Listen on Apple Podcast here: https://podcasts.apple.com/us/podcast/interview-with-steven-blank-of-blank-family-communities/id1520681893?i=1000557357041

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 Steven Blank of Blank Family Communities. Steven shares his perspective on the future of the mobile home park industry, and the lessons he has learned through growing up in the mobile home park industry. Steven and Andrew have a great discussion on mobile home parks and how to be successful as a passive investor in the space.

Steven started in the mobile home park industry at the age of 15, working on a maintenance crew at Franklin Companies. In 2011, Steven stepped into the corporate side and learned the ins and outs of the mobile home park industry from his family’s mobile home park portfolio. He then proceeded to help grow two of the fastest growing MHP operators in the country and was involved in over 80 mobile home communities’ acquisitions and sales. He founded Blank Family Communities in 2019.

***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 2,000 lots under management. His team currently manages over 30 manufactured housing communities across more than ten states. 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

Talking Points:

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

01:21 – Steven’s story

03:43 – The toughest hurdle

05:24 – Managing the infill process

07:25 – Finding Grade-A quality, insured vendors

08:20 – Sourcing new homes

10:41 – Third-party property management for mobile home parks

12:30 – Community size

13:38 – Things that give third parties a bad rep

18:59 – The most important things passive investors need to look out for

22:04 – “[MHP] isn’t recession proof.”

24:22 – Some of the bigger mistakes Steven has seen

26:02 – The future of the MHP business

29:15 – Blank Family Communities

30:35 – One last tip

31:31 – Conclusion

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

Links & Mentions from This Episode:

Blank Family Communities: https://blankfamilycommunities.com/

Steven Blank, LinkedIn: https://www.linkedin.com/in/steven-blank-66b4a674/

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/PassiveMHPinvestingPodcast

Andrew Keel Instagram Page: https://www.instagram.com/passivemhpinvesting/

Twitter: @MHPinvestors

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TRANSCRIPT

Andrew: Welcome to the Passive Mobile Home Park Investing podcast. This is your host, Andrew Keel. Today, we have an amazing guest in Mr. Steven Blank of Blank Family Communities. Before we dive in, I want to ask you a real quick favor. Would you mind taking a few seconds to head over to iTunes and rate this podcast with five stars? That would mean the absolute world to me if you would take the time to do that. All right, let’s dive in. Steven has family-owned and operated Franklin Communities for 35 years. Steven has gained experience through working at M. Shapiro and Meritus before selling to Yes Communities in 2019. Steven then founded BFC, Blank Family Communities, specializing in mobile home communities. BFC currently manages over 5000 units across the country and is actively growing. Steven, welcome to the show.

Steven: Thank you very much for having me, Andrew.

Andrew: I’d love to start out by having you tell us your story and a little bit about your path into manufactured housing and the family business.

Steven: Yeah, absolutely. My family owned and operated a 2500 unit portfolio in Southeastern Michigan. I started when I was 15 years old working maintenance during my summers. I’ve done everything from drilled and poured piers, set up houses, helped lay asphalt, literally everything. After college, I started working in the corporate office and I started doing the file clerk. My dad always said, I’m never going to give you a job based on your last name. You’ll start at the bottom and work your way up. I learned every facet of the business that way. After a few years, I decided, look, I really want to make my own name for myself. I started at M. Shapiro, who’s the country’s largest fee manager for manufactured housing and got just a wealth of experience. Then from there, I jumped over to Meritus, which when I started with Meritus, they owned 6000 sites and when I left, they were at 25,000. Right after I left, they ended up selling to Yes. We brought in probably a thousand houses a year in just my region alone. They did a crazy amount of volume with buyer communities at 30% occupied and they’d be at 90% within a year. When I realized that it was time to start my own company, that I didn’t really do that well under working for somebody else, I started Blank Family Communities. By that time, the market was already so hot that I said, look, I’m an operator by trade. My family’s an operator, so let’s go and do third-party management aside from doing the ownership model.

