Daniel Weisfield is the co-founder of Three Pillar Communities, a Top 50 owner of manufactured housing communities in the U.S. In this episode, he discusses his passion for developing and improving existing manufactured housing communities, the need to correct stereotypes and misunderstandings about this asset class, and how he is working to be part of the solution.
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TRANSCRIPT
Ash Patel: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. I'm Ash Patel, and I'm with today's guest, Daniel Weisfield. Daniel is joining us from Tel Aviv, Israel. He buys mobile home parks with the goal of getting rid of the trailer park stereotype, and make nice, affordable housing for lower-income individuals. Daniel is a GP on 29 properties. Daniel, thank you for joining us, and how are you today?
Daniel Weisfield: I am great. Thanks for the intro.
Ash Patel: I'm glad you're doing well. Daniel, before we get started, can you give the Best Ever listeners a little bit more about your background and what you're focused on now?
Daniel Weisfield: Sure. So I'm a third-generation mobile home park investor. My family immigrated to the US with nothing. My grandfather worked as a car mechanic, fixing cars; he saved money, he bought a mobile home park around 40 years ago. I grew up around that business, got inspired by the important social need that it fills to provide affordable housing, and also the great recession-resistant returns in our asset class. I ended up starting my company five years ago, we're called Three Pillar communities. We now operate around 50 mobile home parks in 11 states. We've got around 80 employees on our team, and we serve around 10,000 residents.
Ash Patel: And you do this remotely from Tel Aviv, Israel.
Daniel Weisfield: I've been in Tel Aviv for the past year. I moved there for family reasons. And absolutely, we've built an amazing team. It all comes down to the team. We've got great operations folks, great acquisitions, folks, great finance folks, great home sales folks, and I'm talking to them, texting with them, zooming with them 30 times a day.
Ash Patel: Were you in the States for some period of time prior to that?
Daniel Weisfield: Yeah. I'm American. Up until a year ago, I was based in the Bay Area.
Ash Patel: Got it. Okay. 50 mobile home parks, and you don't see a lot of third-generation mobile home park owners. You grew up in the business probably, right? Working...
Daniel Weisfield: Basically. I'd go with my grandfather... He grew up on a chicken farm. He was a very hands-on guy, so he'd take me to his mobile home park to dig ditches, try and fix pipes, build fences, mow the lawn, repair the lawn mower, whatever needed to get done as a kid. So those are very formative memories of mine. He's 92 years old, he's still with me, and he really is kind of my business hero.
Ash Patel: That's great. And this was when mobile home parks weren't what they are today. They weren't sought-after assets with ridiculously low cap rates.
Daniel Weisfield: That's right. But my grandfather - he was buying it at 10% and 12% caps. And today those same assets are trading at 4% caps.
Ash Patel: So have you looked at other asset classes besides mobile home parks?
Daniel Weisfield: Yes. I've invested in triplexes, apartment buildings, industrial...
Ash Patel: And you come back to what you know with mobile home parks...
Daniel Weisfield: Well, I think every investment sits on a risk/return spectrum. And I think mobile home parks provide some of the best risk-adjusted returns that you can find in real estate. We have a very stable cash flow profile, because our residents are homeowners; they own their home, they've got skin in the game. Our typical tenancy is close to 10 years in our portfolio... So I just love the fact that we're providing high-quality, affordable housing that I feel really good about, and also that stability of income.
Ash Patel: Now, how do you change the face of mobile home parks getting away from that trailer park mentality?
Daniel Weisfield: So I say we are probably the most stigmatized type of real estate that exists in the United States. When people say mobile home park, they say trailer park, what are the associations that come to mind? You can tell me what you think of when you hear those words.
Ash Patel: I don't ever call them mobile home parks, for no other reason than this is what I refer to them as, is trailer homes. And I know that's not what they are, but I always refer to them as trailer homes. You either think of really dumpy ones, or for me, the senior ones that have old people living there, nice, calm, peaceful... You never looked at them as shiny, new places where you'd want to live.
Daniel Weisfield: That's right. I think that's right. And there's a lot of stereotypes and misunderstanding about what our asset class actually is. And the way that we change those stereotypes is by showcasing what a new, class A manufactured housing community looks like. I think a good example is the new community we're building in Bozeman, Montana. We bought 90 acres of farmland, we're building a new 250-unit neighborhood, and we're going to have dog parks, and pickleball, and walking trails, and we're bringing in beautiful, new homes that look like a home you'd see in a subdivision, but roughly a third of the cost. And so we're providing housing that teachers can afford, nurses, firefighters, policemen, small business owners, first-time homebuyers, and really creating a homeownership opportunity that doesn't exist in that market today.
