Interview with James Cook of Yale Advisors
Updated: Nov 15, 2022
Listen on Apple Podcast here: https://podcasts.apple.com/us/podcast/interview-with-james-cook-of-yale-advisors/id1520681893?i=1000570504764
Welcome back to the Passive Mobile Home Park Investing Podcast, hosted by Andrew Keel. On this episode of the Passive Mobile Home Park Investing Podcast, Andrew talks with James Cook from Yale Advisors. As a broker in the niche market of manufactured housing communities, James has excelled and is known by sellers for selling top quality assets at extremely low cap rates. James and Andrew discuss how to identify bad mobile home park deals, the hardest value add component in Mobile Home Parks and the trade- off between current interest rates and the exit cap rates that are currently at a record low. Andrew and James also discuss what MHP's looked like during the Great Recession of 2008 - 2011.
Yale Advisors handle all aspects from confidential displacements, to running full marketing and the call for offers process. Yale focuses on institutional grade mobile home communities ranging from 50 sites to 1,000+ site portfolios. James' primary focus as a broker at Yale Realty & Capital Advisors is assisting buyers and sellers of quality Manufactured Home Communities and RV Resorts. He has successfully closed on the sale or financing of roughly $1 billion in production and could be considered one of the top brokers in the Mobile Home Park space.
Andrew Keel is the owner of Keel Team, LLC, a Top 100 Owner of Manufactured Housing Communities with over 2,000 lots under management. His team currently manages over 30 manufactured housing communities across more than ten states. His expertise is in turning around under-managed manufactured housing communities by utilizing proven systems to maximize the occupancy while reducing operating costs. He specializes in bringing in homes to fill vacant lots, implementing utility bill back programs, and improving overall management and operating efficiencies, all of which significantly boost the asset value and net operating income of the communities.
Andrew has been featured on some of the Top Podcasts in the manufactured housing space, click here to listen to his most recent interviews: https://www.keelteam.com/podcast-links. In order to successfully implement his management strategy Andrew's team usually moves on location during the first several months of ownership. Find out more about Andrew's story at AndrewKeel.com.
Are you getting value out of this show? If so, please head over to iTunes and leave the show a quick five-star review. Thanks ahead of time for making my day with your five-star review of the show.
00:21 - Welcome to the Passive Mobile Home Park Investing Podcast
01:55 - James' journey into mobile home communities and his first listing
04:20 - About Yale Advisors
07:12 - How are buyers able to pay the prices they're able to pay and where that is going into the foreseeable future
10:28 - MHP's in The Great Recession of 2008 - 2011
13:35 - The best opportunity or strategy right now for operators in the MHP space to create a good return on investment for people
15:39 - Aggregating an MHP portfolio
19:11 - The most important things that passive investors need to look out for when investing into mobile home parks
22:04 - James' perfect mobile home park
27:07 - Getting in touch with James
28:07 - Conclusion
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Links & Mentions from This Episode:
Yale Advisors: https://yaleadvisors.com/
James' email: firstname.lastname@example.org
Keel Team's official website: https://www.keelteam.com/
Andrew Keel's official website: https://www.andrewkeel.com/
Andrew Keel LinkedIn: https://www.linkedin.com/in/andrewkeel
Andrew Keel Facebook page: https://www.facebook.com/PassiveMHPinvestingPodcast
Andrew Keel Instagram page: https://www.instagram.com/passivemhpinvesting/ Twitter: @MHPinvestors
Andrew: Welcome to the Passive Mobile Home Park Investing podcast. This is your host, Andrew Keel. Today, we have an amazing guest in Mr. James Cook, the National Director of Brokerage at Yale Realty & Capital Advisors.
Before we dive in, I want to ask you a really quick favor. Would you mind taking an extra 30 seconds and heading over to iTunes to rate this podcast with 5 stars? This helps us get more listeners and it means the absolute world to me. Thanks for making my day with that review of the show.
