On this episode of The Mobile Home Park Lawyer, Ferd is joined by Rhett Trees. Ferd and Rhett discuss a series of topics such as scaling up, taking risks, property management, how to narrow down the asset search, and more! Rhett also shares some tips and advice that he’s learned from working in the MHP industry.
“I’ve always been passionate about affordable housing. I actually grew up on a fourth generation farm in Northern Indiana, my parents still live there, so affordable housing has always been something that has been a key driver for me in the real estate business.”
HIGHLIGHTS:
0:00 – Intro
1:14 – Rhett gives us an insight into his background and how he got into the MHP industry
5:14 – Ferd asks Rhett about the kind of footprint he’s trying to leave on the MHP industry and how he narrows down the search for MHP’s
6:22 – Rhett explains that his kids refer to his job as a highly paid creative problem solver
9:20 – Rhett speaks about his rate of scale and shares with us some of the things he’s learned from his growth and having to hire staff
10:30 – If you know where you’re going, then the road becomes shorter
13:27 – Rhett speaks about the joy adding affordable housing stock brings him
16:23 – Rhett speaks about a 25-pad development he’s doing in Wisconsin currently
18:10 – Ferd asks Rhett how he’s been able to scale so well with such a small team
20:15 – Rhett states that property management is the most important but also, the least rewarding aspect of his business
21:41 – Rhett shares with us some tips and advice that he’s learned throughout his time in the MHP industry
29:07 – Rhett states that with the remaining assets in the MHP industry, we have to be okay with a little bit of risk for reward
FIND | RHETT TREES:
Email: rtrees@senecacp.com
Phone: 3038882826
Website: senecacp.com
LinkedIn: Rhett Trees
FULL TRANSCRIPTION:
Ferd Niemann: Welcome back mobile home park nation. Ferd Niemann here again today with another episode of The Mobile Home Park Lawyer Podcast. My guest today, he’s a mobile home park owner, operator, syndicator. He’s got a fund, he’s been in the industry for a long time. Please help me welcome Rhett Trees. Rhett thanks for coming on the show, man.
Rhett Trees: Ferd I’m so excited to be here with you. I’m just so grateful that you spend all this time and energy to get the word out about mobile home park communities and really the good folks who are adding value to the sector. So I’m thankful for your invitation.
Ferd Niemann: I appreciate you coming on. I appreciate the work you do. I think a lot of our audience probably knows who you are, but in case they don’t maybe give us a little more of your background or your history and, how you’ve kind of started the MHP and what you’re working on today.
Rhett Trees: Yeah, I appreciate that. Now I’ve always been passionate about affordable housing. I actually grew up on a fourth-generation farm in Northern Indiana, my parents still live there. So affordable housing has always been something that has been a key driver for me in the real estate business. I’ve been incredibly blessed to have some great mentors along the way who have helped me. And given me a hand up, moved to Denver in 97, we started a hyperbolic real estate company in the early two thousand called exclusive resorts which grew really quickly to about 1.4 billion in assets, under management. And we sold that to a Steve Case, the founder of AOL, and a couple of others. I was a leading sales executive there and had a blast, actually met my wife there and then left exclusive after the sale, I continued on and actually left to start and take a pretty institutional view of the mobile self-storage world. So we bought 1 800 pack rack from a firefighter in Raleigh Durham. We had three locations at the time. There were five of us. We turned that into about 70 locations in a couple of years and sold it to waste management for just shy of a hundred million back the last day of 2009. And to be honest with you, you know, I had what I call one of my spiritual revolutions where, you know, I had fallen into a deep depression at that point. I’d allowed my ego to kind of drive my self-worth in that I was allowing myself and my ego to tell me that I was worthy by what I did and not who I was. So I took about six months off and I spent a lot of time on that. And I came out with a new view on the world that, you know, my role every day is to touch someone’s soul today. So I’ve really given a lot of my time and energy in my life to mentoring others and helping them come along. Especially after I got into the mobile home park world in 2010, 2011. I bought into a private equity firm called caddis capital. My partner, Terry Larue is kind of one of the godfathers of mobile home park investing. He started the firm in 86 and we had 12 mobile home park funds. The fund that he and I owned last called Trico fund, three we sold to Blackstone and Terry’s in his seventies, I’m 46. So I decided to just start Seneca, Seneca capital partners in March of 2017, you know, and I had an opportunity to work with a lot of family offices and investors over the years as a syndicator, and really wanted to start something that no one else had done, to have an institutional platform to welcome family offices and small endowments and foundations who were struggling to get access to this, you know, unsophisticated sector of real estate. And so that’s what we did. We launched Seneca as a registered investment advisor, which we’re the only one that we know of in the sector. KPMG has been our auditor from inception. So we think that’s a huge differentiator for us. We’ve got an institutional fund manager, UNB fund services who has been doing all of our reporting and investor relations since inception. So we think these things are key differentiators for us to kind of bring trust and you know, this institutional type of a thesis to the sector. So we’ve been really excited about it.
