It has just been announced that Brookfield Asset, a Canadian REIT, has sold a portion of their portfolio to several buyers for around $1.6 billion. While the numbers are not specific, it appears to represent over $100,000 per lot. What's remarkable is that this has occurred despite 40-year high interest rates and the general collapse in values for office, retail, hotel and self-storage properties. Let's just review the highlights from the article.
The sale was for half of a portfolio that seems to have been purchased for $2 billion in 2016.
Brookfield purchased a portfolio of mobile home parks around 2016 for what was reported to be around $2 billion. If this I true, and the sale was proportional, the new value of those assets appears to be around $3.2 billion, for around a $1 billion gain. While we don't know all the facts and few were revealed, it certainly point to high pricing given that the Fed Funds rate has gone up around 5 points over that period.
"U.S. mobile home properties have come into favor as the need for affordable housing mounts, causing values to rise even at a time of high interest rates that have curtailed other types of real estate investments over the past two years"."
The reason that mobile home parks are gaining value over all other types of properties comes down to a few important advantages that only they have: 1) no new supply allowed due to restrictive zoning 2) rents that are often 100% below market levels 3) the fact that it costs $10,000 or more to move a mobile home so the homes never leave (even though the residents do at an average of every 14 years) and 4) the demand for affordable housing is probably ten times greater than every other real estate sector combined.
"Investor interest is rising"
"Investors have more than doubled what they are paying for manufactured housing this year over last year, an indicator of robust demand. The price per unit nationally has shot up from $64,296 in the fourth quarter of 2023 to $138,125 per unit so far this quarter, according to CoStar data." This is not a change in mobile home park economics, but the perception of the asset class. People used to pay a premium for the niches they thought were "classy" such as beautiful office buildings, and mobile home parks were shunned. Now investors have realized that "cash is king" and net income is the most important part of a real estate investor and not high expensive the granite sign is out front.
"Rents on pad sites for mobile homes are climbing. The most recent estimate shows a 6.2% growth rate, according to the Manufactured Housing Institute, a national industry trade group."
"So, we're getting closer to being able to meet seller expectations and making deals underwrite," Harris said. "There's a lot of demand on the buy side and there's more money on the sidelines. So, buyers will become more aggressive to meet seller expectations." With the average mobile home park lot rent in the U.S. at around $300 per month compared to an average single-family home price of around $400,000 and an apartment rent of $2,000 per month, it's safe to say that increasing rents will be a part of this sector for many, many years.
Conclusion
Mobile home parks are – without exception – the best sector of real estate, and professional investors are suddenly waking up to this fact. They are in perfect position to benefit from all major U.S. megatrends including the shortage of affordable housing, the aging of Baby Boomers, the household formations of Millennials, the rise of exurban and super-commuter neighborhoods – even the strong entrance of Fannie Mae and Freddie Mac into the sector.