All right, let's dive in. James' primary focus at Yale Realty & Capital Advisors is assisting buyers and sellers of quality manufactured home communities and RV resorts. Yale handles everything from confidential displacement to running full marketing and the call for offers process. Yale focuses on institutional grade communities ranging from 50 to a thousand-plus site portfolios. Having successfully closed on the sale or financing of roughly $1 billion in production, it would be hard pressed to find a more experienced or capable broker in this niche asset class. James, welcome to the show.
James: Andrew, it's good to be on the show. I've rarely heard voices that belong more on the radio than mine, so good job, man. Now I know I got to go in the podcast business.
Andrew: Man, I love it. Thank you for that. James, would you mind starting out by telling us your story and how you got into manufactured housing communities?
James: I think like you, I started in residential briefly as a fresh licensee. I got encouraged to get into real estate by one of my best friend's dad who was a successful developer and residential agent, when I was really young. He talked us both into getting our license at 18.
I was still running a family business at the time and I think I realized early on I didn't want to be in the residential business. It was a little more of an emotional business. I did fine in it, but realized it was a lot of emotion and didn't seem to have a lot of rationale why people did certain things in the residential world. I've always been interested in investments and numbers, and just enjoy the math side of the business, returns, and things like that.
That's, I think, originally why I started looking around at investment real estate. Ultimately ran across an owner in my hometown where I grew up in North Florida, who had a mid-sized manufactured home community. At that time, it was like a pocket listing. I put it on, I think, an early version of LoopNet, and my phone rang off the hook.
I said, okay, this is an industry where there are a lot of investors looking to get in and there's a need to go out there and find more of these community owners that are looking to sell. About 21, I went full-time into just brokering manufactured home communities.
Andrew: Wow and when was that first mobile home park listing?
Andrew: 2005, wow.
James: I don't know what it was, I think it was an early version of LoopNet, but my phone rang off the hook. Back then we were in a scrappy business, as you might imagine. We didn't have all the big funds. It was a decent size. It became an institutional size asset.
At that time, what I would call the big operators in 2006, 2007, 2008 they didn't want to touch anything below 250 spaces, and now they're happy to buy 100-space park in a good location. At the time, there were a lot of smaller mom and pop investors, and people were specifically looking to buy mobile home parks because they could get special terms, owner financing.
It wasn't as competitive much like it is today. It was less competitive than multifamily. But we've come a long way. There's a whole different profile of buyers. We could talk about that at some point, but I'll let you kind of stick with your questions.
Andrew: That's awesome. Maybe you can tell us about Yale. I know you have a big team on the capital side as well. Just introduce us a little bit.
James: Of course. Somewhere in 2018, when the market started correcting with the great financial crisis, I guess the residential mortgage bubble popped. I started noticing that financing was really the tail that wagged the dog. If you didn't have financing, you didn't have a deal.
Owner financing is great, but a lot of the sellers want to cash out. Their thoughts are they're going to run it as long as they can run it and if they sell, they don't want to have any contingent liabilities with the property. They don't want to worry about what happens to it after they sell it.
At that point, I actually asked my assistant to start calling banks and we started compiling banks that would finance this. It went well. I learned about agency financing—I did some agency financing at the time—found a couple of balance sheet lenders that like this space, and we kind of sold a couple of banks in the space, and that was what was facilitating deals in 2008, 2009, and 2010.
I had a couple of pocket buyers. They had deep pockets and a couple of really close clients that had deep pockets. GE was still running a credit facility at the time, which was very productive. Around 2012, I moved down to Miami, met Chris San Jose early on in that, I guess it was late 2011 when I move down here.
Chris San Jose was a fresh grad with a real estate finance double major, hired him, and we quickly realized that he would just be a really good fit for that side of the business. He has since built that business. I know he's financed a couple of hundred parks himself now. I know his financing volume has been in excess of a billion dollars.
Then around 2014 or 2015, we started layering in regional directors because at the time, I was still servicing primarily Florida and I would get calls from guys to fly out to Arizona and work on a dealer or fly to New York and go work on a deal. I realized that there's just such a need for specialization, not only in the asset class, but in the region, because you have different states with different laws, you have different operators, and different kinds of regional players that it was just impossible for one person to kind of know all the major players.
