Mobile-home Monopoly not a game

[Part II of a two-part look at the growing economic pressures squeezing mobile home parks, foreshadowing the future for many RV parks.]

As deep-pocketed investors continue vacuuming up mobile home parks at exorbitant prices, they have only two ways to make their purchases profitable. One is by replacing trailer pads with higher density housing, such as single family homes and apartments. The second is to jack up rents on the existing sites, in some cases simultaneously slacking off on maintenance and upkeep to reduce operating costs.

The first approach reduces the overall inventory of low-cost housing. The second raises the affordability bar for people most in need of low-cost housing, pushing them out of homes they may have occupied for decades and into the streets, for lack of anywhere else to go. Either way, the result is skyrocketing housing costs that add to inflationary pressures, even as county and city governments grapple with a tidal wave of homelessness that strains taxpayer revenues.

Meanwhile, the people profiting from the economic forces they’re unleashing rationalize their actions by blaming–well, anybody but themselves. Frank Rolfe, offering a prime example of deeply cynical self-serving rhetoric, contends that the U.S. is “in deep trouble” for one basic reason: “A dysfunctional Fed has driven rates up too far and too fast and there will be great economic suffering as a result.” In other words, the patient is sick only because of the medicine prescribed for an economic disease–a disease for which Rolfe is a primary but unacknowledged vector.

But Rolfe doesn’t stop there. “Bad times yield greater demand for affordable housing,” he writes. “So while Jerome Powell is busy raising rates and destroying the U.S. economy, he’s also acting as a powerful force to push mobile home park demand even higher.” The uncoupling of “affordable housing” from “mobile home park,” thanks to Rolfe’s (and his peers’) self-enriching actions, goes unremarked. In his own eyes, Rolfe is a savior of the working class, providing a praiseworthy safety net against the Fed’s recklessness.

The Frank Rolfes of the world owe their success not to any great investment brilliance, but simply to their understanding that residents of mobile home parks a) almost never own the land on which their mobile homes are sitting; and b) that “mobile homes” are almost never mobile. All of which means that the poor unfortunates inhabiting these homes are a captive audience, ripe for the plucking.

It doesn’t have to be that way, but creating the exceptions takes a lot of money and a fair amount of luck. Boston Trailer Park, for instance, which sits cheek-by-jowl with an apartment complex in which one-bedrooms go for $3,000 a month, is that city’s only mobile home park–but it exists today only because former mayor Tom Menino helped its residents take ownership of the land more than a decade ago. As a result, Boston has a little working class oasis in which residents pay just $425 a month for their sites.

Unfortunately, that sort of intervention is becoming increasingly difficult, thanks in no small part to the $4.5 billion in investment money that poured into mobile home parks across the country last year alone. Even though Massachusetts is one of a handful of states with legislation giving residents of mobile home parks a chance to match any purchase offers, outside investors are driving prices to unmatchable levels. Without government help and nontraditional financing, most mobile home residents may as well dream about living in Palm Beach or Beverly Hills.

Despite those odds, some successes have been notched. As NPR’s Morning Edition recently reported, the 200 or so residents of a mobile home park in Wareham, Mass. were able several months ago to match a $12 million offer from an Arizona-based investor–but only after obtaining loans from a nonprofit, ROC USA, and a $1.9 million grant from the state’s Affordable Housing Trust. Approximately five years ago, ROC USA also provided the financing that fended off an outside buyer seeking to acquire the 430-home Halifax Estates in Halifax, resulting in the country’s largest resident-owned mobile home community.

Colorado, where fewer than 10 of the state’s 900 mobile home parks have been purchased by their residents, recently had a similar success story. The approximately 200 adults and 100 children of the Parklane Mobile Home Park were able to recruit county assistance in tapping American Recovery Act funds for a $1 million forgivable loan, which in turn encouraged the private, family-run Bohemian Foundation to underwrite a $2.8 million low-interest rate loan . The balance of the $6.8 million purchase was then provided via a $3 million loan from the Impact Development Fund, a quasi-public financial organization.

Yet as these examples also illustrate, constructing such buyouts is a precarious business, requiring multiple financing streams of limited supply. Non-profits almost by definition have more limited financial resources than their investor-driven adversaries. Funding resources from the American Rescue Plan will be exhausted within a couple of years, if not sooner. And while some state governments are belatedly waking up to the housing crisis on their doorstep, their response is typically hesitant and restrained, hamstrung by concerns over interfering with market dynamics and worries about using tax dollars to intervene in the private sector.

