The mobile home park industry has been around for about 70 years, starting in the early 1950s. And the challenges that park owners have faced have changed dramatically over those years. In this Lecture Series Event, we’re going to explore what those hurdles have been and how the industry has adapted to those challenges and continues to morph itself as time goes on.
The speaker will be Frank Rolfe, who has been studying the mobile home park industry for the past 25 years to unlock the science of making parks successful and understand what can be learned from their history and past performance. The New York Times calls Frank the “human encyclopedia of all things mobile home park” and it’s a title that he earned through a constant assemblage of mobile home park history and reading the rarest of “trailer park” publications.
Back to the MHP Future - Transcript
This is Frank Rolfe, and welcome to our lecture series event. Earlier today, we entered our first national recession in the past 15 years. The last one we entered was in... I'm sorry, in 2007. And you might say yourself, "How could these guys be so good at the time tonight's event on the very day that the next recession began?" And the answer is, of course, it was a pretty easy bet. I don't think many people bet against the fact that we would have negative growth today. And it would officially now be in a recession, but it's not our first recession. The last recession was 15 years ago. There was a recession before that, and one before that, and there'll be another one again. If this ever gets solved, there'll be another one in the future. 'Cause that's the way the world works. It's always running in cycles, and the mobile home park industry is no different.
0:00:55.6
That's why tonight's lecture series event is titled Back To The Future, the Mobile Home Park Edition. That was the title we come up with to grab your attention, but a more scientific title would've been Historical Industry Challenges and How They Repeat. So we're gonna first start off with a deep dive of all of the different challenges that our industry has faced over the past, roughly seven decades. The first one would be in 1950. That's when the industry to me really truly began. It had been around since the 1930s, but the whole idea of a mobile home park is a place that people would live full time and experience of community of like-minded others was in the 1950s. And the first challenge you had if you were a park owner in the '50s was having enough confidence to build your mobile home park because nobody knew if it would work. Today we look at mobile home parks and everyone says, "Oh, what a smart business model!"
0:01:53.0
What a great way to drive income out of very passive thought of a parking lot. But in the '50s there was probably equally as many people who said, "It's just a fad. It'll never work. No one's gonna wanna live in this stupid invention." So you had to have a pretty strong determination to get into the business, because there wasn't any fire path you could follow. You were a pioneer pretty much. And because you were a pioneer, another problem they had in the '50s was financing, getting bank financing to build mobile home parks in the 1950s was nearly impossible. And that's why so many people got in the business who built these things on farmland they already owned, is because they owned the land free and clear, so they could maybe get the improvements by pledging the land in case it all went bad, but it was really, really hard to get loans back then, nearly impossible.
0:02:50.0
And there was a lot of stress involved in the whole process. If anyone has ever built any type of mobile home park expansion, and we've done that, I've even done a 100 space expansion. There's always a bit of terror when you build things from scratch, it's completely different when you buy something that's existing because you don't have to worry about such items as did they really build it right? And can I get the final permit? So the early park owners were not only strong in their resolve. They were also, had steel coated stomachs because they were able to live under a lot of stress when building the property. And then of course there was the carrying cost of the debt. If you ever modeled out building a mobile home park from scratch or doing a large expansion, you'll see that when you buy a mobile home park today that's existing with 80 tenants or a 100 tenants or 20 tenants.
0:03:39.1
It took a long time to get those people in and to groom that tenant base, think of how many people lived in those homes before you finally got to the ones that stuck. But back in the '50s, didn't work quite that way. When you run the numbers and you look at what happens when you build that 50 space park from ground up, and then you have your very first customer come in now you've got one occupied and then two, and maybe then you get to 10, you're still losing money hand over fist. You still have a whole number of set costs you can't get away from. The biggest of which the mortgage on the debt. There's also insurance, there's mowing, property tax. So basically when you built a park in the '50s, you were looking at a money losing enterprise until you reached that moment where you got to break even and that was way, way out into the future.
0:04:30.9
Another problem back in the '50s was that every tenant was brand new and they had no track record of paying rent or following rules. You didn't know who would sink and who would swim. So again, unlike today's parks where we know when we buy it, oh look how nice that home is. Look how well kept that yard is, look at this roster of who's paid the rent. Look, everyone's paid the rent. They didn't have any of that. So they were really taking a gamble on those tenants. And then finally operating the park and maintaining a day job was very, very difficult because in the '50s it was all heavy lift turnaround. There weren't really any stabilized parks right out of the shoot. So everyone who elected to have a mobile home park was buying into the concept that they would have a lengthy period where they had a lot going on in the field and a lot of responsibility, and mashed with that, they didn't make any money.
0:05:27.8
Because you don't make any money until the park got up to at least roughly stabilized occupancy. So these people were taking on all these obligations and all this bank debt and all this risk and everything else, and then writing checks every month just to stay alive. And then there wasn't even money when you got to the end often. Based on the rents back then it really wasn't that profitable. And that's why so many park owners in the '50s saw their park as just a side hustle. It was not their day job. We've bought mobile home parks from people of all kinds of different professions, but when you ask them, "So what do you do besides the park?" They always had a career, buy a park from a guy who was a postman, why was he a postman? To pay the bills. So he could afford to buy food for his family because the park didn't make any money. So those were the issues of the '50s. It was a new product. No one knew if it would work, very hard to build, very risky, very hard to make sense of doing it. That was the big challenge. And then came to the 1960s. Now in the '60s, things were changing. A lot of those parks were finally getting full. And so now it was becoming something that was a business that actually could cover the bills. And that was great.