Ferd Niemann: No, that’s great stuff. So with your current fund, what is the kind of footprint you guys look for? Are you looking for deals nationwide? Are you looking for a stabilized infill value add combination? Just, I mean, obviously with the access to family offices and institutional money I would imagine there’s a plethora of investor yield requirements and investor appetites that you have access to, but how do you go about narrowing down the search or, do when you can have different almost divisions with different types of asset classes?
Rhett Trees: Yeah, you know, that’s a really good question. We’ve launched three funds in just shy of four years. So our growth pattern has been pretty incredible, and we’ve been really consistent through that entire period of what we call the winking smile states. So the smile starts up in Oregon, Washington down through Idaho. We really like Idaho, Utah, Colorado, Arizona, Texas. We dip below the Gulf states and go to Florida and then come up the Georgia, South Carolina, North Carolina coast. And the wink is Wisconsin. We actually have about an 800 pad portfolio in Wisconsin that performed better than anything else during the COVID pandemic. And then the nose of the wink is in Indiana. We own some assets in Indiana, which is where I’m from.
Ferd Niemann: Great. And then as far as type of asset, do they mostly stabilized or are you doing any development or redevelopment expansion or infill, what’s the strategy there?
Rhett Trees: You know, I love that question Ferd. Cause when know a broker, a new broker will call you and say, you know, tell me what your box is. And you know my famous responses, we don’t have one. If you ask my kids what I do for a living, they’ll tell you that I’m a highly paid creative problem solver. And really if you can have that view of the mobile home park world, I think you’re going to win. As you know, none of these assets are the same. I call them my children. You know, sometimes I’ve got a problem child. Sometimes you’ve got, you know an A-plus kid who’s the straightest arrow you’ve ever met. So we’ve got all of the above. I mean, we own as small as 17 pads and as high as nearly 400 single assets. So, you know, we love this pod thesis I’ve been talking about since 2011. I love that a lot of people have really started to use this in their marketing. We think that there’s a huge economies of scale and more operational efficiencies on the op ex side and on the cap X side. To be honest with you where we can really control our expenses at the asset level with this pod thesis. So with, you know, having five assets within 60 miles of each other in Wisconsin, we were able to significantly decrease the amount of humans required to run all those assets both on the property management side and on the maintenance side. So we’d love to have these pods, you know, Dallas, Houston, Raleigh Durham, quarterly in Idaho, Lakeland Florida, Wisconsin, Indiana, Indianapolis. So, you know, that’s kind of how we think of the world.
Ferd Niemann: No, that makes sense. I mean, I’m with you. I just, if you can get, I’m looking at a park this morning, that’s right down the street, you know what, I can pay more than you. I don’t want to pay a premium, but I can afford to pay a little more premium, cause I already have a manager right there, area of maintenance right there. It’s like, you know what, there’s some economies of scale, even with just a second park in the same metropolitan area. But yeah, if you get three, four or five, ten, I’ve never had more than three in a single market, imagine if we get 5 or 10 actual improvements or efficiencies. Now you’ve expanded, obviously you’ve expanded other business. You’ve expanded this business. Tell us a little bit about the scale of that growth. I mean, I know that there’s a chokepoint for a lot of people where it’s not easy, but it’s easy to go from one to two, maybe two to three to four or five, but at a certain point, whether it’s 500 pads or a five parks, it starts to be like, okay, now I need help. Now I need staff. And if it’s in a different geographic footprint, you may need you know lower-level staff and there’s definitely a risk component of that from an appetite of hiring personnel, there’s a risk component to trusting other people to do stuff that you’ve been doing. Tell us what you’ve learned through that process based on that our listeners can follow in your footsteps.