Ash Patel: Now, Daniel, everybody in that space always says they're not building anymore. No municipality is approving new mobile home parks. What are you talking about? Are these modular homes, or are they true mobile home parks?
Daniel Weisfield: These are true HUD code manufactured homes. I don't call it a mobile home park. I call it a manufactured housing community, or a land lease community... But the fact of the matter is - yes, we are building new mobile home parks, if that's what you want to call it... And there is a big misunderstanding - it's often repeated - that it's impossible to develop new manufactured housing communities. I think that's part of the storyline, and kind of the mystique around the asset class. People like saying "Tons of demand, shrinking supply, it's impossible to build new ones. That's why these things are so valuable." So a lot of people have been repeating that for years as part of kind of a promotional storyline for the asset class. And it's just not true. We and a few other entrepreneurs are working hard with municipalities to say, "Hey, we can help solve your affordable housing problem. We can provide really high-quality housing, with no government subsidy. And we can do it fast. These homes are built in a factory." So we're building new parks right now in Montana, we've built one outside of Austin, Texas, we've got a project underway in Greenville, South Carolina, and a few other new developments in the pipeline.
Ash Patel: And is it workforce housing, is it a retirement community? Is it college kids?
Daniel Weisfield: That's a great question. So it depends on the location. It depends on the market. Typically, it's not going to be college kids. I'd say that generally, the two demographics we're serving are either families in the workforce earning, let's say, $40,000 to $90,000 a year total household income, and retirees. And depending on the location and other factors, we'll choose which group we're serving.
Ash Patel: A lot of multifamily people have gone into development, because that's the next frontier to capture returns, right?
Daniel Weisfield: Yeah.
Ash Patel: In terms of returns, build cost, what are you looking at -- let's call it price per door, because that's how the whole multifamily world deems everything. So what is your price per door when you look at the development cost as well, including the pickleball courts, utilities, everything?
Daniel Weisfield: So we think about price per lot, and then we separately think about the price of the house. And the reason we break those two things out is our basic business model is we own the land and the infrastructure, long-term. Our tenant buys their home, so they become a homeowner, and then they pay us a recurring monthly lot rent. So again, just before I answer your question directly, just to make sure everyone understands the business model - we operate a manufactured home dealership, where we bring homes into these new communities, and we sell them to the end customer. So the home doesn't stay on our balance sheet. Does that make sense?
Ash Patel: Got it. And they finance it through a third party.
Daniel Weisfield: That's exactly right. Or it's the 55 and up community, oftentimes they'll be cash buyers. If it's more of a workforce community, they're typically financing. That's correct.
Ash Patel: What's the typical cost of one of these homes?
Daniel Weisfield: We can get a really nice three-bedroom, two-bath home, with granite countertops, stainless steel appliances, really nice features - if it's a single wide home, which is let's call it around 800 square feet, our all-in installed cost might be between $80,000 and $100,000. And the double-wide home, with like 1,400 square feet, you might be looking at anywhere from $120,000 to $150,000.
Ash Patel: So you've got that American dream for about 100k.
Daniel Weisfield: That's exactly right. And what's really cool about our product is that pricing holds true almost regardless of what geographic market you're in. So let's just say California as an example; it's just a market that I know well. You can install that three-bedroom, two-bath home in Bakersfield, California for $100,000. Or you can put that same home in the heart of Silicon Valley, where a single family home would cost you a million dollars up, and your costs would be the same. It'll be $100,000 for a brand new home in really high-cost markets. And that's part of what we're trying to provide in Bozeman, Montana - high cost to market, and we can bring in cheaper homes around the state.
Ash Patel: Daniel, what have you seen in terms of default rates?
Daniel Weisfield: Very low. During COVID, our collection rate across the portfolio was 96%. It started out at 98%. In fact, the lowest it dipped to was 96%. The reason for that is simply because our residents are homeowners. The entire beauty of the business model - and that's also why we believe so much in the homeowner ownership model... You'll see some of our competitors in the mobile home park industry have switched to what they call a park-owned home model, where the park owner will own the home and rent it out; kind of like a single family rental model. And when you do that, you get a lot more tenant turnover, and you get a lot more delinquency. In our case, we really like having tenants who are homeowners, they build wealth through owning that home, they've got skin in the game, and they are highly incentivized to pay rent.