Fast forward to 2022, we've just hired our 11th regional director so we've got somebody actually covering the New England market, specifically New Hampshire, Maine, Rhode Island, and Connecticut. We think we've got the rest of the country covered with ten other directors, including myself else down in Florida still. We probably closed deals in over 30 states last year between the financing division. I think we financed and sold about 115 parks, right around 15,000 sites last year.
Andrew: That's amazing. I get your marketing emails and I see you guys selling stuff at 3½ cap. Maybe let's just talk about the elephant in the room here. How are these buyers right now able to pay some of the pricing they're able to pay and where do you see that going into the foreseeable future?
James: I think we're all wondering where cap rates are going to go with interest rates almost doubling. It's a good question. We were borrowing in the threes and now—I haven't got a rate check with Chris in a couple of days—I got to imagine your best possible financing is going to be in the mid fours, and your power financing for three-star or a smaller deal, is going to probably be in the upper 4%–5% range. It'll be interesting to see where it shakes out.
One thing that we've all benefited from across the whole country has been the lack of housing. I was in a presentation recently that Blackstone did and they brought up the fact that America has 5 million homes under supply. We've got these two factors that are colliding. You've got a rising cost of capital, but you still have a severe undersupply of housing, and we've been benefiting from it without really processing kind of where all that was coming from.
Owners have been getting away with extraordinary rent increases ever since COVID. We were in that fetal position for the first six months of COVID and then I think by the end of 2021, it became very clear there was a mass migration out of inner cities and out of apartment complexes to detached housing. Manufactured housing fit into that.
I don't care if you were in Ohio, or you're in California, or Florida. You just saw a massive increase in demand. Any states that weren't rent controlled, we're getting away with pretty large rent increases. I think the norm was all of a sudden 7%, 8%, 9%, or 10%. You do that a couple of years in a row, and it looks really good, especially if you continue to borrow at 3% or 3.5%.
We all should have expected that party was going to end at some point and I think we're now paying a little more fair cost for capital. I'm a little worried they're going to overshoot. I'm worried that rates are going to get too high and then they're going to come back down at some point once they slow the machine down a little bit. We'll kind of see where that goes.
Realistically, I'm actually worried that the midsize investor is going to be the one that gets hurt the worst, because I believe from everything we're seeing, the institutional investors will keep moving because they've got trillions of dollars stacked up on the sidelines, that money is going to be placed, and they're going to kind of look through the storm and say, okay, this is going to shake out, and we're going to continue to have an undersupply of housing and rents are going to continue to go up.
It looks like as of right now, that money is going to keep plowing into the space. Will these three cap deals keep happening? Or the sub three cap deals? Maybe those will slow up a little bit, but I think that for the middle of America deal, if you're buying in the 4%–6% range, you are finding value, and you are finding areas to lease up spaces, improve the community, and raise rents, even that turn over, I think those deals are going to continue to happen. Investors like you are going to do well on those over the long run because we're going to see the cost of housing increasing and therefore, rents are going to increase.
Andrew: That's a good point. Could you speak a little bit about 2008–2011, during the Great Recession? What did the mobile home park industry look like at that time? What were some of the negative effects that were felt in manufactured housing?
James: Manufactured housing suffered its own crisis, which was the shadow lending crisis, about the time I got in the space. There were a couple of things. You had a fair amount of foreclosures and mobile homes going on before the great financial crisis. At one point, you had lenders handing out all this lending to consumers to buy mobile homes and so you had a bunch of homes bought by people who couldn't afford them. Shadow lending kind of blew up before the great financial crisis.
When I got into space, especially in the middle of the country, you had a fair amount of vacancy. You had homes you could buy from the lenders for a good price and guys were even still poaching, buying homes out of people's park, pulling them into their park. It was kind of a scrappy business.
Somewhere around 2009–2010, I think we caught our footing and this industry just really took off. If you look at it, I think it was 2007–2008 when I first started the business. Maybe you can count on one hand the number of real institutional funds in the space. Today there's somewhere between 80 and 100 that have over a billion dollars of assets under management. Some of these groups literally have hundreds of millions or even billions available to invest in the space.
