MHP Expenses Surging
Mobile home parks might be recession proof, but they’re not inflation proof.
Equity Lifestyle Properties (ELS) announced slower than expected NOI growth this quarter due to rising expenses. Revenue growth was a healthy 5.3%, but NOI growth was almost cut in half due to increased variable costs. While still positive, this lead to a disappointing quarter relative to Wall Street expectations.
ELS Expense “Lowlights” & Takeaways For Park Owners:
Utility costs grew by double digits. Even if park owners are passing through water/sewer charges, most mobile home parks have common areas to maintain.
Payroll costs are also up substantially (they didn’t disclose specifics). Owners are probably paying more for rockstar managers. If not, you might want to think about surprising him / her with a big Christmas bonus; otherwise they might look for a higher paying gig.
Transient spaces (RV, campground) can’t recapture utility expense increases as efficiently as long term tenants. Many RV parks are just eating higher energy + water costs.
Insurance & property taxes also saw dramatic increases as property values skyrocketed in 2021. A large number of ELS’s Florida parks are seeing 20% insurance premium increases thanks to the recent hurricanes. Their insurance provider (Lloyds of London) will probably spike their rates again next April thanks to Hurricane Ian. Regardless of the state, premiums should be up again next year. Our insurance broker is estimating another 5%+ insurance premium increase in 2023 for multi-state portfolios.
2023 Expenses
It’s just about budget season (yeah!… just kidding, budgets are the worst), so what will 2023 expenses look like? This is probably one of the hardest years in recent memory to prepare a reasonably accurate budget.
A recession in 2023 would mean higher unemployment and a softening the labor market. Although we’re firm believers in paying your managers well, we don’t suspect excessive labor increases in 2023 versus years prior.
Utility prices are a wild card. Electricity’s up 25% from last year in some markets. All bets are off on electric expenses until the war in Ukraine is resolved.
Property valuations should start cooling off, if you’ve already received a hefty tax bill this year you should breathe easier when opening that next property tax bill.
The Good News
Thankfully, expense growth won’t keep 2022’s pace for long. Plus, just about all the large firms are forecasting healthy demand (and rent growth) in 2023 while other industries seem to be stockpiling food & ammo, preparing for “winter”.
Happy Trails,
MHP Weekly