Meanwhile, the mobile home version of Monopoly continues unabated. Earlier this month, it was the residents of Hi-Acres Mobile Home Park in Palm Beach County, Florida, who got their eviction notices, letting them know that the park’s new owners have other, unspecified ideas for their acquisition. One look at an aerial map of the property leaves little room for guessing what that might be: Hi-Acres is surrounded on three sides by a suburban development of single-family homes, and butts up against a golf course on the fourth. This is not an area that will long tolerate “affordable housing.”

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You can’t extinguish fires w/ gasoline

[Part I of a two-part look at the growing economic pressures squeezing mobile home and RV parks.]

In a harbinger of what lies ahead for a growing number of RV parks, the San Jose Mercury News reported this week that a family trust in California has just paid $40.7 million for the Rancho Santa Teresa Mobile Home Estates in San Jose. The mobile home park has 315 spaces, which means the purchase valued each site at $129,200.

Think about that. What kind of astronomical rents will it take to make that a profitable transaction?

And this was hardly the first or even the highest-priced acquisition of mobile home parks in California, which suffers the country’s most expensive real estate. As one example, the 116-site Mary Manor Estates in Sunnyvale sold in March for $39 million, which works out to $336,207 per mobile home pad. And the 110-site Winchester Ranch Mobile Home Park in San Jose changed hands last year for $50 million, or a whopping $454,545 per pad.

Given that price, Winchester Ranch clearly wasn’t purchased as a mobile home park but for its land, so there’s no surprise that it’s been bulldozed to make way for 320 single-family homes and 368 apartments. A similar fate may await other, similarly high-priced acquisitions. Then again, housing costs have become so extraordinarily distorted that even the most bloated valuations may be sustainable if rents are pushed to even more stratospheric levels.

Consider the average Los Angeles monthly rent for a mobile park site last year, which according to the commercial real estate services company Jones Lang LaSalle was $1,103–significantly higher than anywhere else in the country, yet the market still had the nation’s lowest vacancy rate, at 1%. With an average expense ratio of just 43%, that resulted in a market net operating income of $8,600 per site, or just shy of a million bucks for a park the size of Mary Manor Estates. That’s a number sturdy enough to support an awful lot of debt–and if it’s not enough, well, just raise the rates some more. With comparable apartments renting for triple that amount, the market will bear it.

Los Angeles in particular and California in general are high-cost outliers, but where they lead the rest of the country so often follows. It’s instructive, therefore, to read the latest musing from Frank Rolfe about why mobile home parks are better positioned to weather the Federal Reserve’s ongoing efforts to curb inflation by increasing interest rates. Rolfe, who has been flogged by me (here and here, for starters) and the media in general for his predatory approach to mobile home parks, contends that “mobile home park rents are ridiculously low and have massive potential for increases,” so higher interest rates are nothing to worry about.

But juxtaposing Rolfe’s further comments with recent mobile home park sales underscores the tragic transition that occurs when trailer parks–as well as RV parks and campgrounds–are sold by mom-and-pop operators to corporate and investment buyers. “How did mobile home park rents get so low to begin with?” he asks rhetorically. “To understand, you have to go back to the 1960s when the industry was young. Moms and pops owned virtually all of the mobile home parks and they simply were not good about increasing rents. . . . Moms and pops only raised rents at about half the level of inflation, resulting in rents being so ridiculously low.”

Put another way, moms and pops were putting the brakes on inflationary pressures, but now that moderating influence is being steadily reduced, even as inflation is reemerging as a global economic concern. From Rolfe’s vantage point, however–and that of the other investors snapping up such properties–“the greater demand that recession brings for affordable housing will allow offsets–such as higher lot rents–that will battle back the higher rates on loans.”

Those “offsets,” it should go without saying, only throw more gasoline on the inflationary fire.

[Next post: Part II, taking a look at the hypocrisy behind promoting mobile home parks as “affordable housing” by investors who are making them unaffordable, and the increased pressure that puts on RV parks as housing of last resort .]

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Sell, sell, sell and cut, cut, cut

Frank Rolfe, already well-known for his predatory approach to mobile home park investing, has been preaching the same gospel to RV park investors in his RV Park “University” offerings and in regular podcasts and email broadsides. I’ve written about him before, mostly as a warning to others, but lately he’s upped his game to such an objectionable level that he’s worth a return mention.

His most recent screed is titled “The three best methods to improve RV park net income,” and it kicks off by turning to “Chainsaw” Al Dunlap for inspiration. Dunlap was “a well-known corporate raider and business efficiency stalwart,” Rolfe would have you believe, and Dunlap’s guiding motto of “sell, sell, sell and cut, cut, cut” is “not a bad mantra for RV park owners, as well.”

