Commercial real estate ebbs & flows with different real estate types coming in & out of favor with investors. Several years ago, office was the darling of large institutional portfolios. With the COVID-19 pandemic killing, or accelerating the death of that asset class, banks & operators can't even give some of these office buildings away.
Industrial buildings have boomed as ecommerce has taken up a larger share of our shopping, but up until recently they were relatively boring because nothing says sexy than a rectangle with loading ports.
Multifamily has seen it's time in the limelight recently but before the Great Financial Crisis home builders couldn't care less about apartments. Not with single family homes booming thanks to 'loose' lending requirements.
Through all these cycles, some real estate types have stayed relatively consistent. Slow & steady rent increases continuing the steady march upward into new levels of profitability.
These asset classes can be immune to boom & bust cycles. For us, these real estate assets are truly superior. With less volatility & drama they're not likely to be featured on the Real Deal newsfeed.
Mobile home parks, manufactured housing, trailer parks - whatever you call them, are what we consider to be 'elite real estate'. Wildly misunderstood and so therefore, not priced correctly - up until recently that is.
After WWII returning American GIs weren't necessarily looking forward to going back to live with Mom & Dad. All at once, America needed housing & FAST. Home builders put these veterans to work building homes across the country but they needed new ways of creating housing. Enter the mobile home, a 'manufactured' home that could be factory built & installed on a lot providing a quick & cheap housing for returning GIs.
Overtime, mobile home parks grew & multiplied as an area's affordable housing. With land cheap & plentiful, density wasn't a consideration allowing these parks to pop up from California to New York. Overtime as these properties maintained their 'affordability' status they received a stigma for seedy, decrepit housing. Those who could afford to move, did & those who couldn't stayed.
This reputation although in some cases accurate, was unfair - most mobile home parks act as family & workforce housing. In some areas they've turned into resort style luxury living. Eventually, MHPs were 'discovered' by scrappy real estate investors who realized these forgotten parks were cash cows. With low operating expenses, low tenant churn & dwindling supply many parks started getting razed over for higher density use. Elite real estate gurus like Sam Zell caught on & started gobbling up high quality parks across the country.
Today there are several publicly traded REITs that play in manufactured housing, with billions being invested in what was once undesirable real estate. While the industry's still relatively underserved, especially compared to apartments, both main street & behemoth private equity firms took notice & entered the market.
Here's why we like them:
- Decreasing supply / they're certainly not building more parks.
- Lower expenses than apartments = better margins.
- Less tenant churn, more stable rent rolls.
- Not as sensitive to market volatility make them recession resistant.
How to Invest
Real estate investors who want the benefits of MHPs can invest in individual syndications or funds. As we mentioned in our post (MHP Funds vs. Syndications) there are upsides & downsides to both. We recommend investing with a variety of operators who have a strong track record of consistent returns.