0:06:46.1
And it started to get its own level of respect. In fact, it probably became the high point of the industry never to be repeated was the 1960s. We had Elvis Presley's America's number one movie star at the time who lived in any mobile home park in two different movies that happened at the world's fair in 1963, Speedway in 1968. And in reality also lived in a mobile home park there in Memphis, he had Graceland, the house we all know that was just featured in that Elvis movie that came out, but they didn't show in the movie the other part of Elvis. Elvis loved living in a mobile home park. In fact, he had his own private park that he had built just for him and his friends. And he had his own mobile home. That mobile home went to auction in fact not too many years ago. The industry had real cache back then, it was kind of quasi glamorous. If you look in the movies with Elvis in those park, everyone drove a British sports car, everyone wore a black tie to fancy events and sports cars all the rest of the time. So the industry was really doing a great job back then. And park owners were generally a happy group because they consider themselves trendsetters.
0:07:56.9
They were the ones who were providing this new alternative living that check... Even Elvis himself loved. US government loved the industry so much in the '60s. They started a special program through Hud to build parks, but some of those parks are the best parks that you'll find in America today. A great location coupled with really, really strong infrastructure. Those are landmark legacy parks today. Overbuilt super thick concrete, always have a clubhouse, curbing streets, all built by architects. Even Stanley Marcus, the founder of Neiman Marcus dabbled in mobile home parks in the '60s. He built his own prototype park. And I actually looked at buying that park at one time back in the 1990s. It had giant round windows and the clubhouse was just like a Neiman Marcus department store. Lucille Ball was involved in the mobile home park business in the '60s. Her brother in fact went on to manage a mobile home park. And then you had Ben Crosby who also worked on a prototype park concept out in Palm Springs. So the '60s were a very, very successful decade for park owners.
0:09:07.5
And they didn't face a whole lot of challenges. Everything looked very bright indeed. The government was supportive, the media was supportive, so everyone was really, really smart. And then came the '70s. In the 1970s, you had this rapid depletion of existing classy residents who were all suddenly buying nicer single family homes and subdivisions, and why not? It was okay living in the mobile home park when it was just them or just them and a spouse, but when you start bringing kids into the equation, the mobile homes were simply too small. They wanted a different life. They wanted a larger space. And so all of those more prosperous residents of the parks just started to leave. And the difficulty then began how do you find customers of the same quality? And the answer is you could not. It was just a big change, a big trend shift in America. And so suddenly park demographics started to plunge toward affordable housing. Elvis had left the building. You couldn't get those kind of people anymore.
0:10:13.3
And in fact, the first negative media depiction that I ever saw of a mobile home park was in the Rockford Files in 1974. In that popular show, Jim Rockford, who was a private investigator, played by James Garner. He lives in a mobile home. Now it's not in a park, it's not on a beach, but it's kind of a crummy mobile home in really kind of poor condition. In just a few years from Elvis in 1968, living in a mobile home park in Speedway in 1974, you have the Rockford Files where he lives in an old dilapidated trailer on a beach. And then in 1976, Hud basically seals the fate of parks by taking over the manufacturing. It was a big shift that Hud pretended was something to make mobile homes better and make them safer and all kinds of benefits, but the truth was it ruined the industry because you then labeled everything as being just cheap and manufactured. Prior to that, you had many, many independent builders who built some very innovative floor plans and looks. The government just didn't like that. They loved to be in control. So they said, "Oh, I'm sorry, you can't build these things as you have for the last 26 years or longer. Now, if you wanna build it, you have to do it based on our specifications, our standards, us auditing you and have a HUD seal on the home."
0:11:42.7
And all but a few manufacturers just abruptly quit. And it really kind of forced the homes to be kind of innovative and different like you see on TV with those tiny home shows on HGTV to be simply mass produced. And as we all know, people don't put a lot of favor on mass produced products. And meanwhile, the fact that the parks were in decline, that wasn't lost on city government, who suddenly realized the parks were no longer a place you might find Elvis or his other prosperous GI buddies, but now a place where you find poor people, and they didn't like that at all. So in the '70s most cities completely shut down the ability to get new permits because they didn't wanna attract those customers to their town.
0:12:32.3
And they were concerned about the future of the parks they already had, and everyone reminded of them that constantly because all the neighbors to those parks did nothing but complain to them and said, "This park is terrible." Remember when it was so nice before? It's no longer nice now, do something about it. Mr. Mayor, Mr. Councillor, get these people out of our town. Then came the 1980s, mobile home parks continued to become less glamorous and everyone knew it. And it was on everyone's radar screen. Here's a quote out of the New York Times in 1985. This is what they thought of mobile home parks back in 1985, "Since mobile homes flourished in the 1960s, the American trailer park has become a metaphor for struggle at the edges. The edge of town, the edge of the middle class, the edge of adversity."
