The data is in about why institutional investors have been purchasing mobile home parks. And it\u2019s quite surprising.<\/p>\r\n\r\n\r\n\r\n
Sam Zell, one of America\u2019s most successful real estate investors, was right. He saw this trend decades before the rest of us\u2014and he\u2019s reaping massive rewards.<\/p>\r\n\r\n\r\n\r\n
Real Capital Analytics (RCA), one of America\u2019s premier data analysis firms for commercial real estate, recently reported on the rush to buy mobile home parks. There were three pieces of big news in their analysis<\/a>.<\/p>\r\n\r\n\r\n\r\n Although mobile home parks, aka manufactured housing, make up only about 1% of commercial real estate sales volume, the number of transactions skyrocketed in the past few years. A spring 2021 Jones Lang LaSalle analysis reported that manufactured housing sales volume was up over 32% from 2019 to 2020, even amid the pandemic. Sales volume was reported at $3.2 billion in 2019 and $4.2 billion in 2020.<\/p>\r\n\r\n\r\n\r\n Twelve-month sales from Q3 2020 through Q2 2021 tallied $4.1 billion, which was a 48% increase over the prior four quarters and 30% higher than the previous 2017 peak.<\/p>\r\n\r\n\r\n\r\n Pricing on manufactured housing has now increased to match the level of significantly elevated multifamily pricing for apartments outside of the six major metro areas. The cap rate<\/a> for both asset types is tied at 5.0% as of Q2 2021.<\/p>\r\n\r\n\r\n\r\n Old-timers in the mobile home park space were accustomed to cap rates in the 10% range, so current pricing has doubled since those days. This gives credence to the strategy of being in the right real estate asset at the right time and doing nothing\u2026letting the market do the heavy lifting. Mobile home park owners have certainly enjoyed that unexpected benefit from this previously overlooked asset type.<\/p>\r\n\r\n\r\n\r\n This is the third surprise. Institutional buyers (like large private equity funds, REITs, and insurance companies) have increased their buying appetite by over 76% in the recent two-year period versus 2017 to 2019. Institutional purchases accounted for 23% of transactions in the past two years compared to 13% from 2017 to 2019.<\/p>\r\n\r\n\r\n\r\n Institutional buyers preferred to buy this traditionally mom-and-pop asset type in bulk with portfolios accounting for 83% of the total.<\/p>\r\n\r\n\r\n\r\n This RCA graphic, published August 31, 2021, tells the story of all three of these metrics.<\/p>\r\n\r\n\r\n\r\n <\/p>\r\n Institutional buyers include Sam Zell\u2019s Equity Lifestyle Properties, which owns over 158,000 mobile home park pads. America\u2019s most famous investor, Warren Buffett, is also involved in the manufactured housing industry. He owns Clayton Homes, the nation\u2019s largest mobile home manufacturer. Buffett\u2019s Berkshire Hathaway is also behind 21st Mortgage, a premier lender for mobile homes, and Berkadia, a large mortgage company that includes mobile home parks on their list of borrowers.<\/p>\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n Blackstone is deeply involved in mobile home parks as well, with a manufactured housing portfolio valued in the billions. Our firm invested with a Denver operator, Rhett Trees, of Seneca Capital, who sold a prior portfolio to Blackstone and apparently did quite well. I asked Rhett why he thinks the manufactured housing sector is so hot right now.<\/p>\r\n\r\n\r\n\r\n \u201cI think there is a simple reason why we are witnessing this unquenchable institutional demand for this asset class. It truly is the roll-up opportunity of a lifetime due to several thematic benefits: ownership fragmentation; supply constriction; cutting costs via economies of scale; low OpEx requirements; and the efficient use of capital thanks to the elimination of the J-curve (Day 1 NOI),\u201d he said.<\/p>\r\n\r\n\r\n\r\n \u201cThe conundrum for our society continues to be whether the landlord will continue to invest in the community and the residents after a low cap rate transaction,\u201d Rhett explained. \u201cOften, the spirit of this alliance between the landlord and resident is in direct conflict. Our overarching job is to ensure all parties win, both investors and residents, by providing the cleanest, safest affordable housing at market rents.\u201d<\/p>\r\n\r\n\r\n\r\n Let\u2019s look at some more reasons why this is taking place.<\/p>\r\n\r\n\r\n\r\n I believe there are at least a dozen factors pointing to the meteoric rise in mobile home park investing. I\u2019ve written about these in several BiggerPockets articles,<\/a> so I’ll let you dig deeper if you wish!<\/p>\r\n\r\n\r\n\n Build your wealth with multifamily houses<\/p>\n\n\n\n Learn how to become a millionaire by investing in multifamily houses! In this two-volume set, The Multifamily Millionaire<\/a><\/em>, Brandon Turner and Brian Murray inspire and educate you into becoming a millionaire. <\/p>\n\n\n\nSales volume<\/h2>\r\n\r\n\r\n\r\n
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