We currently own around 7,500 mobile home lots in 17 states and rank as the 18th largest owner of mobile home parks in the U.S. You’d think we’d be satisfied with what we own. But we believe that a really big play in mobile home parks is coming. We foresee a large number of mobile home parks entering into foreclosure and coming on the market soon, as borrowers find they cannot refinance their old loans. So if you think all the good parks have been taken, check again, because everything’s about to change.
Bank and conduit loans are coming due
There were a huge number of mobile home park loans made in the mid-2000’s on 10 year terms. Those balloons are coming due in the next few years. The reason that so many loans were placed at the same time was that there were very attractive loan programs for parks during that era, particularly conduit loans originated by one major bank in Chicago.
Many park owners will not be able to refinance due to credit and underwriting issues
Over the past 10 years, there have been some drastic changes in those borrowers. The first is that many borrowers had financial problems with other assets as the economy collapsed. We know of borrowers who have fine mobile home parks, but have lost their credit due to losing their personal mcmansion residence, or having lost some other real estate sector, like an office building. Without credit, these borrowers will not be able to refinance and pay of their balloon. In addition, the underwriting criteria on many loans has changed. In the mid-2000’s, it was often 80% loan-to-value, whereas now it is around 70%. Plus, there are new, more stringent criteria on liquidity and other items that will make getting these properties refinanced difficult, even if the borrower’s credit is not shot.
Demand for affordable housing has never been higher
At the same time that many borrowers have encountered problems of their own, the actual real estate niche that mobile home parks serve has skyrocketed in demand. With 20%+ of American households earning $20,000 per year or less, the only housing options for this demographic are mobile home parks and class B and C apartments. Of these two choices, mobile home parks offer no neighbors up against walls and ceilings, a yard, the ability to have a pet, the ability to park next to your door, and a community feel. As a result, most of our mobile home parks get around 50 to 100 calls per week seeking mobile homes for rent. Our #1 park for demand is in Marion, Iowa, where we received over 800 calls last month.
Yields on mobile home parks have never been more attractive
Because so few people know about mobile home parks, the supply of buyers is smaller, and the yields are higher. Many mobile home parks are available at 10%+ cap rates. That equates, using normal leverage, to a 20%+ cash-on-cash return. This will allow the parks that go into REO to be purchased on extremely attractive economics which should enable a new loan to be placed.
The potential risks to the mobile home park business model are few
The only real risk to affordable housing is prosperity. That’s a gamble that we’re willing to take. Otherwise, it’s not like the internet and new technology can reduce the demand for a roof over one’s head. And there’s no chance that there’s a cheaper form of housing than a mobile home park (except maybe sleeping in your car). So we’re pretty comfortable about the business model.
We believe that there will be huge number of REO mobile home parks coming up over the next few years. We think that some of our best buys of all time may come from this opportunity. We’re already hearing from loan servicers that potential REO properties are starting to be identified – and we’ve actually started buying a few. We believe that this will be the big news story in the mobile home park business over the next few years.