Why More Investors Are Turning to Mobile Home/RV Parks in 2024?

David Moore: Hello, everyone. I think it’s been a long time. I don’t know if we’ve done a video this year or so. Maybe this is one in ’24. And I’m lucky, blessed to have my buddy, Mark Illsley, who’s first Vice President of Capital Markets for CBRE. If he looks familiar, and he should look familiar to you. He was on a video. We did a couple years ago, titled, Ask the Geezers, which we’re going to have to retitle because I think that that video, that actual meeting with the four of us was a great conversation. And I think that the information conveyed during that video is very timely today.

So, I think we’re going to have to retitle that, get it in front of more people. For those of you out there watching, it’s well worth the watch. And I had the privilege of interviewing Mark and a couple other buddies that have been in real estate for a few years. You and I are the only two that didn’t have hair though. But…

Mark Illsley: I think you’re right.

David Moore: Yeah, maybe it’s all that water, the chlorine. Maybe that’s it through the years.

Mark Illsley: I think it was the chlorine.

David Moore: Yeah. So, Mark and I actually share a lot going through the years. I think we’re brothers from different mothers probably, but playing water polo, swimming, guarding on the beaches through college. And…

Mark Illsley: I was in warm weather. You were in cold weather.

David Moore: Yes, yes. Sunny, cold Santa Cruz.

Mark Illsley: Yeah.

David Moore: Yeah. O’Neill’s had the cold water classic there. There was a big surf competition there. And yeah, I didn’t. And we’re just tougher than you guys. But you know what’s funny? When I moved…

Mark Illsley: I wouldn’t say tough. I would say different.

David Moore: Different?

Mark Illsley: You were different. We like the warm, it doesn’t… It’s interesting. Southern California is supposed to have warm weather, but there were many days when it wasn’t warm.

David Moore: Well, what’s funny to that point is when I moved down to San Diego to live with Tom and all for a few years in the early ’80s, I remember when I’d come down and visit that I wouldn’t need a wetsuit. And then when I moved down, probably within a month, I was wearing a wetsuit. It’s just a different deal. So, you sort of climatize to it. But…

Mark Illsley: That’s right.

David Moore: Yeah, you’re right, definitely. And wintertime, it does get cold. But we’re not here to talk about the sun or surfing or lifeguarding or any of that stuff today. We want to talk about some real estate, and I really would like to have you sort of espouse some of your wisdom on what you see happening in the marketplace. But really what I didn’t say when I introduced him is he specializes in Mobile Home/RV Parks too, which is a very hot commodity too. So, I think maybe we ought to talk about… First off, how you got started in real estate and why you like it. And then we’ll start talking about what you see happening in the marketplace and we’ll wrap it up talking about Mobile Home/RV stuff. How’s that sound?

Mark Illsley: That sounds great. Well, how I got started in real estate, my father invested with partners and neighbors and friends in real estate in the ’60s and ’70s. And I was helping him with some of the properties and helping – meaning I was doing landscaping, gardening, painting, doing all of the grunt work for him. And he had apartments with a group of guys. He also had Mobile Home Parks. And one of my jobs with a small mobile home park out in Barstow was to pump out the septic system and then go two or three miles down a dirt road and dump it out.

Mark Illsley: Now, I don’t know if I can get in trouble for doing that because it was 1974 or ’75. But those were the types of jobs that I had. And when I got out of USC Graduate school, I was doing some work for an oil and gas company. It was all real estate work, and I just really liked it. So, I stuck with it. And I’ve been in commercial real estate 45 years of some type.

David Moore: So, what I love about real estate is it seems like everything else in life, you make an investment in something, and you’re sort of especially you look at Wall Street, even gold. You’re betting that it’s going to go up in value and you really don’t have a way to make it go up in value.

Mark Illsley: Right.

David Moore: And the real estate, it’s really, it’s what you’re going to make of it. All right? It’s always going to be the highest, best use. Somebody’s got something they’re doing something with. You can see whether they like it or don’t like it. And you can look at it and say, “Well, does it make sense?” And it sounds like you were blessed to have a mentor that helped you get started in it. And that’s how I got started in it, too. One of my dad’s patients just sort of said, “Hey, what are you doing?” I was playing on the beach. I was playing on the beach in California, Nelson and I ended up in Oregon. So, it changes things dramatically. But I just love real estate from that perspective. One of the things that I sort of see happening, though, is I just sort of feel as though the ability to get started.

David Moore: I don’t know how your dad got started in it, too. But you think about what it took to get started even 10 years or 20 years ago versus today. To buy the first house, to buy the first income property. And there’s always going to be an opportunity there. But it just seems like the numbers we were talking about some of the Mobile Home Parks, he said, were damaged in the last few years, and what’s happening there. And why don’t you just real quickly tell the audience what you’re seeing? For example, the parks in southern Oregon, you said that how many units were lost and what’s sort of happening in that?

