I am looking at a package deal that includes 4 parks. three of the parks have shown steady growth since 2008. But 1 park is declining and the owner will only sell as a package. The park that is declining is in a rural area with little economic growth. The last two years show a small increase in the economy. The owner claims he has just been slacking on replacing tenants. The occupancy for all 4 parks is 58%. The declining park is at 37%. The park is still profitable, but I am concerned about turn around. ANy suggestions on what to look for to gauge the market? Also, are there any good lenders still left out there?
There are a ton of good lenders, but most of them want stabilized occupancy of 70% to 80% occupancy, and this deal is only half that. The financing on this deal will be a giant hurdle.On the weak deal, if you buy the other three well enough, you can take the fourth and sell it at a small loss and still be fine. Just because he’ll only sell them as a group does not mean that you have to keep them as a group (unless the seller carries the paper).Give me an idea of the numbers on this deal. Number of occupied lots? Lot rent? Who pays water/sewer. Also, is this city water & sewer on all four?
The tenant pays water and sewer. The water is metered city. And the sewer is septic. Lot rents are $170 for single and $185 for doubles. The three properties are at 75% occupancy (136 Pads) and the other one is at 37% (97 pads).The P&L does not account for management since the owner self manages. Is this normal? The asking price cap rate is 9. The owner is motivated since he is retiring. The park does own 8 mobiles. I plan on selling them ASAP to the current tenant to avoid repair costs. I figure I need to get a 10 cap minimum to make this work. Thanks for the help Frank!
This deal is all about lending. Based on the description, you are going to need more than a 9% cap rate to make this deal work. The 37% occupied park is probably non-bankable at this point. The others are marginal. This seller has got to be more realistic, and he may also have to carry the paper in the near term (maybe 5 to 10 years). Based on what he proposes, the only winner on this deal is the seller, and that’s not our idea of win/win.
Thanks again Frank. I will let you know how it goes.
Tom:I completely concur with Frank’s comments on financing and returns. It’s not unusual to see a management fee omitted – I see that on MH and multifamily. Obviously for your numbers, you’ll have to plug it in, but sellers rarely consider it or want to show a low expense number so it’s left out. Without having additional info, I think the price per lot (blended) should be pretty low, so I’d be looking for more than a 10% cap unless there’s untold opportunity in the other three.It sounds like there may be a lot of seller education that you’ll need to undertake. Depending on your rapport with the seller, it may be something easy, like 'it will cost me $17-25,000 per empty pad to fill this place" or something more detailed such as a BOV or lender’s underwriting of the NOI. To make that 97 pad park financeable, you’ll need at least 35 homes which means 35 * $17k = $595,000. If you buy the package, your buyer on that park will make the same pricing pitch. My other concern would be that on a portfolio of 220 pads, 97 in one park means that on a per lot basis, you’re paying for a lot of vacancy. Make sure that you can carry the loss on that park. Will