We've gone from five to probably nearly a hundred funds investing in the space. From the consumer standpoint today, almost every manufacturing community in any viable market run by a competent operator is well occupied. The biggest challenge the owners have is they can sell homes the day they get them. It's either finding used homes, finding the labor to fix those up, and then getting them ready to sell. Or it's the fact that the supply chain is so messed up that you can't get a new home for almost a year. I think those are the challenges that we're seeing today.
Back then, you had some vacancy, rents for the homes were lower, prices for the homes were lower, and we were having to owner-financed homes. Somewhere, I guess when the Obama administration came in, they tried to ban owner financing, essentially. Owners either had to get some additional licensing, or hire a third-party mortgage servicer to handle those, or do rent-to-own and use some different techniques to work around that.
I guess we've been through a lot of different challenges, but in the end, our industry has always seen steady growth. I remember looking at financials from 2007 to 2008 and we really didn't see a drop in the 2008–2009. We would see growth in 2009–2010. We kept seeing growth on people's P&Ls year over year. It was just different challenges, whether it was finding homes, whether it was buying foreclosed homes, fixing them up, and the problems kind of move around, but the industry has always been steady and stable. I think it's a safe place to invest.
Andrew: That's great feedback there. What do you feel is the best opportunity or strategy right now for operators in the space to create a good return on investment for people?
James: I think there are two programs. There's the groups that are just aggregating assets, that folks like you've probably bought and fixed up, and they're going to roll those up into portfolios, continue to find economies of scale, continue to raise rents, and then probably sell those off in a larger portfolio, or to a REIT, or to a major fund that might want to go public.
Just like any other business, you have different folks in different stages of the cycle. If you're kind of buying that $1–$10 million range, you're really buying off of typically your mom and pop again, or maybe an aggregator that bought an asset that's not in their wheelhouse. They bought it either in a portfolio, or it's not near their core base, or it's too far away for some reason. You're going to follow up on somebody who has not maximized occupancy, who has not improved these communities. It's the old business model to find a community that's under maintained, under rented.
The majority of our sales, even still today, are for long-time owners. There's almost a curve of you get in the business, you build the thing, you're interested in it, and then as the investor ages, maybe they built it in their 40s or 50s, and then when they hit their 60s or 70s, they've got other interests in life. They want to spend more time with their family, travel, semi-retire, and maybe the kids aren't involved yet, so their interest wanes. They're not keeping rents at market, they're not maintaining the community, and they're letting some vacancy creep in.
Those are the opportunities that I think aggregators can find, improve, find some economies of scale, and do well with individually. Then of course, like we talked about, if you assemble a few of those, you get inherent cap rate compression.
Andrew: Maybe touch on that a little bit. You mentioned a portfolio and aggregating a portfolio, maybe touch on the benefit and how much lower of a cap rate operators could expect aggregating a portfolio and maybe what matters most? Is it a location play, having economies of scale in a certain market, or is it having similar quality? Is that important when aggregating a portfolio? Or its size? If you have a bunch of 30 lot mobile home parks, is that obviously not going to be as valuable as a bunch of 100+ lot mobile home parks?
James: What I found in this business is, unfortunately, there are no rules that stick. There's a portfolio that's selling right now in the Midwest and it's a bunch of 50 and 60 space parks. Granted, they're mostly in one state and for a long time that was kind of thought of as non-institutional and its trading to an institutional player.
Again, when I got in the business in 2005 and full-time in 2007, the rule was you had to be overturned spaces. Then it went to 250, 200, 150, 100, and now we're down to, frankly there's been a lot of consolidation in 50 space communities. We just stop and just say, look, it doesn't make sense to own communities below a certain size if you're an institutional investor.
In a perfect world, you're building a portfolio of probably a thousand of spaces in a region, and that region could be the Southeast, it could be the Mid Atlantic, the Northeast, any region in the country. I think a thousand spaces really gets a lot of attention. Obviously, the closer it gets in proximity to each other and the larger the individual assets are, the lower that cap rate is going to go.
