Memo from the Manager, and its Affiliates
The recent floods in Baton Rouge, Louisiana exemplify the hypocrisy of the U.S. government regarding manufactured housing. Already, the government has been renting Louisiana mobile home park vacant lots like crazy at $600 per month (that pricing is a scandal unto itself). They are about to start bringing in FEMA mobile homes to house those that are homeless. But this begs the question: why they don’t support the industry more outside of times of crisis? If they believe in the industry enough to utilize it in a big way whenever there’s a tornado, hurricane, wildfire or flood, then why not keep up the support before and after these catastrophes? Remember that the U.S. government was the largest owner of mobile homes in history during World War II, both as base housing and college housing on the GI Bill. Another instance of them using the industry for the short term, and then dumping it again. It kind of reminds us of a one-sided relationship where a neighbor is constantly asking favors and borrowing tools yet refuses to lend a helping hand in return. We hope that the spotlight on affordable housing will start to expose this strange relationship and maybe convince our leaders that they should support the mobile home park industry 365 days a year, and not only when they have a mess on their hands.
Our Property Management Company Makes the Inc. 5000 list of the Fastest Growing Companies in America
We have been working on increasing the corporate visibility of our management company, RV Horizons (also known as RVH). We applied to the Inc. 5000 competition, and ended up being named #1107 in the Inc. 5000 list of the fastest growing companies in the U.S. It’s important to us that our management company has a positive presence on-line, as that can be an important attribute in the relationships we have with the communities we operate in, and we feel that our inclusion in the Inc. 5000 is an important step in the at process. We also have a new website coming out for RVH, as well.
Why We Are Seeing More Great Deals Now Than Ever Before
There have been three $2 billion mobile home park transactions in the past 180 days: Carefree, Northstar and YES. This has led many people to believe that there is a sudden rush to consolidation, and that this buying stampede will result in higher prices, cap rate compression and therefore significantly reduced returns. While this may be true for your average retail park buyer, this is not the case for us for a number of reasons.
We like to buy “broken” parks and fix them, whereas most buyers want to buy “fixed” parks
The private equity groups and REITs that purchased the three portfolios referenced above were seeking out “finished” properties that had stabilized occupancy, market rents, and corrected infrastructure. This is common with most of the major buyers. They prefer to buy properties that have all the turn-around work complete, while we prefer to buy parks that need a redo. There is not one single business model in the mobile home park industry. For REITs, it is very difficult to buy turn-around properties due to the way they are structured. And private equity groups have no real-life experience in operating mobile home parks, so they take the easier approach. The same can be said for you average smaller retail buyer as well. But the high yields are in buying “broken” parks and “fixing” them. For example, if you buy a park that’s 100% full with market rents (i.e. little-to-no upside), then the difference between your purchase cap rate and your interest rate (a.k.a. the “spread”) largely determines the cash-flow and overall return you will get. However, when we purchase a “broken” park, we purchase at an attractive spread to meet our immediate cash flow goal, and then apply our tried and true strategies to increase cash flow and thus value. The combination of the two determine the overall park return and impacts our decision to purchase a park. These strategies include bringing rents up to market, passing through utilities, increasing occupancy, cutting expenses, and enhancing the quality of the park. The ability to create additional cash flow and equity serves as a hedge against interest rate increases and allows us to buy at lower initial cap rates and still be on-track. Even in cases where we buy a mobile home park that has good occupancy and overall condition, we still have to ability to raise rents significantly due to the fact that virtually all moms and pops have failed to keep rents at market levels for decades, and there is a huge built-in differential between apartment rents and mobile home park rents – as much as $1,000 per month in such markets as Austin.
We have the largest deal funnel in the industry
One reason that we always have a large number of deals to consider is our giant deal funnel that we have spent two decades building. Two unique features of our deal flow are that Dave owns Mobilehomeparkstore.com, which allows us to see all parks that are placed on the market in advance of the general public, and we have created an army of “pickers” from those who attend boot camp and then bring deals to us that are too large or difficult for them to buy. On top of that, we have been contacting mobile home parks owners and brokers consistently for twenty years. And then the final advantage is our reputation for being straight-shooters and closing on deals that we have completed our due diligence on. The sum of all of this is that we have the ability to evaluate a large number of parks and this volume allows us to find properties that most people have no ability to locate.
