INVESTMENT

Why are institutional investors flocking to mobile home parks?


There is information on why institutional investors are buying mobile home parks. And it’s pretty amazing.

Sam Jell, one of America’s most successful real estate investors, was right. The rest of us saw this trend decades ago এবং and he’s reaping huge rewards.

Real Capital Analysis (RCA), one of America’s leading data analytics companies for commercial real estate, recently reported a rush to buy a mobile home park. There were three big news in their analysis.

Sales volume

Although mobile home parks, aka ready-made housing, account for only 1% of commercial real estate sales, the number of transactions has skyrocketed in the past few years. A spring 2021 analysis by Jones Lang LaSalle reported that the volume of ready-made housing sales increased by 32% from 2019 to 2020, even amid the epidemic. Sales were reported at $ 3.2 billion in 2019 and $ 4.2 billion in 2020.

Twelve-month sales from Q3 2020 to Q2 2021 were $ 4.1 billion, an increase of 48% over the previous four quarters and 30% higher than the 2017 peak.

Pricing

Apartments in the six major metro areas are priced at affordable housing in line with significantly improved multifamily pricing levels. The cap rate for both types of assets is tied at 5.0% as of Q21 2021.

Older timers in the mobile home park space were accustomed to cap rates within the 10% range, so the current price has doubled since that day. It believes in the strategy of having the right real estate assets at the right time and doing nothing … allows the market to lift heavily. Owners of mobile home parks have certainly enjoyed unexpected benefits from this previously neglected property type.

Buyer type

This is the third surprise. Institutional buyers (such as large private equity funds, REITs and insurance companies) have seen their buying appetite increase by more than 76% in the last two years compared to 2017 to 2019. Institutional purchases accounted for 23% of transactions from the last two years to 13% from 2017 to 2019.

Institutional buyers prefer to buy this traditionally mother-and-pop asset type whose portfolio is 83% of the total.

This RCA graphic, published on August 31, 2021, tells the story of these three metrics.

Institutional buyers include Sam Gel’s Equity Lifestyle Properties, which owns more than 158,000 mobile home park pads. Warren Buffett, America’s most famous investor, is also involved in the ready-made real estate industry. He owns Clayton Homes, the country’s largest mobile home manufacturer Buffett’s Berkshire Hathaway is also behind 21st Mortgage, a major lender for mobile homes, and Berkadia, a large mortgage firm that includes mobile home parks on their list of borrowers.

Blackstone is deeply involved with mobile home parks, a built-in housing portfolio worth billions of dollars. Our firm has invested with Seneca Capital’s Denver operator Rhett Trees, who sold a previous portfolio to Blackstone and apparently did quite well. I asked Rhett why he thinks the ready-made housing sector is so hot now.

“I think there is a simple reason why we are witnessing this irresistible institutional demand for this resource class. This is truly a lifelong roll-up opportunity due to several thematic benefits: ownership splitting; Supply contraction; Cut costs through scale economy; Low OpEx requirements; And thanks to efficient use of capital to overcome the J-curve (Day 1 NOI), ”he said.

“The puzzle for our society continues as to whether landowners will continue to invest in communities and residents after low-cap rate transactions,” Rhett explained. “Often, the spirit of this alliance is in direct conflict between landlords and residents. Our main task is to ensure the victory of both investors and residents by providing clean, safe and affordable housing at market rates. ”

Let’s look at some more reasons why this is happening.

What is this happening for?

I believe there are at least a dozen reasons pointing to the meteor increase in investment in mobile home parks. I’ve written about these in several BiggerPocket articles, so I’ll let you dig deeper if you want!

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Why are institutional buyers flocking to this place?

Institutional buyers are starving for yields. Their investors expect that they will find assets to invest in, and many families, single families and many other asset classes are at the top of the competition. Razor-thin margins and the prospect of losses are inspiring large investors to look at new asset types.

Institutional investors want stability. They don’t want drama and lots of value addition which leads to unexpected income. The last decade has seen the emergence of mid-sized professional operators who acquire mother-and-pop mobile home parks and upgrade them with standards and staff that make them the goal of institutional acquisitions.

These professional operators can duplicate their efforts on multiple, sometimes dozens, assets. Institutional buyers want to write big checks. There is virtually no chance of writing big checks (millions) for mobile home parks. There are very few super size resources. Shopping for Sam Jail at Everglades was extremely rare.

This makes portfolio acquisition a natural fit for this type of asset. Buyers pay a portfolio premium for this opportunity, and the professional operators who have presented it এবং and their investors পারেন can reap the benefits.

What 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 Ma-O-Pop investors. There are still many years left for this exciting industry. But the day will come when the best parks will gobble up and new operators will have to fight for what is left. With the rise of new operators and institutional capital, this day may come sooner than we wish.

Gold thread

Are you planning to buy a mobile home park or invest in one? If so, I’d like to encourage you to deal with your tenants according to the Golden Rule. You will often lease a less knowledgeable and less wealthy tenant base in most cases. It is your responsibility to treat them fairly while you own the property and make their park a good place to live.

It’s a good business practice, but that’s not what I’m saying. I’m talking about the reason you and I survive on this planet: to make it a better place. As a mobile home park operator, or anyone who invests in one, you have the opportunity to make tenants ’lives better or worse.

These are “metal boxes that don’t spit cash,” I’ve heard them mention. It’s someone’s childhood home, someone else’s shelter, a place where they’re creating memories of your childhood. Let’s be part of creating great memories while making great profits.



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