Along the way, when you're acquiring those, if you're buying them off that typical 40-year-old, first generation aged out or second generation inherited it, you're immediately walking into usually 10% to 15% to 20% rent growth off the bat. Within two or three years that can be accessed. I would say the norm may be closer to 20%–30%.
Then you're walking into some economies of scale that should have between multiple assets. You're walking to some vacancy that you can fix over time. You're getting those operational improvements automatically. Even if your acquisition capital was a five and your exit capital was a five, you'd still make money.
What we've seen traditionally is—you could probably answer the question better than me, what you've kind of seen in your acquisitions—you're probably acquiring mostly in that 4.5%–6.5% cap range, depending on where it is, region, quality, size, all that.
Then as a portfolio, we've seen most of these portfolios of three-star assets trade down to around the four cap range if you're talking about 500 spaces or greater, preferably a thousand. And there are outlier deals that are trading in the threes and there are outlier deals that are trading in the twos, just depending on the story.
I think for the majority of the people on this call or that are going to be watching this, you're going to be talking about 75–150 space assets, single wide assets in tier two or tier three cities. You're going to buy them and probably get 100–150 basis point on the cap rate compression on the exit if you exit if you aggregate a thousand spaces.
Andrew: Yeah, that's awesome. That was my ballpark, so that was good to confirm that. James, this is something I ask all my guests. What are the most important things that passive investors—we're talking limited partners here—need to look out for when investing into mobile home parks?
James: I'm an investor in maybe 30–35 LPs, multifamily, manufactured housing, and RV, and obviously the number one thing is the operator. I think it comes down to investing with a competent operator with a competent business plan. I think one thing that I always liked, Andrew, when I heard your story about you going to live in a community and learning the business from that side, I've had people in my entire career saying, oh, we'll just throw a bunch of money at you. Why don't you go buy all these assets and operate them?
I think my approach was, I want to win this business. I want to be in the brokerage side for a long time. I'm not in a rush to compete with my clients. I've had the opportunity to invest in deals with folks and had the opportunity to buy a couple of deals on my own or with a limited group of partners that we just didn't feel like we were competing with. The seller didn't want to list it, didn't want us to represent them, was reasonable on pricing, and it was just too obvious or easy to pass up.
In general, I'm scared of that side of the business because it's operation-intensive and you need to be full-time–focused on it. You've got to pick a partner that has the team to execute that business model, and then you want to be investing in people with ethics. At the end of the day, they got to be decent and good operators. They got to be just good overall people with a track record that you're comfortable you're not going to have to chase your money, because in this business, it's basically reputation credit is what you're running on.
You've got a share of a deal, but thankfully, across the probably 40 deals I've invested in from end to end, we've never had anybody run off with their money or mishandle our money. We've made very little money in some deals. We've made incredibly strong returns on other deals.
I think it's obvious you want to look at the operator's track record. You want to get a synopsis of their last maybe three or four full cycle of deals—if they've had some—and find out what their acquisition price was, what the exit was, what those investors made in the whole, and what the return was.
I think you just set your expectation that you're going to average somewhere around your pref return plus a few percent, and be pleasantly surprised if it ends up being mid teens to low twenties on an exit. Either which way, if you're making over 5%, you're beating anything you can do pretty much in the passive world. If you're investing with a good operator, a good honest group, you're going to be pretty happy with this industry overall.
Andrew: That's great feedback. James, what does the perfect mobile home park look like in your eyes and why?
James: I've always said every deal has got some amount of hair. If it's not the property, it's probably the owner, or the financials, or the government. There's always some here on it. There's got to be a universal hot crazy matrix, there's got to be one for parks. If it's too good of a deal, there's a problem.
Resident-owned homes are ideal. Be in an area with at least steady economic, underlying fundamentals, and I think large enough lots to facilitate at least 66 foot homes or greater, at least 14 wides, but ideally 16 wides, to get modern three bedroom, two bath homes in there. Those are things that we look for.
Again, there are a million exceptions. If it's an urban infill location in Orlando, Miami, Tampa, you're in a major MSA anywhere in the country—I don't care if you're in Albany, New York, or you're in St. Louis, Missouri—you could definitely fill a park with older homes because it's all about convenience and you can gear that towards seniors.
