You had Carefree Communities bought by Sun, a REIT. You had RHP bought by a Canadian REIT. And you had Yes Communities bought by the country of Singapore. But then not a whole lot more happened. So what is it that's holding back the consolidation side of mobile home park investing? Well, I would say there's two key components right now, that is keeping consolidation at bay. The first one is the lack of big deals. Our industry is enormously fragmented compared to all other real estate sectors. In fact, we are three times less consolidated than self storage, which is in fact a younger asset class than mobile home parks. However, because of this lack of consolidation, it's very, very hard for a big institutional buyer to come in and deploy the kind of capital that they like to do.

Most of your private equity groups, they want to spend about $100 million in cash on their initial purchase. They feel they have to spend that much to make it worth their while to learn the industry and take a risk with it. But here's the problem if you took the top 100 mobile home park owners in the US from number one, which is ELS, Sam Zell's REIT, all the way down to number 100, which is about 700 lots, and then you run that number backwards and say, okay, which of these owners would have enough mobile home parks to allow for a $100 million down payment, which translates to about a $300 million purchase price, is very rarefied air. You're lucky if you could come up with even 20 people who could fit that narrative. And the problem then is, that means you're just very slim pickings for those private equity groups to find something big enough to suit their fancy on the front end. And because of this, which is never really going to change, it's really caused a problem.

Now, you've seen some private equity groups embracing this reality saying, Well, okay, we'll start off smaller. You saw the Carlyle Group, which, instead of making one big purchase has been buying mobile home parks pretty much one at a time. But again, there's very few private equity groups that want to buy in that manner. So the very simple lack of scale has been one attribute that has really, really kept that window of opportunity propped open.

The other one is politics, public shaming. And to put it into words Elizabeth Warren, if you recall, not that many years ago, probably around 2018 era, Elizabeth Warren took it upon herself to send a scandalous letter to all large mobile home park owners threatening that if she came into power - and not really sure what defined power was, I don't know if it meant if she became president or what exactly - she was going to go after every single person out there institutionally owned mobile home parks, because being a landlord of course, is inherently evil, apparently in her opinion. It was a very misguided letter. It got a lot of pushback from people who said, Gosh, that's not only offensive but doesn't even make any logical sense. Why would we want to dissuade professionals from bringing these old mobile home parks back to life? She probably has never actually been in one or she would know better.

Right now, if you have an old mobile home park, which they're all old, they're all about a half a century old, it takes enormous capital and expertise, and just the ability to take the risk, to buy something in poor condition and bring it back to life. There's a lot of work, there's a lot of effort to do so. And when you scare people off who want to do that in a big way who suffers? Well, all those Americans who live in those mobile home parks. However, the very fact that she would send such a nasty letter to one industry alone - never threatened the apartment industry, never threaten the single family home industry, yet they are notorious for buying properties with very, very little effort involved and doing massive rent increases. Nevertheless, she avoided that. Maybe it's because of you know, there's really not a whole lot of political clout on the part of mobile home park owners but attacking the apartment lobby wouldn't help you on fundraising or votes. But nevertheless, when she did this, it soured many institutional buyers who said, Well, you know what, I just don't think I want to tackle something such a politically hot football right now. So that kind of started it.

Now there's been a lot of media even since then. Lots of articles, different things always try to public shame mobile home park owners. Of course, we can do no right in the eyes of the media, or politicians. Despite all the great things we do, that anyone can easily just drive out in a car and look at, look at the before and after photos of any mobile home park that's been bought by a larger owner and brought back to life, talk to the residents who are all thrilled with it. Sure, you may have a few people who are marginally living there who shouldn't have been there anyway, should have been on Section 8 or some government program. But the majority of people out in America, they like to live in nice places. They like having pride of ownership. They like high quality of life, they like the value. But nevertheless, that politics as misguided as it may be, and the media public shaming that went with it is another reason why the consolidation still has not happened in a big way.

Now let's move on to the aging Moms and Pops, and why despite their continuing desires to sell their mobile home parks and retire or move on to something completely different. Why that can't happen or hasn't happened at any speed anyone would have expected? Well, the first one is simply the market is very, very inefficient. If you're an older Mom and Pop, you're probably not even on the radar screen because some of these folks, they don't even do any advertising at all. Many of them don't answer their phone, they don't even respond to letters. So the ability to reach out to them and say, hey, I want to buy your mobile home park, it requires a lot of effort. Whether it's direct mail or cold calling, or brokers who may be doing the same function over and over and over trying to get the listing. It's really hard to get, to identify and get in front of a lot of these older Moms and Pops. And that's just to get the process rolling. That's not even getting them to say yes, I'll sell at this price. For many of these people, their mobile home park is their largest asset. There's many, many people they have to ask advice from. So it's a very time intensive matter to get them to sell as well. So unlike the apartment industry, in single family where typically you have larger people who are professional investors who understand how the process works, and everything's for sale at a certain price, that's not necessarily true. With there's older Moms and Pops. And because the market is just so darned inefficient, it's going to keep the thing perpetually slow.

The other item is the stigma. I'm not talking the Elizabeth Warren public shaming political stigma. I'm talking the very stigma against mobile home parks or some people call them trailer parks. Sure it harkens back to the media who's done a phenomenal job of trying to make everyone in the mobile home park industry feel like lesser citizens and that all mobile home park residents are in fact, not people who any of us should admire. Just look at exhibit A, Trailer Park Boys,  Exhibit B Cops, Exhibit C Myrtle Manor, Exhibit D 8 Mile. What is the message that media has been sending? Well, over and over it's that people who live in mobile home parks are lesser beings, and therefore those who own mobile home parks well, they are to garner no respect whatsoever. Because of that a lot of investors who could be buying up mobile home parks from these aging Moms and Pops, they won't because they cannot climb over that stigma wall. It's too high. They're told by everyone - their friends, their relatives - that Oh no, don't buy a mobile home park, that's a terrible idea, go buy an apartment building instead.

Of course the problem is there's no money in the apartment building but the apartment building just doesn't suffer that same stigma. Until you see the stigma end on mobile home parks, sadly, that's always going to keep the buyers at bay. Nobody likes to buy an asset that they're afraid of. No one likes to buy an asset which they feel makes others look down upon them. Yet, that's the narrative the media has created. And most people not having been in a mobile home park don't know any better. Personally, I've been in the park business now for 25 years, we have thousands of residents. And I know for a fact that that narrative that the media has portrayed is completely false. I don't have a single property that I can't walk around in day or night and feel completely happy. I don't have any issues whatsoever with the actual looks, and the way our properties fit into the surrounding communities. All of it is just fantasy, it's completely false. But until as Americans and American investors, we can get over that stigma once again, that window will be propped open.

Now if you're trying to buy mobile home park, this window refusing to close is a fantastic thing because the opportunity is still there and may go on for many years more. So there's nothing that says mobile home park windows have to close on a certain day or time. For those who are making predictions as I was years ago that the window wouldn't last much longer, I've been proven wrong simply because the stigma and the negativity you get in the industry is far, far greater than I had ever imagined. And I'm not really sure when it will abate. This is Frank Rolfe, the Mobile Home Park Mastery Podcast. Hope you enjoyed this and we'll talk to you again soon.