May 13, 2022
There’s big money on mobile home parks, and our guest today definitely made millions in the space.
Frank Rolfe is an investor in mobile home parks for almost 30 years. Along with his business partner, they are the fifth-largest mobile home park owners in the United States. In this episode, Frank examines the changes in the mobile home park industry over the last three decades, including the increasing demand for affordable housing. He also tackles the differences between the mobile home and RV industry, and the current opportunities and challenges in the market.
[00:01 - 08:24] Mobile Home Parks Then and Now
[08:25 - 13:46] Why Don’t We See More Mobile Home Parks?
[13:47 - 21:12] Comparing the Mobile Home Park and RV Park Industries
[21:13 - 22:07] Closing Segment
“It's a basic fact of life. The average American has a horrible stigma against mobile home parks around the residence. And nobody wants a park to go up near where they live, or even a business they own.” - Frank Rolfe
“If you wanted to build one today, what you would have to do is you'd have to go way out in the countryside where there are no people to complain, where there are no zoning laws, and then you have no municipal water, no municipal, sewer, and no customers. So what's the purpose of building that?” - Frank Rolfe
“If you wanted to destroy all mobile home parks, it's simple. Just bring back mass prosperity. And then no one needs mobile, home parks, they just all go buy custom homes wherever they can… But I don't see that happening.” - Frank Rolfe
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Want to read the full show notes of the episode? Check it out below:
Frank Rolfe 00:00
I fully understand why as a homeowner, you know, it's a basic fact of life. The average American has a horrible stigma against mobile home parks around the residence. And nobody wants a park to go up near where they live, or even a business they are. If you simply go to Zillow and look at the single-family home price next to a park, it's about half of what it is a block away. Same home, right?
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Sam Wilson 00:33
Frank Rolfe has been an investor in mobile home parks for almost 30 years and has owned and operated hundreds of mobile home parks during that time. He is currently ranked with his partner Dave Reynolds as the fifth largest mobile home park owner in the United States. Frank, welcome to the show.
Frank Rolfe 00:48
Hey, thanks for having me.
Sam Wilson 00:49
Pleasure is mine. Three questions I ask every guest who comes on the show: in 90 seconds or less, where did you start? Where are you now? How did you get there?
Frank Rolfe 00:55
Where did I start? I started off straight out of Stanford trying to do a business school application and back then you would start a business to have a good application. That's how I started my billboard company. So that was my early origins of being an entrepreneur. Where am I now? Well, I'm now I'm fifth-largest owner, with my partner, Dave Reynolds of mobile home parks in the United States. So you know, we've done a lot of scaling over the last 40 years of being in business for myself.
Sam Wilson 01:24
Yeah, that's absolutely fantastic. And the last question is, maybe we'll spend the rest of this episode talking about it. How did you get there?
Frank Rolfe 01:31
Basically, how I got there was working like an absolute maniac for most of the time. Obviously, having a good strategy, some businesses, you can expand and others you cannot. And then finally, just being outright lucky, because there's plenty of guys with more ability than I've got, who just were not in the right place at the right time.
Sam Wilson 01:50
Yeah, it's funny, I was talking, I was having dinner with some guys the other day, big finance guys. And somebody brought up that idea that some of it's just luck. It's just you beat in the right place at the right time. They're like, man, there's more truth to that than you realize that it's just you're desperate the right place the right time, and it worked out. So that's really interesting. The mobile home park and the RV park space has really changed here, I'd say in the last 10 to 15 years, it's gained a lot of attraction, a lot of attention from not just individual investors, but also, as you will know, from institutional investors, what have been the changes most dramatic and noticeable to you, and how has it impacted your business?
Frank Rolfe 02:31
Well, the biggest change, of course, has been financing, because when I got in at 25 years ago, in the mid-90s, you could not get back that. So every deal you tried to do the number one hurdle you had was getting financing. Banks hated that. Nobody liked it. And when normally you would end up with seller finance, you try to cobble together something with seller financing. And the sellers were amenable because they knew there was no bank debt. That's the one big shift today deals rarely go on bankable right back in the 90s. Everything was on bankable. So that's when Biggie the other one has been just the appetite for affordable housing. You know, we've said over the last nine quarters, each quarter, we broke the record of the prior quarter as far as sales. And what's going on is just the nation's housing industry has actually gotten nuts on pricing. And so we're producing houses at a price range of you know, in the 300,000s. And so there's so many people who cannot get into the housing market. It's insane. And while with our industry, you don't own both home and land, you do at least own home, and you have some land, unlike apartments. So we're kind of this crossover product between apartments, which don't give you that single-family home lifestyle at all. We're kind of like a step between that and actual normal, single-family.
