Cap Rates and current economic landscape

Given the current economic conditions (stock market run up for five years now, fed maybe raising interest rates sooner than expected, etc…)

New interest by big money investors in mobile home parks and realization that this is a safe and reliable investment.

My question is who feels (personal opinions) that mobile home parks should sell for cap rates around 7 percent like apartment buildings?

I know we all want to buy at a 10 cap or better but is that possible on a park that is running smoothly and does not need major improvements?

Any replies are greatly appreciated.

You can get 6% on senior parks in Florida (that’s roughly what SUN is paying for Green Courte and American Land Lease with their recently announced $1.32 billion acquisition). So 7% is already happening in the marketplace.However, it will take years before the average mobile home park is mainstream enough to be embraced by the average investor and given the same rate of return standards as apartments.To achieve this, you will have to create a ton of awareness for the industry, and break down the stereotypes (which mostly come from a lack of education on the industry). Most of the articles out there are helping to break down the stigma.I wrote an article on this for the Journal recently, and I used a comparison of mobile home parks and self-storage, which are actually extremely similar in many ways. Self-storage has succeeded in becoming mainstream ahead of mobile home parks, and they now use apartment -type cap rates. When mobile home parks become mainstream, it will increase values by 20% (that’s what it did to self-storage).So the key is to own mobile home parks when they finally become mainstream and can have a place at the table with the other real estate asset sectors.

Well since we’re talking trends…It looks like really big investors are beginning to consolidate the market.  Unlike apartments, new MH parks are not likely to spring up… unless large park conglomerates gain the political clout to change some zoning.  With the mom&pop run-down trailer parks a thing of the future-past the stigma against the industry will likely slough away.Frank, unless I’m mis-remembering, I believe you said there were about 50,000 mobile home parks you knew about with about maybe 50,000 more that could be under your radar.  I believe also you mentioned that about 5,000 of these were under the direction of very large property owners and the rest were essentially Mom&Pop.Carl has mentioned that he believes consolidation of these properties into just a few hands will occur over the next seven years… while this seems an aggressive number to me I can’t help but feel that the trend is, in fact, going that direction.I’m pretty curious what you think.  Firstly, do you buy into this “Conglomeration theory” and if you do, how long would you give this “era of opportunity” to last for smaller investors?I’ve singled out Frank here, but I’m pretty interested in everybody’s thoughts.

There are roughly 50,000 parks in the U.S. total, with about 5,000 of those owned by professionals, and the rest by moms & pops. The mobile home park industry is the least consolidated of all sectors, with mini-storage (as an example) three times more consolidated. Carl is correct, the next phase of the mobile home park industry is consolidation – no question about that. From the purchase of Green Courte and American Land Lease by SUN to the entry of The Carlyle Group and a host of other large private equity groups, the initial steps to consolidation are under way. However, industry consolidation always starts at the top and works down, so the first parks to be rolled up will be the 4 and 5 star stuff on the coasts. We are still years from consolidation of the type of family parks most people own.But is it coming? Absolutely.

While I agree with your assessment about consolidation, there is some leakage in the other direction.  Some of the consolidators have been de-accessioning parks from their portfolios and we have looked at some of these.  There is basically nothing wrong with these parks (at the right price), but they do need the heavy lifting to fill the parks.  Typically, the parks have not improved since purchase and may have even declined in occupancy.  They may be in cities that are somewhat peripheral to the majority of their other parks, or just too much trouble considering the effort and staffing that they need to truly consolidate their operations.  Sometimes, it is because they are overextended and want to raise some cash.Anyone getting into the business today will still have many opportunities for purchasing parks.  It is hard to predict the future.  When the mortgage crisis hit in 2008-2009, we thought that residents would flock to our parks since they had to downsize.  It is only in the past couple of years that we have seen the influx.  I am only suggesting that timing is very difficult.Howard

The stock market is at approximately a PE of 20 which is considered oversold and the prime reason is so-called safety and zero return on interest which our government is screwing with trying to keep US from deflation which will then cause trouble with the 17 trillion in known debt that they cannot pay back with raising interest rates. If the borrowing rates were at 7% the amount of interest payment would be close to our GNP. Europe is deflating and much fear money from there is entering our stock market and REAL ESTATE! From my experience there is not another business that offer the return that parks can and right now I am showing a buyer from day 1 buying one of my parks he will have over a 20% return on his 20 % down payment the first year. The big players are coming since they are tried of buying back shares of their company with all the cash they have on hand and IF people like Frank show them the KEYS overnight 10 to 25 companies will own half the parks in less than 10 years. Also get ready for FOREIGN companies to enter the fray like China buying over 150 farms in the Midwest and major buildings in NY city and get away homes in Miami Beach. When my local banker is putting 4% money in my face I am a buyer IF I could find my kind of quality park I like. People like Blackstone are into rental homes and with the Right Call to the people in charge overnight they could be in the ballgame with over 500 communities–just need people like Frank to lead them as to the fantastic opportunities and then bidding wars could start and then the cap rate will GO DOWN that will make us all more wealthy. Sorry for picking on you Frank but you KNOW WHO TO APPROACH AND HOW!!! When they tend to get greedy than a bubble could happen and then a correction on cap rates. Folks we could be really looking at exacting times in the park business and this FOURM is important–thank you for the opportunity–and good-by Loop-net!!!