0:13:21.5
Here's another quote from the New York Times in the mid '80s, "For some, the trailer park is a way station where newly weds and recent college graduates save for the house they cannot afford at the moment, for others who barely hang on, the mobile home is simply the cheapest shelter they can find." Not very glowing testimony from the media. And bear in mind, this is during the same period where the Preppy Handbook came out. You may remember that paper bound book, super popular in the 1980s. And that's at a time where America started to get really, really interested, maybe even obsessed with class differences, lower class, middle class, and upper class. And the media just took that moment to start trashing those who lived in mobile home parks. The manufacturers also at least did something good. They started finally adding washers and dryers and a 14 foot width to the homes.
0:14:18.0
And by doing that, they made it you could actually live in a mobile home and have a decent quality of life without having to hang around in the clubhouse in the laundry room. Because prior to that moment, prior to the 14 foot wide home, the homes were so small that what you had to do is during most of your free time, you would go down and hang at the communal clubhouse. You could play pool or pinball, or just sit around with your friends. You only went back to your trailer to go to sleep because there really was just no way you could stay in your trailer at all times. It was just too small. Now that same thing was noted by Tony Hsieh, the late founder of Zappos who did that large and kind of strange mobile home park/RV park development in Las Vegas. The original is no longer there. He called it Airstream village. If you wanna look it up, you can see photos of it on Google Images. And his whole purpose on that was he wanted everyone to spend their time communally, conversing, grilling food, having entertainment, and only return to their tiny home mobile home RVs to sleep. And the minute they woke up, go back out and hang out together.
0:15:33.4
Also lending remained very, very tough in the '80s because what's happened is in the '80s banks really didn't wanna have their name even associated with mobile home parks. They started to find it offensive and embarrassing, and they just don't think it's probably a good place to put the bank's money. So getting loans on parks in the '80s was really tough, until they hit the 1990s. Now the 1990s, in my opinion, is when the mobile home park industry literally hit bottom. It's like some alcoholic, things just can't get any worse. So drunk, they're now homeless. They've lost all their friends. They have no job, no way to pay any bills, like that moment in the movies you see sometimes, that was the mobile home park business back in the 1990s. And many parks were right on the cutting edge of extinction in the '90s. Occupancy is so low, condition is so poor. Cities are so hostile. Many of them, if something doesn't change, you know they're gonna shut. And everything was up for sale in the 1990s. If you had an interest in it, you could walk into literally any mobile home park and say, "Hey, would you sell?" And the person would be all excited because they were just desperate to get out of the business. It depressed them. They didn't know what to do.
0:16:52.2
So the 1990s were really, really rough period. And the banks became impossible to get loans from because the parks were in such poor condition by the '90s, nobody wanted to bet the bank's money on such nonsense. And that's the moment where Sam Zell, also known as The Grave Dancer, jumped into the industry. Zell loves niches where you can get in when things were really, really bad, and ride them when they return to glory. So that was probably a good sign from the '90s although no one knew it at the time, all they know is that Zell who'd been the largest owner of office buildings and apartments in the US suddenly started buying up these trailer parks. It's also the time when Dave and I got into the industry. I got in about 1996, Dave got in a few years earlier than that, because we also saw the opportunity to try and bring these old beat up forgotten pieces of junk back to life.
0:17:50.1
And it was very obvious in the '90s unless something gave then the industry was done. So people could either step in, buy these things, bring them back to life, raise the rents, or they will all become extinct. Cities are at this point extremely hostile, and they really want all parks to close. And their concerns are very, very well founded. If you look at the first park I bought in Blood Haven, what a horrendous embarrassment for the city of Dallas, what an incredible eyesore it was back when I bought it. It had a wrestling ring in one corner, not legal, of course. It had concession stands, no licenses or permits, of course, serving food that who knows how many people ate and got sick from. But that's how it was. Parks had really, really come to the end of the movie. And the cities didn't want them in the boundaries any longer. And then at the very end of the '90s, things started to shift. Zell was there, things were changing, people were going to start trying to bring them back to life. And at that very moment, the industry made a terrible mistake in the manufacturing and financing part. And they started offering these non-income documentation, zero down mobile home mortgages, and by so doing, sales roared up to about 400,000 units per year.
0:19:19.0
Very strange period in American history. I had calls from people who had good paying normal jobs, who would call me saying, "Should I become a mobile homes salesman? I heard there's this guy who made like half a million a year doing it last year." To which I would say, no, don't do that. It's a fad. Don't do it. You'll ruin your life doing that. Things were so out of control by the end of the '90s that a single dealer could fill, oh, I don't know, four lots a month, eight lots a month. I had a Palm Harbor dealer at a park in Hale, Texas. He was doing five homes a month like clockwork. So those who suffered through the '90s when the industry really, really hit bottom there, suddenly thought by the end of the '90s that things were going to get a little better.
0:20:04.1
And then you came to the 2000s. The 2000s started off with a horrible thud. Now known as the great chattel collapse. What happened was all those zero down, no income documentation, 30 year mobile homes mortgages they made as you can well imagine, all came apart. And suddenly all those seemingly great 1990s deals that everyone was so excited about went from looking good to looking terrible. Because the autocracy just kept dropping and dropping, and the vacant homes just started piling up and piling up. There were abandoned homes in virtually every park in the 2000s. And there's hundreds of them in giant fields, typically in Oklahoma where the lenders in desperation would rip them outta the parks and put them in these giant fields that you drive by on the highway. Kind of these giant elephant dying graveyard things filled with these seemingly abandoned mobile homes.
