Listen on Apple Podcast here: https://podcasts.apple.com/us/podcast/interview-with-elevation-capital-groups-ryan-smith/id1520681893?i=1000503764870

SHOW NOTES

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 Elevation Capital Group’s co-founder, Ryan Smith. Ryan has been in manufactured housing community ownership for over fifteen years and he currently is raising funds for Elevation Capital’s 8th fund! Elevation Capital Group focuses on two main types of alternative real estate investments: manufactured housing communities and self storage facilities.

In this episode, Andrew and Ryan discuss why Ryan chose to get into mobile home park ownership, they also discuss the perks of investing in the lucrative niche of self storage facilities. Ryan also talks about the importance in vetting your deal sponsors and shares his thoughts on where we are in the current MHP business cycle. Ryan also shares his expertise on mobile home park ownership and his predictions about the future of the industry, COVID-19 and all!

***Andrew Keel and Keel Team Real Estate Investments (Keel Team, LLC) do not endorse any interviewee. This interview is for informational purposes only and should not be depended upon for investment purposes. ***

Andrew Keel is the owner of Keel Team, LLC, a Top 100 Owner of Manufactured Housing Communities with over 1,500 lots under management. His team currently manages over 20 manufactured housing communities across ten states – AR, GA, IA, IL, IN, MN, NE, OH, PA and TN. 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.

Book a 1 on 1 consultation with Andrew Keel to discuss:

• A deal review
• Due diligence questions
• How to raise capital from investors
• Mistakes to avoid, and more!

Click Here: https://intro.co/AndrewKeel

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Talking Points:

00:21 – Welcome to the Passive Mobile Home Park Investing Podcast

02:01 – Ryan’s background in the industry of manufactured housing

05:00 – The most important things passive investors need to look for when investing into the mobile home park asset class

07:37 – Tips on vetting a sponsor

10:21 – Ryan’s thoughts on the current cycle and the current state of the manufactured housing industry

15:04 – The impact of COVID and what could happen next year

16:11 – Ryan’s perfect mobile home park

17:26 – The value proposition at Elevation Capital and what makes their funds different

20:00 – Traveling out to properties

22:20 – The self-storage asset class

27:10 – Building and developing mobile home parks and self-storage

29:40 – Getting a hold of Ryan

30:31 – Conclusion

SUBSCRIBE TO PASSIVE MOBILE HOME PARK INVESTING PODCAST YOUTUBE CHANNEL https://www.youtube.com/channel/UCy9uI3KGQmFgABsr9lUtRTQ

Links & Mentions from This Episode:

Ryan Smith Phone: 407-602-7662

Ryan Smith Email: ryan@elevationcg.com

“Trailer Cash: How To Cash In On the Low-Income Housing Investment Boom” by Jamie Smith: https://www.amazon.com/Trailer-Cash-Low-Income-Housing-Investment/dp/193524535X

Ken Corbin’s Website: https://callkencorbin.com/

The Manufactured Home Show: https://callkencorbin.com/manufactured-home-show/

Ken’s Phone Number: 888.823.4945

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…

Twitter: @MHPinvestors

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TRANSCRIPT

Andrew: Welcome to The Passive Mobile Home Park Investing Podcast. This is your host, Andrew Keel and today we have an amazing guest in Mr. Ryan Smith. Ryan is the founder of Elevation Capital Group.

Elevation is a respected leader in the alternative real estate investment arena. The company focuses exclusively on two niche property types, manufactured housing communities and storage facilities. Elevation, through its own affiliates, have acquired properties worth more than $600 million and have held an interest in over 175 assets across more than 30 states.

Near and dear to my heart, Ryan actually helped me get into the business sometime ago. We met at a Nouveau Trust Eventand hit it off. Ryan was kind enough to show me the business and I read his wife’s book, Trailer Cash, and even did a little event training. I’m a big fan of Ryan, he’s always been willing to share his knowledge with myself and with others. Ryan, thank you so much for coming on the show. We really appreciate it.

Ryan: It’s good to see you. It’s fun to say I knew you when, but you’ve always been a star, that’s been clear from the beginning. No surprise you’ve done incredibly well.

Andrew: Thank you, I really appreciate that. Would you mind starting out by telling us a little bit about your story and how you got into manufactured housing?