Ash Patel: In the last couple of years, this industry has gotten another black eye from larger institutions buying up these parks, and raising rents, and basically getting rents so high that the existing tenants can no longer afford it. And even though they own the home that they're in, they can't afford to move, at $5,000 - $6,000 to move it. And they end up forfeiting that home, and now this large company can re-tenant that with somebody else. Are you seeing that a lot in this industry as well?
Daniel Weisfield: So this is something I have very strong opinions about. It's something I talk about frequently, I write about frequently, I've written op-eds on this topic. So number one, I do believe that park owners should be responsible about how they raise rents. Think about your tenant, think about who you're serving, think about what they can afford. We've bought lots of parks where our rents are $200, $300 below market, and we've made decisions; are we bringing up all at once, or are we bringing it up over a 5-10 year period, are we bringing it up on turnover? So I encourage my competitors to be thoughtful about that. None of us want to put people on the street.
But then secondly, to answer the second part of your question... There is a big misunderstanding about the basic business model and what happens if someone can no longer afford to live in a manufactured housing community. If somebody can no longer afford the rent, what happens typically is they put their home up for sale, someone who can afford the rent will come and buy it. The seller cashes out, they sell their home, they might get $20,000, $30,000, $100,000 or more, depending on where that location is, and the home remains in place, and a new person moves in. So a lot of these news stories kind of repeat the story that people are priced out, they can't move their home, and the home is abandoned, and we have never seen that in any of our communities.
Break: [00:12:11.14] to [00:13:18.23]
Ash Patel: You've got a lot of PR work to do to fix this industry...
Daniel Weisfield: That's right.
Ash Patel: Is there a collective voice, an organization trying to do that?
Daniel Weisfield: There's the National Manufactured Housing Institute, which I'm a member of, and there are state associations in every state. But you're absolutely right, we've still got a long way to go.
Ash Patel: I see a lot of investment opportunities, and I see these proformas... Like you said, rents are $200, $300 below, and these operators, young people, remotely buying and managing these properties are going in just raising rents, and I don't know that they really understand the impact of what they're doing. They see it as a numbers game. That's a challenge.
Daniel Weisfield: It is a challenge. It's a challenge for our industry. And I'll tell you something. Like I said, I believe we need to be responsible and think about our residents. At the same time, we operate in a market economy, and in any other product type that you're thinking of, people charge fair market rents. On the one hand, yes, we need to be respectful of our tenants, think about what they can afford. On the other hand, typically when operators are bringing rents to market, there's no shortage of people willing to pay that rent. They're operating in a market environment, and what they're charging is market. So there's a real philosophical and economic debate about the point you just raised.
Ash Patel: Yeah, what a challenge... Tell me about some of these class A properties you're building. Tell me about the amenities, how long does it take to build one... I'm assuming all public water and sewer?
Daniel Weisfield: Usually public water and sewer, but not always. I'd say a great example is our Emerald Coast Estates property, which is on the Oregon coast in Brookings, Oregon. In that community we have ocean views. It's a 55 and up community, it's a gated, we have an indoor pool, we have walking trails, we have a koi pond... It looks like a beautiful subdivision that you or I or anyone else would be thrilled to live in. And manufactured homes in that community, when it was first built, were selling for around $120,000 $130,000, new. Now, over time, have those homes appreciated or depreciated? They've appreciated a lot. They sell for over $300,000.
Ash Patel: Wow.
Daniel Weisfield: Manufactured homes, with no land [unintelligible 00:15:24.15] So this is the value of what we can create - a great community that people are proud to call home, but where they own a manufactured home which is an appreciating asset.
Ash Patel: Can you give our Best Ever listeners the website where they can go look at that community?
Daniel Weisfield: If you go to threepillarcommunities.com, which is my website, you'll see a drone video footage playing across the homepage, and that's all from our Emerald Coast Estates community.
Ash Patel: And it's the number three spelled out.
Daniel Weisfield: Spelled out, correct.
Ash Patel: Got it. Okay. So you've got a business model that rewards your residents very healthily... Are you reaping the same benefits? Are lot rents going up significantly?