Rhett Trees: Yeah, I appreciate that. I just hosted a bunch of operators out in Denver for a dinner and Andrew Keel and Jeffrey Cook, and I know that most of those guys have been on the program and we have this conversation a lot, right. Because we’re all just trying to figure it out. And it’s amazing and interesting how different we all look at the same industry. So for us, you know, the scale part was very important. We think scaling this business is likely the biggest differentiator you can have. So there was this void in my mind, in the sector between, you know, the cobble together guys, you know, which there’s nothing wrong with. It’s a lot of work. And the institutional, you know, kind of the three publicly traded and then some of the sovereign private wealth firms who really want to participate, but can’t get an upscale. So we’ve been very vocal about launching five funds in five years and selling them simultaneously. You know, here in the 2024 to 2028 range has really been our goal from day one. So my belief is that if you know where you’re going, then the road becomes shorter, right? We’re trying to pull the future forward is really all we’re doing. We do believe that it’s a roll up opportunity of a lifetime for us to really have a land grab and to find those assets that fit our really small niche. And so that’s what we do. So, you know, if we get a 34 pad park in anywhere it’s really a quick note for us, because time is our enemy. There’s only four of us at our kind of corporate headquarters. So, you know, that is something that we’ve been really good about being disciplined with every asset that we see. We’ve looked at 258 deals. I think something like that about $3 billion worth of deals since 2017. And I think we’ve purchased 15 of them, maybe. So, you know, the discipline of that purchase path is something that is helpful for us because it saves us time.
Ferd Niemann: Certainly. So, and I think the rolling up, or the eventual consolidation industry, which I think has already begun is where people really going to make money. You’re going to get that multiple, what’s your opinion on the size of the portfolio you need or geographically or total to make that real for you? Can an individual get there at 5 and 10? Is it got to be 50 and, you know, how much of this number of parks, dollar value pads, what is your view of that? And I’m also sitting here your view of where we are in that cycle, you know, are we at the maturity stage? Are we still ramping up? I mean, you know, as an asset class.
Rhett Trees: Yeah. It’s a fascinating view. You know, I think when I started in 2011 or so, there were about 50,000 pads, 50,000 parks. And I think there’s probably only about 38,000 left today because of consolidation and multi-family redevelopment mainly. So, you know, if you look at it that way, and we think there’s about 30,000 people who own just a mobile home park. So with our first two funds, we couldn’t really take advantage of those, what I call perfected portfolios. So a mom and pop owner that owns between three and five parks because our geographic exposure would have been way too high. That’s what I’m excited about with our third fund. I think because it’s so much bigger, we can really focus on those three to five park pad portfolios where we can go in and add a significant amount of value. A lot of those mom and pops in my experience that have three to five have kind of gotten over their skis a little bit regarding their personal balance sheet. So they may not have the ability or proclivity to add new homes. We have a significant storage of road ready, 2017 to 2020 mobile homes that we move into our parks immediately upon acquisition. Which really has been a huge differentiator for us to be able to add that much supply. You know, that’s something that gives me so much joy when I wake up every morning is that I get to add housing stock to the lowest common denominator where we call workforce housing, right. Where we can provide a home to a person for $40,000, $50,000 and take them out of the traditional path to home ownership and provide, you know, financing opportunities or otherwise to get them into that home. And that’s really what brings me so much joy about what we’re particularly doing. We’re not just buying something and sitting on it, if you will. When we have a rent increase, we do something for the tenant. We repave the roads, we add playgrounds, basketball courts, etc. So that’s you know, a big part of what we do.
Ferd Niemann: I think that’s great. I mean, I think that’s, I agree. It’s one of the better things in the industries that watch people, you know, I’ve said it before on the show, I’ve had several people come up and hug me crying. Like I can’t believe I get a house this nice. And then, yeah, I think it’s just strategic any way if you’re going to put a rent increase and to add value. We like, you know, probably going to increase the rent. We don’t increase the rent the first day, we increase it like 45 days later when we pump a ton of money into the park for the first 45 days and look, we just repaired the streets, we just put in rosebushes, we just put in a playground, trimmed all the dead trees. We demoed five houses. Isn’t your neighborhood better? Absolutely it is better. Do you mind paying $30 extra? It’s a value. And I joke, you know, like there’s somethings you don’t mind paying an extra, I don’t buy cheap toilet paper, trash bags at razorblades, right. I’ll pay for the better ones because it’s worth the value, it’s worth the quality. So that’s what we try to do is increase the quality for the dollar instead of just squeeze dollars. And I think as an industry, that makes sense. So, you know, our reputation has been up and down, mostly down in the last number of decades, and the most part, I think it’s going upright. Perhaps a few exceptions, but I think just globally macroeconomically asset class, it makes good economic sense and just good moral sense, you know, we’ll work, you know, give something back when you’re going to do not just take the extra revenue.