0:21:03.6
No one even knew what was going on at the time. If you weren't in the industry, you couldn't explain what these things were. Things were so bad for the lenders that they would sometimes just give those brand new homes to the park owner in lieu of trying to make up any pass to the lot rent. The way it worked back then was you'd file your possessory lead notice with the lender which meant that you either had to start paying the rent, or they could not remove the home until they paid it under mechanic's lien. And after they got a few months behind, the lender would just give you the home because they'd say, "Oh, there's so many empty homes in the United States. They're just valueless." I once called a lender. I had someone who wanted to bring a home in. It was a larger home. It would only fit on this one lot where there was an abandoned home. I called them up and I said, "Hey, what are you gonna get that home outta here?" The guy just said, "You know what? I'm just gonna mail you the title. The home is yours. I don't know how to move it. I have so many empty homes to move. I've almost lost track of it all."
0:21:56.9
Parks that were a hundred percent occupancy suddenly fell off into 50% overnight. And the home losses bankrupted most of the lenders. So those who had gotten heavy in and bet the farm on mobile home mortgages, well, they suddenly woke up out of their drunken stupor to find that their business had been destroyed. And banks started to then reassess, what in the world happened? Where is this industry going? There was for the first time ever actual intellectual discourse of the mobile home park industry. It was actually fun going to industry events in the 2000s because people stopped talking about stupid things like, should we call it a trailer park or mobile home or manufactured home community. And instead talked about the science of the stats of what had gone wrong and what the future was.
0:22:50.4
I remember one speech I went to back in the period was by a banker who gave this very, very detailed, very scientific description of why the chattel crisis had occurred in the manner that it had. He had all kinds of facts and figures of all of their home loans, the things that they had underwritten and all kinds of good stuff. So, it was the time when people started to really ponder, what are we doing? How does any of this work? And confidence in some ways gets restored because of people thinking about the industry, and its good points and its bad points without running like a herd. Also in about 2003, you've got Warren Buffet into the industry. So he buys up Clayton homes. Some people said he overpaid. Some said he should have waited and he could've gotten it in bankruptcy for next to nothing. But nevertheless that was the bright spot of the 2000s.
0:23:49.5
Sure, we have the chattel collapse. Things were going really, really bad. But wait, Warren Buffet bought it and that's pretty good, right? And that was a good thing. And then suddenly just as parks had seemingly just hit the skids with the chattel collapse, the market began to turn. Now, we all know now that it's turning once again on a whole national would soon to be the nation's own collapse of those buoyant periods prior to 2007. But that was a period in which if you had a park and you'd struggle for some period, it gave you one last chance to sell out at a profit before things cratered again, although we didn't know it at the time. Also, we saw conduit debt run away during the great recession from 2007. So that was a start of another trend if you'd been using conduit debt and you'd call whoever you'd used in the past. Well, as soon as we hit the great recession, most of them didn't make loans anymore. They wanted to wait it out for a bit to see what would happen. You also had a giant group called ARC.
0:25:01.5
It was roaming around the earth back in the mid-2000s or so, buying up everything they could humanly buy up at crazy or seemingly crazy cap rates at the time. Kind of poisoned the market for many buyers, myself included. You go to mom and pop and ARC had sent them a letter offering them probably twice what you could logically pay. So there was the same frenzy, the same fury of insanity popping up in the mobile homes park industry as there had been in the single family in all parts of the American economy. And then you entered the 2010 era. Now in 2010, something very interesting occurred. Because you had this dichotomy where you had an economy that was in recession as we just entered now, and the Fed plunged the interest rates nearly down to zero to try and restart the economy, yet the cap rates were still relatively high and that's because no one believed in it. No one believed that rates could be that low.
0:26:06.9
I recently bought a textbook on real estate at an antique store. The textbook is from roughly about 1914, I think. And it shows a chart of mortgage calculations because this is before the internet. This is before most people had calculators. And in it, it shows the lowest interest rate as being 5, and the highest, 10. So that's what interest rates always always were. So, everyone thought when the government took these interest rates down to zero, it was just gonna be for a very short period of time. However, as we now know that that little short period lasted up until just recently. So, it wasn't just a blip. It wasn't just a fad. It was a new reality. And because you had the rates so low on the notes you would get, and yet the cap rate so high by comparison, you had some of the highest spreads the industry had ever seen. Perhaps that the industry will ever see.
0:26:58.0
You also had the return of conduit lending in about 2012. So now suddenly you have one more option to use as a borrower, which is fantastic news because conduit lending is non-recourse and 10 year fixed rates, far better than bank lending, for the most part. The jobs that came on the scene in the 2010s that allows you to do these Reg D 506s to pool money together from investors. Many, many park operators started Reg Ds during that period, as did we. And then there were suddenly $3, $2 billion transactions in 2016. You had Carefree Communities sell to Sun, which is the second largest US rate. And you had RHP sell to Brookfield, which is the Canadian rate. And then you had the portfolio owner known as Yes sell to GIC, which is the sovereign nation fund of Singapore. So those were really big deals and having all three of those followed in one single year was just amazing. And the industry started to get on the radar screen of private equity groups. Suddenly people who had never looked at the industry before in the decade of 2010, started thinking maybe this is a good investment opportunity. They started to really appreciate the business model of just having basically a parking lot.
