Why new R.E. development? The simple answer is that we do new Real Estate (R.E.) development because that is where the profits are. There are 2-investment spaces that we like.
1. Mobile home parks and
2. light industrial warehouse buildings.
We like these 2-types of R.E businesses because they have higher cash returns for the dollars invested when compared to other types of real estate.
When we take a piece of land and add improvements that people are willing to rent, we have created cash flow, that cash flow adds value, that value is wealth creation. Some organization that needs steady cash flow to meet their contractual obligations will pay for that cash flow, I.E. insurance companies, retirement systems, REITs, etc. The reason you see so much R.E. development going on is that the wealth created with R.E. development allows investors and developers to make double-digit returns with limited risk.
Why Mobile home parks?
For Mobile home parks (MHP) the conventional wisdom is to buy older parks and update them, raise rents, and hold for cash flow or sell for quick returns. The problem is that finding older MHP that are at a low enough cost that you can add value to is exceedingly difficult to do as the competition from investor groups has run the as-is purchase cost up, to over $58,000 per space. The other issues are finding existing parks large enough to have economies of scale, in good growth locations, and with market rents high enough to justify the cost and improvements while still providing a good return to investors.
When we develop a new MHP we can choose a good location, in a growing area with high monthly market rents. Development costs are about $48,000 per rental space for a class “A” park with full amenities. Done right a new park can have investor returns of 14% to 22% annualized over the life over the (7 to 10-yea)r life of the project. A new park is easier to manage, has a lower operating cost, and has a higher resale value when it comes time to cash out. That makes for a reduced risk with more predictable cash flows.
What keeps people from doing new MHP development is they need to know how to do one, it takes longer to get them started, it can be difficult to get a park approved (entitlements) and there is no cash flow until the park is leased up. Besides putting together an experienced team the developer must have sufficient financial resources to put the project together and that can be considerable.
We also like MHP because in good economic times and bad economic times MHP offers an affordable alternative to the high cost of housing. They produce a better return on money invested than most other R.E investment property types and that gives us the ability to offer our investors double-digit returns.
Why warehouse business parks?
The short answer is the need is there and they are profitable rental properties; all over the country, in high-growth areas, large warehouses are being built that cater to large corporate clients. These large facilities are great but there is a market segment that gets left out, small local businesses needing 5,000 to 10,000 square feet of space. If you do a search of the commercial market you will find a shortage of warehouse-type buildings in the 3,000 to 12,000 SF size ranges. When you do find them they often have older buildings that lack what businesses are looking for namely: Tall wall heights 16’-30’ high, natural lighting, modern electrical and utility infrastructure, loading docks, fenced truck yards, and good highway access. With the new development, we can provide what the market is looking for.
By developing new warehouse business parks in the 12 to 25-acre size with 20 to 40-buildings in the park we have the economies of scale to offer rental rates that compete favorably with older warehouse stock that lack the amenities and features that new buildings can provide. We can offer competitive rental rates while getting good monthly cash flows that enable us to provide our investors with double-digit returns.
Our development and management team has designed our business parks to provide our investors with good returns and limited risk. Taking into consideration, property location (high growth areas), park size (economies of scale) existing market rental rates, amenities and building features desired by commercial tenants, lot and building sizes, the business structure, financing structure, and title structure to maximize exit strategies and return on invested capital.
Interested parties please contact us.