Jason Sirotin:
It is. And guys, if you notice a difference in the sound quality, I forgot Glenn and I had a cast scheduled and I ripped down my studio because I’m rebuilding it, so we’re doing this straight on Zoom audio only. Next time, we’ll be back to normal quality.
Jason Sirotin:
Today, we wanted to talk about the pandemic and we noticed that our other pandemic episode had a lot of streams. And so I thought we’d check in with Glenn, where he thinks things are at now as we’re six months into the pandemic, based on where we’re at, where does Glenn think it’s going? And then if it gets better, where’s it going? And if it gets bad. So Glenn, let’s just dive right in. What has your experience been like over the past six months in the mobile home park industry during the pandemic?
Glenn Esterson:
Oh man, what do I tell people about this business all the time? It’s the hardest damn business. Excuse my language. It’s like a kick in the you know what all the time. The COVID experience has been absolutely no less different whatsoever. It is still extremely hard. However, what’s interesting is despite what might be going on outside of the [MH-RV 00:01:46] world right now, within the MH-RV world, we’re seeing an acceleration of transactions and acceleration of sellers interested in selling, but a significant decrease in the amount of overall buyers that are normally giving us a call and telling us they’re interested in doing all this prep work with us. They never make an offer.
Glenn Esterson:
What’s remaining though, and this is the most interesting part is that the buyers who are real buyers in today’s market right now, they are full steam ahead. I mean acquiring parks by the dozens by the week. We have one client that has, I mean, just since COVID has closed at least 10 parks that I can think of. This is an individual, not an institution, not som massive guy, but a real buyer in today’s market. He’s closed at least 10 parks through COVID and he’s under contract on at least another dozen. The institutions are making some serious, serious, big plays. Word on the street is that [Meredith 00:03:10] sold their portfolio to a very large buyer who I don’t want to say who it is, I think I know who it is. But from what I understand, it was a huge purchase that had to be involved, a billion plus involved in the price. There’s a lot of those plays going on right now.
Glenn Esterson:
We’re talking to numerous smaller portfolio owners that are looking to do more or less complete exiting so they can recapitalize and go chase other opportunistic deals that might be out there right now. Because a lot of the guys in this last cycle that got into MH were straight opportunists. We went from a 10 cap world to now we’re trading deals regularly south of a six cap and often in the four to five cap range. And so those guys are not being effective as buyers in the MH world. And if they can’t continue scaling, the next logical thing to do is to exit and get the returns that they were looking for. So we’re seeing a lot of that.
Glenn Esterson:
We’re helping a lot of investors contemplate if that’s the right move for them. But the buyers that are in there right now, man, there’s some great buyers. We’re having less re-trades. We’re having less deals fall out of contract. The velocity still seems there, but you do need to know who to target on the buy-side before just taking it out to market. I know a couple of my local broker friends in various odd parts of the country, they have some really nice listings, but they don’t know anybody and they take it out and they’re like, “We can’t get this thing sold.” Because they don’t know all the right buyers. So they go in and out of contract two, three times and the seller gets disappointed and says, “Take a break.” But the buyers that are out there that we have in our system, man, I’m really impressed with a lot of them. I’m really impressed with them. What does that mean as far as where we are in MH today within COVID?
Jason Sirotin:
Well, can I ask one quick question, Glenn, before we go too far? Do you think that the pandemic weeded out the less serious investors?
Glenn Esterson:
Oh, yeah. All the looky-loos, tire kickers, time wasters, whatever you want to call them, those guys know that they’re not even trying to pay market price in a overall distressed environment that they believe is happening right now. There is a lot of distress out there. I can absolutely understand if you’re opportunistic and you’re still seeing parks straight at some pre-COVID levels, it’s probably not going to fit your M.O. too well. So we’re seeing all those guys drop out.
Glenn Esterson:
Our database has got about 12,000 buyers, maybe something like that. We have pretty great interaction with a large portion of them, but we track everything, all interaction, right? So we can see overall that the majority in that buyer base has really pressed the pause button. But the top 300 in our database, those guys are on a roll. Those guys are on a real roll right now.
Jason Sirotin:
That leads to the next section, which is, so what’s going to happen next? We’re now as of today, which I think it’s the 23rd, we now have four million cases of COVID in the United States, it grew by a million in, I think it was 14 days. It seems to be exponentially growing. What happens if it continues to grow in your opinion, and then what happens if it decreases?
Glenn Esterson:
Yeah. Man, I wish I knew the right answers to these things. Everybody listening, just remember, I’m just some dude, I’m just some dude who just happens to stuck around, so don’t take this as any wisdom or any kind of I know what’s going on.
Jason Sirotin:
This is an opinion.
Glenn Esterson:
It is, it’s barely an opinion. [crosstalk 00:07:28].
Jason Sirotin:
Give yourself a little more credit than that.
