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To make serious money, invest in trailer parks as some of the world’s best investors can testify

Trailer parks have emerged as real estate’s top-performing sector over seven years, as private equity investors have sought to emulate returns enjoyed by the likes of Sam Zell and Warren Buffett.

Also known as manufactured homes, their value has risen by 160% since 2015 when real estate had finally recovered from the credit crisis, according to the CPPI index published by Green Street, an adviser. The second-best performer was industrial space with 145%. Offices only rose 10% and retail dropped 25% over the seven years.

I’m more bullish on parks than I’ve ever been, simply because the way the nation is getting more and more screwed up, parks seem to be the only thing on the right side of the dynamic

Sam Zell’s EquityLife Properties, the biggest owner of US trailer parks, with 165,000 sites, saw a share price gain of 210% over the period. Zell’s private investment business is Equity Group Investment. His family office is  Chai Trust. In contrast, David Simons’ Simon Property Group, a retail and office giant, fell 31%.

Other investors who have learned to appreciate the profitability of trailer homes include Warren Buffett, whose Berkshire Hathaway manufactures them and lends money to occupiers.

Frank Rolfe has built a $500 million trailer park estate over thirty years. He tweeted: “I’m more bullish on parks than I’ve ever been, simply because the way the nation is getting more and more screwed up, parks seem to be the only thing on the right side of the dynamic.”  

More often than not, trailer parks are the only homes that less wealthy individuals in the US can afford to occupy. They have offered investors a generous yield, and minimal delinquency rates, during the pandemic, a period of low interest rates. Their income did not rely on overseas trade. 

The new popularity of trailer parks harks back to the outperformance of subprime mortgages, marketed to individuals of limited means during the credit boom of 2007. But their success is more lasting.

In the UK, mobile homes more often equate with staycations and retirement homes. Caledonia Investments, backed by the Cayzer family, tripled its money on UK-based Park Holidays mobile homes over three years of ownership prior to the end of 2016.  Most sites, however, are owned by relatively small family businesses.

Over the last seven years, private equity firms like Carlyle Group, Apollo Global, Blackstone and Stockbridge Capital Group have snapped up a series of trailer parks to achieve economies of scale and operational efficiencies, which has not always gone down well with tenants. 

The Private Equity Stakeholder Project has published research which alleges private equity is out to squeeze tenants for profits. But Blackstone is among those to argue it is investing in its estate. 

But 20 million people in the US live in trailer homes, paying rent for the land they occupy out of an average pay of $30,000.

The National Low Income Housing Coalition says that not one US state can offer affordable space to workers on a minimum wage, following cuts in federal support. Sector occupancy is 95%. Competition for space has pushed rents to a new high, averaging $800 a month.

Yields on trailer parks have fallen below 5%. This is still generous compared to cash, although rising rates will reduce the attraction, push up delinquency rates and (possibly) increase tenant unrest.

Some see a big future in investing in relatively upmarket manufacturing capacity. According to Allied Market Research, the market could grow by 6.5% a year to $38.8 billion by 2027.  

Capital Square has bought a succession of manufactured retirement communities in Florida for wealthy investors. The facilities can include medical and entertainment facilities for retirees or staycation lets. The standard of finish, and cost, of the best-manufactured homes, have become increasingly attractive.

There are signs that the bull market in trailer parks is starting to ebb. In the year to April, according to Green Street, trailers generated 24%, but self-storage was the top performer with 64%. According to Bloomberg, Carlyle Group is weighing up the possible sale of its $500 million trailer park portfolio.

Sam Zell has chosen to diversify out of trailer parks by paying $3.4 billion for listed industrial specialist Monmouth Real Estate in 2021, arguing it was a hot sector set to grow hotter still.

Residential apartments, up 55% over seven years, remain more popular than trailer parks with most family offices. Cheap retail malls are gaining a little popularity.

According to DJ Van Keuren, general manager of Evergreen: “Families are at about 29.1% of their total portfolio in real estate and continue to be bullish with multifamily and then industrial leading the way.”

Omninet Capital is led by Neil Kadisha who helped develop communications group Qualcomm. Omninet recently switched its focus to distressed deals in residential and office space, where it sees recovery potential. 

Dan Norville’s Vivo Investment Group is taking advantage of cheap prices for hotels, and converting them into multi-family residential accommodation. 

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