The natural progression of age on the part of the moms & pops we buy from
Most of our best sellers are the Greatest Generation that built America. And, like all of us, they have been aging and many are finally ready to sell their mobile home parks and retire. We have seen this deal flow accelerate of late for the simple reason that time has marched on. The same seller that we talked to in 1995 at age 60 is now in their 80’s, and have decided that it’s time to move on.
Despite industry consolidation, we are still finding great deals to buy due to our unique positioning as a buyer of “broken” parks, as well our unique deal funnel and the natural aging of mom & pop sellers. While others may be having difficulty finding great properties to acquire, we are seeing a faster pace of them than ever before.
Our Recent Interview With PBS Demonstrates The Continued Lack Of Media Understanding Of Our Industry
Because of the article about us in the New York Times in 2014, we are on virtually every journalists’ list of who to call regarding the mobile home park business. And we have no problem with that, since it allows us to help re-direct them when they have the wrong idea about the mobile home park business. And it’s not hard to have the wrong idea, since there is not one shred of legitimate information on it besides what we write and few other sources. We recently received a call from a PBS reporter writing a story on the affordable housing crisis in America, and it reflects much of the initial inaccuracies that most Americans share on the topic.
The scale of American poverty is much larger than anyone realizes
The writer asked me why I thought there was an affordable housing crisis in the U.S. I explained that our nation is declining economically every year, while single-family and multi-family prices and rents are expanding exponentially. They were shocked when I told them that over 50% of Americans are on some form of social subsidy, and that over 50% of the new jobs created since 2008 are minimum wage to $10 per hour. These are statistics that the government never talks about, because they are too embarrassing, but they are real nonetheless. The writer had also never heard that the fastest growing industry in the U.S. is fast food, which is extremely low paying. I felt bad educating them on this topic.
HUD is trying to hide the facts since they are embarrassing
The reporter told me that the number of Americans in Section 8 housing is around 5 million. I asked her where she got that number from, and she said that a representative from HUD had given her that stat earlier in the day. So I told her to enter Section 8 in Wikipedia and see what it says. The answer is that 4.8 million households are in Section 8, which equates to around 20 million people. Why would a HUD representative make a mistake like that? It’s doubtful it was a mistake. Over and over, the government attempts to manipulate data using tricks like the unit of measurement, because the actual numbers are alarming.
Single family homes could be more affordable, but the UBC stops them
The writer asked me why there is not an affordable single-family home, and I explained that there probably could be some type of home less than the U.S. median price of $190,000 but it would never be allowed by city hall. The reason? To build a cheap home, you’d have to make it extremely tiny, and no city would allow that high a density as a subdivision. On top of that, you’d have to build them using modular design, and the Uniform Building Code that all cities use would never allow that, either. The writer had no idea of these facts.
Apartments could be more affordable, but zoning regulations forbid them
I also explained that apartments have the same challenges. You can build a more affordable apartment, and gave the example of the re-development of America’s oldest shopping mall in Providence, Rhode Island into 225 sq. ft. apartments that rent for $650 per month. Of course, no city would ever allow new apartment development of that density, and the only reason Providence gave the permit was to find a way to keep the historically important Arcade Providence from being torn down. On top of that, where do you find a family that will live in 225 sq. ft. except on HGTV’s Tiny Homes show? The writer again had no idea of how this all works.
The housing lobby would fight tooth and nail not to even talk about code modifications
The writer asked me why America couldn’t just mandate higher densities and a change in the Uniform Building Code. I explained the fallacy in that concept. Cities do not want cheap housing, as it reduces property tax income yet uses a huge amount of social services, such as education cost for children. On top of that, the political lobbies of housing give large political contributions and are not going to want to create lower price-point products that have lower margins for builders. And then, on top of that, I’m not even sure that 225 sq. ft. apartments and houses have a market at all – certainly not for families that barely get by on four times that space now.
The truth about Section 8
Here’s where the writer failed to grasp the enormity of the affordable housing scam as it relates to traditional housing products. The main reason that nobody in the apartment and single-family markets are concerned at all with affordable housing is that they do not have to contend with market forces. Under Section 8, the apartment complex can still charge $1,200 per month for a three-bedroom apartment, and rent it just fine to HUD’s Section 8 program. HUD pays them the $1,200 and then collects $200 from the Section 8 resident. The apartment owner gets full price and the stability and timeliness of a check from the U.S. government. Why would they care about changing that sweet deal? And that does not even include the tax credits that these developers receive on top. The U.S. taxpayer is basically the tenant, and they don’t have a clue on what’s really going on with their money. On top of that, the government overpays by providing a failed report called “Fair Market Rent”, which sets the rents nationwide for apartments and single-family homes and, as you might guess, is only two steps away from Alice in Wonderland.