Sam Wilson 03:44
What, so yeah, the bankability of things has changed. You know, the interest in the space too. I mean, cap rates in mobile home park, as far as I understand, I don't own any mobile home parks. From an outsider's view. It just looks like they just keep compressing. How are people finding value right now?
Frank Rolfe 04:00
Well, they're not really compressing, what they're doing is they're going down, but people are still having to buy a spread between the interest rate and the cap rate. Thanks for not nuts in our industry and office buildings, retail centers back in the day. People were doing crazy financing, right? Just 110%, LTV 1% interest. People have never on the lending side been that nutty. So you know, we have to get loans and to have loans, we have to have a 1.2x coverage ratio to the mortgage, a lot of bank stress test our mortgages, they'll say what happens if you lost 10% of your revenue? So what you're saying is interest rates are historically very low. Even today. They're at roughly 4% t many mobile home park deals. When I got into business they were at seven right so you know, it's not like in our industry that the cap rates are unsustainably whacked out, but the big difference has been that interest rates are low. Another factor is you know, in our industry, the big narrative is that our lot rents are crazy, stupid low. which when you even say that I get nothing but hate mail, but it's just a fact. And you know, our national mobile home park lot rent is 280 a month average apartments, I think it's 1600 a month, right? So our pricing is stupid. And institutional buyers are buying the stuff up, they're raising the rents up significantly because they're stupid. And because the rates cannot remain, I mean, most of these parks today at the current rates, you're better off just bulldozing them, there's a million uses for the land better than a mobile home park. So as institutional guys go in and drive the rents up, the banks and the appraisers have taken note how easy it would appear to be 100% occupied at 280 rent and still be 100% occupied at a 580 rent. So they're starting to factor in perhaps the first or second read increase into their appraised value. So that's the other phenomenon you're seeing. Because last time, when we buy a park, we're not even looking at mom and pops cap rate, because mom and pop is running that business so poorly. It's a joke, what the banks and the appraisers and sophisticated buyers are doing is looking at the raw material and what they can make out of it.
Sam Wilson 05:59
That's a really clear explanation. I think that makes a lot of sense, you know, that I hadn't really considered as How are you guys are seeing it through the bank, through the appraisers' eyes, versus, you know, maybe what mom and pop are putting together on it. Are you guys buying actively right now?
Frank Rolfe 06:14
Yes. We're always buying. We have periods in which we buy more than others. But we've never had a period in which we were not buying.
Sam Wilson 06:21
What does opportunity look like for you right now?
Frank Rolfe 06:24
Well, our tastes have changed significantly over the years, right? Both Dave and I, when we started out, we didn't start out together. We were actually competitors. In the old days, our deals were very, very rough and tumble what we'd call heavy-lift turnarounds. So I was buying parks that were often half-empty, totally screwed up, water leaks running down the streets, stuff like that. So as Dave. Today, because of our size, we're trying to do add on to our portfolio, what we call portfolio builders, which are nicer properties that help the overall value. But at the same time, we still do heavy lift turnarounds. Now the one style we're not as in tune with today, as you were before, are ones in which you have to do massive lot filling by bringing in homes. And that's because home prices have gone up nearly doubled during COVID. So while it was fun to fill lots and 30,000 homes, not as much fun at 60,000 a home.
Sam Wilson 07:13
Well, not only that, but I've also heard that finding homes is difficult.