Andrew: Wow, that is fantastic. What a story from the ground up. How many employees now do you guys have to manage the 5000 lots?

Steven: Including our field employees, we have about 50. We’ve got 45-ish communities around 5000 units, and our corporate staff is at 11 right now.

Andrew: Wow, that is fantastic. What would you say has been the toughest hurdle for you in the business or in operations?

Steven: There are two things. One is creating a geographically smart portfolio. The issue that I came into contact with that I think a lot of people do, especially as they’re growing their portfolio is, you see a deal that makes sense on its own, so therefore, you want to pursue it. But so much of manufactured housing these days, especially since the institutional players have taken all of the large communities away, you need to make sure that you have geographically clustered communities. It’s key for management. Our regionals should be able to drive all of their communities ideally. Because if you have to pay for a plane ticket just to visit a 100-site community, that community is not going to be visited very often. The other thing is just creating scale with institutional quality communities. As we were talking a little bit about the institutional players have taken away the majority of the large assets. We’re trying to create a solid portfolio with the smaller communities that are currently in the market.

Andrew: Yeah, those are really good points. I can relate to the GeoSmart portfolio piece because it seems exactly like you said. When we try to get our quarterly trip to each property, the ones that are clustered together, it’s just an easier trip and it’s easy to make time for those. The ones that are kind of the outliers, it’s easy to overlook those and prioritize those after the other ones. That’s interesting. When it comes to infill, what can you share about that that you learned at M. Shapiro and Meritus? How do you best manage that process? Do you have any big tips that you can share with us?

Steven: Yeah, absolutely. Infill is kind of what we specialize in. Andrew and I were on another podcast recently that we talked about infilling in particular. Right now, our portfolios should get 300 houses this year. The majority of those are going into our Ohio portfolio. The manufacturers do a great job with helping you order the right house. Ordering the right house for your market is key because if I over-order a house that the market’s not going to support, it’s not going to be a profitable venture for me. The second is really understanding the lot modification that goes into bringing in each home and being realistic about those costs and timeframe. Do I have to do a foundation? In Michigan, you have to pour new piers for every new home. Any existing concrete has to be done away with because of new HUD guidelines. Does my electricity need to be upgraded? What does my water and sewer connection look like? Is there gas to the lot? And then finding good vendors to manage the process. Especially, if you’re going at scale like what we are, we will potentially pay more than the cheapest guy on the block just for peace of mind so they can handle their volume.

Andrew: Totally. One of the big bottlenecks for us is finding good third parties that can transport the homes. Number one, I think you guys can probably circumvent that with the new homes coming from manufacturers. But then installing homes to find someone that can do this at a scale that’s not just Chuck in a truck and his brother that are going to go install some homes, it has been very difficult for us to find those good vendors. Do you have any tips on how to find those grade A quality, insured vendors?

Steven: The used home market, we started to bring in as COVID has made new homes harder and harder to get and some markets won’t support the price of a new home. We’re sourcing more used homes than we used to. Finding just a transport company is extremely difficult because they can still get work wherever they want. What I tell everybody to do is most states have a manufactured housing association. They know the quality vendors that can be used. Every time I go into a new market, the first thing I do is call the association.

Andrew: Very smart. Sourcing used homes. We’ve done the same thing. We’ve done everything from trying to work with dealers, to transporters, to scalping the internet trying to find used homes. Do you have any tips for the top three ways you guys find them?

Steven: First, the answer is carefully because there’s another aspect to sourcing used homes that we pay a lot of attention to. If you’re taking a home out of a community, oftentimes, it’s viewed extremely negatively by the community owner. We create leases around having the first right of refusal if a house wants to sell and be moved from our community. I never like to pick on community owners because they could potentially come back to the community and say, well, you took one for me, I’m going to take five from you. What we saw in the last recession is that happened a lot and nobody’s at a net gain at the end of the day. We focus on homes that are already slated to leave the community and we focus heavily on the internet. Facebook Marketplace has been wonderful for finding homes and offloading homes and then calling the local dealers. But with wholesalers, the quality of homes can sometimes come into question, how their work process can sometimes falter. It’s not a perfect system.

