The Carlyle Group – America’s largest private equity group – recently began acquiring mobile home parks. Hundreds of millions of mobile home parks have changed hands in the last 24 months. Demand for mobile homes in many parks averages 100 in-coming sales calls per week. There have been articles on mobile home parks in USA Today, the BBC News and The Wall Street Journal over the past 60 days. So what is going on in this sector?
The decline of the American economy has become a safe bet
When the bubble burst in 2007, nobody knew if the economic collapse was a blip or a trend. It is now apparent that the U.S. economy – after a nearly 7-year recession – is no longer on a short-term decline. Now that everyone is in agreement that this fall will not bounce, investors have been searching for an industry that actually produces stronger results as the U.S. economy unravels. Mobile home parks were built as affordable housing, and the worse things get, the more customers need this form or shelter.
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There are 10,000 baby boomers per day retiring in the U.S. And they are far from the wealthy group that some may think. The average baby boomer – defined as those born between 1946 and 1964 – will receive only $14,400 per year in social security and have virtually no savings or pensions. As a result, this giant demographic will be downsizing into housing that they can afford, and mobile home parks are one of the top options. A mobile home park is one of the few places on earth that you can live comfortably on $1,200 per month.
Class-C apartments continue to decline
Much of the demand for mobile home parks is a result of the continual decline in Class-C apartments. This is the only other form of housing that can be deemed “affordable”, but it is getting more of an adjective of “terrible”. As these aging complexes fall apart, they offer the tenant only broken toilets and detaching balconies. And that does not include the noise of neighbors on all sides and criminal activity in the common areas. Not the type of place the average American would want to reside.
Some of the top investors in the U.S. are part of the mobile home industry. Warren Buffet is the largest owner of mobile home manufacturing and financing. Sam Zell is the largest owner of mobile home parks. And now the largest private equity group – The Carlyle Group – is getting into the action. This is making more mainstream investors aware of the high yields this sector produces. And that is bringing greater demand from an investment perspective.
Affordable housing and mobile home parks go hand-in-hand. And, unless Obama can pull a rabbit out of his hat, the future of mobile home parks is extremely bright. Who would have ever thought that those ugly duckling trailers would become such a beautiful swan in the eyes of investors?