The New Real Estate Moneymaker Isn’t About Design, It’s An Alternative
There has been a recent shift in attention in the real estate market to what types of investments generate the highest returns.
In the past, it was always a combination of good design, prime location, and solid architecture that were the elements of top notch properties. They still are, and there will always be a market and demand for these kinds of properties.
However, a shift in focus from these prime real estate investments has been well signaled in the market. Blackstone acquired 14 prefabricated housing communities, or trailer parks, for $ 172 million in 2018. Apollo Global Management made a similar move by acquiring a controlling stake in Inspire Communities, while the Carlyle Group owns several thousand of these guys. of housing lots. It is the golden age of alternative commercial real estate investing.
“The great facilities that I consider hero properties already have their value fully built in, as there are usually a dozen buyers vying for the location and willing to pay obscene cap rates because they come at a cost. investment so low. Says Jeremiah Boucher, founder and CEO of Las Vegas-based Patriot Holdings, on why he thinks there has been an increase in the alternative real estate market. “In these situations, the upside potential is reduced to too much competitive pressure among buyers.”
Patriot Holdings specializes in investing and improving alternative commercial real estate assets, including mobile home fleets and self-storage facilities. For the reasons he set out above, Boucher stays away from what he describes as “sexy assets” and massive corporate style properties, and instead offers boutique service in this specific area of business. alternative real estate investment. Patriot strives to discriminate their investments more against large-scale private equity firms through their practical philosophy and exclusive access to transactions, but their main point of differentiation is that they own and operate every property in which they are invested. While large private equity firms can outsource the management of these types of properties, Patriot Holdings controls everything from acquisition to development to end-customer service, which means there is less losses and greater customer satisfaction, which generates greater returns for their customers. In total, the group manages more than $ 100 million in assets and aims to double the size of its portfolio by the end of 2023.
“Right now, alternative commercial real estate has its time to come to light due to a rush of sophisticated large-cap private equity groups looking to take advantage of the asset class’s outsized returns,” he said. said Boucher.
This time in the light is also a function of the increased demand for mobile homes, which have become a means of accessing affordable, community-based and stable housing as income inequalities continue to increase. According to a National Low Income Housing Coalition report cited in an article in The New Yorker, out of all 50 United States, there is not one where a person working full time for minimum wage can afford a one bedroom apartment at the market. rate. This has increased the demand for subsidized housing, which now far exceeds supply, and as a result, many low-income U.S. residents have turned to mobile home parks for the most available and affordable options in the world. private market.
This dynamic has placed a strong emphasis on customer satisfaction, particularly in the area of mobile home fleets, where customer service has become hyper important to the growth and long term returns of this type of business. investment. Residents of mobile home parks are often owners, compared to residents of subsidized housing, and as owners, they wish to create and maintain safe and livable communities and neighborhoods. Large-scale fund investments have shown some erosion of the community aspect of life in mobile home parks due to the addition of business structures, a lack of personalized approach and a price increase. All of these aspects potentially decrease the return on investment in the long run.
“Instead of hiring commercial brokers, we have built our own in-house team for sourcing, due diligence and closing of new property acquisitions. Instead of hiring a property management team, we built our own because we just couldn’t wait weeks for maintenance requests to be resolved, ”says Boucher of his recipe for keeping returns on. this market. “And finally, our construction projects are always managed internally and not with a third party contractor. ”
This is a long-term strategy that takes a highly personalized approach to this booming sector of the real estate industry, to which Boucher says, “We are focusing exclusively on what end consumers need today and will need. in ten years. “