In general, larger lots can fit modern, at least single wide off-street parking. We're never lucky enough to get those deals that we invest in, but city utilities are great. I'm not afraid of private utilities. In fact, often you can provide private utilities for $10 a lot and you're getting $50 of value in your rent out of it.
Water and sewer has a $50 retail value, maybe $60, maybe $70, maybe $80, or maybe $90 in some major cities. A well-run treatment plan and well that's checked out and diligence properly by a good operator like yourself is a good play.
In a perfect world, again, if you're asking me for my Christmas wish list, give me city utilities. Hopefully, they're not metered yet. I can just throw a meter on them, get that expense passed off to the resident, and free up some capital. That way I can [...] up. Ideally it's over 100 units, but if your lot rents are strong and it's in a good market, at least 50 units.
I think the biggest thing that you have to look at when buying these communities—I know you've learned this the easy way and the hard way—is what's under the ground. It's not what you see that gets you, it's what you don't see. It's the water, sewer lines, and the electric infrastructure. You're talking about terracotta clay that's in really bad shape. Can you reline it? Do you have to replace it? Then some of those old water lines, is it galvanized or copper? They can be problematic.
I think knowing those things going in, kind of building in for your worst case scenario and your model of oh my gosh, those utility lines run under my streets. If I'm going to work on those, I'm going to have to tear up all my streets, replace them all, and then replace my streets. That's a half-a-million-dollar to a million-and-a-half-dollar problem on a small park. Those are things you got to know about.
Again, a lot of guys have dumb luck in this business and you probably have bought a bunch of communities. I know guys have bought 10, 20, 30 communities and never really had a full overhaul, but that can bite you sometimes. If I'm writing down my Christmas wish list, give me PVC utilities, fully redone, all Schedule 40. Those are the ideal things that you'd like to see in a community.
Andrew: I 100% agree with you, James. I learned the hard way. I was talking with an LP earlier this week and I told him every single deal that we've bought, we've learned something and added to our due diligence checklist. That's the value of an operator that has a track record because you learn from every single deal.
James: When you're getting in the business, you have the benefit of your learning, but you're buying at a higher cap rate. One thing I've learned is that sometimes you can actually rule yourself out of deals. It's kind of like meeting a 50 year old bachelor. Nobody will ever be good enough for him because he's got so many rules.
I don't buy parks with this, I don't buy parks with that, I don't buy parks with this. I'm like, if I look at your portfolio, you wouldn't have acquired anything you own and wouldn't have made anything you've made based on your stiff criteria.
You have to pretty much go in with the mindset that everything has a value and I'm willing to buy almost any situation, but it just has to be price-adjusted. A perfect park, all the boxes checked. I'm going to be paying a cap rate that's going to look like the interest rates, maybe even a little lower if there's room to remove the rents. As you get away from that, you should get a little bigger yield or just have more upside to compensate for it.
Andrew: That's a great way to look at it. James, I'm going to cut us off here. We'll go all day, man. I really appreciate you coming on the show. Tons of gold nuggets for our listeners. If anyone would like to get a hold of you or check out Yale Advisors, what's the best way for them to do so?
James: Our website is yaleadvisors.com. I think all our contact information is on there. In general, we try to work with end park buyers. If you're looking for a good group to invest with, I'd say do your research. From what I know of Andrew, they do a great job. I've seen them do great turnarounds and I would definitely give them my endorsement.
If you're looking to buy manufactured home communities or you own one or ten and you need to refinance, please reach out to us. If you have an asset you want to talk about repositioning it, or how you're going to maximize the value, or you're just looking to sell, we'd love to help. Go to yaleadvisors.com. All the information is there. Got a nifty little map. You can kind of see where everybody's at and also you're clicking the team. If you need to, just shoot me an email. My name email@example.com and I'll point you in the right direction.
Andrew, thanks for having me on the show. It's great to catch up, man.
Andrew: Thank you so much for coming on. That's it for today, folks. Thank you so much for tuning in.