Interview with Kolman Bubis of Sunstone Real Estate Advisors
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 Kolman Bubis, a founding partner of Sunstone Real Estate Advisors (or Sunstone REA). Andrew and Kolman talk about what passive investors (Limited Partners) need to look out for prior to investing into the mobile home park asset class, in addition to what Kolman’s perfect mobile home park looks like. They also discuss Kolman’s advice for LP’s, and discuss Sunstone REA and mobile home park operations. Kolman also uses his background and expertise to answer questions about the future of the Manufactured Housing business as well as his personal vetting process for deal sponsors.
Kolman has been instrumental to the success of Sunstone REA in their completion of brokerage, capital placement and consulting assignments. He is also founding partner of Sunstone Mortgage Capital, a sister company of Sunstone Real Estate Advisors, founded in 2013. Before Sunstone, he worked at Marcus & Millichap, where he focused on the brokerage of mobile home park properties. Kolman helped clients with fine-tuning their property disposition, acquisition and investment strategies. He went to school at Indiana University and holds a Bachelor of Science degree in Public Finance.
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.
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00:21 - Welcome to the Passive Mobile Home Park Investing Podcast
01:49 - Kolman’s story and journey into mobile home parks
03:30 - Kolman’s view of mobile home parks during the 2008 recession
09:50 - Handling the property management side of things
10:41 - The most important things LP’s need to look out for
12:49 - Kolman’s vetting process when looking at operators
14:07 - How Kolman finds his deals
17:00 - Fishing and real estate
20:03 - Kolman’s perfect mobile home park
24:00 - Common mistakes new operators make
25:12 - Inside tips on water lines and utility infrastructure
26:00 - Hurdles in the future for the Manufactured housing industry
29:00 - A little about Sunstone REA
31:53 - Getting a hold of Kolman
32:24 - Conclusion
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Links & Mentions from This Episode:
Sunstone Real Estate Advisors: https://sunstonerea.com/
Kolman’s email: email@example.com
Kolman’s phone: (312) 568-4818
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/PassiveMHPin...
Andrew Keel Instagram page: https://www.instagram.com/passivemhpi...
Andrew: Welcome to the Passive Mobile Home Park Investing podcast. This is your host, Andrew Keel. Today, we have an amazing guest, a mobile home park broker and owner, Mr. Kolman Bubis of Sunstone Real Estate Advisors. Before we dive in, I want to ask you all a real quick favor. Would you mind please 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 the review of the show. All right, let's dive in. Kolman is a founding partner of Sunstone REA. He has been instrumental to the firm's successful completion of brokerage, capital, placement and consulting assignments. He is also a founding partner of Sunstone Mortgage Capital, a sister company of Sunstone, started in 2013, and he also owns a few mobile home parks himself. Prior to founding Sunstone, Kolman worked at Marcus and Millichap focusing on brokerage of mobile home park properties. Kolman assisted clients with fine tuning their property dispositions and acquisitions, also helping them with their investment strategies. Kolman, welcome to the show.
Kolman: Andrew, good to see you my friend. I appreciate you having me on and always good to get out into the interwebs and help people learn about mobile home investing. I appreciate you having me on and I look forward to catching up.
Andrew: Yes sir. Would you mind starting out by just telling our listeners your story and how you got into manufactured housing?
Kolman: Yeah. Like a lot of people, sort of dumb luck brought me into manufactured housing. I started fresh out of school at Marcus and Millichap. There was no one else, at that time, competing for the MH business in the Midwest for the firm. Some other guys obviously started to creep in, but I just didn't want to compete with everyone else in the office even though I really had no knowledge at that time of anything about manufactured housing.
So dumb luck there, just hit the phones and cold called, and started to try to develop business for the team, which was a very difficult proposition at 21 or 22 years old, trying to call guys who own mobile home parks and convince them that they should let me sell them for them. That was certainly a time of ramen and not many dollars made, but it was a good learning experience and it would eventually start to get a little bit of traction. In 2010, formed Sunstone without some other partners, Bob and Waylon, and ultimately has been in business now for a little over 11 years. We've brokered in excess of $1.6 billion of mobile home parks. It's been a long ride but it's been a fun one, and certainly I have learned a lot since that first cold call versus my latest ones.
Andrew: When was that when you started at Marcus and Millichap?
Kolman: That was in 2004.
Andrew: 2004. You've seen this industry pre-2008. I love talking with guys that have been in the business that long. What can you tell us about the recession and how mobile home parks and the whole industry faired during that time?
