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Investors Pursue Unconventional Real Estate Assets

Frank Rolfe
Mobile Home University

Family offices and institutional investors are increasingly making contrarian bets on unconventional real estate assets. Mobile home parks, billboards and forestland are all experiencing a growing flow of private and institutional capital.

Mobile Home Parks
Many of these niche sectors in the real estate market seem to have cropped up out of nowhere. “We lucked into it. The industry went from being goofy and screwy a decade ago to winning the lottery based on where the nation’s demand has ended up on housing,” says Frank Rolfe, co-owner of Mobile Home University, the sixth largest mobile home park business in the United States. According to Rolfe, mobile home parks are the only real estate sector without new builds coming into the market and the total number of park lots is limited.

The privatization of low-income, affordable housing took off in the 1980s under the Reagan administration. Today, these mobile homes are the largest segment of non-subsidized affordable housing in the country, according to government data.

Many of the people Rolfe and his team acquire their property from are the original builders of the homes who have mostly operated the parks informally. Institutions have been entering the market since the 90s to improve the inefficiencies of the mom-and-pop model and increase profitability.

Mobile home parks are priced at least 50% to 100% below market value, according to Charles Becker, a professor of economics at Duke University who advises Rolfe’s team. “We call it the mom-and-pop quantitative easing,” quips Rolfe.

He believes the asset isn’t just undervalued, it’s unique in a number of ways. Most of the homes in the park are not really mobile as moving them costs upwards of $5,000 and the structures are too old to survive the journey. According to Rolfe, 99% of the tenants never leave which makes the revenue stream extremely stable.

The Risks
There are, of course, risks. “I would say prosperity is our greatest threat,” he says. “Our market is driven by the demand for affordable homes.” A rise in inflation-adjusted incomes or government subsidies will push more people to buy homes in suburbia. Rolfe says his team is still optimistic about the industry’s long-term prospects despite this. Along with his partner, he manages mobile home parks worth over $1 billion.

Roger Montgomery
Founder and Chief Investment Officer
Montgomery Investment Management

Billboards and Outdoor Advertising
Similarly underappreciated is the market for billboards and outdoor advertising. “Billboards offer a high yield with relatively low capital outlay,” says Roger Montgomery, founder and Chief Investment Officer of Montgomery Investment Management, which is based in Australia.

Buying billboards and leasing them to big companies for advertising is a relatively underappreciated niche of the real estate sector. Unlike digital advertising, which can be blocked within browsers or flooded with bots, advertising in the physical world is nearly impossible to avoid.

According to the Economic Times, billboards in Indian cities can yield upwards of 20%. Meanwhile, investors in the U.S. don’t need to buy the billboards directly. Three companies dominate two-thirds of the industry’s revenue and they’re all publicly listed – Clear Channel Outdoor, Lamar Advertising and CBS.

Todd Rosenbluth
Senior Director
ETF and Mutual Fund Research at CFRA

Forest Land
Another niche with publicly-listed securities is forestland, specifically timber. According to The New York Times, big timber companies are now organized as real estate investment trusts and trade on exchanges. Over the past 15 years, timber-focused exchange-traded funds (ETFs), such as the iShares Global Timber & Forestry ETF (NASDAQ:WOOD) and the Invesco MSCI Global Timber ETF (NYSE:CUT), have also been listed.

“ETFs such as WOOD provide diversification benefits away from individual securities,” says Todd Rosenbluth, senior director of ETF and Mutual Fund Research at CFRA. “In addition to holding 25 stocks, there is geographic diversification. U.S. exposure is roughly one-third of the portfolio but there’s also exposure to Brazil, Canada, Japan and many other markets.”

Robert Flynn
RISI Director/International Timber, and
The organizer of the Annual Forest Investment Conference

University endowments and insurance companies have allocated to specific markets such as Appalachia’s hardwood groves, Oregon’s fir and spruce forests and Georgia’s pine plantations for decades, according to The New York Times. Institutional investments in timberland assets have grown steadily over the past 10 years, according to analysts at PWC. They believe the growth in investment options beyond pooled funds has encouraged direct and co-investments from family offices, pension funds and hedge funds.

“Timber has long been seen as a somewhat unique asset class,” says Robert Flynn, RISI Director/International Timber and the organizer of the Annual Forest Investment Conference. “Historically, returns on timberland were negatively correlated with most other asset classes.
I think most would still agree that timber is unique enough (responding to different signals in the economic cycle) that it does add diversification to a portfolio, and hence can reduce overall risk.”

Robert Hagler

Robert Hagler, principal at ForestEdge, believes a relatively small portfolio of curated properties, managed by a timberland investment professional and delivering different end products, can provide a large measure of portfolio diversification.

“Direct timberland ownership will likely remain the best way for smaller investors to reap the full range of timberland investment benefits,” he says.

ForestEdge’s research suggests that commercial timberland has entered the mainstream as an institutional investment alternative. The team estimates the global market could be worth in excess of $100 billion. Its research maintains that timber as an asset class provides “solid risk-adjusted returns, a hedge against inflation, and returns with low correlations to other asset classes.”

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