0:28:19.2
They really enjoyed what looked to be the yields on the industry. They were given solace in the fact that Sam Zell was in it and that Warren Buffet was in it. So there seemed to be a lot more potential, more of a future to these groups. And then suddenly Fannie and Freddie comes roaring on the scene with their own loan programs, which were superior to conduit. The same non-recourse long term loan, but with the ability to internally refinance up to annually. And lending for parks becomes extremely plentiful and attractive. So it looks like the industry has finally hit good times and then came 2020s. Of course, the 2020s started off with one of the strangest events in American history, and that was COVID. And when COVID hit and America decided to shut everything down and we had all kinds of riots and all kinds of things going on, no one knew what would happen with mobile homes parks. The jury was completely out. We had seen lots of cycles in the past. We had never seen anything, even approximately what we saw during COVID and this self-quarantined America.
0:29:30.0
And we learned a lot of great things. We learned from COVID that mobile homes parks are an essential industry. That's a very important label today, because if you weren't an essential industry during COVID and no one still has ever explained how they made the list. But if you weren't, your business was basically destroyed, but if you were deemed essential, then you were allowed to continue on, and we were deemed essential. And then we learned our customers for the most part are also essential workers. The jobs that they do, whether it's transportation, whether it's food preparation, delivery, whatever the case may be, those are very important jobs in the US economy. So at a time when other jobs were shut down, people were told, "Stay home. You can't do your job. Sorry," most mobile homes park residents had no such problem. And then on top of that, people learned, which you already knew, that a very large percentage of mobile homes park residents are also retired.
0:30:32.7
So as a result, despite COVID and workforce problems, they had no problems. And that meant the park owners got paid. We were one of the few people who got paid and I mean paid consistently. We had parks where we didn't have anyone slow pay or stop paying throughout the entire COVID epidemic because they had their jobs, and on top of that, they got subsidies from the government. So most of our customers came out richer during COVID than they went into it. And there were new trends that popped up as part of COVID. One of them is called the great migration. People started pushing out from urban areas. They started pushing to the suburban areas and exurban areas. And that's where most of your parks are.
0:31:13.5
In any given city, if you map out where all the parks, how many are you gonna find downtown? Oh, I don't know, two or three. Where are you gonna find 50 or 100 to 200 of them? Surrounding that urban core. So the great migration has been a fantastic thing, as far as park owners are concerned. In fact the whole COVID refocus of most Americans from attached living to detached has been a huge benefit. We've sold more homes in the era post-COVID than we ever did pre-COVID, at a much faster pace and at much higher pricing, because COVID was actually very beneficial to all of us who own parks and then just to our understanding of the industry and all of its benefits. But it also saw mobile homes pricing going through the roof.
0:32:02.0
If you look at the price of mobile homes, new mobile homes that you put in parks prior to COVID, and then you fast forward just a couple years to now, you'll notice the prices in many cases have doubled. The homes we were bringing in the 30s and the 40 thousands are now in the 60s and the 80 thousands. That's been one of the toughest parts of this very new decade of the 2020s, has been this sudden and extreme rise in home prices. Now, what are some of the cycles I just talked about that we saw repeat? What are some of the themes that repeated? Because that's the whole point of the presentation is, alright, that's great and everything, but what can we learn from any of this? Well, the first one is mobile homes prices have a perpetual cycle of going very high, plunging back to earth, very high, plunging back to earth.
0:32:48.1
The first time that it went very high was in the 1960s, back in the era of Elvis. They seemed so strong. Celebrities loved the product, and the manufacturers got a little carried away. So they started pricing the mobile homes higher and higher and higher, because they could get it, because the customers were richer. In fact, the demographics of mobile home parks back in the '50s, '60s were higher than those living in single-family homes. So they started making mobile homes cost the same as single-family homes. I was watching an episode of Jay Leno's Garage show on cable, and they interviewed a guy. He was America's foremost mechanic of a sports car manufactured in Britain by Lotus. And when they brought him on the show, and I was just typing, not even really looking at the screen, I suddenly got interested because Jay Leno said to him, "And you started off in trailer parks, huh?" And the guy goes, "Yeah. Yeah. I designed trailers back in the '60s and then I went into Lotus automobile, working on Lotus Cars."
0:33:58.7
So the guy's name was so odd. His name was Detlef Claudius, that I immediately found him online, found his garage. I called and I got him. And I said, "Hey, I saw you on the Jay Leno Show and you were talking about you started in trailers, and you ended up in Lotus sports cars. I'm just curious. What was the industry like back when you were in it?" This guy is in his 90s. He was like, "Why do you care?" I'm like, "Well, I read about the industry. And I'm just curious." He was, "Well, no one's ever asked me about that. But if you really want to know, I dropped out of the industry in the '60s, because I thought it had no future." I said, "Why did you think it had no future?" I was designing mobile homes, and the price points were ridiculous. They were so high, I said to my wife, 'Why would anyone buy these things?' You could buy a single-family home for about the same price. Who in the world would want to buy mobile homes at these kinds of prices? And so I realized I'd reached the end of the lifecycle of the industry, and I moved into automobiles.