Ryan: Sure. To make a really long story short, both my wife and I came from real estate. Our families were in real estate, but your listeners may be listening and say ah, see they have a leg up. That real estate background. But my family and my wife’s family were kind of blue collar.

Real estate. It was to buy properties, fix them, and keep them long term. Hope that the tenants one day pay them off and then continue to hope that produces an outcome. It did and it didn’t in certain ways, but in short we both came from real estate backgrounds. I had more of an analytics back from my family business and what not. When Jamie and I met and we started building a business together in our early 20s, we started with what our families did and what we knew which was single family residential.

We started buying single family houses. The goal is to own them long term, our tenants pay them off. It sounds very familiar to what our families did, or similar. What we found is once we got around to 25 properties, it wasn’t a scalable business as we had hoped. We at that point had stepped beyond the experience of our parents and were kind of in uncharted territory.

We asked ourselves is this the business we really wanted to build? Does it actually get better and if so, when? We didn’t know the answer to either of the questions so we started looking at other product types, other ways to go and grow. Our thought was we were fairly analytical so we spent some time and we created these models, these road rough underwriting models of different asset classes; storage, mobile home parks, billboards, office, retails, apartments, the gamut. Basically, our thought was we will throw the models on the table and pursue the ones that were the most compelling for the purpose of producing what we’re looking for.

At that time it’s really similar to what we want today. We wanted cash flow, capital appreciation, tax benefits, and there are a thousand ways to say the last one, cycle resiliency, low beta, low correlation. Said another way, we wanted off the rollercoaster as much as possible. Believe it or not, the outcome of that process brought us to mobile home parks. At that point, the two most compelling asset classes for storage and mobile home parks, but mobile home parks were a lot more undiscovered at that point in time.

We started by buying properties generally at that time where two star quality world markets you can buy at 20+ cap rate range. Anyway, that’s what brought us to the asset class. It was that process I described.

Andrew: That’s fantastic. The more and more that I learn about the asset class and I think about wow, what if I could have got in earlier when the 20 caps were readily available? It’s just quite a different story today but there are still opportunities out there, I’m sure. Tell us, Ryan, what are the most important things that passive investors need to look out for when investing into the mobile home park asset class?

Ryan: It’s a good question. When you say passive, I’ll tell you my presumption is that somebody is looking at a third party to do the work, an operator or sponsor to invest with. To me, to take it in two parts, there’s what the sponsor does and whether or not that aligns with one’s risk goals and objectives. Then there is, to me it’s the most important but is also the soft side which is who the sponsor is.

If you were to listen to every conversation they have in their office on their phone at the private of a quiet night, are they people who act as a fiduciary for you and keep your interest above their own? Those are the two component parts that go to my mind to consider.

The most important of the two is also the hardest of the two which is the people. It’s not a quick box to check. You can’t jump to trust, it’s really tough. I would think the quality of the person, obviously intellect is important, having a good model you agree with, and there are a lot of discussion we can have around model and differences of the model and how to go about that, but you’ve never met a sponsor who has a bad model according to them, but to me it’s really about the people.

Andrew: That’s been a recurring theme from previous interviews is that there’s a lot of weight on the sponsor and it’s really difficult. There have been different points of views on how to vet a sponsor because there’s so much you can do. It’s like interviewing people. There’s so much you can do before you hire someone to truly gauge how they’re going to perform 90 days down the line. Any tips on vetting a sponsor? Just a quick tip that someone can do. Some people like to meet them in person. Anything you would offer or you would bring up?

Ryan: I would say to start, to me when you’re vetting a sponsor, I would say call it what it is. What you’re trying not to do is jump to trust. You just start by saying you can’t do that, and you shouldn’t try it because if you try to do what shouldn’t or can’t be done, you may compromise the process. To me what you’re trying to do is get comfortable with the business model and get as comfortable with the process that the person is not a crook as possible.

Once you get to that, and everybody has a different threshold of comfort, at some point you have to either fish or cut bait. What it is quite honestly, your first investment sponsor is a statement that you hope they’re honest. I wish it could be more confident than that and more clear, but it really is what it is. I could almost hear the sigh of relief when people received it, at least their second cheque from us in a row. It’s like oh, thank the Lord, they are doing what they said, and I could jump up and down, I could try every ounce of effort in me, I can’t change that. I don’t know how to.