Andrew: Yeah, definitely. I think we do the same. One thing we’ve seen a lot recently is with mobile home parks shutting down or converting into other avenues. All of those owners likely need to sell or want to move their home into another park. We’ve seen three or four of these recently that are shutting down as mobile home parks and then being turned into higher quality RV parks. That’s one way we’ve got a lot of homes this year. But 300 houses this year you guys are going to infill, what percentage of those are new and what percentage of those are used?

Steven: Those are actually only our new homes. We’ll probably do another 25–50 of used. We do have a community closing in two markets that we’re actively pulling from, just like how you mentioned, but the majority of the houses that we’re bringing in are new.

Andrew: Wow. That’s fantastic. Let’s just get the elephant out of the closet. Third-party property management for mobile home parks has a bad rap. You are taking ownership of bringing that to the marketplace. Not the bad rap, but bringing operational expertise to the marketplace. How do you overcome that to investors that want to own a property and have a third-party manage it?

Steven: We tell everybody that, first of all, we’re not magicians. Let’s say the standard property management fee is 5% and you’re dealing with a 30-site community. I can’t support a good corporate team on 5% of that. We bake in minimums for each community. Also, we make sure we’re geographically smart and have technological automation wherever possible. For all of our communities, over 95% of our people pay on the online portal. We invest a ton of energy upfront where we actually operate at a loss in order to create smooth operation over time, and that’s where we make our money. But also, we have a statistical formula to say each regional needs to manage this amount of communities for us to make sense. As long as they’re the right communities, then we’re able to do that effectively. To overcome the objection, let’s say you own five communities, you’re not going to be able to afford a high-end regional manager and a high-end CFO. I have a high-end CFO and high-end regionals that are able to be shared across a larger space so it’s more of a shared resource model. My access to technology is a lot greater because I can afford more expensive programs, more expensive automation than small to midsize operators can.

Andrew: That makes sense. What would you say is the size of a community? Is there a minimum? Is it 50 lots or higher? Is it 100 lots or higher? I explored M. Shapiro at one time and the minimums really didn’t make sense for parks under 100 lots just based on how much they were going to charge. Are you guys similar to that model or different?

Steven: The smallest community that we manage is 26 lots. The minimum actually comes out to about 10%. We’re certainly not the highest price management company in the market, but we’re not going to take a commute in a small community in a geographically remote location that needs a lot of work for the bare minimum cost. On the flip side, because our accounting is so automated, we don’t have a huge expense there. If it’s in a market that we have a heavy presence in, then we’re able to operationally share resources and get a bunch of communities together that could potentially share a community manager and can share a maintenance staff. That’s how we’re able to handle those.

Andrew: Yeah, that makes a ton of sense. I wrote a couple of things down here about the things third-party management gets a bad rap for. One of them would be slower infill, which I think the newer houses are easy to automate. That’s why 300 is amazing, especially with all the concrete work, that’s fantastic. But used homes I’m sure go a little slower.