Frank Rolfe 07:17
It's very, very hard right now, I don't think you'll ever go back to the old ways, to be honest with you. What happened was that, you know, manufacturing, it was 400,000 units back in the late 90s. Today, it's been about 100,000 units for, I don't know, the last 15 years. Nobody wants to step out and increase production. They easily could because the plants are only running one shift, and they could run three. So they typically produce seven floors a day, the average plant could produce 21 floors a day. But no one wants to take the gamble. Because half of all the mobile homes sold roughly it's estimated are park owners who are buying the homes to bring into their own parks. Right? And then the question is, how much longer will that go on before people get full? It's not like eating out where you might you have to eat out, you know, you eat daily, so maybe you'll eat out, you know, in perpetually a certain number of times a week. In our industry, once you fill a lot. That's it, it's over. So people just don't want to stick their neck out.
Sam Wilson 08:11
No, and I completely get that. That's very interesting. You would think, though, that there's still some old supply going offline at some point. I mean, obviously, there's gonna be some demand. But you're saying that there's going to be kind of a point where they've hit the wall and they can no longer keep up with runnings, three shifts a day.
Frank Rolfe 08:25
Yeah, well, right. Here's the problem, see, that the average American cannot buy a mobile home. If he walks right now into a mobile home dealership, you will find you have to have better credit and had worse or terms to buy a mobile home than the stick-built. Because the government stands behind and promotes the stick build industry. So they allow people to do these very, very low downpayment, all these different programs for first-time buyers and veterans and all this stuff. None of that exists in our space. So in our industry, you're looking at a high-interest rate a much larger percent down than single-family. And so you can't do it. And the only reason that homes get bought today, half of all home production is because the park owners backstop those loans, right. So if I bring in, you know, a $50,000 home, I don't cosign the note, but I guarantee the lender, if the person is foreclosed on, I won't charge lot rent, and I will go ahead and rehab the home at my own cost, and I will sell it at my own cost. And that's the only reason they will do it. And until the government wants to stand behind the industry and support it, which they've elected never to do, that will never change. If the government wanted to do that, which they easily could then you could see greater sales.
Sam Wilson 09:35
Right, that opens another can of worms, you probably won't go down that road. I'm thinking more along the lines of building new parks. Why aren't we seeing, I mean, maybe we'll ask that question differently. What is the challenge, outside of maybe the political challenge of building new parks, why don't we see other new parks coming online?
Frank Rolfe 09:52
Well, you never will. Okay. I mean, I've been in the business 25 years and I don't think in any given year you've seen more than 10 new parks ever build and about 100 torn down. So we've been depleting continuously. Here's the problem, and you can't blame the cities for it. I fully understand why as a homeowner, you know, it's a basic fact of life, the average American has a horrible stigma against mobile home parks around the residence. And nobody wants a park to go up near where they live, or even a business they own. If you simply go to Zillow and look at the single-family home price next to a park, it's about half of what it is a block away, same home, right? So the citizens go in an uproar if you try and build a new mobile home park, and of course, all their elected representatives on the city council, they're not wanting to get all the citizens to vote them all out over some stupid mobile home park. So they just will not grant the zoning, they haven't granted zoning in the United States from mobile home park in any significant amount since 1970. So it's been half a century now. And it's never going to change because it's a basic fundamental truth that you'd have to change the entire attitude of Americans towards trailer parks before you could achieve that. And that is never going to happen. No one is ever going to spend $100 billion in public relations money to achieve that. And that's why you won't see it. But even then, if you wanted to build one today, what you would have to do is you'd have to go way out in the countryside where there are no people to complain, where there are no zoning laws, and then you have no municipal water, no municipal, sewer, and no customers. So what's the purpose of building that? So that's the problem.
Sam Wilson 11:25
Yeah, absolutely. Are there any other headwinds that come to mind? I mean, in its own right depleting supply is good for you, as a park owner, that the value of the park goes up. It's bad for the end-user in the sense that we are once again losing more affordable housing, and not replacing it or building new. So that's bad for the end-user. Other headwinds in the mobile home park space that you can think of?