Kolman: It was a little bit different of a recession, shall we say, and what we've seen with the Covid pandemic. At that time, I definitely knew enough to be dangerous, but you look back at that and there were some incredible opportunities to capitalize on mobile home park acquisitions. For a lot of reasons, the biggest one being that the liquidity in the market just really seized up and there weren't still outlets for debt like there were through Covid with Fannie and Freddie still being actively involved.
People with cash or very strong banking relationships were really able to buy some whatever cold value deals. They weren’t valued based on the increased cap rate, so to say. They were valued based on limited cash flow and what I would call replacement cost–type acquisitions. There were some great things there, but I think the two things that happened then that were a little bit different this go around were liquidity issues for financing communities and homes at that time.
The other thing is, as you know, the business has changed a lot in the last 20 years just in terms of the amount of capital and requirements for keeping properties full with home sales and infill programs whether used or new homes. That was really one of the other issues. Liquidity wasn't there, values were down significantly, people were losing crappers to banks, but also operations were probably a bit looser at that point where you didn't have to be as actively involved in home sales. A lot of operators were, to that regard, under-capitalized on the home sale problem.
At that point, a lot of people did lose their jobs and lose their homes. This go-around, obviously, the unprecedented fiscal stimulus and liquidity that remained through some of the agency lenders has changed the go-around. But those were just some initial thoughts on the differences. I think people bought assets in 2009–2010, 11 years have done incredibly well if they fulfill them.
Andrew: That's a really good point. What I would have given to have been in the business at that time with a boatload of cash.
Kolman: It was a rare opportunity. There are some people that took very good advantage of that; good for them. It was an interesting time to be a broker because we certainly went from one side of clients which is more private-type clients and the business plan had altered to lenders at that point because no one else really was looking to transact assets at that time.
Andrew: Kolman, I know you guys own and operate some parks yourself. When did you guys come into being owner-operators as well?
Kolman: I certainly grew up dreaming of owning real estate and I never really dreamed it would be manufactured housing. Ultimately, I think buying a few properties was something that I wanted to do for myself just having dreams to own real estate. I really do like the business in terms of trying to better communities and fix properties up, and feels like you took something that wasn't great and you made it better by the dollar infusion and investment there. I bought my first property in 2014. It was a random walk. Someone just forwarded me an email, a local broker out in Nevada was selling it, and I'm lucky enough to purchase that property. Certainly, I made every mistake in the book as far as managing an asset from manager theft to just wearing the construction trades and [...] and operational efficiencies, because operating is a very tough business. There’s a lot to learn and a lot of wrong ways to do things. You got to kind of just roll your sleeves up and get involved in it. But it's certainly, I would say, harder than it looks.
Andrew: I definitely agree with that comment. Maybe this would complement that. What do you think is the toughest hurdle in the business?
Kolman: I think that's going to be different for every person because there are certain things that I'm really good at that are required of the business and there are other things that I'm really bad at that are required of the business. I think just going in realizing that and understanding you're going to need a village to raise a baby. That really is the truest thing. The job requires a lot of different organizational skills, people skills, and a lot of people don't have all of those things. I think it's important to try to think about if you're going to get into this business and do it, it's hard to do it alone.
These are very operationally intense businesses in my opinion. Once you get past that idea that you're just not buying a passive investment, and in fact, it's the opposite. If you want to run these well, it's a very, very involved business. That was certainly a good learning lesson as well. You can only do so many things and it takes really a team, whether it's from the on-site management side, if it’s a large enough property to back at how just trying to make sure you're keeping good records, and run the business side as lean as you can.
Andrew: I think that's a really good point. How do you all handle the management of your parks? Do you manage those in house?
Kolman: I don't really have a lot of property, so it's not very hard to manage. We got someone on-site and then bookkeep from a centralized location. I think that's going to be how most smaller operators are going to be able to run it efficiently. If it's not next to your home and you can't drive to it within a couple hours, I think you need a plan to have someone there because things come awry that you need eyes on. If it's a small thing, plumbing, you can do that. But I just think you eventually need some eyes on the ground that can tell you what's going on somewhat quickly, and then keeping track of them and your own internal processes from a more centralized location.
Andrew: Definitely. This is one of the most important questions. What would you say are the most important things that passive investors—we're talking limited partners—need to look out for when investing into this asset class?
Kolman: That's a great question because I see different funds and investors raising capital all the time. I think the biggest things to look at are certainly the track record of the sponsor. How they have done in terms of their returns, their bookkeeping, returning capital payments, and all those various things that LPs want to know about. How's the project going? How are the promised returns are going?