Rhett Trees: Yeah. Agree. I always say that, you know, I’m a pretty spiritual cat. So, you know, we don’t want to take advantage of our tenants there actually, you know, when you buy something, people forget that the cap rate is really the future value of the in place leases that you’re buying. So the last thing you’d want to do is to buy something and then for all those people to leave, cause then your value you’re just left with it. So, you know, we really think of our tenants as a partner in everything that we do, which has been kind of a rule, incredibly rewarding for us, but a big differentiator for us too, that we want them to stay there. And our occupancy levels during COVID were the highest that they’ve ever been. And we did still have rent increases, but we were also providing tons of capex. And to your earlier point, you know, we’re doing a 25 pad development in Wisconsin right now. That was kind of already pre-done by the previous owner. And we’re just really attaching the undergrounds to the trunk that’s already in the back of the park and putting 25 brand new homes in, we’re doing that in Coeur d’Alene also where we’re adding new homes, double wides, Indianapolis, we’re doing that. So you know, we love these kinds of small development solutions where we can add additional home and housing stock fill the unoccupied pads with newer homes like 2017 to 2021 homes. And then you know, run it with M. Shapiro. So your earlier question around, how do we do it? How do we scale like that? You know, at caddis, we tried this bifurcated approach where we had an internal team that we were doing property management with. And we also had a third-party team that we utilized for about half the portfolio. In my experience, we were half as proficient and twice as costly internally, you know, our partnership with M. Shapiro has been a game changer for us. They’ve committed to following us to every location we go to in the country, their platform, and people are best in breed. They are world-class at everything they do. And we feel really lucky that Mickey gave us a chance to join them as one of the handful of firms that they work with on this third-party property management side, because they see the world the same way we do, which is treat the tenant right. And really, you know, Seneca, the founding of Seneca was built on a really simple premise, do the right thing with the right people for the right reasons. And they’ve completely latched on to that. And has really been a large part of our success.
Did I lose you Ferd?
Ferd Niemann: Carly. This is Ferd. We had a glitch issue with recording. So Rhett was talking about M. Shapiro. So we’re going to jump back into that and then I need these two splice together. Rhett, are you still there with me?
Rhett Trees: Yeah. I’ll just dive back into the M. Shapiro story then.
Ferd Niemann: Earlier we were talking about scale, tell us how you have been able to scale with only four people back at headquarters.
Rhett Trees: Yeah. You know a big differentiator for us Ferd, has been that we’ve got M. Shapiro’s our dedicated third-party property manager. The blessing in my life was when I was at caddis, we tried to do both, right. We had this thesis that we would try to do have an internal team that was a property management arm of caddice. And then we had a third party that also did work for us. And in my experience what we found was that our internal team was twice as costly and half as productive. So when we started Seneca, I really wanted to find a third-party property management partner we could be dedicated with. We originally started with Newport Pacific. We’ve worked with Newbie, we worked with Sunstone and we just, for us found the ideal solution in M Shapiro. They committed to doing everything with us nationwide, to investing in assets and people in all those locations, in order for us to execute our pod thesis. And with them, we have been incredibly successful based on their internal resources, which I think are best in breed and world-class, and we’re really grateful to Mickey Shapiro for adding us as one of the handful of third-party operators that they work with. I think they own 18,000 pads in their own book. So they know what they’re doing. They are very elegant at what they do on a daily, weekly, monthly basis. And Marcus and his team there have just, you know, overachieve for us.
