World’s Largest Landlord Enters the Mobile Home Park Arena
I really blew it.
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I hope you didn’t… but I’m guessing you did, too.
How? Well, as a young guy, I had a chance to invest in mobile home parks. But with a long, sneering look down my nose, I went a different direction.
And I missed one of the most significant investment opportunities in my life. For a lot of years.
While I was chasing other opportunities, some of the world's smartest investors were quietly building a fortune in the mobile home park niche. And last month, we learned that America's largest landlord has joined their ranks.
I’m grateful that I joined this party when I did. Is this something you should take a look at, too?
Who are the big players?
You probably know that America’s most successful real estate investor is the largest player in the mobile home park arena. Sam Zell was formerly the largest owner of office space in the U.S. and the largest owner of apartment buildings in the U.S.
Zell has sold off most of those assets and his company, Equity Residential, is focused on owning and operating mobile home parks. Zell and the company currently own and operate more than 156,000 mobile home park lots and counting. (This is quite a bit larger than my city!)
Zell started off by acquiring a small park with less than 50 units, which should encourage many new investors.
You may also know that Warren Buffett and Berkshire Hathaway are deeply involved in the manufactured housing world. With their 2003 acquisition of Clayton Homes for $1.7 billion, Buffett positioned his firm to build about 25% of the mobile homes manufactured in the U.S.
Berkshire and Clayton also provide some of the most innovative financing options for parks and individuals. Berkshire’s 21st Mortgage provides individual buyers of new and used mobile homes a great financing option.
The 21st program finances the acquisition, move, and complete setup of a new or used home in a park. The park operator is responsible for selling the home to an individual buyer and later taking possession of it if they default. The importance of this program to the industry cannot be overstated.
Berkshire Hathaway also partnered with Leucadia in 2009 to form Berkadia Mortgage. Berkadia is an aggressive lender in the mobile home park arena and has arranged many of the loans on deals Wellings Capital has invested in over the past several years.
There are also various large real estate investment trusts, life insurance companies, and other institutional players in the mobile home park sector. The Carlyle Group and Apollo Group Management are among them.
Did you hear the news?
In September, the news broke that the world’s largest landlord has entered the mobile home park business in a big way.
During the Great Recession, The Blackstone Group became America's largest landlord by purchasing tens of thousands of discounted single-family homes. Their investment has paid off in spades.
Now, seeing an opportunity fueled by the systemic affordable housing crisis and the potential economic fallout from COVID-19, Blackstone has rushed into the mobile home park sector.
Bloomberg reports that Blackstone is in hot pursuit of a $550 million portfolio of roughly 40 mobile home parks. This will add to a portfolio that already includes the $200 million acquisition of seven parks earlier this year and 14 communities sold by Tricon Capital in 2018.
Even with these significant acquisitions, Blackstone still owns less than 1% of this sector that boasts about 45,000 or so assets.
What’s all the fuss about?
Bloomberg reports that $800 million worth of mobile home parks traded hands in the second quarter this year. That is a 23% increase over the volume sold in 2019. This is significant in light of the fact that total commercial trades slumped by 68% to $45 billion in the second quarter. According to The Real Deal Real Estate News, not a single other property type saw an increase in volume.
The Real Deal also reports that valuations of these assets were up 26% year-over-year in the second quarter. Institutional investors accounted for a stunning 28% of the deals according to JLL, which is the highest share since the firm started tracking 10 years ago.
Mobile Home Park Investing Gaining Popularity
Mobile home parks have been the neglected stepchild of the commercial real estate world for decades. But that's all changed now.
Green Street recently said manufactured housing is the darling of the commercial real estate world. Individual investors and institutional players have poured into this asset class.
But perhaps more importantly, in 2020, we have another situation contributing to this rise in popularity. The pandemic and other long-term trends have caused investors to avoid asset classes like retail, malls, hotel, entertainment, and offices.
At the same time, an increasing number of investors are avoiding the casinos of Wall Street. A growing number of investors are taking their investments out of the control of money managers and into their own hands through self-directed vehicles like IRAs and solo 401(k) plans.
And there is a continually growing pool of international investors who want access to U.S. investments.
So the result is a large wave of cash crashing on a decreasing shoreline of opportunities. Mobile home parks are an obvious winning target for many. BiggerPockets’ Brandon Turner is in deep. And so is my company.
Your spot is still saved, for now.
Before and after writing a book about multifamily investing in 2016, our team spent years banging our heads against a hard-to-move wall trying to acquire sensibly priced apartment complexes.
According to research by Kris Bennett formerly of 10 Federal, 93% of multifamilies above 50 units are owned by companies. Most of these firms have wrung the value out of their assets and there is little upside left. Especially in this overheated market.
But industry expert Frank Rolfe, who was on the BiggerPockets Real Estate Podcast in 2019, says that about 90% of the 45,000 U.S. mobile home parks are still owned by mom-and-pops. Many of them are older and ready to hang it up.
And this is your opportunity.
Most mom-and-pop-run mobile home parks have significant upside. We recently invested in a $7.1 million park in Kentucky that has about $3 million in upside just through passing utilities back to tenants. Like all of the other regional parks do.
This is a path to create great value for investors without harming anyone. Tenant-paid utilities are standard practice nationally and a way to help the environment—tenants waste less when they pay the bill directly.
This $3 million gain represents a nearly 100% increase in investor equity. And that happens without raising the rent, and before filling 50 vacant lots. And before sharing in revenue from cable and internet.
One of the most gratifying things about professionally operating a mobile home park is this: Most mom-and-pop parks are poorly run, poorly policed, and not a great place to live. A professional operator can provide a beautiful, safe place to live. This is a place where kids will grow up, so it’s incumbent upon owners to do this well.
This is your chance to do well by doing good.
Have you been investing in mobile home parks? Thinking about doing it now?
Share your mobile home investing ideas and experiences in the comments.