December 24, 2021 by Daniel Weisfield

Dear Friends,

I just wrote this letter to our investors, and then I decided to share it more broadly.

Where our business stands now, in December 2021, is unfathomable relative to where we were in 2020. In March 2020, large swathes of the economy were shutting down. We feared massive unemployment, another global financial crisis, and a sudden evaporation of real estate property values. The sky was falling. We made contingency plans for our business, fearing the worst.  

It’s hard to believe that here we are in December 2021, with Omicron surging… and U.S. residential real estate valuations are at an all-time high. Unemployment is essentially non-existent. Wages for working class people have risen at an astonishing pace. Rent prices and single-family home prices have climbed to surprising new highs, including in historically unsexy markets. Millennials (who were supposedly never going to buy homes) are fueling housing demand. To sum all of this up: Housing demand is high. Housing prices are high. Affordable housing is scarce. As a result, affordable housing is increasingly valuable.

For us, as manufactured housing investors, this brings a few new challenges, but mostly lots of opportunity. Even if this hot market cools, we anticipate strong long-term need for high-quality manufactured housing.

If you’d like to join our email list to see future manufactured housing investment opportunities, please sign up here:

Team and Operating Platform

We have spent 2021 building out our team and our operating platform to harness this opportunity. Specifically, we have done the following:

Geographic footprint: Expanded to 42 communities in 7 states. We are actively considering acquisition opportunities across the entire United States.

Vertically integrated operating platform: We now have around 70 employees spread across five functions: Acquisitions, Property Operations, Manufactured Home Sales, Finance, and Administration. Doing all the hard work “in house” (instead of using third party management) enables us to take on opportunities that other groups won’t tackle.

Strategic hires to strengthen our team: In 2021 we hired a CFO (who is both a lawyer and a CPA), a new Director of Manufactured Home Sales, a VP of Acquisitions, and two highly qualified Regional Property Managers. Here’s an article with more background on our hires: We are currently running a search for a COO (and we’d welcome referrals).

Operational improvements: Ops is always the hardest thing… and the quest to operate more effectively is never done. As we implement new systems, we are finding efficiencies that help us run faster. We have implemented Rent Manager for digital rent collections, Asana for task management, and Water Signal for real-time water consumption monitoring. In 2022 we will roll out our new Community Manager training program.

New park development: In 2021 we closed on land to build a new 250 unit manufactured housing community in Bozeman, MT, the fastest-growing micro-MSA in the country. We have a strong thesis around developing new parks, based on basic supply and demand factors. So we made a strategic decision to launch a new park development platform, and we have multiple development deals in our pipeline. Our JV partner for new park development is Dean Warhaft, a master developer who has built everything from single-family subdivisions to skyscrapers.

RV parks: We now own three RV parks, in three states, and we are in contract on a new $12,000,000 RV deal. We plan to continue expanding this part of our business.

Our first fund: We raised our first fund in 2021, after previously syndicating our acquisitions deal by deal. Fund 1 now owns 9 assets which are geographically diversified across 6 states. We plan to launch Fund 2 in January.

Harvesting some “early fruit”: Tulare and Meadowlands

We are weird among real estate investment companies, insofar as our investment horizon is usually “forever.” We believe that is the best way to build long-term wealth in real estate (while also aligning our interests with our residents’ interests). But in 2021 we got to harvest some early fruit.

Tulare Royal Palms (Tulare, CA): Purchased in 2019 for $5,500,000. Sold in Dec 2021 for $10,200,000, generating a 2.34x net equity multiple and a 35% net IRR (i.e. annualized return over the life of the investment) for our investors. We executed our value-add plan over two years (including installing new homes, raising occupancy, removing problem tenants), but most of the appreciation here was due to cap rate compression, not NOI growth. We’re now giving our investors the option to 1031 with us into a new investment property.

Meadowlands Estates Opportunity Zone (Yakima, WA): When we purchased this 78 unit property in 2019 it only had 25 occupied lots. We have executed our value-add plan by bringing in ~35 new manufactured homes to meet market demand in this strong tertiary market. We purchased the property for $2.8MM, and it just appraised last week for $6.3MM. We are refinancing, returning 100% of invested capital to our investors, and holding long term. We expect to reach 100% occupancy by year-end 2022 and will likely refinance again at that time to deliver more cash to investors.

Opportunities and growth areas in 2022

Here are some of our focus areas in 2022—personally (for Daniel and Yoel), and for Three Pillar Communities as a growing business.

+ Continue to hire rockstars who will improve the business.  As founders, we have brought on great people, but we are still way too deep in the weeds too much of the time. Great hires give us wings.

+ Expand our partnerships with other emerging operators.  We have done some killer deals this year with other “upstart” manufactured housing investors. We want to keep providing value to them so that they keep bringing opportunities to us.

+ Improve operations…always.  We’re hitting our operational targets at nearly all our properties, but we are still a long way from where we want to be in terms of curb appeal, employee training and professionalism, cap-ex budgeting, and managing against KPIs. We are hiring a COO in 2022 with a mandate to raise the bar in all things property operations.

+ Opportunistic sales. Selling our Tulare property this month at a record-setting price felt great, given our view of how that asset fit into our strategy. We plan to explore selling a few other non-core assets in 2022. 

+ Constraints on procuring new homes.  Factory orders for new manufactured homes are backlogged through 2023 due to high demand, supply chain issues, and labor shortages. We are adapting accordingly by sourcing homes from new factories, as well as rehabbing more used homes which we previously would have replaced.

New website and rebranding.  We made a “skeleton” website in an hour when we first started Three Pillar… and we’re still using it. We have managed to attract new investors despite our website, not because of it. We are working with a branding agency to launch a new online presence in early 2022.

+ Advocating for property rights. In times of economic distress, we are in favor of the government providing temporary support to renters who legitimately need help. Unfortunately, during COVID a number of the cities and states where we operate have enacted well-intentioned tenant protection ordinances which in practice have been widely abused. People who own property—including mom and pop landlords—have been forced to pay this price. In 2022 we are planning several initiatives to advocate for common-sense property rights, which are the foundation of a functional economy.

+ Exploring new real estate asset classes. We have been exploring new real estate asset classes beyond manufactured housing and RV parks. We are in discussions with an experienced operator about launching a new product vertical in 2022. We’ll keep you posted as we progress in our exploration.

+ Living a full life outside of work.  Daniel is excited to have recently joined the board of Eden Village West, a Jewish farm-to-table summer camp, and looks forward to teaching his six year old daughter how to surf in 2022. Yoel has a happy chaos at home with his two year old son and newborn daughter, and is mastering the art of bathing them both at the same time.

Sincerely, and with much gratitude, 

Daniel and Yoel