Glenn Esterson:
Yeah. No, no, for real, all joking aside, if this pandemic continues to grow in this unbridled fashion that we’re seeing, it has to eventually hamper all things. But when you look at the hierarchy of needs for people and you look at what it takes in all things here, the base of all bigger and better things of happiness and whatever, everything else that is above starts with safety, security, and that’s generally your home. Okay? It’s generally knowing that you have the base support, that you have home, a roof, something over your head before you can even start entertaining almost any other thoughts. You need your home and you need some food. After that, at least you know you’re going to survive. Being that, mobile home industry is really at that bottom rung of your hierarchical needs.
Glenn Esterson:
I don’t think the impact is going to be as significant in the affordable housing section, whether that’s MH, whether that’s apartments, whether that’s who knows what you got, tiny home or whatever, I think the lowest rung, which is extremely important to America that we don’t give enough attention to is actually going to prove itself out to be the safest investment corridor during these types of recessions. Because my first mentor told me this, and I read it in a book before he even told me that, and I’m sure the guy that wrote it in the book heard from some other guy, you will always need a place to live. So if you are the property owner of those places to live and you’re in that most affordable range, that seems to be this MH industry right now, you should be fine right now within COVID collections more or less across the board, excluding obvious caveats and things like that.
Glenn Esterson:
We’re more or less at around 95% collections. Or stated a different way, there’s barely a delta between today’s collections and collections from 12 months ago. Now, of course there’s people taking advantage and all that stuff, but it’s not the norm in MH right now. There’s reason to believe that the impact on the economy is going to, it’s going to have a far more impactful environment in these higher end apartments, these secondary apartments, these second homes, these additional workspaces, these office buildings that scaled too fast and now have nobody in their space, but now they’re going to need to figure out how to social distance if they want their people to return. I think that’s going to be something that’s going to be very impactful. But at the end of the day, people are still receiving checks. People are still making money and they’re still going to need a place to live.
Glenn Esterson:
Now, if all things go to hell, and excuse the language again, then we got bigger problems. I mean, I wouldn’t want to speculate on things getting that bad because I don’t believe they’re going to get that bad. I truly believe the government’s going to get this under control [inaudible 00:11:11] sooner or later. I mean, even Trump is now wearing a mask on camera. So baby steps and things like that will get us through this. The government has always pulled through at the end of the day for these massive types of things. America has always pulled through, [crosstalk 00:11:32].
Jason Sirotin:
I believe in America. [crosstalk 00:11:35].
Glenn Esterson:
I’m scared about some of these, like how fast a vaccine is coming out, which is amazing. These doctors are brilliant and they’re so great, but I’m scared to be any of those first group test groups on the vaccine. So it’s going to be a couple of years in my opinion that we’re going to have some accelerated anxiety about everything, but I think MH is going to be able to weather the storm pretty well.
Jason Sirotin:
I hope it does.
Glenn Esterson:
And then moving forward, boy, if we come out of this thing, we’re going to really be looking like a shining star. It’s probably going to have a continued run. For some reason, I mean, I had this, me and Charles, my partner, we talk about this often is, if all hell does break loose and we end up in a hyperinflationary environment, the best remedy to hyperinflation is hard assets and hard goods. The dollar can get weak and things can get crazy expensive, but if you’re already in position with hard goods and hard assets, often that’s a safe position to be in.
Glenn Esterson:
You don’t want to be in a cash position. So if people start anticipating that being a reality, you’re going to see yet again another run at MH. Good market or bad market, I think MH is going to weather and I think it’s going to be fine. I think we’re going to have a nice resurgence into this industry. It’s going to hopefully breathe a lot of new capital into here and really upgrade at the end of the day, the majority of these parks, assuming the demand is still there for MH and I believe it will be.
Glenn Esterson:
I think the capital’s going to really come into this industry. I can’t tell you how many guys, just in this last 10 days I’ve talked to are looking to deploy at least a quarter billion dollars into this industry over the next 12, 24 months.
Jason Sirotin:
A billion?
Glenn Esterson:
Yeah, 250 million, a quarter of a billion, just in this year alone or in the next year or two alone. It’s impressive. Because the big guys are really noticing the security and the safety of, and resiliency of our industry. The small guys are sitting there, scratching their head going, “How the heck can I keep up? I can’t pay a seven cap or a six cap or five cap.” I’m working a deal in Florida that right now that’s a sub four cap. We just got our first LOI within 10, not 10%, it was probably within 3% of our offering price. And so that’s amazing in this environment, and that’s a 3.8 cap, which is just an absurd number. I’m not shy to tell the buyer that and I’ve had that conversation with him and he agrees, but the numbers work out and the risk exposure is thin.
Glenn Esterson:
For the small guy looking right now, if you’re an opportunist, I almost say there’s probably some stronger opportunities to look at over the next few years in hotels and in maybe some of these other retail categories, but right now people are definitely paying at or above market on MH.
Glenn Esterson:
Now, the guys who are sourcing their own deals, I have a buddy named [Corey 00:15:05] up in Michigan and he’s sourcing some really nice deals all by himself, cold calling all the owners he can and finding deals at 10 caps all the time. He’s got his own great little business. If you’re a buyer in today’s market and you’re able to have the wherewithal to call all day, you can still find a good deal. But in general, most of the deals that you’re going to see through brokers right now are not being discounted because there’s just not much distress in the MH industry.