0:34:57.9
And it's very similar to what you're seeing right now. So right now, you've got mobile homes coming out of manufacturers for the $70,000, the $80,000 installed. And in the same market, you can often find single-family homes are roughly equivalent. So history kind of repeated itself. So if it repeats itself, what then happens? Well, you can guess what happens. It's not sustainable. They can't keep mobile homes at these prices. So ultimately, you're gonna crash back down to something that people could actually afford. Some people ask me, "You think homes will stay at $80,000?" The answer is, "No." Well, how do you even stay there now? Well, what happens is, there are certain parts of America where you can sell mobile homes for $80,000, 'cause the rest of the home options to the customer are so very high, it still seems affordable.
0:35:46.5
But these niches are not that many. And all of these park owners, ourselves included, are buying these homes at these crazy prices, or seemingly crazy prices, because we can get it from the customer. But when all those lots are exhausted, then what happens? When all those parks in states like Colorado and California, when all those vacancies are done, or you have mom and pop owners have no desire to get in the home business, who's gonna buy the homes? Over half of all mobile homes manufactured in America are rumored to be mobile home park owners. So if we in fact are half of the total production in the United States, and we start reining in that, then you're gonna have a drastic decline in manufacturing.
0:36:32.6
And to get the interest of the park owners again, you have to have a complete resetting of home prices. It's something that the industry knew very, very well after the chattel collapse. When manufacturing fell from 400,000 units down to 60,000 units, the manufacturers looked at each other, and said, "What do we do? Do we shut all the factories down or do we have a plan B?" And they said, "Hey, I know, let's try and sell homes to park owners because they would make their money off filling up those lots. That's what we'll do." Warren Buffett himself with Clayton, he had to have known this because not long after he bought Clayton, he bought the Tru brand, T-R-U. And the mission of, Tru, at the time, which was probably on their website was to build the least expensive mobile homes in America.
0:37:19.6
That's what it was all about. And they brought these homes to these shows. And you'd have a giant two bedroom, two bath, single wall with a big banner that said From $19,500. And all the park owners, owed and awed and they ran to the Tru booth, and they started buying them like crazy. And the manufacturers understood what was going on at that point. And suddenly, the sales in America doubled from 60,000 units to about 120,000 units. So homes will come down again, but it may take a while until they start seeing enough weakness in the sales to make that occur. But that's a trend that has happened before.
0:37:58.9
The other one is Home Mortgage Lending problems. You saw that in the 1990s, which led to The Great chattel Collapse. And in many ways, you're probably gonna see it again right now with the way things are working. Because people in a lot of markets that cannot support $60,000 to $80,000 mobile homes are maybe bending over too far backwards to make their sales happen. It doesn't do you any good if you put someone in a mobile homes unless they stick. If someone doesn't stick in the mobile home, and by stick I mean, make your payments like clockwork until they own the home free and clear, then you're gonna ultimately get the home back. It's gonna need a whole lot of rehab, and then you try to exercise out all over again.
0:38:39.0
If you're finding that you're pushing customers into homes that they really can't afford, you need to stop. You need to hit the brakes. You need to say, "Well, you know what? New homes in my market just don't work. I cannot bring in these $60,000, $70,000, $80,000 new homes. I'm gonna stick with used homes, I'm gonna have to slow my fill down enormously to do so. But I'm willing to do that because I want customers who can prevail, make their payments and have a decent life." So you're probably gonna see again, a cycle, probably see that 1990 cycle again, and it may be cycling right now, even as we speak. Another one are lending problems, and particularly with conduits. So, for those who were in the business back in the 2000s, you know all too well that after the Great Crash began, the 2007, '8 crash, the conduit lenders just vanished.
0:39:27.9
They just all crawled in a hole. And if you called them, if you reached somebody, they'd say, "Well, we're... " Pulling in our horns was a favorite expression, "We're gonna just kind of watch and feel how the economy goes, we don't really want to make any commitments until we know how it's gonna stabilize and where it's heading." And in many ways, you may see that. Now, we know the Fed just raised rates at.75 of a point, yesterday, and... Or a couple days ago. And, where does all this head? We don't know. Now I'm not seeing right now the banking instability that we saw in the 2007, 2008 crash. So this cycle may not actually occur. I'm not seeing any evidence of conduit lenders at this point getting concerned or running for the exits. So this is a cycle that we may or may not see. But since things do run in cycles, since there is that risk, if you have a loan that's coming up in the relatively near future, that's conduit, or you wanted to get a conduit loan, you probably wanna jump out there and do it now. I would probably not wait, because of concern that at some point, they may leave the building for several years. I would much rather have a new loan, a fresh new loan and replace my old loan, even if I pay a small penalty replace on my old loan. I would just want to have it done right now while there is still stability. So that's when you kind of preemptively might want to move on. Just based on past cycles.
0:40:52.5
Then you had the media problems, that whole cycle. So you have the media, which in the '70s and the '80s just trash the industry, they just couldn't get enough of trashing the industry. But it runs in cycles, they loved it in the '60s and they hated it in the '70s and they hated it in the '80s. They kind of been running with that pattern, but it seemed to be wearing off. As someone who's often in those articles has to endure the reporter's questions, knows where it's going, but it feels like someone in the industry must talk to the media. I think hiding from the media only makes things worse. I've noticed that the stories just don't seem to have much of a following. Nobody really cares. There's an article recently that came out on Vice. It was a really lengthy, what, 30, 45 minute video thing on Vice news. Once again, portraying park owners as nasty, horrible, terrible people, because we happened to raise rents, ignoring the fact we bring the parks back to life and ignoring completely that everyone in these videos is lying. There was someone in that video who claimed that they were evicted because they... I forgot what the reason was. They bought a home and the park decided to evict them just to be mean. No, the truth is that the person had never paid their rent. But, the media loves this junk, but I'm not sure anyone else loves it right now.
