Some 30 years ago, commercial real estate was largely owned by wealthy families, private developers and small businesses. Institutional investors were predominately invested in stocks, bonds and commodities. Today, commercial real estate ownership is dominated by sophisticated real estate investment trusts (REITS), real estate private equity funds, investment banks, sovereign wealth funds, endowments and pension funds. Commercial real estate has become a favored asset class for these investors for numerous reasons (inflationary hedge, lower volatility in returns, superior tax benefits, etc.). This flood of capital has heighten the level of competition and driven down returns, making it difficult for smaller operators to acquire assets that meet their return objectives. In most commercial real estate markets the buyer with the lowest cost of capital (often a REIT) wins as it can accept lower yields.
Yet, there is one small segment of the commercial real estate industry that has been ignored by the institutional world. Manufactured housing communities (mobile home parks) are still very much a niche real estate investment. Large, private commercial real estate firms have largely ignored this asset class, focusing their efforts on office and retail buildings, hotels, warehouses and apartment buildings. Mobile Home Parks are underrepresented in the public markets as well as there are only 3 public manufactured housing community REITS (Equity Lifestyle Properties, Inc. owned by legendary investor Sam Zell, Sun Communities, Inc. and UMH Properties). According to Morningstar, there are over 211 public REITS. Furthermore, these three public REITS only own approximately 1% of the total market (~5,000 parks out of an estimated 50,000 parks Nationwide).
The remaining +/- 49,000 parks are owned by small, private operators and or "Mom & Pops". Many of these owners were the original developers of their park holdings and have held these properties for decades. Given their very low basis and likely lack of mortgage debt, there is little incentive for these small operators to maximize cash flow returns. These parks are typically attractive acquisition targets for the experienced operator, who can often raise under market rents and optimize operating expenses (such as sub-meterting utilities) immediately after purchasing the property.
The lack of institutional buyers has kept the mobile home park investment industry highly fragmented and inefficient. Unlike every other commercial real estate investment segment, there is not a reliable 3rd party data provider or broker that has accurate and timely national statistics on mobile home park trades. Park Street Partners seeks to capitalize on the opacity of this market, purchasing assets that are unappreciated by the larger investment community.
The mobile home park investment market might become a favored institutional investment someday, but until then, we'll happily capitalize on the inefficiency of this market by scooping up assets trading for substantial discounts relative to intrinsic value.