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. These 2-real estate investment categories hold up well in bad economic times and surge in good economic times.
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, and 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. You see so much R.E. development going on because the wealth created with R.E. development allows investors and developers to make double-digit returns with limited risk.
Why Mobile home parks?
The conventional wisdom for Mobile home parks (MHP) is buying older parks and updating them, raising rents, and holding for cash flow selling for quick returns. The problem is that finding older MHP that are at a low enough purchase price that you can add value by upgrading the park and raising rents is getting exceedingly difficult to do because of competition from investor groups. This competition has increased the purchase cost of older parks to over $58,000 per space. The other issue is finding existing parks large enough to have economies of scale, located in good growth areas, and with market rents high enough to justify the cost after adding improvements while still providing an excellent return to investors.
When developing 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. A new park is easier to manage with lower operating costs and has a higher resale value when it comes to cash out. A new park can have investor returns of 14% to 22% annualized over the 10-year life of the project. All the preceding add up to reduced risk with more predictable cash flows.
What keeps people from building new MHP development is they need development experience, plus it takes longer to get them started, it can be hard to get a park approved, plus 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, which can be considerable.
We also like MHP because MHP offers an affordable alternative to the high cost of housing in good economic times and bad economic times. They produce a better return on money invested than most other R.E investment property types, giving 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. Large warehouses are being built all over the country that caters to large corporate clients. These extensive facilities are excellent, but a market segment gets left out, small local businesses needing 5,000 to 12,000 square feet of space. If you search the commercial market, you will find a shortage of warehouse-type buildings in the 4,000 to 12,000 SF size ranges. When you see them, they often are older buildings that lack what businesses are looking for: Tall wall heights 16’-30’ high, natural lighting, modern electrical and utility infrastructure, loading docks, fenced truck yards, and good highway access. We can provide what the market is looking for with the new development.
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 to provide our investors with double-digit returns.
Our development and management team designs our business parks to provide investors with good returns and reduced risk.
We consider the property location, size of the development (economies of scale), existing market rental rates, features desired by commercial tenants, lot and building measures, the business structure, financing structure, and title structure to maximize the invested capital.
Interested parties, don't hesitate to get in touch with us.