Steven: From what I’ve heard, a lot of the third parties don’t even do any infill. I would say that was one of the things. Higher expenses would be another item that gives it a bad rap. Sorry to throw you under the rug about this. I’m not really calling you out. I’m just calling out the myths I’ve heard of third-party management. The third one would be the water sewer recapture. That’s something within our portfolio that we probably spend so much money and time trying to control that measurement so that we don’t get out of hand and lose $1000 in a month because water is just running freely. What would you say about those three things and how BFC does that better? First of all, we had a 100% renewal rate from last year to this year. There were two clients that we got rid of because they didn’t fit our business model because we have a mandate that the people that we work with have to be happy people. Because if somebody is just miserable all the time, then they’re going to make our team miserable and that’s our job to protect our regionals. The myths of third-party management. The expense thing, I understand, but I get paid and keep my job based on my ability to operate effectively. We always show, here’s what your NOI was before us, here’s our fee, and here’s how we still have a positive delta. Because if we’re operating at a loss from what was happening before, why use us? Water and sewer rebuilding has been just a pet project of mine because it’s where operators can make the biggest difference. Anybody can fill a lot and anybody can collect rent, but understanding the complexities of water and sewer rebuilding is a must. Wherever possible, we go with a Metron system. We monitor that system and ensure that our rates are changing with the cities because if you haven’t raised your water and sewer rates in a year, I guarantee you, the city has and now you’re behind. Are you rebuilding it at least to a 90% expense ratio? That’s something that we pay extremely close attention to. The one thing that we don’t do as well, as an owner who owns one or two communities, is finding some random person to do something for way below market. We don’t have the time to spend 20 hours on the phone to find maybe an unlicensed plumber to replumb a house for $500, but we make it up in other ways. Essentially, if that community is not performing well, why use us? That’s what I always say to people. We say that we don’t care about the results of the community. We take pride in the yield that our owners see. Because if they’re making money, that means that we’re making money.

Andrew: Definitely, yeah. I think that makes a lot of sense. One of the things—when I looked at doing third-party management that caught me off guard that people may not understand is the insurance for your employees, for employing all of them, and having them as W-2s instead of independent contractors. It’s a lot of liability. That insurance is not cheap because the insurance companies see it as high risk being its affordable housing in mobile home parks and not other forms of housing. I definitely think the fees are worth it in terms of what you’re paying. I think another thing on the water-sewer recapture with Metron and those other things is technology and understanding what’s out there in the marketplace and then also having the scale. Having the ability to hire those people where if it’s just you and two partners and you own 10 mobile home parks, then you’re splitting up duties of who does what, you’re not going to be able to dive into some of these niches like you’re mentioning your team does. We keep annual checkups to make sure the city didn’t raise their sewer rates and things like that. That’s very important.

Steven: I know that a lot of your listeners are passive investors. The whole point of us is we live in the minutia. We live in the day-to-day and we have enough automation where we can be proactive about issues. Are there things that we do wrong? Absolutely. That’s with any management, but we have the staff and the backing to make sure that things get handled and the knowledge of where we go into a market. When a plumber says, oh, this is going to be $5000, then we have the wherewithal to say, well, that doesn’t make any sense. A plumber’s equipment is this much and it’s going to take you this much. You should actually be at around $2500, whereas a person not skilled in plumbing repairs may not know that.

Andrew: Yeah, you know what things should cost. That’s a really good point. This is one of the questions I asked on every episode and I think it adds the most value from the feedback I’ve gotten. What do you think are the most important things passive investors need to look out for when investing into mobile home parks that may be through a fund, through one-off syndication or JV, or otherwise? What do you think they should look out for to know upfront?

Steven: That’s a great question. Understanding the business model that you’re investing in and then understanding that some of the things that MH is being hailed as are really not true. Manufactured housing is not recession-proof. Coming from somebody who has seen multiple recessions, it’s not true. During ’08, operators had to dump a ton of personal cash to keep houses filled and to create their own financing because all the lenders went away. I can’t tell you how many pro formas I see that give 20% IRR after five years that show a complete linear rent increase. I don’t know economies to be linear over stretches of time. They don’t show any vacancies. I know that manufactured housing, our residents stay for a long time, but I don’t know a single community that operates at 100% occupancy across multiple years. They’ll say, 100% rebill of utilities. We do have that in a lot of communities, but that’s often not the case. We budget 75% to 95% to be safe. Capital improvements, is your budget including the capital maintenance that every community needs? I hate to be the bearer of bad news, but a community that has 75 sites are under is not going to operate at a 30% expense ratio. It’s not real. You see pro formas and you have all of those things that I just mentioned, it’s like, oh, man, this deal looks great. But when you put in the real-world scenarios, it’s not nearly as pretty.

