written by Chad Freeman:
Our industry is beginning to consolidate:
This should lead to cap rate compression and increased asset values. Consolidation has been confirmed as the recent years have seen three $2 billion transactions in the mobile home park industry as Sun acquired Carefree Communities, Brookfield Asset, a Canadian company, acquired Northstar, and Singapore’s sovereign nation fund, GIC, has purchased Yes! Communities.
- The mobile home park industry is incredibly fragmented in comparison to other industries and consolidation is anticipated.
Here are a few examples: 80% of all billboards in the U.S. are owned by only three companies. The world’s cruise line industry is dominated by five companies. In the US, only four airlines make up nearly all of the industry. The USA has about 40,000 mobile home parks, but only 4,000 or less than 10% are institutionally owned.
- In total, the largest 100 operators own only around 4,000 mobile home parks. To be among the top 100 owners, you only need around 600 lots, or 6-7 parks of average size. 70,000 doors or more are required to be in the top 100 U.S. apartment owners.
Major Players:
Businessman Sam Zell, founder of Equity International, understands the value of mobile home parks, he owns over 150,000 lots and is the largest operator.
Some of the biggest private equity firms and institutional investors are investing in the mobile home parks. The Carlyle Group, Blackstone and Apollo, the Pennsylvania Public School Employees’ Retirement System (PSERS) and the Singaporean sovereign wealth fund all invest in mobile home parks.
The world’s most famous investor Warren Buffet owns Clayton Homes, the nation’s largest mobile home manufacturer, as well as 21st Century Mortgage, the nation’s largest manufactured home lender. Over $1.3 billion has been loaned through 21st Century Mortgage for both new and previously owned manufactured homes. The company owns and services more than 180,000 mortgages with a value of more than $9 billion.
Massive Returns:
A unique opportunity exists right now to invest in this asset group, while it is still undervalued.
- Over 20 Million Americans live in mobile homes, and this number is expected to increase as our economy continues to decline.
- The mobile home park industry is undervalued. Charlie Becker, professor of economics at Duke University, published a study recently showing that park lot rents are roughly 50% below fair market value (papers.ssrn.com). The average lot rent for a mobile home park in America is only $280 per month. After adjusting for inflation from the 1960’s average lot rent of $50 per month, today’s fair market rent is well over $500.
- Demand is huge due to affordability. In general, a new mobile home costs between $40,000 and $50,000. Today, the average price of a single-family home in the U.S. is around $300,000. Even before today’s crazy single family housing market, the average price per square foot for a single wide mobile home was $44.43, compared to $111.05 for a site-built home in 2017.
- Approximately 36,000 mobile home parks in the U.S. are still owned and operated by the original mom and pop builders or their heirs. These owners, mostly baby boomers, are aging and many of them are wanting to sell their parks and retire.
- Depending on location and quality, cap rates for mobile home parks range from 4-12 percent. Current market reports show ample sales in the 6-8% CAP range. When negotiating purchases, our maximum price targets a 3 point spread between the current interest rate and the cap rate.e. This provides a nice safety margin and a 20% cash on cash return (assuming a 70-80% loan to value).
Mobile home parks are truly an incredible investment. In our opinion, it is one of the best investments available today. The Wall Street Journal wrote a great article recently explaining the industry and showcasing the returns of major players. Here is a link to the WSJ article: