All Forum Posts by: Jaden Ghylin

1,156 new apartment units came online in Rochester in 2015.  That number is likely higher this year.  If the city can absorb that many apartments, it seems certain that it can handle 65 new mobile homes.....

http://www.startribune.com/rochester-is-in-the-midst-of-an-apartment-boom/367709571/

@Thomas S. what is driving your 8-10 year estimate?  Do you think advertising could help move houses faster?  Keep in mind, this is a large market, with strong job growth.  There is demand for housing.

@George N.

I agree.  This is not a project for the faint of heart or the light of wallet, but the returns appear to justify the effort.  

-Jaden

@Aaron Mazzrillo

Thanks for the input.  You are probably right on this one.

@George N.

Thanks for the input.  I realize the private utilities potentially make it less attractive.  I figure that just drives it to a higher cap rate to compensate.  Some buyers and lenders will be scared off by that, but I have spoken to lenders that will do 30 year on it and I have a local bank lined up to finance the initial purchase.  It's interesting how different perceptions are out there about private treatment systems.  I understand people have been burned, but I think if you plan ahead for the capital expense and budget for it, shouldn't be an issue and should offer higher returns.  

I do tend to seek deals with higher perceived risk as they can yield a discounted price and higher returns.  Most risks can be managed and as long as the return is higher and there is margin built in for risk, I am ok with it.  Just plan for the worst.  

I emailed Frank about the park, but haven't heard back yet.  I'm pretty sure his response is going to be "walk".  He really doesn't like lagoons or private utilities.  When I've asked him in the past about lagoons he's pretty much said to steer clear unless there is major upside, which in this case there is.  

Seller is not carrying paper.  I have a local bank lined up to finance the deal.  The government bureaucrats don't concern me as much.  My brother is a Ph.D. in the wastewater business, so I have confidence that we know what we're doing in that regard.  

Jaden

@Jeffrey H.

I've got estimates in the $550-600k range for a package plant.  These are not binding quotes, but I've gotten similar numbers from 3 different sources that work in the Rochester area.  

-Jaden

@Jay Hinrichs 

Understood on the fear of lagoons.  Need to price it in.  I am planning to put in an entirely new treatment system, which in my opinion is a necessity.  In this case the lagoon is pretty far removed from the park on a separate piece of land.  There would be little chance of the entire park being condemned.  City sewer is 15-20 year out.

Understood on being able to fill houses.  Would need to bring in nicer houses to attract people.

@Jeffrey H. 

Understood about due diligence on the lagoon situation.  My brother is a WasteWater Engineer and he deals with this every day professionally, so I've got a pretty good background for understanding and managing this.  I would plan to replace the lagoon with septic within 3 years.  That area of MN has extra requirements on treatment due to the geology, but we have it understood and know what is needed.  Public sewer is not going to be an option for at least 15 years...

The park has very high staffing costs.  There is a full time manager, full time maintenance guy, and also regional asset manager on the P&L.  It also appears that the staff have a pretty high spending budget for purchasing things.  From my perspective there is a lot of excess spending because noone is keeping an eye on it. It's bee banked owned since 2013.  The previous owner's P&L showed $140k net income.

Water source is well and it has recently been updated with new pumps.  

Roads need some work, there are potholes, but overall not in bad shape.  

Trees are trimmed.  The electrical pedestals should be updated, they are at 50 Amps and are 45 years old.  

Lot rents look low at $275.  $310 is doable immediately and could be pushed higher when the park is cleaned up.    

@Marshall M. thanks for the comments.  I'll try to provide more information.  

1) I've not managed a park before, but I have a partner who owns them.  I understand bringing in 67 homes is awfully expensive and time consuming.  The potential value of the park would need to justify the headache.  The bigger question is how long would it take to get 67 solid families into the park?  That is a major risk given the current condition of the park.  I would definitely not rent homes.  

2) The primary lagoon was cited in a 2013 property condition report as needing about $600k of work.  The MPCA permit is up in 2019 and it sounds about 50/50 whether it would get renewed without major work being done.  The secondary lagoon had about $300k of work done recently, and the primary so far has had no work done.  They are the same age, about 45 years.  Anyone who buys this park needs to be prepared to install a package plant or septic at about $600k.  Does not appear to be in a flood zone.

3) Understood on cap rate.  This park is a dump and is on a lagoon, so currently that would drive a higher cap I imagine.

4) I've thoroughly investigated the lagoon issues with calls to MPCA, wastewater engineers, and the excavation company that has been servicing the property.  I've driven through the park and understand that the reality of the park is far worse than the pretty photos the broker has posted on the auction site.  There are numerous abandoned homes and a number that should be abandoned but appear to be occupied.  

The park has aggressive move-in specials, etc.  I've called around to find out what's going on here.  Number 1, the manager doesn't answer the phone, so good luck renting a lot if you want to move in.  Number 2, the local mobile home dealer said the park has had a bad reputation in the past, but more recently has started to clean up it's act.  I don't think you can rely on move-in specials and waiting for people to bring homes in.  Homes need to be brought in and sold.  

I agree that it's not really the same model as flipping.  My plan would be to bring the occupancy up to 80+% and refinance the equity back out.  This is clearly a large project, but the pay day appears to be there to justify the effort.   

All, I've been poring over the numbers for a park just north of Rochester, MN and would like some other perspectives.  The park is Oronoco Estates, and I'm guessing a few of you have looked this one over already.  I live about an hour away from the park, so I know the area pretty well.  The main draw for me other than being close to it, is that it's near Rochester, MN on the good side of town in the direction of Rochester's rapid expansion.  Rochester currently has a $5 billion city/state/private investment project for the Mayo Destination Medical Center going on.  This is driving down vacancies and driving up rents, but it's only just getting started.  There is another 18 years oe so of investment to go.  This would seem to be as recession-proof of an investment as you could find. Mayo is unaffected by recessions.

The park, Oronoco Estates, is a disaster. It's an REO being auctioned May 16-18th. 215 pads, 59% occupancy. It's on a lagoon, which may need some serious work in 2019 when the permit is up. The secondary lagoon required $300k+ of work recently and the primary lagoon is much larger. The park is about 80 acres, has a lot of vacancy and has a number of abandoned homes and homes that should be abandoned. Net income in 2015 was about $82k. Lot rents are at $275/mo for 127 rented lots, well below market rate. It is sounding like the reserve for the auction is over $1 million, which doesn't jive with a 10 cap buy price, however, there appears to be massive upside on this project. By my calculations the park should be worth at least $4.5 million if it's brought up to 90% occupancy, which means bringing in 67 homes or so and selling them. A big project no doubt, but a big spread to pay for it as well. A lot of my experience is in rehabbing/flipping residential properties, and a spread like this would be unheard of in that business.

What am I missing here? Is it really that important that the buy price be at a 10 CAP if there is this much upside? Wouldn't it make more sense to analyze the deal as a rehab/flip focusing on the ARV? I'd appreciate any insights here. Maybe this project is just too much of a headache to be worth it, but I just keep coming back to the potential value of this thing.

Jaden