Andrew: Agreed. I think one of the big things is capital expenditures that you touched on. I don’t think they budget enough. I know some banks require $50 per lot per year or something set aside for capital expenditure reserves, but we’ve seen it being way more than that. Maybe that’s what it is for the REITs, but the CapEx of a person just moving out in the middle of the night and abandoning a home, the CapEx from broken water lines or sewer backups is just really what I think ruins a pro forma because you can’t plan for those and you need to have it buffered in up-front.

Steven: Yup. Especially if you’re buying a community in a cold-weather state, right now in Michigan, it’s 12 degrees. We’ve got waterline issues all over Michigan and Ohio right now. A plumbing repair can be $5000, it can be $2500. If you’re budgeting $50 a month, that blows not only this year but the next year’s budget.

Andrew: Yes, definitely. Those are really good points. You said not recession-proof. Maybe you could shed some light on that. Back during 2008, was it occupancy that was struggling the most, just people leaving in the middle of the night or homes getting pulled out by dealers, getting repossessed? Maybe shed some light on that if you don’t mind?

Steven: Yeah. When I graduated college and started working in mobile home parks, it was like in the corporate officers 2011. I was like, man, did I make a mistake? Because it was not a sexy place to be. It was not cool or anything. Homes were leaving. Homes were being repossessed at a 50% repossession rate is what we saw. Interest rates were almost 18%, so lenders went out of business overnight. You couldn’t get to the appropriate chattel financing. That’s when the rental model was truly introduced as a popular method because, before that, everybody sold homes. And then wholesalers, because nobody was buying new homes, came in and were buying houses left and right. On Google Earth, the satellite view, you can look at a timeline and look at the community that you’re looking at. If it’s got 30%, 50% vacancy, go back to 2005. I would bet that that community was full. Then go to 2008, that’s when you saw it start to empty. Then go to 2010 and 2013, that’s when it really died off. Occupancy was a major issue. You weren’t really raising rents. What I always like to say is when an economy suffers, our residents suffer first.

Andrew: I’ve been bringing that up with the first jobs that got replaced. Now you have artificial intelligence at McDonald’s and Walmart. The cashiers aren’t there anymore. Whose tenants were those? Those were ours?

Steven: Yup.

Andrew: I think that’s a new wave that we need to watch out for.

Steven: Luckily, we’ve been kept afloat by the stimulus. MH had a great showing through COVID and we’re extremely lucky to have that huge stimulus package go to a lot of our residents. But it’s going to be really interesting as the stimulus ends and the economy certainly softens, interest rates are going to go up. It’s going to get interesting.

Andrew: Definitely. What are some of the bigger mistakes that you’ve seen operators make in the course of action, in the course of business?

Steven: The pro forma issues are one. Buying a community that you’re really fooling yourself on or just seeing making a mistake that you didn’t know was there. Sewer lines are really easy to camera, but water lines, it’s sometimes a guessing game of what kind of shape they’re in. I know a lot of communities that on the surface look amazing, but they’ve got water leak issues. Taking on clients and partners that aren’t a good fit because what if there are butt heads? Every time a decision needs to be made, if one wants to go left, one wants to go right. We actually have come in on a lot of deals where the partners just couldn’t talk to each other. It’s like a bad divorce. We come in and have to act as the intermediary to get things done. The biggest mistake that I’ve made is both discounting my value in certain cases and then overstepping what my value actually is. We’re not irreplaceable, but we also have a certain amount of value that should never be discounted.

