The data is about why institutional investors have bought mobile home parks. And it’s quite surprising.

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

Real Capital Analytics (RCA), one of America’s leading commercial real estate data analytics firms, recently reported on the rush to buy mobile home parks. There were three pieces of big news in their analysis.

Revenue

While mobile home parks, or manufactured homes, make up only about 1% of commercial property sales volume, the number of transactions has skyrocketed in recent years. An analysis by Jones Lang LaSalle in the spring of 2021 reported that the sales volume of manufactured homes increased by more than 32% between 2019 and 2020, even during the pandemic. Sales volume was $3.2 billion in 2019 and $4.2 billion in 2020.

Twelve-month revenue from Q3 2020 to Q2 2021 was $4.1 billion, up 48% from the previous four quarters and 30% higher than the previous peak in 2017.

Prices

Prices for manufactured housing have now risen to match the level of significantly higher multi-family prices for apartments outside the six major metro areas. The cap rate for both asset types is tied at 5.0% as of the second quarter of 2021.

Vintage cars in the mobile home park space were used to charging 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…letting the market do the heavy lifting. Mobile home owners have certainly enjoyed that unexpected benefit of this previously overlooked type of asset.

Buyer type:

This is the third surprise. Institutional buyers (such as major private equity funds, REITs and insurance companies) have increased their buying appetite by more than 76% over the past two years from 2017 to 2019. In the past two years, institutional purchases have accounted for 23% of transactions in comparison to 13% from 2017 to 2019.

Institutional buyers preferred to buy this traditional mom-and-pop type of assets in bulk, with portfolios accounting for 83% of the total.

This RCA image, published on August 31, 2021, tells the story of all three of these stats.

Institutional buyers include Sam Zell’s Equity Lifestyle Properties, which owns more than 158,000 mobile homes. America’s most famous investor, Warren Buffett, is also involved in the housing industry. He owns Clayton Homes, the nation’s largest manufacturer of mobile homes. Buffett’s Berkshire Hathaway is also behind 21st Mortgage, a leading mobile home lender, and Berkadia, a major mortgage company that has mobile home parks on their list of borrowers.

Blackstone is also heavily involved in mobile home parks, with a manufactured housing portfolio valued in the billions. Our company invested with a Denver operator, Rhett Trees, of Seneca Capital, who sold a previous portfolio to Blackstone and apparently did quite well. I asked Rhett why he thinks the manufacturing industry is so hot right now.

“I think there is a simple reason why we are witnessing this unquenchable institutional demand for this asset class. It really is the opportunity to roll up your life thanks to several thematic benefits: fragmentation of property; supply restriction; save costs through economies of scale; low OpEx requirements; and the efficient use of capital thanks to the elimination of the J-curve (Day 1 NOI),” he said.

“The conundrum for our society remains whether the landlord will continue to invest in the community and residents after a low-ceiling transaction,” explains Rhett. “Often the spirit of this alliance between the landlord and the occupant is in direct conflict. Our overarching task is to ensure that all parties win, both investors and residents, by providing the cleanest, safest affordable housing at market rents.”

Let’s take a look at some more reasons why this happens.

Why is this happening?

I believe there are at least a dozen factors that point to the rapid rise in investing in mobile homes. I’ve written about this in several BiggerPockets articles, so I’ll let you dig deeper if you’d like!

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Why are institutional buyers rushing to this space?

Institutional buyers are hungry for returns. Their investors expect them to find assets to invest in, and competition in multi-family, single-family and many other asset classes is overblown. Razor margins and the potential for loss are motivating large investors to look for new asset types.

Institutional investors are looking for stability. They don’t want drama and a lot of added value that leads to unpredictable returns. The past decade has seen the emergence of mid-sized professional operators acquiring mother and son mobile home parks and upgrading them with standards and workforces that target them for institutional acquisitions.

These professional operators can duplicate their efforts across multiple, sometimes dozens of assets. Institutional buyers want to write big checks. There are virtually no possibilities to write large checks (tens of millions) for mobile home parks. There are very few super-sized assets. The purchase of Sam Zell in the Everglades was extremely rare.

This makes portfolio acquisitions a natural fit for this type of asset. Buyers pay a portfolio premium for this opportunity, and the professional operator who suggested it — and their investors — can reap the rewards.

What’s next?

There are reportedly about 43,000 mobile home parks in the United States. We believe about 85% of them are owned and managed by mom-and-pop investors. There are still years of runway for this exciting industry. But there will come a day when the best parks will be swallowed up and new operators will have to fight for what’s left. With the emergence of new operators and institutional capital, this day may come sooner than we would like.

The Golden Rule

Are you planning to buy or invest in a mobile home park? Then I want to encourage you to deal with your tenants according to the Golden Rule. In most cases, you often rent to a less knowledgeable and less affluent tenant base. It is your responsibility to treat them fairly and to make their park a better place to live as long as you own the property.

This is good business practice, but I’m not talking about that. I’m talking about why you and I live on this planet: to make it a better place. As a mobile home operator, or someone who invests in them, you have the opportunity to make the lives of tenants better or worse.

These are not “metal boxes that spit out money” as I’ve heard them called. This is someone’s childhood home, someone else’s retreat, a place where they create the memories you did as a kid. Let’s be a part of creating great memories while making great profits along the way.

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