But in terms of your question of a quick tip, it’s all the common ones. To a degree, talk to people who’ve invested with a sponsor for ideally, we have people who’ve been more than a decade which is nice, but as long as possible meet with them in person, talk to people that are around them, try to gauge.

I think understanding it to a degree where a person spends their time says a lot about the person. What are their hobbies, what do they do outside of work might speak to who they are as people, but again, there’s no fast and accurate way. A lot of it is fly by sight.

Andrew: Yeah. I heard it put once, a bad sponsor can mess up a good deal really fast and a good sponsor can make a bad deal good to an extent. Awesome. Would you mind telling us from your experience, like you said you have investors that have invested with you for over a decade, where do you think we are in the current cycle and can you tell us about the current state of the manufactured housing industry? Where do you see it going in the foreseeable future?

Ryan: I’ll start with that. On the fundamental business and mobile home parks, I don’t really see any substitute change. I think the supply side will continue to be constrained by a stigma which I think will persist. I think there will probably be some accomodation over the next decade for bringing out new supply more easily, removing barriers, and maybe removing some of those supply side constraints, but the stigma will still be pretty significant. I don’t really expect that to do anything overly significant.

On the demand side, I’ll say but fortunately and unfortunately, I think demand will continue to grow as technology continues to center mediate, which is what it does. It removes the middle man from processes and that’s typically human labor and ironically typically middle class. I think technology will continue to create demand for the product types. I think demand will continue to be strong and grow. I think supply will continue to be constrained set against that demand.

In terms of the investment lens of the business, there’s a ton of new capital chasing deals. There’s a ton of capital in all product type chasing deals. We talked about it this afternoon with a group I’m in. 20 years ago there were 8000 publicly traded companies, today there’s 4000 publicly traded companies. There’s a lot of money chasing few and fewer deals and really all asset classes and types, but certainly it’s true to mobile home park space.

I got into the business where I would have been thrown out of the room for saying I bought mobile home parks at the beginning, now it’s people inviting me because I do mobile home parks. It’s a very weird change but I say all that to give some background to say there’s a lot of money chasing deals.

We’ve seen a significant amount of cap compression, especially on the non institutional product types, the rural lower quality tertiary market. We’ve seen a lot of cap compression in that space. In short, I think there will continue to be a lot of capital. I think interest rates will probably remain low for the foreseeable future. I think the broader economy on a longer term basis, when you look at the economy as an engine and debt as it’s fuel to a degree, I don’t see a lot of ability to add fuel to growth.

I think growth prospects will be muted. I believe corporate earnings growth rates will probably be pretty slow. I say that to say that demand for income will continue to remain quite high. The feds put a lot of money out in the market and it’s looking for a home. I think when you look at low interest rates, the prospect of low inflation, a lot of capital and the hunger for yield, I think it’s accommodative to lower cap rates for the foreseeable future.

I say that because there’s been and you’ve heard it, ever since 2014. I started hearing it in 2014, this presumption that cap rates were low and they’re about to take a hard right turn and go right back north. It didn’t happen in 2014 and people presumed that cap rates must go up, why? Because they must. Why? Anyway, I think they’ll remain low for quite some time. I don’t know if that fully answers your question.

Andrew: Definitely, and I think a lot of it will obviously depend on the financing available. I think during COVID we’ve seen some of that get it more constricted at times, but towards the end of the year, we’ve seen it get more loosened up which talks to what could happen next year. Have you seen this?

Ryan: Yeah and it depends on the source. The agencies, we just refinance projects in our seventh fund five, six weeks ago, we got 2.57% 30-year, 10-year fix, 3 years of IO which was great but that ebbs and flows and has ebbed and flowed this year. Life on the coast has been pretty consistent. I’m hearing about them right now, blending in the high ones as recently as this month.

I think debt capital will remain fairly, I think depending on the source, there will be plenty of options. CMB Assets, we don’t do a lot of CMB Assets but from what I’ve heard it’s flowing fairly well right now.

Andrew: Ryan, what does the perfect mobile home park look like in your eyes?

Ryan: It’s a good question but one that doesn’t have a specific answer. For us, I’ll describe it maybe differently. Our goal is to create wealth for the people who we work with and for. For me, a good mobile home park is one that allows us with as minimal risk as possible to create wealth for those who we are fiduciaries for over the long run. Any property that fits our model that allows us to do that is a fine mobile home park. There’s a lot of ways, I can show you five different pictures that turned out fine and all five looked different. That’s not the hard part of the question, but a good question.