Andrew: Definitely. A good friend of mine, […] who was on the show, swears by third-party management. We had some pretty good conversations about it’s all about the people. It’s all about the value you bring. It’s good to hear that you’re doing so well and growing. That’s pretty awesome. Where do you think the mobile home park industry is headed given the woes in the economy now, with inflation and Ukraine and Russia and that whole border issue? Stocks are dropping. What are you thinking?

Steven: This is my personal opinion and in no way, shape, or form am I an analyst of any sort. Let’s say that interest rates go up. The bonus depreciation that we’ve all enjoyed is going to start to sunset at the end of this year. The economy is already softening and is bound to soften, so prices should go up. People with a low cost of capital, like the institutions, should continue to purchase aggressively. If anything, I would say that further consolidation of the industry is going to knock out some of the small to midsize players out of the buying because their debts are going to get too expensive. Also, I think that in 2008, the leverage that you could get on a community was crazy. You could get 95% to 5% leverage, whereas now banks or lenders are a lot smarter and they’re doing 25%, 35%, or up to 50%. I don’t think that communities are going to go back to the bank how they did in 2008, but I do think that some people who have purchased during this boom that didn’t budget correctly are going to get in some hot water. I think that there are for purchasing, for acquisitions I think that there’s going to be some opportunity.

Andrew: Yeah, I like that. I’ve heard that a couple of different times. One thing I always remember, I think it was Daniel Din who was a guest. He used to work at Fannie Mae. He was on Jefferson Lilly’s podcast. He talked about how mobile home parks, yeah, they have lower default rates than apartments. However, when one does go bad, it goes really bad. It’s harder to bring it back to life than an apartment is. Why do you think that is? Is it just the occupancy issue that we talked about earlier?

Steven: Yeah, the cost of an apartment is not going to move out of your community. If you lose occupancy in a community, the cost of replacing is huge. If your community is struggling and let’s say your credits are getting bruised, you’re not going to have the capital to buy new houses cash. You’re going to have to go through financing, which could be extremely difficult. Let’s say you can get 90% of that new home, just a loan on it, you still have all of the lot modifications in the home installation. Bringing in new homes is cost and capital-intensive. Then your deferred maintenance, now the trees are getting crazy, the roots are going through the sewer system, the roads are getting exponentially worse. It’s not a linear path down. It’s when things start to go, they go.

Andrew: Yup. Yeah, that’s a great point. Maybe tell us a little bit about Blank Family Communities and your management company. What makes you guys different? And if any of our listeners would like to chat with you, how can they get a hold of you?

Steven: Blankfamilycommunities.com is our website. You can go to the contact us page and schedule a call directly with me. Our value proposition is our expertise and our technological automation. Like we talked about, we are a volume company. We manage a lot and we are able to do that successfully because we have utilized technological aid and best business practices. We provide the service of a large firm, but can customize that to somebody who owns 1 to 10 properties. Also, you get to talk to me on a daily basis or a weekly basis. My brother is our chief operations officer and we have lived and breathed this industry for literally our entire lives.

Andrew: That’s fantastic. I love that. Some part of me hopes that my son comes up and wants to be in the trailer park business, but it’s not always the case. The best way to get a hold of you is on the website, blankfamilycommunities.com. I’ll make sure to put that in the show notes.

Steven: Thank you very much.

Andrew: Steven, give the listeners one more tip. I think this episode has been great. You’ve covered a lot. If you had to give the listeners, the passive investors, one more tip of a direction or something to check before they do invest into a mobile home community, what would that tip be?

Steven: Not to continue to beat a dead horse, but just budget appropriately. This business can be extraordinarily successful. You see the guys that have been in this industry for a while that purchase their communities right and they are doing extremely well. Make sure you buy well. We’re in affordable housing, so make sure that your plan includes taking care of your residence.

Andrew: Yeah, that’s great. Awesome. Thank you so much for coming on the show.

Steven. I really appreciate the time.

Steven: Andrew, thank you very much for having me.

Andrew: Yeah. That’s it for today, folks. Thank you all so much for tuning in.