Ferd Niemann: Excellent. Yeah, I don’t hear many people do third-party management. That’s great. Cause it’s a definitely a hard business to manage. I generally tell people, I don’t think it’s a real estate business. I think it’s an operational business. You know, I’ve done other real estate business, and this is definitely management intensive, maybe. If you don’t have it in-house, you’ve got to definitely have a high-quality team and outsource it too, so it sounds like it’s working out well for you. That’s great.
Rhett Trees: Yeah. You know, I often say that property management is the most important and the least rewarding aspect of our business. So you know, that’s been a big changer for us. You know, when I started Seneca, I really wanted to have this dedicated team of humans that I worked with on a daily basis. And for us to go out and find these best in breed service providers like you know, on the lawyer side where we can really expedite our growth and scale quickly utilizing these non W2 resources where we can just add humans where needed or required. And the fund administration has been huge for that with UNB fund services. And we’ve got a dedicated contact there that we work with on a daily basis. Who’s a CPA. And that’s been a big rewarding experience for us too.
Ferd Niemann: No, that’s great. Makes sense. That’s definitely something you guys can distinguish yourselves from the crowd is having all these, you know, professional third party, not just third party, like the tree guy, the road guy, landscaping guy. I know these are third party key, you know, some degree C-suite or VP level personnel that are available on a contract basis. So I’m glad that’s working out. That’s definitely a strategy. What other strategies or tips do you have for our audience is key to your success before, or maybe if you have any horror stories you want to share, or lessons learned and share those with the audience as well.
Rhett Trees: Yeah. You know, we’ve been really successful on the acquisitions front. We’ve got nine bird dogs that worked for us. You know, that’s been a huge part of our business. We went to some of the brokers in the community and just said, Hey, you know, the typical buy-side period can be a yearlong, right? By the time you get an owner who really wants to sell, you do all of your OM work, your financials, you get it to the market, you accept, you know, and you go through your grid of potential buyers, go through a long you know, due diligence and closing period, 105, 120 days. By the time you get done, you know, you get to the point where you’re finally done, and you took your eye off the ball with other assets or other opportunities and you gave half of it to the shop. So we went to a bunch of these guys and just said, what if you just made an introduction to us? And we took everything well, our shop is a little bit unique in the fact that we’re not a trust and verify shop, but we’re a self-verification shop. So regardless of who presents what to us, we go back to the beginning and we start our entire due diligence process from scratch regardless. So it really helps to have these bird dogs cause then they can just make a quick introduction. They have the relationship we can you know, present ourselves to the ownership that the bird dog is going to go through the process with us. We have this kind of interweaved Alliance with the bird dog and then take down deals. And we’ve been having a ton of fun with that.
Ferd Niemann: That’s great. I’m with you. I jokingly say, you know, President Reagan’s once said trust but verify, I say don’t trust and verify. So it sounds like the same process. And I know I’ve worked in government and then I’m a lawyer and a broker. So I’ve been around liars for a long time. So I just don’t trust people very easily.
Rhett Trees: Well, I mean, as you’ve probably run into, you know, a couple of the deals, I think the last five, if not six deals we’ve bought the sellers have been in their eighties, which has been pretty fascinating. We were working with their sons or daughters who are in their sixties and we’ve got a deal we’re working on right now. That’s maybe one of our best deals and maybe one of our best markets and the owner doesn’t have a computer. He’s been taking rent rolls by hand for the last 25 years. So he’s got a shoebox, the classic, you know, we’ve all heard it. But you know, we’ve gotten around that. We just bought a deal, near a 400 pad deal where we just had our analysts go out and really hunker down and try and run through all the docs onsite, our COO Paul has been incredible about that too. We’ll just take, we’ll take the box to the FedEx, Kinko’s and, you know, hammer through it. And then we’ll try and incorporate it up into you know, an Excel spreadsheet or some other sophisticated tool that we can use and then present it to Freddie Mac. We do every deal with Freddie Mac. It’s been an incredible part of our success too, is the support from Freddie. And so you can imagine when you present some of these, you know, what I think of as value add deals to Freddie, they go really, and how we’ve gotten around that, which is really a differentiator for us too, is that when we closed on our portfolio in Coeur d’Alene Idaho, we escrowed a million dollars of equity for that deal in our promise to do what we said, we would with Freddie. You know, our deal that we bought in Lakeland, Florida, we escrowed 666,000 at closing to go redo 168 parking pads that we did within about months, eight-panel, six-panel cement parking pads. So the investment, that relationship has been a big deal for us. Because our rates are just incredibly low. I mean, debt at less than 300 bips on a 10-year term, 30-year AM with three supplementals and the assumptive clause has been a big deal in regard to our disposition strategy, because if we’re going to hold all the assets clear through a final period, we want to have a return of, and a return on to our investors. So we’re utilizing the supplemental tool, a cash-out refinance as a way to give back to our investors, a return of capital during the whole period. So that’s been a great deal for us over the years.