Frank Rolfe 11:50
Well, you know, what killed the mobile home parks before back in their heyday, which was in the 50s and 60s. What killed it was mass prosperity when people off suddenly got rich, and they all moved out, right? So you had that period in America, which is hard to even remember back that far, but I was alive during that period. When America was doing really well. And every year, people were making more money. And as people became more affluent, they were buying homes and subdivisions. And everything was great. When you were born, if you were ever back in the 60s, the atmosphere in America was very, very much different. We were really rolling at that time. And so the question is to defeat affordable housing, if you wanted to destroy all mobile, home parks, it's simple. Just bring back mass prosperity. And then no one needs mobile, home parks, they just all go buy custom homes wherever they can, build, you know, half a million, million whatever on the golf course, you know. But I don't see that happening. That would be the single biggest event that would kill the industry off. The only other items you have circulating around in some of the blue states, you have rent control. People talk about it frequently. Remember that in the entire United States, only one state has statewide rent control, and that's Oregon. So you know, the credit score is 49 no one yes, you've got four or five other states that allow it on a city by city basis. But you know, it's not a red state phenomenon. But if you have a mobile home park in a blue state, they seem to threaten that every year. They never pass it because they have no desire to ever pass it. Because the folks that run the government are all being subsidized by a whole lot of folks who do a lot of real estate ownership and development. So they're not really going to say, hey, I'll give you my big political contribution, despite the fact you screwed me over with rent control. I don't see that really happening. So no, you know, I don't really see any big headwinds to the industry. But then again, you know, America is so screwed up at this point. Every day is a new headwind. So who knows? Who knows where we'll be by the end of the day.
Sam Wilson 13:44
Right. Well said, Tell me about the RV parks because you guys are also well-known RV park owners. I know you kind of lump the two together for our listeners, maybe can you tell us why you lump them together? And then is there a difference?
Frank Rolfe 13:59
Yeah, sure. Well, you have to lump them together, because remember that they were all the same family up through the 1960s. So it was all called the trailer industry. You had trailer park, and you had a travel trailer? Yeah. And it was all trailer right. And what happened was a trailer manufacturer called Selby had a customer who wanted an even fancier, more expensive travel trailer. And they called up the state of Ohio and they said, Is there any way I could build this guy, an even bigger travel trailer? And the state said, Yeah, you know what, we'll let you go up to additional feet and width, but he can't pull it with his car, they'll have to pull it with a commercial vehicle. And that was the start of the industry splitting. Because what happened was people who wanted to not move their travel trailer frequently but wanted to have something bigger that became the mobile home whereas the traditional RV, person came to travel with shelter. The biggest difference in the industry be honest with you is the amazing job the RV industry has done with public relations, contrasted to the terrible job of mobile home park the industry has. So the Go RVing campaign is considered one of the most successful marketing campaigns in American history. The average American scores RV is very, very high in status and in satisfaction. So it's such a night and day difference. It's like you have two brothers one goes off to win the Heisman Trophy, be elected president and the other brother ends up you know, dropping out of junior college and becomes a sanitary engineer, even though they were the same industry at one time. So when you deal with RV, it's a luxury product, it's more of a classy customer. And it is something that everyone loves, right? Just as everyone hates trailer park, mobile home parks, they love RV parks. So it's a different kind of business. Now, the main problem you have is that RV is in fact a business. Whereas mobile home parks is very, very static. People never move around, they sit there, an average tendency is 14 years. They pay rent, you fix it when the utility pipes break. But an RV is like going into a restaurant, right? It's much more active. So you have to have customer service. And if you don't, they'll just go down the street to somebody who does. So that's the key difference. There's a risk profile difference between the two. A lot of lenders do offset that. They'll set the cap rate two points higher on RV than mobile home park because they want that extra comfort. And if you're lousy operator, even though you screw up, you can still cover the mortgage. Whereas mobile home park, you know, our managers or their worst manager ever, we probably won't lose any customers will probably have property condition issues, maybe a couple of collections problems. But an RV park with a bad manager can just wipe your RV park out.
Sam Wilson 16:38
Right? Absolutely. We've seen some incredible tailwinds in the RV space here just with deliveries in 2020, 2021. And then, you know, 2022, projected deliveries are just through the roof. Where do you see, and I think there's a unique thing that I've seen in the RV park industry is that people or cities are amenable to RV park development. So where do you see that going? Does this just peter out when people get tired of the pandemic and finally try to put that behind us? Or do we actually had, does that have runway?