Mark Illsley: Well, in southern Oregon, we had a big fire. It was three years ago, I believe in September. I know because the fire burned all around our little farm. And I believe there were 1800 Mobile Home units that were burned up in that fire. And some of them were owned by family investments, some of them were owned by institutions, and some of the older units that were being traded at the time were trading for $35,000 a unit. They were very affordable housing, and then you had your site rent added to that. And because they were owned for quite a while, the site rent was very affordable, so you had affordable housing. Well, when all of those burned up, especially if the owners didn’t have insurance, the the price of those units went up significantly. So, now you have single wides that were selling in the $70,000 range and the double wides in the $125,000, $140,000 range just to replace them.

David Moore: Wow.

Mark Illsley: Not counting what you had to do to the sites to bring them up to code based on new city codes or county codes. So, it’s changed who the residents were. It’s no longer just real low income housing. Now it is a whole different market.

David Moore: Yeah. So, that’s just one example of how the world has changed. If you look at our governor here what she says, she wanted 38,000 new units built affordable housing. Well, how do you get that done if you can’t even get it done with mobile home? Right?

Mark Illsley: Right.

David Moore: It’s a tough deal. And so, as we were saying before we got started, we are where we are in life, but it’s for our kids and grandkids. And that’s where it’s going to be a different space. You just look at your ability to make money, the inflation that’s going on and how they’re going to get in there. And I just sort of feel… If you watch our videos, you’ve heard me say it before. I really feel as though the government doesn’t want people owning real estate anymore. They want all your money in Wall Street. They got control. The politicians look good. And we’ve got more and more institutional ownership of everything really.

Mark Illsley: It’s come into the manufactured housing and even RV Park asset class over the last five or six years more than what we had before. And so, throughout the United States, I believe it was stated that almost 50% of all larger institutional type Mobile Home Parks are now owned by institutions. And it used to be 250 units was institutional, and then it went down to 200, then 150. And in some communities, we’ve even sold some properties to institutions that were 80 spaces. We sold one here in Troutdale for 88 spaces that an institution bought.

David Moore: Wow.

Mark Illsley: And so, the institutions were running out of high quality inventory that had their “Institutional size”. So, you’re right. It is being absorbed by institutions. So, a lot of different asset classes are being absorbed.

David Moore: It seems like every transaction we’ve done with you recently, it’s been institutional buyer.

Mark Illsley: Yes.

David Moore: Yeah.

Mark Illsley: Yeah.

David Moore: Every single one of them.

Mark Illsley: Yeah, institutional buyers. And we’re seeing that in a lot of what they call specialty asset classes. So, self-storage and student housing, and I’ve been involved in several different asset classes in my career and institutions are buying these properties. So, you’re right.

David Moore: So, when they’re selling where the people… And I should probably have some comment on this, but those people that are selling those parks, where are they going with the money?

Mark Illsley: Well, it’s interesting. The ones that we’ve sold for them, they’ve taken their money either out of California, out of Washington or out of Oregon.

David Moore: So, off the West Coast. Yes.

Mark Illsley: Off the West Coast. Yeah. And they’ve gone to Texas, and they’ve gone to Idaho and they’ve gone to Wyoming. They’ve gone to other places where they believe for their family’s benefit. They’re going to have a better return and maybe less interference from local politicians in how to operate the property. Better taxes, certainly.

David Moore: We were talking before we started this today and you were telling me about fraternity brothers and of the number of brothers. So, Mark grew up down in Southern California, went to USC, worked on the beach. I grew up in Northern California and here we are both sitting up here in Oregon. But just for the sake of the audience of your class, you said 22.

Mark Illsley: Well, there’s a group of us that get together, core group. 20 guys last night were on a Zoom call just catching up after a year and a half. And one of the fraternity brothers was kind of doing the math and said that out of that group, there were only four families that were left in Southern California. The rest of us had moved to Idaho, Texas, Arizona, Oregon, Washington.

David Moore: So, it makes sense that the Pac-12 is no longer the Pac-12 or SC is not in it because you’re not playing there anymore anyway.

Mark Illsley: Most of us couldn’t afford to go to the games anymore is what it was. It just became so expensive to get season tickets. So, we didn’t go to the games as we used to.

David Moore: So, as I said, we’re going to wrap up talking sort of about Mobile Home/RV Parks. But why don’t we just sort of talk a little bit further about those things right now? Because obviously, we look at diversified income. You look… Apartments have always been wonderful but the pressures, the prices, everything sort of shut them up. Mini storage is once again gives you sort of that diversification of income with a single asset.

Obviously, those are very popular. The Mobile Home/RV Parks are sort of the same way. What are your favorite things about them? And what are sort of the Achilles heel that you see? And how do people really work that Market, work those facilities, make the most of them?

Mark Illsley: Well, Mobile Home Parks, traditionally, they were an asset class and they’re especially asset class that investment groups could get into that were cheaper to get into than other asset classes. And it’s because you’re not paying for the building. You’re only paying for the land, the infrastructure and the rent that you get off of that. And so, all the way back to when my… And it’s not that far back. 50 years when my dad was investing with groups, they bought Mobile Home Parks because they could get into those cheaper than they could some of the multifamily and retail centers and things like that.