0:42:10.0
If you were to lay out all the issues that interest Americans today from inflation and gas prices and the Ukraine war, then to mobile home park residents, how high would they go up to list? Well, let's just analyze that for a minute. There's only 8% of Americans who live in mobile home parks. So I'd say 92% could care less. And I'm not even sure of that 8%, how many of them really care about media articles regarding mobile home park living. So the market is very, very, tiny to begin with, but it was such a great wokeism angle because it was easy to portray all mobile home park owners as evil. And why? Because everyone thinks mobile home parks are just filled with people who are very poor. So it looked like Snidely Whiplash. Every owner was portrayed as someone who was taking advantage of the poor, even though the residents weren't poor and they weren't taking advantage of anyone. But I've just noticed that things seem to start running out of steam. Americans just don't seem to be interested, look at how many people respond to those negative articles today. How many people post their opinions and put all kinds of righteous things on... There were hardly anybody. The fact that they'd written about it on the Vice article, I think it was only maybe one blog post, and I never even heard from anyone who had ever seen it either good or bad. So perhaps the media cycle is right now in these poor parks. And then you have the city problems.
0:43:37.1
Cities just grew to hate parks in the '70s all the way through the '90s. But it seems to be abating a little bit. Many parks have been turned around now. Most of the worst of the parks have been brought back to life or torn down, one of the two. You don't feel the same ferocity. It's not the same negativity 'I'm going to kill you' feel or demeanor when you go to city halls anymore. Maybe they've become more educated on grandfathering, I don't know, but there's been a transference from the cities hitting the industry to the states. Now why do the states suddenly hate them? Well, because many of these states are again, all focused on trying to get in line with their constituency, which they find to be in rare cases, very progressive and very much buying in, to this false mantra, that park owners are somehow evil and that parks are nothing more than an ability for one group of people, the park owners, to beat up on all the park residents. And it's becoming pretty much down a theme of blue states and red states. And what these blue states typically are looking to do is they're looking for rent control. That's what would really get the votes, that's really what would get the voters turned on, but they can't deliver on it. Colorado, for example, had a perfectly good rent control bill that went to the governor. And what did he do? He threatened to veto it, so they had to redraft the whole thing.
0:44:56.5
Now if Colorado, which is about as blue as you can humanly get, if even they can't make sense of rent control, 'cause no sane person can. Then what else can they do? Well, one thing they've been doing is they've been trading off rent control provisions for such items as giving park residents right of first refusal to buy, or greater advance notice before you shut a park down or evict somebody. But it's all coming from the state. It's not really coming from cities or counties anymore. How long will that cycle go on? I don't know. We haven't really seen a state hating the industry cycle. This kind of came in with the advent of new woke ideologies. So I don't really know where it goes. I will tell you this, it politically hasn't really panned out very well for any of them. Despite all this period of time we've had of people who tried to advance rent control. How many have actually taken the bait? Well, not many, only Oregon and New York. And New York already had it. And then Oregon's rent control isn't really that bad. It's seven points plus CPI, which means right now you can raise your rent up, oh, I don't know, maybe around 17% annually that's higher than anyone ever did prior to the enactment of the act. So that seems to be running out of steam. Another cycle you have are green field developments.
0:46:18.1
1950s people started building the parks and now 70 years later, they're trying to build them from scratch again. But it's not any easier now than it was back then. It's still a really hard way to make money, much harder than it was back then, perhaps. Because today, to get the permits to build a park, you have to go way way outside of any kind of city control, way out in the county somewhere where nobody cares. And when you get way out there in the county, two things happen. Number one, you have no access to utilities, so you have to build incredibly expensive private water and private sewer systems. And then when you get done with the whole thing, you got no customers 'cause you're so far out of town, no one wants to commute that far. On top of that, you have the same issues with lending, no one wants to do it. And how you handle the carry and the costs until you reach a certain level of automacy where you can pay that. So all those same burdens that the folks in the '50s had are now just being transferred onto people today who are trying to build new mobile home parks. So that's another trend that I see going on and it may have the, I'm not sure what ending. It may be that some people who build the new green field parks, that they succeed, you may have that others fail.
0:47:34.2
But, I haven't seen people trying so hard to build new parks as long as I've been in the industry. You also have the changing demographics of residents. Now, 1970s it was all downhill. It just got worser every decade, 70s terrible, 80s worse, 90s oh my gosh, so bad. But suddenly we are seeing a change in that. So our industry may be kind of a riches to rags to riches story in the end. I, and I think most parks have noticed that the credit of our customers, the cars that they drive, their general appearance, seems to be a lot loftier than it was not that long ago. Part of that may have been inspired by COVID, people saying, "I don't wanna live in apartments anymore. I gotta have a yard. I gotta have a detached way of living." Or maybe it's the pricing of single family homes, which is now up to almost $400,000 a home. You may get a lot of people displaced who really probably normally would be in a single family detached home, but they simply can't afford it anymore. I almost had an accident driving through one of our parks, not too long ago in amazement. I saw someone walk out of one of the mobile homes in our park in Illinois that looked just straight out of LLBs. Blazer, khaki pants, white button down shirt, petty loafers. I thought, "How in the world is this possible?" I never saw things like this back in the 90s, 2000s. Never, never saw it. So possibly the demographics is once again cycling because but this time cycling for the good.