Frank Rolfe 17:08
Well, you know, for a long time people thought RVs were not going to be a long-term thing because the majority of RV owners were baby boomers, my generation. And what they thought was going to spur it on the greatness would be a burst as you have the, you know, there's 10,000 boomers retiring today. I mean, I'm 61. So next year would technically be my where I would retire if I was at a normal job.So but what came out of nowhere that they did not anticipate was the millennials. Millennials are now as bigger bigger buyer of RVs than the Boomers were right. And that was a, I think you have to tie that to the phenomenal success of the Go RVing campaign. They were doing like, you know, all those Monster Energy extreme events, they were marketing it those way back then they had real foresight, whoever was running that marketing, they knew what they were doing. They didn't just focus on boomers, they could have just only promoted programs that appeal to boomers, right, like the Golden Girls or you know, golf tournaments. But no, they went after deliberately went after millennials and all of their most edgy millennial stuff. And as a result, they score very highly with them. And they are now half or more of all RV sales, right? So you have all these young people with RVs now and so that's what's given the industry a whole new life, because I didn't see that one coming, nor did anyone that was gift from the Gods. And then of course, the other part was COVID. I mean, let's be honest, COVID is one of the best things that ever happened to the RV industry, right? What happened was people now want to be outdoors. Some people have never been outdoors before. They never, they want to go somewhere without a mask. People said, Oh, well, you can walk around without a mask. They're like, Oh, holy smokes, man. I've never been outdoors before, what the heck, I like that. And also people now just don't like being around other people's nastiness. They don't want to go to hotels and stuff because they don't know who slept in the bed or who coughed on the remote. And so when they are in an RV, they feel like they have that safety from germs and strangers and all that. So I don't really see that going away. You know, the one part of the industry that someone will have to come to a conclusion with at some point is that, you know, a lot of people prefer retiring and living in RVs over mobile homes because of that stigma issue, which you'll never solve. So and I myself know, I know a college professor who recently sold his house, like a half a million-dollar house, and bought an RV. Okay, it's a single guy. And he just decided to sell everything and retire and bank the whole thing and just live in his RV. He would have never lived in a mobile home in a million years. He could never, culturally stigma, survive that but he can. The problem is a lot of cities, the RVs are not allowed to remain more than a certain number of days. Right? So those people end up in this nomadic existence. So what you need is kind of a hybrid, you need an RV park that you can retire in and live permanently. And that's going to be the real challenge. When cities grant these RV permits. Traditionally, they won't allow anyone to be there more than a certain number of days. And they do that live really because they are afraid if they do you know, there's an underworld RV of these kinds of nomadic freaky people who grew up around the river and they don't want them, right? Well, you don't want the guy that was living under the bridge down by the river, right? That's not your goal. So that's the real missing piece right now. And then the same goes with tiny homes, right? tiny homes can't go on traditional mobile home blocks, they don't have the HUD seal. So what happens is, you know, you see them on TV, but there's nowhere to put them right. And again, so that's the missing piece. And so I think at some point in the movie, maybe in the next five years, 10 years, 20 years, people will figure all this out, and maybe cities will allow what would be more of an upscale retirement kind of community that allows for tiny homes and things do not have HUD seal and yet don't have to move frequently. I think that's the only missing piece the industry has.
Sam Wilson 20:51
Yeah, that's really interesting. I had not even considered that side of the equation before. But yeah, that is really interesting. I mean, a lot of what we're seeing in the RV park space is in the long term tenant, though, when you get outside of those city regulations, of course, I mean, you have people that park their RV and leave them there for 12 months and come in every other weekend, have a good time. Really, really intriguing. Frank, thank you for taking the time to come on today and talk about mobile home parks and RV parks, certainly a blast. I've enjoyed it, learned a ton about both sides of the business. If our listeners want to get in touch with you or learn more about you and what you guys are doing, what is the best way to do that?
Frank Rolfe 21:27
Well, the best way to find my writings and all by different things just go to mhu.com just the letters M-H-U.com. You'll find so much more you can handle.
Sam Wilson 21:39
Frank, thank you again. I do appreciate it.
Frank Rolfe 21:41
You bet. Thanks a lot.
Sam Wilson 21:42
Hey, thanks for listening to the How to Scale Commercial Real Estate Podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen, if you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories so appreciate you listening. Thanks so much and hope to catch you on the next episode.