So, that’s what they liked about it. And the tenants have skin in the game. They own the units for the most part. They own the units that they’re putting on the property. And the funny thing is that institutions in my career just started really looking at that closely over the last seven years or more. And just recognizing that, wait a minute, we’ve got good cash flow here. We don’t have to deal with toilets and sinks and this and that. And our tenants have something in this. They have skin in the game. And that recent capital influx of these institutions, and there’s more and more coming in all the time. Oak Tree Capital just bought 10,000 units with a company. This week, I had another group out of Southern California call and say, “Hey, we’re thinking of getting into the manufactured housing group, that asset class.”

Mark Illsley: And I said, “Okay. Well, you’re behind the eight ball a little bit and do how to operate them.” No, so that’s the hardest part for institutions is operating these properties. But this is, again, a $75 billion company that is investigating this. And we’ve had over the last few years, a lot of people coming in. So, it is changing a little bit. We do have a restricted number of units on the West Coast. I don’t know that there’s been any new large Mobile Home community developed in Oregon that I can think of since maybe 2008. There’s only a couple in Washington. California has been very restrictive.

David Moore: So, it seems like for the push for low-income housing, you’d think that would be an effective way to address a lot of it, just with the density. And the thing you made a comment. “My dad always used to buy an apartment complex and he wanted to fix it up, or a rental house even, wanted to fix it up like he was going to live there and then he’d be disappointed that the tenant didn’t take care of it,” right?

Mark Illsley: Right.

David Moore: But your comment about they got skin in the game. So, what percentage of the units in a park are owner occupied typically?

Mark Illsley: Well, let’s just take Oregon.

David Moore: Yeah.

Mark Illsley: I think Oregon has 120,000 Mobile Home Park spaces. And of that, the age goes from the ’50s all the way up to, let’s just say 2008. And the one I’m thinking of in 2008, it wasn’t finished, it was started, and then just the last few years, it’s been finished, as far as putting the units in place. So, I would say probably 80%, because some of those older ones, the tenants would leave and then the owners would buy those from the tenants, or if the tenants owed them money they would just take them foreclose on them and they would rent those out. And some of the issues with having mobile homes where you own them is that’s personal property if you own too many of them, then it may change your part from a mobile home park to a multifamily type investment.

David Moore: Got it.

Mark Illsley: So, you have to be cautious with that.

David Moore: But typically, so the owners, it’s effectively a land lease for the most part, obviously. And your ultimate ROI is going to be changed a little bit from a traditional real estate investment in that you don’t have as much depreciation as you would be taking with other things that are multifamily project.

Mark Illsley: Very true.

David Moore: But you don’t have the headaches either. And if there’s a problem, they’re taking care of it. And you’ve got tenants that care.

Mark Illsley: Right. For the most part, yes. They care about the community they live in. They care about the unit that they’re in. And if they’re able to care for it. And that’s where the institutions, for the most part, have been buying the parks that have double wides, they’re newer, the quality is higher so that the neighborhood and the people who own them are taking care of them better than some of the older properties where you have a low-income owner of that particular property because that’s all that they can afford to either purchase or to live in.

David Moore: Got it. So, those are some of the reasons you like them. What’s sort of the biggest headache for an owner of that park? What’s sort of the biggest negative?

Mark Illsley: Well, I think operating the properties, you need to find on-site managers that are educated and they’re following the park rules, especially if you don’t live near those particular units just like with an apartment building. And because some of the tenants own their own unit they feel like they can maintain it the way that they want to or can afford to. And so, you don’t have a uniform maintenance of some of these properties.

And so, you have to have a strong manager to be able to manage the units and enforce the park rules. And park rules have changed in Oregon. Oregon legislature has changed as far as operating these. There’s another downfall in that, before you can sell a mobile home park now, In 2014, legislation passed that said you have to offer the mobile home park to the tenants. And no other asset class in any other state that I’m aware of forces you to give your full financial information to the tenants a month in advance to allow them to try to find financing, usually 100% financing to purchase the Mobile Home Park. They really can’t do it.

David Moore: Yeah.

Mark Illsley: So, but it is interesting in that the tenants now could know all about your financial aspects of that park before you even come in and buy it and operate it.

David Moore: Yeah, it’s interesting.

Mark Illsley: It has been interesting to see that happen.

David Moore: Very interesting. And I’ve dealt with that and had other clients and brokers telling me about that whole situation. It really doesn’t amount to anything, but certainly something that’s sort of a sticky wicket in there, but…

Mark Illsley: It can be.

David Moore: Yeah.

Mark Illsley: Especially if some of the tenants are a little bit knowledgeable about finance and the units themselves. And then they are aware of everything that has been going on on the books. And it can cause a problem.

David Moore: Not good. Well, thank you. We’ll be right back. David Moore and Mark Illsley. Don’t go away.