Ferd Niemann: No, that sounds great. I’m curious, when you mentioned earlier, take on even an 18 pad park. How does that fit into Freddie Mac guidelines as a part of the portfolio? Cause that seems too low as below their minimums. Just curious on that, or is that a side deal where you, that where you buy cashflow or line of credit or something.
Rhett Trees: We bought that deal in cash. It was, you know, not a lot of money. And so we just bought that in cash. Freddie did all the other deals, that was actually an interesting transaction. And so you know, we only have two deals that we have not done Freddie Mac dealt with. One, it was a park, we own at Houston 66 pads that we did with a local community bank, low LTV, 50 LTV. Our aspiration was to go add a ton of value to that park and then take it to Freddie Mac. We’re actually going to list it for sale in the next 30 days. And to your earlier question too, about private utilities, it’s the only asset that we own that has well and septic. And in our experience, that’s just not the ideal solution for us. You know, with Texas environmental quality, we’ve been trying to get some previous items that the previous owner had that was attached to the private utilities where we’ve been, we’ve cleaned them up. We’ve done all of that investment in that infrastructure and have now gotten to a point where, you know, we know that it’s an asset that we can be proud of. We’ve repaved and put in cement curb and gutter, repaved all the roads, all new electrical. So it’s like a brand new park with well and septic that have been updated. But our preference is to own city water, city sewer, everywhere. We think there’s about a 75 to 100 basis point free lift and public utilities.
Ferd Niemann: No, I would agree. Yeah. I usually, I usually priced them about 50 bips for the sewer, 50 for the water. Maybe more, a little more, if it’s a lagoon sewer you know, give it a credit. If you got city taken care of roads, I had a couple of the city takes care of the roads and that’s not a big deal, but compared to the utility system. It’s still relatively a big deal. So anyway, great stuff Rhett. Anything else? Let us know where to find you.
Rhett Trees: Yeah, no I appreciate that. Well, one other quick thing, you know, to our earlier conversation about creativity. We’ve got a park that we’re buying right now that’s a really large park, it’s on a lagoon system, but it’s about 150 feet from the city trunk. So we’re going about you know, bringing that community onto the city services and we’re going to decommission that lagoon ourselves. So that’s kind of where I think the creativity and the rubber hits the road and what’s left in our world, I mean the amount of assets that are left, I think we’re all going to have to have a little bit of risk for that reward on some of these deals.
Ferd Niemann: No, it makes sense. I’ve looked at lagoon park. I’ve only, I don’t remember currently, I’ve probably looked at three or four closely in the last year. And that’s always a key point is how close to the same services. And one of them, it’s seemingly close, but I had to go underneath the interstate and I got an engineering bid, and it was, I don’t know, $350,000 and I needed it to be a hundred or something. It seemed like it might’ve been under a hundred, but I was wrong, it was a lot more. And I was like, Nope, I’m not taking that risk. And it was in Illinois too, which is a little less friendly from a regulatory standpoint in general. I’m not going to rule with a $400,000 dice on this one. But anyway, great stuff Rhett. Tell us where we can reach out to you after this episode.
Rhett Trees: I appreciate that Ferd. You can check us out at senecacp.com online. I’m pretty active on LinkedIn. Just under my name, Rhett, R-H-E-T-T, Trees, T-R-E-E-S. I’d encourage anyone I’d mentor a ton of up-and-comers in the space. I’m on the board at the Kelley school of business, which is my alumni at Indiana University. So I mentor a ton of students there and I’m happy to spend some time with some folks who want to learn more about the industry. We love to educate folks about what we do and why more importantly, the why of what we do. And so they can reach me on email, rtrees@senecacp.com. And my cell phone is the only phone I have is (303) 888-2826.
Ferd Niemann: All right, thanks again, Rhett. Appreciate it.
Rhett Trees: My pleasure Ferd, take care.
