I’ve been putting together an offer for a park and am reluctant to submit. My concern is being able to get through a DD process and actually close the deal. Does anyone have any thoughts on this? Would it be worth adding some sort of COVID-19 clause to the contract? Thanks.
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Personally we are always ready to buy parks IF the numbers and infrastructure are positive. 10 years ago over leveraged and in some cases poor operators filed bankruptcy. The last park we bought 5 months ago we paid cash although we would rather have a loan for leverage. In this business recession (depression?) there will be some bankruptcies plus some owner will never have a decent return–some will learn owning parks can be a GAMBLE especially if lacking experience and work ethics. Would not have a virus clause if you think it is needed DO NOT BUY at this time. With our government bankrupt, yes +23 trillion the only ones that can solve that nasty situation is taxpayers. Remember the states that are losing population–do you own parks in those states??? Wonder who will pay to keep the lights on for politicians–park owners that talk about how park residents are to poor to move there homes out but push high rents for there own greed. We need to respect our tenants and if mostly low income raising rates are a problem and knew that when you bought it.
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You are right to be worried. Certainly everything will take longer than expected.
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My opinion, there is always a risk. And of course we all know about the risk reward ratio thing. Would you buy stocks right now? If you did you might look like a genius in a year or you might lose all the money you put in that stock. I just bought Carnival cruise line at $9.50 down from $80 before covid-19. It could well go down to zero losing me $4700.00, or it could leave me wishing I bought more. So what comparison is there? I bought the stock at a 75% discount to the pre covid 19 price and perhaps we should be looking for discounts on mhps. If this pandemic goes on for a year, will we be getting paid rent? The government will be out of money . So since your risk is higher, should not your reward be higher by virtue of a lower price? If you can’t get a better price, then why not wait until the outcome of this crisis is known? One of Warren Buffet’s sayings is be scared when others are being greedy, and be greedy when others are scared.
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Thank you for the input. I’m not as worried about the economics of the deal but rather whether or not I’ll be able to complete my DD process due to offices being closed and integral people (ie contractors, appraisers etc) not being able to perform the tasks necessary to get a deal closed.
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Understand the thread was re: diligence but thought I’d chime in here.
US government will not be running out of money. The entire planet has been racing to get their hands on USD over the last two weeks which has created some massive dislocations in credit markets, which is why you’ve seen spreads blow out massively despite ZIRP. Treasury literally cannot print money fast enough right now. We will print our way into oblivion, as will the entire planet.
The risk/reward when I started buying parks was incredible, but has become less so lately, especially for anything with scale. Opportunities in other assets classes are finally presenting themselves again with will hopefully redirect some of the $ and interest in our world. I am also reallocating my time a bit given other opportunities that are presenting themselves. That said, majority of my net worth is tied up in parks, followed my cash, bitcoin and gold. Will be reentering the public markets soon as well after a 4 year hiatus.
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From what I have read, we will have a buyer’s market during the corona craze. However, I don’t believe this will apply to all branches of real estate. MHPs seem to have transitioned into a seller’s market since the turn of the century, and it seems that in crises it only becomes more of a seller’s market with the uptick in affordable housing demand.
I’d suggest getting into the deal ASAP if the numbers work, then use the Corona virus as a bargaining point to get a lengthy DD period. Maybe choose a specific event in the future after which DD can begin (ex. after CA lifts their mandatory quarantine). You can definitely start DD before that using remote and creative methods. This may allow you to seize the opportunity out of chaos.
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I always have a statement in my contract that allows me to extend the dd time based on the integral people you mentioned not being able to do their tasks within the contract’s time frame. After all, it’s not your fault it didn’t get done. Try doing that and talk to the seller about why you put it there - they’ll likely understand and not push back.
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I wouldnt dismiss the economics. Some projections call for a 30% unemployment rate. And I wouldn’t necessarily expect a roaring v-shaped recovery either, despite what some of the pundits are saying.
I’m not saying don’t submit an offer, but be prepared to not to close. It will be hard to do so on a park that has significant declining collections 60-90 days from now. Your lender probably won’t go for it either.
Not to be a fear mongerer, buy I expect some blood on the streets. No asset class is safe. Even treasuries are being sold for cash right now (forcing yields up).
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I’m leaning toward more pessimism on how this is all going to shake out, and I still think it would be reasonable to write an offer, with the expectation that if things turn too far south it’s reasonable to walk the deal at that time.
It may be reasonable to request a longer than typical due diligence as well, allowing you to evaluate park performance during the impending downturn.
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Thanks for the input everyone. I certainly appreciate all the great feedback. It was explained to me by my attorney that every contract is different and we actually did put a COVID-19 clause in there. It basically says that if during DD this situation declines and as a result we aren’t able to complete our 60 days due to voluntary or mandatory quarantines there will we an automatic extension. Hopefully the seller understands that this is a special circumstance and is willing to work together to get the deal done provided it’s possible.
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I work for an appraiser. USPAP has issued an advisory asking institutional clients not to require appraisers to enter buildings. So know that any appraisal will likely not include going inside any buildings or MHs in the park.
Beyond that, it’s business as usual in terms of volume. The volume has actually picked up over type last couple weeks but I don’t expect that to last.
The real issue is valuation: Is a commercial property worth what it was worth a month ago? More? Less? That’s the genuine conundrum. Expect appraisals to include plenty of conditional language and extraordinary assumptions.
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Will toot my horn here, something I never do.
Parks have never been a hotter asset class though I’ll say, so that was wishful thinking. Not surprised.
You have unsecured hy bonds for garbage companies trading in the 5s. On a relative basis parks are a steal in the 6s. Rates are going nowhere meaningfully, likely forever. UBI probably here to stay.