I often hear that one of the attributes of investing in MH parks is that it is a hedge in a market downturn. Although I’ve never really heard an articulate argument for this, I imagine that it’s something along the lines of when the economy is bad, people need an affordable place to live. Therefore, demand for affordable housing (MH parks included) increases when there is a recession (negative GDP growth --> increased unemployment --> lower wages --> greater need for affordability). This seems to make a lot of sense but this argument also seems highly anecdotal. I would be very curious to hear if anyone has any empirical evidence that actually supports this argument. Anything that I have looked at doesn’t seem to prove this out.
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What have you looked at so far?
There is a paid website (Trepp) that tracks CMBS data. Since commercial mortgage backed securities are essentially public debt, borrowers are required to report information about their properties back to the debt holders. As far as I can see this is probably the best source of nationwide property level data that exists for this industry. There is a lot of information like vacancy rates and rental rates (both show recessionary effects), but in my opinion, all of those more granular data points roll up into one primary indicator which is loan defaults. When I ran the data on this I found that loan defaults for MH parks were actually one of the highest ones for all of the commercial real estate sectors. Needless to say, I was very surprised to see this. I’m sorry I can’t quote the exact numbers right now but it has been a few months since I was looking at this information.
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While not specific to MHP’s it does articulate a lot of the use cases:
And given that every MHP has different population size, demographics, industry specificities, race, age, etc it’s almost impossible to say they are recession resistant or recession proof…unless your park has 100% Tenant Owned Homes.
I do believe that TOH owners are less likely to leave than renters because the % of their income spent on housing is significantly less.
Unlike apartment buildings or duplex’s etc, when times get tuff your tenants won’t move out for a slightly cheaper place to live. That is because moving a mobile home is an expensive endeavor. I have owned multi-families before and when the economy goes soft i would have about 10-15% increase in vacancy with a small % of them just skipping out without notice. They would move someplace that was a little cheaper (i’m talking just $20 a month). Not so with MHP’s. If they own their home, they are there through it all which ensures you a rent check that doesn’t get smaller.
Hope this made sense.
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It definitely makes sense. That said, it is still an anecdotal argument. The hedge that MH parks provide is often a relatively material part of the thesis that sponsors often pitch to their investor base. Yet, I haven’t seen anything that backs this claim up in any substantive way utilizing data. I would love to see anything that truly backs up this argument.
If you go back and read forum posts from 2008, you probably would not assume that they are recession proof.
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