Are Mobile Home Parks Still Recession Proof?
It’s easy to forget, but not too long ago (April 2020) mobile home park owners were sweating bullets, wondering if anyone would pay rent that summer.
Thankfully, parks passed the pandemic test with flying colors.
Miraculously, as 2020 progressed mobile home park collections exceeded even the rosiest of expectations. How could this be? After all, office buildings sat empty, hotels became homeless shelters, & retail storefronts were boarded up.
Yes, there were exceptions. Some cities refused to process evictions for 2 years - regardless of merit - and a subset of tenants took advantage of that.
Yet most MHP tenants are good people that pay their bills. Consequently, mobile home parks performed like prior recessions: they kept on trucking.
Remarkably, high quality parks even increased rent in 2020.
2022 should be another banner for residential rent increases. Apartments are trending to double digit rental growth and manufactured housing will probably raise rents (yet again) in the 5% range. Ho hum.
Of course, predictable growth is less boring when those around you are bleeding cash flow. Now, we don’t think that will happen anytime soon. Recession or not, there just isn’t enough rental housing supply for a crash in rents.
Not to mention, if we are in a recession, it’s the weirdest one we’ve every seen.
Today's job report came in at 528,000 jobs added with the unemployment rate falling to 3.5%.
Looming recession or not, the nice thing is (at least historically) mobile home park owners haven’t needed to read the economic tea leaves. The best parks have only seen net operating income growth.
What Could Derail This Track Record?
Ok, let’s play devil’s advocate. Here is the only reasonable near term (next few years) scenario we can think of:
Inflation stays high for years, unemployment spikes and wages remain flat or drop.
Lower income tenants are disproportionately impacted by inflation. Gas, food and basic necessities take up a larger percentage of their income. Inflation is not great for our tenant base.
Should this scenario play out, expense growth would strongly outpace rent growth. For many mobile home parks, that is already happening, just not nearly high enough to lead to negative NOI growth.
The two largest park owners are reporting same store expense growth of ~7% in 2022. This nets out to ~3% NOI growth thanks to strong rent increases.
These are portfolio wide numbers though. Expense growth drag (higher insurance, energy, property taxes, etc.) might be more pronounced in plateaued markets where population shifts stagnate wage growth the most.
Thankfully, we’re not seeing wage declines. National wages are still rising.
Conclusion
In order to be negative on manufactured housing, you have to make some extreme assumptions about the economy.
Valuations might tick down (which is a whole different topic) but hard to see rent growth declining given the data, lack of affordable housing options and the widening rent gap vs. apartments.
**SIDE NOTE**
Shout out to the Newmark Manufactured Housing team for their informative yearly mobile home park expense analysis. Click below if you’d like to review.
It’s a great resource to check on expense ratios in the industry. Or better yet, share it (button below) and this newsletter with your non park investor brother-in-law to rub it in his face.
Happy Trails,
MHP WEEKLY