On Friday we sold our Foothills Solar Mobile Home Park for $11,450,000–after building a solar power plant, overhauling a sewer treatment plant, and surviving the deadliest wildfire in California history.
We more than doubled our money in four years, while improving life for our Residents. And we did it the hard way, through grit, sweat, late nights, creativity, and elbow grease. If you’re curious how we did it, here’s a case study.
My objective in writing this is to shed some light on *what we actually do as manufactured housing investors.* There are all sorts of tired canards about our asset class: e.g., that mobile home park owners just passively collect lot rent, or, worse yet, that mobile home park owners are exploitive landlords who take rent from Residents without giving back. Well…no. I hope this helps show some of the things that we actually do every day as proactive manufactured housing community investors with a two-part mission: to deliver safe, reliable housing to our Residents and safe, reliable returns to our Investors.
Deal stats
- The asset: Foothills Solar Mobile Home Park, 2920 Clark Road, Butte Valley, CA. 127 existing lots + 27 expansion lots. All ages. Private well, private wastewater treatment plant.
- Purchase price in 2018: $6,000,000
- Sale price in 2022: $11,450,000
- Net cashflow from operations during the hold period: $1,371,000
- Net cashflow from sale in 2022: $6,600,000
- Equity multiple: 2.7x
- IRR: 23%
We’ve had other home-run deals that I attribute to good luck (or divine providence). Right place, right time.
This is not one of those deals. We worked our tails off to create value at Foothills for our Residents and our Investors.
Here are a few highlights.
1. We built a $1,300,000 solar power plant in order to provide clean green energy for Residents while boosting Net Operating Income for Investors. Our 600 kilowatt ground-mounted system added about $160,000 per year to our bottom line, and also generated hefty federal Investment Tax Credits which we passed on to our Investors.
2. We repaved broken roads, added a playground for kids, and supported resident programming like after-school tutoring and holiday parties.
3. We rebuilt the well control system with a state-of-the-art control system, and replaced underground electrical lines that failed and left Residents without power.
4. We went through four Community Managers until we got the right fit. I wear this as a badge of honor, not as a knock on our talent selection abilities. The reality as an owner is that it’s usually easier to keep a sub-par manager in place, rather than hire and train a new manager. Only an owner who’s striving for excellence will pro-actively terminate a non-stellar manager. In the case of Foothills, there was the in-place manager when we took over ownership, who turned out to have a methamphetamine problem. There was the kind, articulate pastor who was great at communicating with Residents but weak at enforcing rules. There was the former payday loan store manager, married to a bounty hunter, who was great until she wasn’t. And then there was Charlene, our final manager, who is excellent and will remain in her Community Manager role with the new owners.
5. We survived a hellish wildfire. The 2018 Camp Fire burned 153,336 acres, destroyed nearly 19,000 homes and killed at least 85 people. The flames got up to our property line but our fire lines held the flames at bay. Candidly, future wildfire risk was one of our key motivators for selling this property.
6. We raced to build new new lots to house people after the fire. We quickly created 11 new RV lots to house displaced families and clean-up workers.
7. We overhauled–and operated–the park’s 50 year old sewer treatment plant. We installed a state-of-the-art lift station control system. We had a local machine shop fabricate new tanks. We installed new pumps and bigger pipes to support higher flows. And we brought on a highly skilled operator who runs a local city’s sewer plant in his day job.
8. We worked with Generac to become a generator dealer–and then we installed propane generators to keep our water and sewer running during PG&E’s rolling electrical black-outs. I could write a whole article on this topic, which I have spent hundreds of hours on. But suffice it to say that PG&E has implemented rolling black-outs during heat waves in California in order to reduce wildfire risk; if you run a private well and private sewer system, and there’s no electricity, you can’t produce water; having Residents stuck in their homes during a summer heat wave with no electricity, no air conditioning, and no running water is a humanitarian disaster and is completely unacceptable. To solve this problem we initially rented diesel generators from a vendor and trucked in diesel, which was crazy expensive, because during a black out heat wave everyone else is also scrambling to rent diesel generators, too. When we realized that these PG&E black-outs would become routine, we researched new and used commercial generator options and eventually became a dealer for Generac. We installed propane-powered generators at Foothills to power our sewer and water system during black-outs. As an added plus, we are now able to offer home back-up generators to our Residents at less than retail cost.
9. We obtained county land use approval to expand the park from 127 lots to 154 lots. This required historical documentation, a 20 page legal memo (which we wrote ourselves instead of hiring an outside attorney), and a wastewater capacity study from a civil engineer. Yoel and I personally met with the County Planning team and other County agencies multiple times and prevailed in our request.
These are a handful of the projects that we did at Foothills during our four years of ownership. There are too many other projects to mention. As well as the daily cadence of operating the park in order to make it a little bit better, day after day.
We’re thrilled to have exited this investment with a great outcome for our Investors and our Residents.
Sincerely,
Daniel, Yoel, and the Three Pillar Communities team
