Alternative real estate such as mobile home parks and storage facilities are becoming a more solid ... [+]
There has been a recent shift of attention in the real estate market as to the types of investments which make the strongest returns.
In the past, it’s always been a combination of good design, prime location and strong architecture that were the elements of blue-chip properties. They still are, and there will always be a market and demand for these sorts of properties.
However, a change of attention away from these blue-chip real estate investments has been well-reported in the market. Blackstone acquired 14 manufactured housing, or trailer park, communities for $172 million in 2018. Apollo Global Management made a similar move when they acquired a majority stake of Inspire Communities, while the Carlyle Group owns several thousand of these types of housing lots. It’s a Golden Age of alternative commercial real estate investment.
“The stunning facilities I’d consider to be hero properties already have their value fully baked in, as there are typically a dozen buyers all vying for the location and willing to pay obscene cap rates, because they have such low cost of capital,” explains Jeremiah Boucher, the founder and CEO of Las Vegas based Patriot Holdings, on why he thinks there has been a rise in the alternative real estate market. “In these situations, the potential upside gets squeezed from too much competitive pressure among buyers.”
Jeremiah Boucher of Patriot Holdings takes a hands on approach to alternative real estate in order ... [+]
Patriot Holdings specializes in investing and improving alternative commercial real estate assets, most notably, mobile home parks and self-storage facilities. For the reasons he’s stated above, Boucher stays away from what he describes as “sexy assets” and massive corporate style properties, and instead offers a boutique service in this specific area of alternative real estate investing. Patriot strives to exercise more discrimination over their investments as compared to large-scale private equity firms through their hands-on philosophy and exclusive access to deals, but their main point of differentiation is that they own and operate every single property they are invested in. Whereas larger private equity firms might outsource management of these types of properties, Patriot Holdings controls everything from acquisition to development to serving the end customer, which means there’s less falling through the cracks and higher customer satisfaction, which yields larger returns for their clients. In total, the group manages over $100MM of assets and aims to double the portfolio size by the end of 2023.
“Right now, alternative commercial real estate is having its time in the light due to a rush of sophisticated large-cap private-equity groups looking to benefit from the outsized returns of the asset class,” says Boucher.
This time in the light is also a function of increased demand for mobile homes, which have become a means towards affordable, community-driven, stable housing as income inequality continues to rise. According to a report by the National Low Income Housing Coalition cited in a New Yorker article, out of all of the 50 United States, there is not one where someone working full-time at minimum wage is able to afford a one bedroom apartment at market rate. This has driven up the demand for subsidized housing, which now far exceeds supply, and as a result, many low-income US residents have turned to mobile-home parks for the most available, affordable, private-market options.
Happy retired senior couple standing in front of a holiday cabin aa affectionately with arms around ... [+]
This dynamic has placed a huge emphasis on customer satisfaction, specifically in the area of mobile home parks, where customer service has become hyper-important to the long-term growth and returns of this type investment. Mobile home park residents are oftentimes homeowners, as compared to residents in subsidized housing, and as homeowners are interested in creating and sustaining safe and livable communities and neighborhoods. Investment by large-scale funds have shown a certain erosion of the community aspect of mobile home park living due to the addition of corporate structures, lack of a personalized approach, and raising of prices. All these aspects potentially diminish the long-term return on investment.
“Instead of hiring commercial brokers, we built our own team in house for sourcing, diligence, and closing on acquisitions of new properties. Instead of hiring a property management team, we built our own because we simply could not wait weeks for maintenance requests to be resolved,” explains Boucher of his recipe towards sustaining returns in this market. “And lastly, our construction projects are always managed in-house and not with a third-party contracting company.”
It’s a long-term strategy that takes a highly-personalized approach to this booming corner of the real estate business, to which Boucher says, “We focus exclusively on what end-consumers need today and will need in ten years.”