Daniel Weisfield: Yes, our rents do go up when we are providing a high-quality community. And the way we set rents kind of depends on the community. For example, in that Emerald Coast Estates community that I mentioned, our residents all have five-year leases, so they have visibility into what their rent will be for five years. And then we do a market reset after five years. And in our new community that we're building in Bozeman, we're doing the same thing, offering a five-year lease term where rents will rise with a CPI formula. So people do have visibility in what their rents will be.
Ash Patel: And how do you get your hands on an oceanfront property and get the zoning allowed for manufactured homes?
Daniel Weisfield: I don't want to claim all the credit on the Emerald Coast Estates property. That is not one that we developed ourselves from scratch. That's one that we bought and added value to and have been improving. So I didn't do the entitlements there. But I'll give the example of Greenville, South Carolina - great market, BMW has its only North America factory in Greenville; Boeing builds airplanes there, GE builds gas turbines... Major manufacturing center, huge need for housing. And we recently bought 40 acres there, which we entitled for 200 manufactured housing units... And it's all about community relationships. It's about going to the town, meeting with the city council members one by one, explaining the value of what we're building, showing them pictures, saying "This isn't an old trailer park. These aren't sardine cans. This isn't what you've seen in the media, with tornadoes ripping the tops off them. This is a high-quality home, built to really high standards", showing them our amenities package, and just getting them on board that this will be a community asset. And when we do that education, we've gotten a really good response.
Ash Patel: That's got to be a hell of a process, because right now, every city council person wants high-end mixed-use; retail on the bottom, high-end condos, apartments above there. And if you go in there pitching manufactured housing - man, that can not go over well, initially.
Daniel Weisfield: Well, it depends very much on the location. We're not pitching manufactured housing in infill urban locations, where people are looking for high-density mixed-use development.
Ash Patel: So that's more rural...
Daniel Weisfield: Not necessarily rural, but suburban, or on the periphery, commutable to jobs. Those are typically types of markets we're targeting... Where the alternative land use might be single family, and what we're providing is a slightly higher density than single family, and much more affordability.
Ash Patel: Daniel, we started talking about public sewer and water. I know a lot of these mobile home park owners that -- sorry, manufactured housing owners... They'll walk away from deals that have septic. Will you build a new facility that doesn't have public sewer?
Daniel Weisfield: Yes.
Ash Patel: How does that work? What are your options?
Daniel Weisfield: So let me provide a little context there. Because we own more than 50 parks in 11 states, we own a lot of assets that have private well systems... And on the sewer side, we own assets that have septic systems, as well as full-on wastewater treatment plants. We have to operate with licensed operators. So we've gained experience and comfort operating private utility systems on the existing parks that we've bought, and that's given us confidence to do new development involving private utilities. So I think we prefer to go in with city utilities - less maintenance, less headache, and at the end of the day, I think the product will trade at a better cap rate, because more buyers like it... But we're not scared to build a private wastewater treatment plant if we need to. Modern package plants are great technology, minimal maintenance, you bring in a licensed operator, and... I think one thing people don't understand is at the end of the day, all utilities are kind of private utilities. Even a city system - when you flush your toilet, it's going to a plant which is operated by your city. They've got an operator, they're maintaining a system... We can do the same thing.
Ash Patel: That is fascinating. How many units do you need to justify the cost of managing your own wastewater?
Daniel Weisfield: I'd say for new development, probably 100 units or more.
Ash Patel: And then can that be a catalyst for additional development in the surrounding areas, where they could tie in as well?
Daniel Weisfield: That's a great question. The answer is yes. We have not done that yet, but we have explored the possibility of creating essentially a sewer district.
Ash Patel: Fascinating. You're the first person I've ever heard do that. And was that by solving a problem? Is that how you started doing that?
Daniel Weisfield: Yeah, by necessity, right? Necessity is the mother of invention. And there are a lot of locations that have intense housing demand and are great for developing a new community like this. They just don't have a municipal sewer hookup. So then you think about what are the options, and you bring an engineer, and you do your ground percolation studies, and you figure out what you can do.
Ash Patel: Fascinating. Do you still buy existing parks?
Daniel Weisfield: Absolutely. Well, again, they're not building anymore. So how do you find deals on them? [laughter] Right? Because look, there's limited supply...
