The Diminishing Supply of Mobile Home Parks

It is widely estimated among industry experts that 1% of all mobile home parks are demolished every year for higher and better uses. While we wish there was reliable mobile home park research that would provide us with the exact statistics, we can still clearly see this trend. We frequently hear and read about park closings and almost never come across new mobile home park developments.

Reason being, there are extremely high barriers to entry for new mobile home park developments. Most cities won’t permit new mobile home park zoning or issue the necessary entitlements to build new parks. This is largely due to negative stereotypes and misconceptions associated with mobile home parks and their tenants. The blatant prevention of mhp developments is baffling.
 
Of course, as owners of existing mobile home parks, we’re not complaining. It is extremely difficult to find a business that doesn’t constantly worry about new entrants / new competition. Yet, 99.9% of Mobile home park owners will never worry about a nicer, newer mobile home park development that might poach their current and tenant prospects.
 
Apartment building owners do not share in this luxury as hundreds of thousands of new units are built each year and – after a lull during the great recession – new apartment building construction starts are now approaching a 25-year high.
 
http://www.businessweek.com/articles/2014-08-22/apartment-construction-nears-25-year-high
 
This boom in apartment construction does not bode well for existing owners of older apartment buildings. The increased supply of apartments inhibits landlords’ ability to raise rents and will eventually lead to modest declines in apartment occupancy as tenants have increased apartment options. 
 
Yet, the increased supply of Class A apartment buildings has little affect on the mobile home park industry. We simply do not compete for the same tenant base. New apartment buildings can actually improve our pricing power and investment returns as multifamily developers occasionally purchase mobile home parks only to demolish and build luxury apartments. This benefits the mobile home park owners in two ways 1) the developer will often pay well above market and 2) the inventory of parks in that market declines, increasing the demand for existing parks. This happens more than you would think:

Keep in mind that these are just a few recent news stories detailing the redevelopment of mobile home parks. We suspect we’ll continue to see a steady stream of these mobile home park demolition headlines and fewer and fewer “New Mobile Home Park Development” stories over the coming decade.
 
We’re not economists (thank goodness) but we’re pretty sure that the declining supply of mobile home parks coupled with growing demand for affordable housing will work in our favor.