But also, I like to look at just the basic deal structures, like fees. Does an LP or GP pay fees going on the way in? If so, what are those? Be it acquisition, asset management, disposition, refinance, what's the fee structure? I have some friends that build other types of real estate like self-storage, and some of the things I look at is how much money is the sponsor putting in versus the partners? Is that real money or is that coming from a fee that they're earning on the transactions?
I like to look at the fees on all the deals and then also at the track record. At some point, if I'm not a self storage expert, I'm betting on my buddy who I believe in is going to know that business. I think conviction that the sponsor that you're really investing in is positioned to deliver what they're going to tell you they're going to do. Of course, that's key really at the end of the day.
Andrew: That resonates with a lot of what our previous guests have said as well. A lot rides on the operator and looking at their track record. What would you say are a few ways to vet an operator?
Kolman: Like anything, if you're going to invest some money into some of the deals, ask some questions about the property and why they like it and what the underlying economics of the transaction are. That way, at least, you're trying to gauge and gain experience since you're learning the asset class. At the end of the day, there are a million variables that make up one of these “deals.” Depending on those variables, they're going to be a lot of different potential pricing scenarios.
How did you source the deal? Honestly, I would call you up if I was going to invest in your deal, but why do you like this deal? What about it makes you feel warm and fuzzy that there's money in it for you to be made? I just like to get people's conviction—asking about just the mechanics of the deal, why they think it's a good project. More importantly, maybe the location of the property and why that's good. I think that we're still in affordable housing. For you to be successful, people have to want to live in that particular area or property.
Andrew: I think that's great advice. Thanks for sharing that. On the brokerage side of things, this is the million-dollar question, everybody wants to know how you find your deals. With your listings being around since 2004, what would you say are some of the best ways that you've found listings or found deals?
Kolman: Especially in the days of Zoom and the Internet, people want to think that they can go in, and sometimes there is frankly a lot of just luck to being the person that calls at the right time. My strategy was always let me start to farm out a market and look at a geographic area to make it defined. It's not like I'm looking at a park in every part of the world at any given time. I went that way, picked some geographies or some zip codes, and I really started to study, do my homework, and build out a database of properties in that particular area, figure out who the owners were, who the players were who is the regional guy, the one-off guy, and the bigger guy who is in that area.
Then you start to figure out who is actually here, who's going to be a good candidate for selling, and start to work your way up the chain. Honestly, just touching base with those owners and understanding where they are at in their investment cycle with that asset. Just keeping notes and trying to figure out a methodical way to follow-up to be in the right place at the right time. I think the truth of the matter is it's harder to accept than ever with the speed at which life goes today.
This is a very slow-moving business. A gentleman whom I know in the business, who I have a lot of respect for, told me this business is a turtle business. It moves very, very slowly but it usually walks uphill. It was good advice for someone that owns a property, there are a lot of reasons why they don't want to sell it. You have to understand there are three things to do in real estate; it's not that hard. Buy, sell, operate, or refinance, so it's really four. It's a really slow game that you have to invest a lot of time into, much like fishing.
Andrew: I love that. I love the analogy, too. Let's peel that back a little bit. First off, the way that you guys are sourcing deals is exactly the same way we do—build a database, do some research; I love that part. Then building the relationships with the owners; I think that's extremely valuable. I think a lot of people think they can trick the system with setting up a pay-per-click campaign or something, and automatically they're going to start getting leads through Google. It's just a different clientele you're dealing with. They're not all online, a lot of the older mom-and-pops. That's very good advice there. Then in regards to your analogy of fishing there, do you fish at all?
Kolman: I do. I don't get to fish as much as I used to, but still enjoy it. I try to get out at least several times a year. But it's not called catching, it's called fishing. Real estate in that regard whether you're a buyer or broker, it's really the baseball analogy as well. You're going to get up to the plate and you're going to strike out. You're going to fail in certain scenarios, but at the end of the day, if you can bat 300 you get into the hall of fame. You have to continue getting up to the plate and take a cut at it.
We always talk about, amongst our team, a lot of other good brokers in this industry. We just got up to the plate better to strike out swinging than to be watching from the pines. Keep getting up and at some point, you win some business. People give up very easily these days. That was definitely the hardest part of the first 3–5 years in the business. It was just taking the stomach punches and continuing to try to fare. If you're sensitive to being told no, it may not be the best business for you. We're all sensitive to being told no at some level, but we got to keep powering forward and continuing.
