BOHICA

One night last week, a former writing instructor forwarded me a link to this article in the New Yorker. Upon receiving her email, I immediately shot off a reply to the effect of, how’s-the-writing-going-yeah-PE-funds-have-been-bidding-up-this-asset-class-for-years and then slid into an alcohol- and Netflix induced stupor.  But then, overnight, the emails kept coming.  Some people forwarded the link with no covering email.  One person referred to the article as “long and shocking”.  Another said that it did not concern me, because my parks are in New York and I am not a PE fund.  I got sick of the phone-farts, so I turned the cellular device off after a while.

In the morning, I read the article, and I realized that this is a case of BOHICA.

BOHICA is military acronym slang.  Here are some other examples:

• SNAFU – Situation Normal All Fucked Up
• FUBAR – Fucked Up Beyond Recognition
• TARFU – Things Are Really Fucked Up
• SUSFU – Situation Unchanged; Still Fucked Up

“BOHICA” stands for “Bend Over Here It Comes Again”.  I believe that it is of more recent provenance than the -FU words, which grew out of WWII.  At any rate, when I read the New Yorker article, I groaned, “BOHICA”.  Another distorted view of the industry.

Here is the basic conundrum of rental real estate.  As light is both a wave and a particle at the same time, a dwelling unit is two different things at once.  To its owner, it is an entry on a balance sheet.  To its occupant, it is home.  It is both fungible and very personal property simultaneously, depending on where you stand when you look at it.  This conundrum is exacerbated in the mobile home park space, where tenants usually own their homes but rent the land.  Since most tenants cannot afford the very substantial transaction cost of moving their home, this creates a power imbalance that unethical park owners can, and sometimes do, exploit.

That is what the article says. Here is what it does not say:

• Although the industry is imperfect, it benefits tenants; and
• The way to solve problems is to solve problems, not to point fingers.

About twenty million Americans live in mobile home parks.  Parks tend to be better, and cheaper, places to live than comparable apartments.  Lot rent costs a fraction of apartment rent.  Mobile home occupants do not have neighbors banging on their walls.  Unlike apartment dwellers, they can park at their door.  If they own their home, they can recoup all or some of their housing cost by selling it when they move.  Many parks are tight-knit small towns, “gated communities for the less affluent”.  As affordable housing goes, a well-run mobile home park is as good as it gets.

Let’s descend into the particular.  Much of the article discusses lot rent increases instituted by institutional investors that buy parks from mom-and-pops.  Most mobile home park tenants own their own homes but rent their lot.  A manufactured home can only be moved by a licensed mobile home transporter using specialized equipment.  That is expensive – anywhere from $3,500 to move and set a single-wide to $10,000 and up to tear down, move, assemble and set a multi-section home.  Many tenants are not well-off and have their life’s savings sunk into their homes.  Because of this, it is harder for an owner-tenant in a mobile home park to vote with his or her feet when the rent goes up than it is for an apartment dweller.  Some of the institutional park owners discussed in the article took advantage of this.  One raised lot rents by fifty-eight percent in one year, another by sixty-nine, another by eighty-seven.  When this happened, tenants protested.  I don’t blame them.  I’m a greedy bastard, but even I think that’s too much.

But here’s the thing: those cases are outliers.  Reasonable lot rent increases are, you know, reasonable.  Even after a price bump, lot rents in most parks are still a bargain.  For much of the article, the author follows a woman who lives in a mobile home park that was bought by an entity that is controlled by Frank Rolfe and Dave Reynolds (full disclosure: I chatted with Frank in an elevator once, and enjoyed the experience).  The first thing that Frank and Dave’s management company did after it purchased the park was to raise lot rent from $270 per month to $310.  That is an increase of fifteen percent, and surely not welcome to a person on a tight budget – but it is still a bargain.  A very quick Google search indicates that, as of March 15, 2021, monthly rents for two-bedroom apartments in Dubuque fall within a range of $675 to $1,200 per month, with the majority clustering around $850.  That means that, after the rent hike, lot rents were less than half comparable apartment rents.  That is more than fair.[1]

The institution of park regulations is another push-back magnet.  After they bought the park in Dubuque, Frank and Dave put certain new rules in place for residents.  These include, inter alia, the following:

• An eight-hour limit on street parking for guests;
• The requirement that residents who own dangerous-breed dogs buy a hundred-thousand dollar insurance policy to cover pet-related accidents;
• Mandatory quiet hours; and,
• A ban on clotheslines

These rules are burdensome, but only for residents who are bad neighbors.  They are a benefit for the majority of park residents.  If you want to prevent streets from being clogged, you need to limit long-term parking to driveways.  Requiring that pitbull owners insure against bite risk is a burden to owners of dangerous-breed dogs – but it is a benefit to toddlers who run the risk of getting bitten.  Tenants who need to get up at five AM appreciate night-time quiet hours.  Nobody (well, almost nobody) likes looking at dirty underwear.  True, these provisions limit some customers’ freedom to be bad neighbors – but it gives many other customers the freedom to enjoy their property more fully.[2]

So – we have a service that benefits a large, vulnerable swath of the population.  We have a few bad actors who benefit from systemic imbalances.  Is there a way to solve these problems that is not a zero-sum game?  I think there is.  Here are a few ideas:

• Institute a rental insurance scheme that works.  Each month, customers and park owners pay a certain amount (say, two percent of that month’s lot rent) into a common fund.  If a customer defaults on lot rent, the fund pays the park owner lot rent and settles up with the customer separately.  If the fund is publicly run, this may be linked to a rent subsidy scheme.  Speaking for myself, I would gladly give up two percent of my top line if I could be spared the time, expense and brain-damage of evictions for nonpayment.  Customers would welcome the program because they would no longer need to come up with cash for a security deposit on Day One;

• Institute effective remedies short of eviction for noncompliance.  Evictions suck, but under current law we need them, because they are the only remedy that park owners have against recalcitrant tenants, and when tenants recalce by, say, breeding pitbulls, playing loud music or parking on the street overnight, their neighbors suffer.  I welcome suggestions here, but some kind of alternative dispute resolution with teeth and a workable set of remedies short of eviction that is more accessible and cheaper than the court system would be a start; and,

• If rent regulation is instituted, ensure that it is done in a reasonable manner.  Lot rents are underpriced.  Rent increases should key off a market-rate benchmark calculated with respect to local apartment rents, park values, and the cost of deferred maintenance.  They should not be subject to the dead hand of a mom-and-pop now living in retirement in Florida.

Here’s what we should not do.  Don’t demonize the park owners.  Most of us are in this business because we want to provide clean, safe and affordable housing to people who need it.  And even if you don’t like us, learn to work with us.  Because a failure to cooperate would cause the most vulnerable party to this transaction – our customers – who we know and about whom, believe it or not, we care – to suffer.

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[1] My rule of thumb is that a lot should go for a little less than half the average rent for a comparable local apartment.  I charge half what an apartment owner charges because an apartment owner provides his or her customers with both land and structure, while I provide only the land half of the package.  Charging slightly below the benchmark provides room for error.

[2] Certain other measures instituted by Frank and Dave were – I would submit – overreach.  A $50 late-fee for a $310 lot rent bill is excessive.  Metering for water is fair because it puts the cost of use on the consumer, but charging a meter fee – even if that fee has to be paid by the park owner to the metering company – is tin eared.