Daniel Weisfield: Yeah, that's right. I had a pipeline meeting with my team yesterday, looking through our active deals in the [unintelligible 00:21:07.08] We've probably got four acquisitions in contract right now, another 10 under LOI, another 15 or 20 that we're working on... We actively are sourcing deals all over the country, all the time. Some of that is direct relationships with owners, some of that is working with bird dogs and scouts who are out there calling owners, some of that is working with brokers. But we've got a very active pipeline.
Ash Patel: Is there a minimum deal size that you shoot for?
Daniel Weisfield: Yes, and I've learned that the hard way. Out of your smile, you can probably relate. The first park, I bought was $100,000. It was 20 units. So 5k a door. Distressed asset, and it's been a lot of work, and at the end of the day, it's been really rewarding to help the residents and turn it around, but not that many dollars of profit relative to how much energy we put in.
Ash Patel: I bet, yeah.
Daniel Weisfield: So at this point, we're trying to sell some of those smaller assets that we bought early on... And our floor for new acquisition is generally around $3 million dollars. We'll go smaller if it's a great location, if the deal really make sense.
Ash Patel: And Daniel, a lot of manufactured home investors/operators have moved into RV parks. Have you made that transition as well?
Daniel Weisfield: We have, we own and operate probably four RV parks right now... One of the members of my team used to run RV parks at Equity Lifestyles, which is a big publicly-traded REIT, so we had some of that expertise in-house, which has made that transition easier... We like it, we will do more RV parks, but it's a very different risk and return profile than manufactured housing communities. And it's funny, they kind of get lumped into the same category sometimes... It's a really different product at the end of the day.
Ash Patel: Is it because of the amenities or the transient nature of your guests?
Daniel Weisfield: Both. I will say, for folks who don't know, RV parks kind of split into a few different flavors. There are destination RV parks, which are very much kind of hospitality destinations... There's the resort-style idea of RV parks, and there are transient RV parks. And then there are long-term stay, which essentially function like workforce housing. So our long-term stay RV parks actually operate pretty similar to a manufactured housing community... But we also own a resort style park in Southern California, where we're operating pool, and mini golf, and golf cart rentals, and a restaurant, and it's -- there's a lot of operational complexity... You get compensated for that, but there's also hospitality style of risk, right? If people don't have discretionary income to go on vacation, our income there will drop. That's different than housing.
Ash Patel: And you're also running a business.
Daniel Weisfield: Absolutely. The thing is though, in a conventional manufactured housing community, you're also running a business. People have this misconception that it's passive income. Like, even if all your tenants own their own homes, you have a duty as a landlord to actively maintain that community - mow the lawn, maintain common areas, enforce rules. So it's always a business.
Ash Patel: Daniel, what is your best real estate investing advice ever?
Daniel Weisfield: Just get started, go buy deals... If you haven't done a deal yet, go do a deal. If you've done some deals and you wanna do something bigger, go figure out how to do it. Going to do deals is way better than talking and thinking.
Ash Patel: Yeah. Daniel, are you ready for the Best Ever lightning round?
Daniel Weisfield: As ready as I'll ever be, Ash.
Ash Patel: Alright, let's do it. Daniel, what's the Best Ever book you recently read?
Daniel Weisfield: I actually am reading Exodus right now, which is about fictionalized history of Israel, and it's pretty interesting.
Ash Patel: Daniel, what's the Best Ever way you like to give back?
Daniel Weisfield: Oh, man... I am really involved in youth development through summer camps, something I really believe in. I'm on the board of a summer camp and I donate to the foundation for summer camps; it's something I'm really passionate about.
Ash Patel: Awesome. And Daniel, how can the Best Ever listeners reach out to you?
Daniel Weisfield: ThreePillarCommunities.com. Check it out.
Ash Patel: Incredible. I've got to thank you for your time today. By the way, what time is it in Tel Aviv?
Daniel Weisfield: 10:16 PM. This is my workday, man. I work US hours.
Ash Patel: Okay, good, good, good. It's 3pm Eastern Time here. Again, thank you so much for your time. I've interviewed and I've invested with and I've talk to a ton of people in this space, and I've never gotten the insights like I've gotten today from you... So thank you so much for sharing a lot of that with our audience today.
Daniel Weisfield: Thanks for having me on. I really appreciate it.
Ash Patel: Our pleasure. Best Ever listeners, thank you for joining us. If you enjoyed this episode, please leave us a five-star review, share this episode with somebody you think can benefit from it. Also, follow, subscribe and have a Best Ever day.
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