I like your networking and relationship building and that's from all around. From every side of the industry from your home manufacturers, to brokers, to property owners, to vendors, you never know where a lead might come from, really.
Andrew: You really don't. Back to your fishing analogy, my wife and I went to the Keys and we went out one day on a boat around the reef. We put some chum in the water and all these fish came up right to the back of the boat, little yellowtail snappers. You just put your pole in the water and you pull them right out. My wife was like, I love this. This is like her first time fishing. She's like, I love this. This is amazing. I was like, honey, this is not how it goes typically. This is catching. This is not fishing.
The next day we went trawling where you got the lines in the water and you're pulling a jig, catch something a little bit bigger; we caught nothing. We just trawled around for hours on end, and that was the last time she went fishing a few years ago. I don't think I can get her to go back. On your point, it's a business that you have to take time. You have to get your hands dirty and you have to have that consistent follow-up and build a database. And a lot of people just don't take the time to do that.
Kolman: Yeah. I've trawled many days in fishing and in real estate without any catching.
Andrew: Yeah, that's a big deal.
Kolman: One good golf shot keeps you coming back for more of it.
Andrew: Exactly. Kolman, tell us this, what does the perfect mobile home park look like in your eyes and why?
Kolman: I think that's a tough question because the truth of the matter is there's no perfect property. Every property has its little nuances and quirks about it. Especially the older they get, in terms of just utility infrastructures, but I think for me the perfect community has to do a lot with housing costs around it because at the end of the day, that's going to be a big indicator on being able to keep that property full. That's one of the things that I think is important to understand and look at where the competitive housing is in the area. Beyond that, if you could have brand new infrastructure, the communities that I'm seeing get built these days. There are a few of them new, going up in the country which is exciting to see. It feels a lot more like a subdivision. That modern, bigger lot feel is great, but also at the same time, you see a lot of denser older properties that are full, predominantly single sectional homes.
There's a reason that people want to live in denser places where they may or may not need a car. It's a tough question but ultimately minimal underground issues would be ideal, in terms of just antiquated plumbing and sewer. At the end of the day, high housing costs would be the best thing that I really can look at and tell you where the property is going to stay full.
Andrew: Both are really good points. In regards to the high housing costs, do you have a number that you look for, for the local average home price, things like that?
Kolman: I think that depends, truthfully, on what your strategy is with the property. Not all the markets that we’re going to be investing in are going to be median home prices at $600,000 or $700,000. But I think the biggest thing to look at is what the need for housing in the area is and what your strategy is. Are you going to be trying to bring in new homes? Are you going to try to do used homes? Can you access them in used homes? What's your plan? What’s holding it?
If you're going to do new homes where home costs are today, I would want to feel pretty comfortable that you can sell new homes for $65,000-ish, for a 3-2 because with the costs going up, I think that's ultimately where a bigger 3-2 is pricing out right now with the sale needing to happen for it to make sense for the operator to do it. With home prices rising, it's really a 25% or 30% increase on overall cost for new homes right now, which ultimately is going to make used homes stay in value or go up in value. I would say, if you want to do new, you at least want $150,000 in that market so you've got some comparable sales advantages. But if there are other reasons that it's not as high, I think that you can get over that too. Certainly if you're going to do used homes or if there is some other demand driver in town that’s saying we need housing, maybe the median home value just hasn't gotten there yet. I don't love much below $50,000 or $60,000 median home prices for stick build because it starts to get a little bit more difficult to sell manufactured houses.
Andrew: Agreed. What common mistakes do new operators make?
Kolman: I made every one of them because like I said, it's a hard business. But there are a million mistakes to be made from underwriting the property initially, to doing due diligence on the property. There's a million mistakes to be made, and the truth of the matter is there's always going to be something that was better than you thought and something that was worse than you thought about the property. As long as you feel decent that with the capital you're allocating, you can fix some of these problems.
You're never going to get it 100% perfect. But really trying to put in the time to understand the numbers, how things are done in that particular market. Then the underground infrastructure is always a big one just because you can see the abandoned home above the ground that you need to remove, or that the pavement is in bad shape, or the trees have been trimmed in five years and you're going to earn $20,000 trimming hazardous trees out of the property. But you certainly can’t see the underground. Just try to understand what you're encountering there is definitely a big one as well.
Andrew: Do you have any tips or do you have any insider information of how to tell if old water lines are going to be an issue? How do you guys test that in due diligence?