Andrew: Definitely. I think other people have talked about direct bill utilities over 100 lots. I like your perspective of looking at it not just as a single asset but what it could be in terms of a yield for investors. That’s great. What would you say is the value proposition at Elevation Capital and what makes your funds different?

Ryan: That’s a good question. Everybody thinks they’re unique and special. A lot of our moms would agree with that, but I would say where we sit today at the market, there’s a hunger for yield, margins are thinner today than they were in 2016, 2014, 2008. To your point, everybody wishes they started five years earlier and that’s fine.

But where we are today is just a hunt for yield and that people are worried generally about the state of things. The state of where we are socially, where we are economically. Again, I was at a meeting today with some pretty significant business individuals and the general concern was the market. When is it going to fall?

The point in all of that is as people really start taking investable assets from one place and then putting it in other places and ultimately a lot of people looking for yield, a lot of people don’t want to take as much risk today as they did a couple of years ago.

Where we play in the market is we, to a degree, our known quantity, the more experienced we’ve become, the more matured we’ve got in our business, the less risk we take. A lot of folks like us for our experience, our track record, the experience of our team. The conservative approach to underwriting, to market selection, to management, but still our grass roots hands on blue color approach to all of that.

That’s the role we play so we’re not going out there saying that we can’t get great returns, we’re not saying that we can’t do that, but we’re not trumpetting the financial return profile that we can produce for an individual. We’re just saying here’s conservatively what we aim to achieve, here’s the team, here’s what we do, and we let our track record and experience speak for ourselves.

Anyway, that’s where we sit in the market today and we think it will be really well for a lot of people over a long period of time.

Andrew: That’s fantastic. One thing I noticed about you is even with your large family, you still are able to travel to your properties, you or Jamie consistently. That is one thing that inspires me to get out to our properties because it’s easy to sit behind a desk and to get comfortable there, but to get out and walk your properties and find dollars to add to the NOI, it takes work and that’s one thing I admire about you. Seeing how often you visit your properties has implemented a change in our business of how often we get to ours.

Ryan: It’s the best way to do it, at least we think so. But when you start a new business, you buy a property and then you say working my tail off on this one, and then you buy two. You get to a point where you’re going to be like it’s a lot. You’re like this may or may not be sustainable so you dream of this reality where you have people managing people and you’re in the office just looking at things coming in the computer screen, it just runs itself.

Lo and behold, that’s probably not optimal. Knowing the true value of the dollar, that helps because I’m a curious person by nature. Knowing the value of the dollar, everything is a question, what if we do this? What if we do that? That question best lives in the field which is where does the dollar sit. To me, it’s really a joy, it’s fun. It’s a great thirst quencher for curiosity. I think the top needs to be connected to the field, otherwise what are they managing? They’re managing a business they don’t understand.

Andrew: Yeah, exactly. Like you said, the value of a dollar, when you do the math and capitalize that dollar of what it’s going to make that asset value worth, it makes the trip a whole lot better when you’re able to quantify the value. That’s fantastic.

Ryan, would you mind telling us a little bit about the Self Storage asset class and why you chose to group that and feel that it complemented the Mobile Home Park asset class in your recent funds?

Ryan: There are similarities to mobile home parks, there’s differences. If you were to go to Nareit for example, what you would find is there’s a lot of data on Nareit. One of the data sets tracks net operating income growth over the last 20 years. The two best performing asset classes over the last 20 years for NOI growth, and if you’re listening to this and saying, I don’t know what NOI growth is, mobile home parks trade for multiple of their income.

I’ll keep it simple to say if the multiple remains constant and our income doubles, the value has doubled for the income. When I say income, it’s net operating income, NOI. The whole goal of buying an asset with built in NOI growth, obviously we think we manage them well and have a plan for what’s called force depreciation to some degree quickly improving the NOI. Ultimately, you want to generally be in the business for the winds at your back, and NOI is already growing, and maybe you have a plan to make it grow more or faster.

With that in mind, when you look over the last 20 years, both mobile home parks and self storage have had an average annual NOI growth rate of 4.3%. Interestingly, both are the same. What you’ll see over the last 20 years is there’s been this tug of war match between mobile home parks and storage where in some cases, it’s storage by hair, mobile parks by hair. They’ve both done very well. The distant third is apartments. It’s a very distant third, it’s not anywhere close.