Rolfe goes on to write that there are three “key areas” that have maximum impact on the bottom line, the first being an unremarkable emphasis on improved marketing. It’s in the second and third key areas–“increase rents and occupancy” and “cut operating costs”–where Rolfe shows his true colors, and RVers should not be surprised to learn that in this zero-sum game, whatever benefits Rolfe and his acolytes will not benefit them at all.

Step one, “increase rents. Yes, it’s that simple.” Step two, “bring in extended stay customers,” taking advantage of “a large and growing category of customers who want to live in their RVs full time.” Moreover, Rolfe adds, there is a growing fleet of tiny homes “that can only be placed in an RV park by law,” providing campground owners “an extremely dependable (read: captive) source of income.” Step three, put more emphasis on park models and glamping, creating “more of a ‘hotel’ format, where the customer brings no RV of their own.”

Having thus jacked up rates while decreasing the number of transient RVing sites, Rolfe moves on to the expense side of the ledger, starting with “horribly bloated and completely unproductive” payrolls that must be slashed. That non-specific analysis is followed by the equally vague observation that a “simple line-by-line review of each cost item may yield huge dividends,” especially if approached with an “analytical and creative” mindset.

And there you have it: sell, sell, sell and cut, cut, cut.

Oh–but one more thing. Al Dunlap, who earned his “Chainsaw” moniker after cavalierly firing 11,000 employees at Scott Paper, for which he received $100 million in compensation, went on to try the same “analytical and creative” tactics at Sunbeam. He eventually got fired by Sunbeam’s board of directors–¬†creating the memorable headline, “Board Cuts Chainsaw”–and subsequently settled a civil suit, filed by the Securities and Exchange Commission, accusing him of several counts of accounting fraud that misrepresented Sunbeam’s financial results. He paid a $500,000 fine and agreed to be barred from ever again serving as an officer or director of a company.

Three years after it fired Dunlap, Sunbeam filed for bankruptcy. Two decades after that, Frank Rolfe has found his mentor.

Truth in advertising–not

Say you’re Erik the Red and you’ve just been exiled because even the Vikings, it turns out, have a low tolerance for murder. Now you’ve found a new island home and you’d like to tempt some of your former colleagues into joining you, but how are you going to get them to sail across the bitter north Atlantic to settle on a hunk of rock that’s 80% covered by an ice sheet? Why, just call it “Greenland,” of course.

That’s pretty much the approach taken by Frank Rolfe, whose sometimes misleading promotion of RV parks was last mentioned in this blog Sept. 18. But now Rolfe seems to be stepping up his game, headlining last week’s email blast with the seductive promise, “Vacation while you work: welcome to the RV park owners lifestyle.” Land ho! Is that a massive, glaciated island up ahead?

Giving him the benefit of the doubt, let’s assume Rolfe is simply clueless and not actually trying to sell us the Brooklyn Bridge. Still, there are some real howlers in his polemic, such as the claim that “you have the best of both worlds” when owning an RV park because this “will allow you to effectively feel like you’re on vacation while you’re working.” He then goes on to list the benefits of a hands-on approach to ownership, concluding with this bit of supposed wisdom: “You can also select exactly how you spend your time each day, and never again miss out on any personal activities that you would like to attend. At the end of your life, you will never think back on ‘could I have done something different that I would have liked more’ as you have taken your destiny into your own hands.”

Uh-huh. This is from a man who apparently never, you know, actually ran an RV park. True, he did operate a trailer park–or mobile home park, as he prefers to call it–some two decades ago, but these days he busies himself as an investor, not an operator. More to the point, claiming contemporary RV park insight based on 20-year-old trailer park experience is like having a typewriter repairman tell you what you need to upgrade your MS-DOS platform and thinking he’s kept up with the times.

To put it most bluntly, these days the RV park business is a ball-buster. It was never easy–no hospitality industry is, given that every customer is your “boss”–but the past couple of years have been wracked by a worker shortage, an increasingly pugnacious public and a wave of newcomers who often don’t have the vaguest idea of how to operate their equipment. Both the hours and the seasons have grown longer, even as tempers get shorter. Not only is there no room to “select exactly how you spend your time each day,” there isn’t enough day to do all the things that must be done, and never mind the “personal activities that you would like to attend.”

If that’s your idea of a vacation, I hear there’s a nice little cottage available in this paradise-on-earth we call Greenland. . . .

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