Glenn Esterson:
If step out of the MH industry, it’s a different story. People are having a hard time understanding that why is it so different here compared to apartments or something right now, which are about, I think I read a report that it was either 85 or 90% collections on most [inaudible 00:15:53]. Self-storage is doing well from what I read as well, but still not as well as MH. And so these things all come together and they make things very confusing.
Glenn Esterson:
At the end of the day, this is what I tell most of my clients who are looking at things is, “You can’t look behind you for pricing. You always got to look ahead. And location, location, location will remain the number one rule of real estate.” In the words of Sam Zell, “If everybody’s looking left, look right.” Those three things still apply in today’s market probably more than ever.
Jason Sirotin:
Yeah. Do you think there’ll be lasting effects or changes due to COVID on the MHP industry? Has anything [crosstalk 00:16:35]?
Glenn Esterson:
It has to, right? It has to, right? It has to. I think there’s absolutely going to be some change, but with MH, one thing you’ll notice is we’re a pretty archaic industry overall. We’re slow to change in the MH world. Maybe that just means it’s coming real fast real soon, or maybe it means, “Hey, we’re still going to chug along at our own pace over the next two decades.”
Glenn Esterson:
But this virus stuff and personal safety and health concerns that everybody has now that maybe a lot of us didn’t have even just nine months ago are going to impact everything. I mean, jeez, I literally have not driven a car in over 100 days. Okay? It’s obviously going to affect all sorts of things.
Glenn Esterson:
It’s going to be a minute I think before all of us realize that, “Hey, whatever we’re calling normal now is absolutely a new normal.” Because I don’t think things are ever going to go back to this unthought… I’m not sure of the correct word it, but where you just approach things all haphazardly like we used to. Me and you, we were on planes twice a week every week like it was a thing and we just sat there like slobs on a plane doing whatever we want. I can’t imagine things return back to that, although I see pictures of people on planes. [crosstalk 00:18:03].
Glenn Esterson:
We’ve been strongly contemplating buying a Class A RV for our team. There’s some significant tax benefits and a few other reasons why it makes sense too, because I’m terrified of getting on a plane in the next 12 months. I think it might make sense to do some touring to meet with sellers and view some parks.
Jason Sirotin:
I have a better suggestion for you. Okay? I want you to really take this to heart. I think you should go out and close one of those billion dollar deals you were talking about and go buy us a jet.
Glenn Esterson:
Go buy us a jet.
Jason Sirotin:
Yes. You’d be cool with that, right?
Glenn Esterson:
I think I would be okay with that. But I’m also, I just don’t know if I would be comfortable with that anymore. Just the whole air flying thing is so convenient, but boy, it’s a dirty, dirty spot. Even if you own your own one, it’s not like you and me are cleaning it, it’s going to be some other person that I’m now going to have to trust they cleaned it properly. Boy, that’d be a hard one for me to stomach.
Jason Sirotin:
I’ve been a germaphobe for a while. And I’m like, since I got COVID in March, I do not give a shit. I don’t know, it’s super weird, man. But Glenn, thank you for all of the great insight to what’s going on out there right now. It is a turbulent time and I know a lot of people have concerns and questions, but the big takeaway from me was, “Hey, stay calm. Everything’s going to be okay. The mobile home park industry is strong and resilient, especially in economic hardship times because affordable housing is always hugely important, especially when people don’t have as much money.” That should make all of our friends in the business feel good. There are lots of deals. Some of the biggest deals ever are taking place right now. So do not back down on what you’re doing. Go full force and try to make the best out of this time. Maybe do a little more research, right, Glenn? [inaudible 00:20:13].
Glenn Esterson:
Yes. Boy oh boy, always with the due diligence, always with the due diligence and all aspects of things that are involved with your park. As we said earlier, it’s always going to be about location, location, location. I think there is very strong resiliency in our industry. I mean, the Great Recession was testament to that. We increased occupancy and [inaudible 00:20:44] year over year for the entire downturn here about… When was that? I guess at least 10 years ago now. I think that will remain in effect.
Glenn Esterson:
Guys, if you’re out there listening and you have questions, and you want to talk about it, and you’re a park owner, and you want to see how things are affecting your value, if you’re a buyer, you want to see how you can be more competitive and all that, that’s what we’re here for. That’s what I want to help you guys do. You don’t even need to use us as the broker, but we just want to be able to be a good resource for you guys and help you guys understand this industry and emboldened this industry to grow in an ethical way. I want to be a part of that with all you guys out there.
Jason Sirotin:
How can they get in touch with you, Glenn?
Glenn Esterson:
Reach out to me anytime. The easiest way to get in touch with me is through my website, that’s themhpexpert.com. There’s links on there to email and my phone number is on there. Of course, if you need me direct, you’re welcome to call. If I’m available, I usually pick up my phone. It’s 423-483-0492.
Jason Sirotin:
Glenn, thank you so much as always. I know a lot of people are going to find this information very valuable. On behalf of The Mobile Home Park Expert Podcast, I’m Jason Sirotin and we will see you next time.