Mobile home parks are the only form of non-subsidized affordable housing
About the only fact that the writer had right was that mobile home parks are the only form of non-subsidized affordable housing. I went over with them the significance of that – that we are the only ones offering true affordable housing – providing a product free of government assistance that the customer can actually afford and likes living in, at no burden to U.S. taxpayers.
Mobile home park rents are ridiculously low and must increase significantly for all residents’ benefit
The writer was very critical about the fact that mobile home park lot rents have been rising significantly based on articles she’s read on the internet, and isn’t that an insult to our affordable housing roots. I explained to her that mobile home park lot rents will be moving significantly higher in the future to maintain the ability to provide affordable housing. I told her that all land has alternative uses, and that low rents are what have caused the number of mobile home parks in the U.S. to shrink annually, as owners have more profitable uses for their land. Examples are the park in Palo Alto that is being redeveloped, as well as the two large parks in Hollywood, Florida that were torn down recently. To keep the mobile home park option open in most markets, the rents must go up significantly. On top of that, to provide for the professional management and capital needed to maintain mobile home parks at a higher level, larger rents are mandatory. I explained that the U.S. average lot rent of $275 is absurd given a $1,150 average apartment rent in those same markets – a $1,000 differential per month. I explained that a $500 U.S. average lot rent (which is already the case in many major U.S. markets such as Denver and Dallas) would provide for mobile home park longevity and top-level management, while still offering a product that is roughly $700 per month less than apartments and miles ahead of single-family. Ridiculously low lot rents are a function of moms & pops that artificially suppressed rents by choosing not to increase them in-line with inflation or market forces.
Mobile home parks are not the solution – only part of the solution
The writer wanted to know if mobile home parks can solve the affordable housing crisis. I told her “no”. The problem is far too vast for mobile home parks to handle. There are roughly 44,000 mobile home parks in the America. Assuming that each park has an average of 50 lots, that’s about 2,200,000 lots. There’s about 20% vacancy in parks in the U.S., so that’s about 440,000 lots. At roughly 3 people per household, that 1,320,000 people. The number of people in the U.S. who need affordable housing, just in the 20 year old segment of our population, is 6,000,000 (here’s a good article in Forbes on this topic). So mobile home parks might be able to help 20% of the 20-year-olds needing affordable housing. Just that tiny, tiny niche. While mobile home parks are a solution to affordable housing, they are just a small part of it. Since the writer had no idea of the scale of the problem, they expected me to say “sure, mobile home parks can solve the whole issue”, but that’s clearly not the case.
So will PBS get it right? I’ve sent some additional articles and studies to the writer, such as proof that it’s around 21 million people in Section 8 and not 5 million. But I don’t know what the real intent of the PBS story would be, or even who is paying for it. The media has become extremely corrupt in the modern era, with a combination of special interests and articles-for-hire. But I think one thing working against this article is the simple fact that nobody understands the facts because they are either universally embarrassing or expose some corrupt practices by HUD and multi-family developers, as well as problems with the entire Section 8 program.
Our Friendly Village Property is a Head Turner
Does this look like a walkway at an expensive country club? Well it might, but it’s actually the sidewalk going past the clubhouse at our Friendly Village property in Arlington, Texas. While we are all about affordable housing, we occasionally end up with a property that not only offers residents a nice, clean affordable place to live, but does it with style. Friendly Village has the appearance of a nice subdivision more than a typical mobile home park. We think that many people are unaware of the quality of our portfolio these days. By enforcing rules and making needed capital repairs, we have elevated many of our properties to the level of Friendly Village, and we believe this will be important when we ultimately sell these properties, as nicer looking properties also get more favorable valuations. But is this our nicest property? No, the winner would still be our property in Bloomington, Illinois that features all doublewides with detached garages. That property is so legendary that you can mention it among any group of park owners, and most have seen it driving up Interstate 55 from St. Louis to Chicago.