0:49:06.3
Also, the quality of properties is also changing dramatically. They went from nice in the 50s and the 60s to horrible in the 70s and the 80s and the 90s, but they seem to be cycling back again. I drive through a lot of Mobile Home Parks. Whenever I go out to market, I look at not only the ones that we own, I look at other people's to see what's going on. And when I'm driving down the highway and I see a park I'll typically pull off and go in the park. Have you noticed, all these parks that are getting good again? Some of the terrible ones that I used to drive and go, "Oh my gosh, that's the worst park ever." Have suddenly been brought back to life. If you go down into Dallas, the market that I started in, and that we've owned a lot of parks in, and you poke around in some of the ones that were legendarily terrible back in the day. Some of the things in West Dallas and Oak Cliff, suddenly they've got three-rail white vinyl fence, they're all restored, the homes are all secured, you wouldn't even recognize the place. So we are seeing somewhat of a positive transition from parks that were in horrible condition to being actually a nice place to live again.
0:50:13.8
And then you have the transition of park owners from moms and pops institutional ownership. Now, this is something that we saw the cycle once before a little bit with ARC. ARC came outta the shoot strong, they were gonna conquer the world. They went public, they crashed and burned. Got delisted, went private, and everything disappeared. But I think this time is a little different. You got a lot of private equity groups in this time who seem to be a little more on the ball perhaps than ARC was. And maybe it's just a matter of timing. Maybe they just called their shots better. Today you've got Carlyle Group, you've got Apollo. Most of your big private equity groups, Blackstone, they've all entered the industry, but they've all been doing pretty well with it. I never saw the numbers of ARC. I don't know if the ARC ever was hitting targets, I don't know. But I know that I keep seeing private equity groups who have entered and owned for a while now, in some cases years, still buying more parks. So I don't know where that thing will go as far as the cycle, I'm not sure that's actually in any moment yet where it's gonna be cycling. And then you have economic recession. This is one thing that Mobile Home Parks have been so well at in the past. And we've had so many recessions since the park industry began.
0:51:30.2
You had the recession of 1953. There was a recession in 1958. There was the recession of 1960 to 1961. The recession of 1968 through '70. Then there was the '73 through '75 recession, the 1980 recession, the 1981 to '82 recession. An early 1990s recession. Then you had the dotcom bust. I think we all remember that one. Then you had the 2007, 2008 recession, depression. And how did the industry do in all those? It did incredibly well. That's part of the reason it's blossomed in recent times, is we've become a truly contrarian investment. And we've proven that over the last 70 years. So when times get really bad, what do mobile home parks do? They just get better.
0:52:16.6
As the demand for affordable housing rises, we are the only ones in town who can actually fit that level of demand and need. No other form of non-subsidized housing can even come close to doing what we do. Our rents are so cheap in the Mobile Home Park industry that somebody who's on a very low paying SSI or social security can be just fine. They can live in the Mobile Home Park, they can pay the rent, pay their utilities, food, insurance, whatever the case may be, and still have some money left in their pocket. Nobody else can even touch that. Just recently, the average apartment rent in America just broke the $2000 a month level. Yet the average Mobile Home Park lot rent is thought to be around $300 a month. So apartments are now somewhere around six and a half times more per month than Mobile Home Parks.
0:53:09.7
And that's the position you wanna be in when you have a recession, you wanna be in the dollar store business, you wanna be the low cost option. That's where everyone is going to flock. They're all gonna stop buying things in the expensive stores, instead transition over to places like Walmart and Dollar Tree. And when people make that transition in the housing industry, well, that's right, they come to us. The bottom line is that Mobile Home Parks have been for a really long time. They have very predictable cycles and any smart owner would wanna ponder these cycles to figure out how to better manage their business to stay right in the middle of the channel so you don't ground out. History is a very, very important factor in decision making. So, if you look at what's happened in the past and you saw what the end result was, it helps you predict. It's a little like the film Back to the Future where the guy takes the sports Almanac and makes all these wild bets that pay off big 'cause he knows exactly what will happen. The more you study history, the more you'll have that ability to see what's gonna happen and to make smart choices. And what's happening in the industry right now that we're seeing whether it's on home prices or demand, it's all happened before.
0:54:29.1
This industry is... Although it's young, it's still pretty old. Even though we're considered the second youngest of all commercial real estate asset classes, the only thing younger being self storage, which began about 20 years after Mobile Home Park, we're still like 70 years old. And we've been through a lot of cycles over those 70 years, lots and lots of cycles. But we've always done good, we've always come back every single time. So the bottom line is, don't be afraid of the future instead take comfort in the past. Now that we're in a recession officially, finally, no longer wondering, "Gee, are we in a recession yet?" Now that we will always be in the record books as being right here on earth during the 2022 recession and who knows how long it will last, it's not really bad news for the Mobile Home Park business. It's not really bad news for our residents who all have essential jobs that seemingly do well. It's probably good news for the industry because once again, as we did in COVID, we'll gain more fans, we'll gain greater respect, 'cause we're one of the few things that will actually do well when times are bad.