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Welcome to the Mobile Home Park Mastery Podcast where you will learn how to identify, evaluate, negotiate, perform due diligence on, finance, turn-around and operate mobile home parks! Your host is Frank Rolfe, the 5th largest mobile home park owner in the United State with his partner Dave Reynolds. Together, they also own and operate Mobile Home University, the leading educational website for both new and experienced mobile home park investors!
In 2022, the Federal Reserve started raising interest rates the fastest and the highest they ever had in the past 40 years. And when they started this odyssey, many people said, well, that's the gonna be the doom of real estate. Things are gonna start blowing out because with the increase in the interest rates come, increased pressure on mortgages that were variable, or mortgages that were being reset, and it was well as cap rates going up, making those properties less valuable. Now we're already seeing that manifest itself in the world of office buildings. Some of the sales have been absolutely horrific. There was an office building that sold recently in New York at 98% off of what it was originally intended to be valued at. And right here in St. Louis, we saw the largest office building in all of downtown, over a million square feet of office space, sell on the courthouse steps for less than $4 million.
Now, that would then beg the question, now wait, if there's all that pain and suffering out there, certainly some of it must filter down to Mobile Home Park. Surely we can't be having what is called the Commercial Lending Apocalypse, which is all of the $2 trillion of office and retail and lodging debt coming due all at one time and not have at least a little Mobile Home Park action in that giant pile of despair. This is Frank Rolfe, The Mobile Home Park Mastery Podcast. We're gonna talk about the common question I get today, which is, "Where Are The Distressed Mobile Home Park deals?" So why do we care? Well, many buyers of parks think of timing is an essential part of buying. The concept is always to buy low and sell high. So when times of distress come upon us as the Federal Reserve created with raising the rates, they're sitting around like hawks on a telephone pole waiting for those distress deal mice to walk across the field. And they're getting a little impatient because we're now two years into those rate increases. And yet you're not seeing that many Mobile Home Parks out there in a form of distress. So what is that all about? How can Mobile Home Park are not joining the ranks of the office buildings and the retail centers and the giant hotels? What's that all about? Well, the first thing you have to remember is that Mobile Home Park lenders have never been willing to stretch very far.
Lenders in office building sector, for example, always glamorized the product. They saw that giant marble and glass building, and they would often get almost giddy with excitement. So they would make ridiculous loans based on crazy estimates of value and wild aspirations of occupancy and rent growth. And they should have known better, but gosh darn, if the things were so good looking, they just wanted to attach their bank's name to it. It was also attractive to them to get involved in these giant office buildings, 'cause those were giant loans. Therefore, it seemed more exciting. And if they were commission driven, even more exciting to try and do that giant loan in that big old office building as opposed to a lowly trailer park, which wasn't nearly as attractive and nor nearly as large in size. And of course, moms and pops don't take you out to fancy lunches.
They don't wear expensive Italian suits. So once again, the banker thought, well, you know what? I don't think I wanna do these Mobile Home Park loans 'cause moms and pops, they don't. They wanna go out to Arby's and they don't wanna go down to the restaurant inside the Four Seasons. So lenders pretty much got carried away when it came to big office buildings, big shopping malls, big glitzy hotels, but they never really got that excited about Mobile Home Park. Most lenders in our space pretty much tolerate the borrowers, but they're not really excited normally to work with them. As a result, we didn't get that giddy lending. We didn't have people giving Mobile Home Park loans based on wild aspirations because that's not the way they may do that lending. So that's item number one is there's just not a whole lot of crazy Mobile Home Park loans floating around out there.
Another problem you have, it's not a problem if you're a park owner, but it's a problem if you're waiting for Distressed Deals, is that Mobile Home Park lot rents are ridiculously low and there's plenty of room to push those rents. The US average rent is about $300 a month, and that's a ridiculous number. Let's all be honest. Contrary to what the media may tell you, nothing else can possibly be priced at 300 a month. In the world of housing, the average house is $400,000. The average apartment is $2,000 a month. The average rental house is 2,500 a month. And here we are sitting at about 90% less than the apartments. So it comes as no shock that if you buy a Mobile Home Park at a 300 rent, you could probably double that rent to 600 and still be by far the cheapest thing in town because you would.
So a lot of borrowers in our space have had the ability to work their way out of the interest rate cycle by aggressively pushing rents. That does not also include the ability to fill vacant lots, fill vacant, park owned homes, bill back, water, sewer, and cut out other wasteful spending that mom and pop was often engaged in. So a typical park owner has the ability, even when the rates go up to right, the ship rates go up significantly. They can still push the rents up significantly and still balance themselves. You don't have that ability in an office building. Office buildings have declining occupancy, declining rents. Same with hotels. And we all know how bad shopping centers are. All you have to do is head to your local mall tonight. You'll walk around the mall and see that about half of it is vacant. And a lot of those storefronts are just pop-up storefronts done by people who are rank amateurs who know nothing about retail and they fail at an alarming rate, or they're people who are a little more seasoned.
But again, they're not blue chip customers. So that's another reason you don't see a lot of Mobile Home Park distress is the park owners can work their way out of the whole interest rate debacle. But another reason you don't see a lot of Mobile Home Park distress is simply the simple fact that the only way you would have distress with Mobile Home Park would be the timing of when your loan came due. Because Mobile Home Park loans typically are done on 10 year terms at conduit and 10 year terms to 12 year terms on Fannie Mae, Freddie Mac, and often 10 year terms in mom and pop. So really only regular old small town bank lending is gonna have a short enough term that it may come up during the cycle. A lot of park owners, unless their loan comes due right now, may never even know any impact from the higher rates.
They're sitting there with their fixed rate loans and not a care in the world raising their rents annually. So only the unlucky few that had their loans come up during what is now known as the commercial loan apocalypse would even know there was one, because they're not going out to the market, not trying to get a loan, not hearing what the current interest rates are, and they could care less about cap rates and appraised values. So that's another big piece of it is not a whole lot of our industry has probably got loans coming due right now. But then finally, you have to understand that there's a definite lag factor. And what the lag factor is that when a loan gets into default, when you're not making your payments, when lenders wanna work with you, they don't want it back. And they certainly do not want a Mobile Home Park back.
So instead, they will do what's called extend and pretend they'll extend the maturity on pretending everything will be fine under the hopes that you can raise your rents, fill your lots enough to make everything work out. Often you can, but maybe you can't, but they're still gonna hang in there with you for a while and try. So you always have this delay. If you look back historically on the Mobile Home Park industry and you dialed the clock back nearly, nearly 20 years now to the great recession of 2007, 2008, people were just clamoring for distress. They thought, well, surely there will be some Mobile Home Park that are in distress coming out of the great recession. And they waited and they waited and they waited. We didn't see much of that hit the market until about 2010, 2011. There's a very predictable delay of often two or three years.
And that does not even include the fact that when the lender finally gives up hope, the borrower might throw the thing into bankruptcy or do some other legal filing to further delay things. So the bottom line to it all is that yes, there may be some Distressed Deals out there coming down the road in the Mobile Home Park sector, but it's probably not going to be immediate and there won't be that many in scale. And while some people will say, well, that's just not fair, well, it's really a good thing for the industry because as the hotels and the office buildings and the shopping centers fall from grace, it further elevates our industry up several notches. We become even more mainstream, and most importantly, we become even safer to lenders who look out on the Mobile Home Park sector and say, wow, that's what I should have been making loans and not those glossy buildings. This is Frank Rolfe, the Mobile Home Park Mastery Podcast. Hope you enjoyed this. Talk to you again soon.