Australian News Source Praises The Mobile Home Park Industry
Here’s an interest news inclusion from Australia, regarding the U.S. mobile home park market. Perhaps as a result of the country of Singapore’s sovereign nation fund purchasing YES Communities, there seems to be a growing international interest in our sector. Here’s the actual article.
The Economist Weighs In On U.S. Housing
The Economist magazine is one of Europe’s most well-respected publications regarding financial matters. And the target of a recent article was the poor fundamental foundation – and risk for disaster – in the single-family home mortgage market. The article identifies that the government has been effectively transferring the mortgage risk from private enterprise to the American taxpayer, and that there are too many selfish interests involved to create a fair and rational system. Losses in the mortgage market are already equating to 1% of our GDP and might go to 3% to 4% in a crisis. You can read the article here.
The good news for the mobile home park industry is that we are insulated from the mortgage melt-down since we were never allowed in the door to begin with. The affordable housing sector has been shunned by the U.S. government for decades, and the potential collapse of single-family mortgages will have little effect on the mobile home park product. However, it will have a very positive impact on the demand for mobile homes and mobile home lots, as displaced homeowners have to find somewhere new to live, and mobile home parks are the best form of affordable housing available.
Movie Director Moves To Mobile Home Park
Tom Shadyac is a well-known Hollywood director, who has been involved in projects such as Bruce Almighty. He was living in a 17,000 sq. ft. mansion, but decided to sell it and move into a mobile home park in Malibu. You can read the article here.
While many would say that this lifestyle revision was a reaction to a lagging career – which is probably true – it’s unusual to see someone publicize it to this degree. He claims that he really likes the simplicity and sense of community to be found in the mobile home park product. But the key issue is the positive P.R. that cases like this give the mobile home park industry. This is in alignment with the recent story that Tony Hsieh (the founder of Zappos.com with a net worth of around $800 million) has purchased and moved into a mobile home park in Las Vegas, Nevada. In fact, Hsieh likes the experience so much that he is rumored to be looking at buying more mobile home parks in Las Vegas in an attempt to create a new sense of community in blighted areas of the city.
The Carlyle Group Has Been Growing Their Portfolio To… Resemble Us
The Carlyle Group is the largest private equity group in the U.S., with assets over $190 billion. Their entry into the mobile home park industry caused a large amount of interest a few years ago, but they then disappeared off the radar screen as they are always extremely secretive about what they’re doing. However, a recent article has shed some light on what they’ve been up to over the past couple of years. You can read the complete article here.
They’ve had significant growth
They have purchased 32 mobile home parks, starting with just one park in May, 2014. They have soared from zero lots to 4,400 today, which puts them in the Top 100 rankings of park owners, at #31. That’s a healthy pace of around 2,000 lots acquired per year, and accelerating. At that rate of expansion, they will hit the #10 mark in about three more years. Their growth is in-line with ours.
They have apparently shunned the lifestyle choice product and are focusing on affordable housing
When Carlyle entered the industry, the assumption was that they would follow in the footsteps of the three public REITs (such as Sam Zell’s Equity Lifestyle). That would have signaled for their portfolio to be based on coastal areas of California and Florida. However, that’s not the case. The states that Carlyle has elected to buy in are Delaware, Maryland, North Carolina, New Jersey, Pennsylvania, Washington, West Virginia, and Virginia. These are markets very similar to ours. We believe that Carlyle has realized that the bulk of the mobile home park industry (at least 80% of all parks in existence) is affordable housing and not lifestyle choice, and they realize that the best returns are in the affordable sector.
Carlyle is buying normal-sized properties
Carlyle has amassed 4,400 lots over 32 properties – for an average of 138 lots per park. That is extremely similar to our average of around 110 lots per property. When they entered the industry, the assumption was that Carlyle would follow the pattern of the REITs (both public and private) and seek out only gigantic properties with 500 lots+. That’s not the case. Again, our assumption is that Carlyle realizes that 95% of the mobile home parks in the U.S. do not exceed 250 lots, and they refuse to limit themselves as far as deal flow.
We were as surprised as anyone when Carlyle’s stats were recently revealed in an article regarding a loan refinance. It appears that Carlyle is the first large private equity group to embrace our business model. We’ve always said that the affordable housing model is superior to lifestyle choice – it’s nice that Carlyle (who is well known for smart strategy) has affirmed this.
MHC America Fund
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