Kolman: I am definitely not a plumber. I think the biggest things you can do is look at the bills and just see what type of water is coming. At the end of the day, I think the best thing to do would be to hire a plumber that's familiar with the property and get them on site or find your own third party vendor to go in there and do those inspections for you. Every buyer is going to have the right to a thorough inspection of the property, and I think hiring some experts in those fields is probably advisable.
Andrew: Definitely. What hurdles does the MH industry face moving forward with potential inflation and so forth? What do you think is coming?
Kolman: One of those things is already here in terms of just the price of new homes. In a lot of parts of the country, you can't find a large stock of used homes because the housing costs are so high. To fill lots in a lot of places we need new homes, and those new homes have gone up 25% to 30% in price over the last 12 months. The real question just becomes, does that come back in number or is it really the new normal?
It would be interesting to see as backlogs get worked through and material shortages slow down. Where does new home price settle? Or has it settled and it's only going up from here? I wish I had that crystal ball. That's already real in terms of looking at where it goes. If you've got a really big fill project or a community with a lot of old homes that your plan is to replace or fill with new, you just got a pretty big increase in cost especially when you factor in the other side of that, which is like the backlog of actually getting homes. Potentially more carry costs over that period of time.
Those are definitely ones that are already here. Ultimately, operations (I think) is a big thing. New people coming in that don't necessarily know how to operate, have they funded any reserves for home programs? If they have to have residents move out and they need to turn those homes? Just feeling like you have some proper operational cushion to withstand home turnovers or anything like that. But in terms of pricing, it's certainly aggressive. Outside of a major move in interest rates, I just don't see how that's going to change. I read an article this morning in the Wall Street Journal or one of the online that they're already seeing rents for single family homes across the country grow between 5%–10% in certain markets. With that are all these different housing costs, I think will come, if it's not already happening in a lot of places, rent growth. I think a lot of smaller operators paused rent increases or slowed down during the onset of the pandemic. Now with their costs being higher, I think that ultimately that will cost some rent growth. We’re already seeing other segments of the real estate market besides manufactured housing. I only imagine that trickle down is going to happen in our space as well.
Andrew: Very good points there. Tell us a little bit about Sunstone. What makes you guys different? What’s your value proposition? I would love to hear about that.
Kolman: I appreciate that. Sunstone, really what I think our reputation in the industry has been is that we like to pride ourselves to be the best disposition strategy brokers in the industry. That's from talking about the asset and trying to figure out what's the best way to maximize value to ultimately trying to execute on the sale and deliver value.
With that (obviously) we've got to make transactions work with buyers. We try to do your homework on the front end to understand the asset better than just throwing it out there and hoping no surprises come up later. At the end of day, we got to figure out a mutually beneficial and smooth transaction between buyer and seller. I do think that there's some value sometimes in keeping those parties away from each other, managing emotions and also just the process of ultimately going out of bid, figuring out what's the best strategy for this asset.
That's the other unique part as every asset is different, whether it's the quality of the market, the quality infrastructure, the quality of the location. There are all those different factors that we have to figure out and manage to think about who's the best buyer for this property that can execute and ultimately get our number for the seller.
The buyer at the same time has to feel that they're making a buy that’s going to work out for them in the end as well. That's the fun part of managing that two opposite parties going in different directions.
Andrew: After working on the transactions of eight mobile home parks with you thus far, it's been great working with you. You bring a lot of knowledge to each transaction.
Kolman: I appreciate it and likewise. I think that's one thing you guys have done a good job of and to get recommendations. Trying to be a good counterparty and work together to figure out a solution that can be mutually agreeable is definitely more of an art than a science. Just try to be open to understanding what the problem is on a fact basis and then working together to figure out what's the solution that's going to work for every party is important to culminate in a transaction.
I do think there are deal makers and deal breakers. So far, you guys have a good performance of closing with us. We appreciate the relationship and working together to figure out some solutions that work, so congrats on those successes for you guys as well.
Andrew: Thank you. Here's to many more as well.
Andrew: How can listeners get a hold of you if they would like to do so?
Kolman: Reach out over email. It’s firstname.lastname@example.org. If you could put your phone number in there, we can set up a time to chat or welcome to buzz the office 312-568-4818.
Andrew: Awesome. Thank you so much for coming on the show, Kolman. It has been a pleasure. That is it for today, folks. Thank you all so much for tuning in.
Kolman: Andrew, I appreciate it. Thanks for having me on.