The way they’ve grown, even though they’re the same 4.3%, the way they’ve grown is different. Mobile home parks, what you’ll find are a little bit more boring in an exciting way. It’s a little bit more predictable. The rise over run of the growth overtime is fairly linear and straight. Storage on the other hand is a little more elastic. I’ll say elastic. Mobile home parks are a little bit more inelastic in that way.

The benefit of elasticity is when NOI runs, it runs. With mobile home parks, you really don’t have that ability to let it run unencumbered, at that point you’re growing people’s rental rates by 10% a year, 15%, or 20%. You really can’t do that, the should or shouldn’t debate.

The point is mobile home parks historically have been more steady, and storage has been more elastic. To summarize it all up and say this, if you were to pick an asset class most likely between 2008 and 2010, you’ll probably pick mobile home parks. If you can pick anything to invest in that time, but from 2010 and to 2018, 2019 you either pick storage or the better part of the last decade.

We think it will continue to flip and flop, but we think both will continue to compete with each other and we like those two asset classes for that reason. If you took them away, I would look at apartments, but nobody has done that yet.

Andrew: That’s great. Thank you for breaking that down, and I agree. As our nation turns to be more of a renter’s nation, I think self storage is just a tremendous asset class.

Ryan: The other interesting thing, I’ll mention this really quickly because I’ll just go through the NOI picture of it, but interestingly baby boomers in our country, about 10% of the Americans do storage. One in ten people you know is a customer of storage. For millenials, it’s actually over 30%.

When you look at 20 years ago, the average square foot for a person in the market was 3 ft, per person. They said it’ll never go to four. They went to four, five, six, seven. Now it’s almost nine ft. per person and there are some projections that say by 2030, it’ll be over 12. You have growing demand per person of storage. You have user based, user groups that they themselves demand storage more. We think storage is going to be a good asset class for the long run.

Andrew: The biggest thing that I’ve heard, Ryan, and I’m sure you’ve heard of this as well is that it’s tougher to get a mobile home park developed right across the street from a mobile home park. Storage, obviously with the growth that’s happening and more square ft. per person, they’re easier to get developed. What would be your feedback to that?

Ryan: Broadly speaking, I wouldn’t say you, but I hear it. There’s facts that are partially true, but also not wholly true, that’s one. I’ll give you a couple of examples. We buy two properties in Fund 7 in Denver Metro, one’s in Parker and one’s in Aurora. Both locations have moratoriums on the construction or against the construction of new storage. They’re trying to keep their lands for the purpose of providing housing.

There’s natural barriers to entry, that’s why we liked those two markets because we liked those two markets because we knew that would be going into place. We’re in a good spot, two good assets with constraint against direct competition. But closer to you and I, Winter Park, Florida which is in Orlando, that is a market we would love to own storage in because it’s well developed. It’s very dense, it’s very expensive. To go in and compete in Winter Park is very difficult.

When you look at Winter Park, you say okay, Winter Park in the next decade will probably have 50,000 new people in the city. At that point in time, if you have 50,000 more people and the average store foot per person is 12 ft. per person, you need 600,000 ft. of storage in Winter Park that you can’t buy or build because it’s so expensive and there’s no land. The victor’s the person who’s been in Winter Park and has that location.

What we’re not wanting to do and it’s kind of an obvious fact is we don’t want to build where it’s easy to build to the point of your question. We actually want to go where it’s hard to build which answers the number on question of diligence we do on every asset which is, is the asset motive? Does it have barriers to direct competition, and if not, we’re not interested.

Andrew: That’s fantastic. Ryan, thank you so much for coming on the show. If listeners would like to get a hold of you, what is the best way for them to do so?

Ryan: It’s a good question and we’ll see if that’s the case. If you struggle with your sleep, reach out anytime, I’ll give you more facts that will cure what ails you. Our website is elevationcapitalgroup.com. My email is ryan@elevationcg.com and then my directe line is 407-602-7662. Call anytime.

Andrew: Awesome. Thank you so much. You’re one of my idols in the space and I’m just so thankful that you came on the show. Thanks again, Ryan.

Ryan: I’m glad to know you man. You’re an encouragement to everybody. We’re proud of you.

Andrew: Thank you, I appreciate that. That’s it for today everybody. Thank you for tuning in. We’ll talk to you next time.