Home Buying & Selling Why Are Institutional Investors Flocking to Mobile Home Parks?

Why Are Institutional Investors Flocking to Mobile Home Parks?

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The data is about why institutional investors are buying mobile home parks. And that’s very amazing.

Sam Zell, one of America’s most successful real estate investors, was right. He saw this trend decades before us — and he’s earning huge rewards.

Real Capital Analytics (RCA), one of America’s leading data analytics companies for commercial real estate, recently reported a surge in mobile home park purchases.Had three big news in Their analysis..

Sales volume

Mobile home parks, also known as manufactured homes, account for only about 1% of commercial real estate sales, but transaction volumes have skyrocketed over the past few years. According to an analysis by Jones Lang LaSalle in the spring of 2021, sales of manufactured homes increased by more than 32% from 2019 to 2020, even during the pandemic. Sales were reported to be $ 3.2 billion in 2019 and $ 4.2 billion in 2020.

Sales for the 12 months from the third quarter of 2020 to the second quarter of 2021 were $ 4.1 billion, up 48% from the previous four quarters and 30% from the previous peak in 2017.

Pricing

Currently, the prices of homes manufactured are being raised to match the prices of significantly higher apartments in apartments outside the six major metropolitan areas.The Cap rate Both asset types are tied at 5.0% as of the second quarter of 2021.

Older people in mobile home park spaces were accustomed to cap rates in the 10% range, so current prices have doubled since then. This gives credibility to the strategy of being in the right real estate assets at the right time and doing nothing … leaving the market hard work. Mobile home park owners certainly enjoy the unexpected benefits of this asset type that has been overlooked so far.

Buyer type

This is the third surprise. Institutional investors (large private equity funds, REITs, insurance companies, etc.) have been more than 76% more motivated to buy in the last two years compared to 2017-2019. Purchases by institutional investors have accounted for 23% of transactions over the last two years. 13% from 2017 to 2019.

Institutional investors preferred to buy this traditional mom and pop asset type in bulk, with the portfolio accounting for 83% of the total.

Published August 31, 2021, this RCA graphic tells the story of all three metrics.

Institutional investors include Sam Zell’s Equity Lifestyle Properties, which owns over 158,000 mobile home park pads. Warren Buffett, America’s most famous investor, is also involved in the manufacturing housing industry. He owns Clayton Homes, the country’s largest mobile home maker. Buffett’s Berkshire Hathaway is also behind 21st Mortgage, a leading mobile home lender, and Berkadia, a major mortgage lender that includes mobile home parks on its list of borrowers.

Blackstone is also deeply involved in mobile home parks, with a multi-billion dollar home portfolio manufactured. Our company has invested in Rhett Trees, a Denver operator at Seneca Capital. He sold his previous portfolio to Blackstone and was clearly very strong. I asked Lett why he thinks the housing sector now manufactured is so hot.

“I think there’s a simple reason we’re witnessing this uncontrollable institutional demand for this asset class. It’s really a once-in-a-lifetime rollup because of some thematic benefits. Opportunity. Fragmentation of ownership. Supply contraction; cost savings due to economies of scale. Low OpEx requirements. And thanks to the elimination of the J-curve (NOI on day 1), capital can be used efficiently, “he said. Said.

“The challenge for our society is whether landlords will continue to invest in communities and residents after low cap rate transactions,” explained Lett. “Often the spirit of this alliance between landlords and residents is in direct conflict. Our most important job is to provide the cleanest, safest and most affordable homes on the market rent. This ensures that all parties, both investors and residents, will win. “

Let’s take a closer look at why this is happening.

Why did this happen?

I think there are at least 12 factors that indicate a surge in investment in mobile home parks.I have written some about these Bigger Pockets article, Let’s dig deeper if you like!

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Why are institutional investors rushing to this space?

Institutional investors are hungry for yields. Their investors expect to find the assets they invest in, outpacing competition in apartments, single-family homes, and many other asset classes. Very thin margins and potential losses have led large investors to look to new asset types.

Institutional investors want stability. They don’t want drama or a lot of added value that leads to unpredictable returns. Over the last decade, we’ve seen the rise of medium-sized professional operators acquiring mom and pop mobile home parks and upgrading them with standards and staff to target their organization’s acquisition.

These professional operators can replicate their efforts across multiple, and sometimes dozens, assets. Institutional investors want to write big checks. There is virtually no opportunity to write a large check (tens of millions) in a mobile home park. There are few super-large assets. The purchase of Sam Zell in the Everglades was very rare.

This makes portfolio acquisitions naturally fit for this asset type. Buyers take this opportunity to pay a portfolio premium, and the professional operators and their investors who present it can benefit.

What’s next?

There are reportedly about 43,000 mobile home parks in the United States. We believe that about 85% of them are owned and operated by mom and pop investors. This exciting industry still has runways years ahead. But the day will come when the best parks will be devastated and new operators will have to vie for what’s left. With the rise of new businesses and institutional investors, this day may come earlier than we would like.

Golden rule

Are you planning to buy or invest in a mobile home park? If so, I would recommend you to deal with your tenant according to the golden rule. In most cases, you will be renting to a less knowledgeable and less wealthy tenant base. It is your responsibility to treat them fairly and make their park a more livable place while the property is in your possession.

This is a good business practice, but that’s not what I’m talking about. I’m talking with you about why I live on this planet: to make it a better place. As a mobile home park operator or investor, you have the opportunity to make your tenant’s life better or worse.

I’ve heard that these aren’t “cash-spitting metal boxes.” This is someone’s childhood home, someone’s shelter, where they create the memories you made when you were a kid. Participate in making great memories while making great profits in the process.

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