Failure Is Frustrating

Failure is frustrating.

I suppose, however, it depends upon your definition of failure.  I’m in the Mobile Home Park Resident Purchase Business, and, defined broadly, we have a ton of failures.

It takes three basic factors for resident park purchases to be successful – to close with the resident group as the new owner.
You need an owner willing to sell at a price the residents can pay, a resident group organized enough and with sufficient leadership to be willing to buy, and a financing package to enable the math to work.  

Speaking broadly, 98% of resident deals fail because the owner does not want to sell to the group, at any price.  There is never a ‘real’ deal on the table.

Just under 2% fail because we are not able to package financing for the group purchase.  (This has been more of a factor in recent years since the financial world meltdown.)

Finally, if the other two factors are in place, there is a small (really small) number that fail because the resident group (or rather, the resident group leadership) is unwilling to recognize the opportunity and makes unrealistic demands.  

I have just spent about 6 months on a project that was a REAL failure.  Part of the less than 1%.

The park owner approached me and wanted to sell to the resident group.  I developed a financing package that would have enabled the group to buy the park with individual terms of $500 down payment, rents would stay the same, and the members would have a share loan payment of $72/month.  

I know of 50 or more parks (ones where the owner won’t sell) who would be thrilled at this deal.

But we failed.

We failed when the resident leadership countered the owner’s price with a demand that the price be the same as the owner paid for the park six years earlier, even though the current price was a 7.4% capitalization rate on current operations.  

At least, price was the reason given by the purchase committee.

When something like that happens (which is rare), I never know the real reasons – fear, divisions within the committee, animosity toward the owner, hidden agendas, inability to understand the transaction, whatever.

I have to go on instinct at the beginning of the deal to evaluate if a purchase will be successful.

When I initially go to a park where a purchase might be possible, I’m looking for indicators that the deal can close.  If there are a lot of negative indications, there is no point in moving forward with the transaction since the likelihood of failure is very high.

So I look for pride in home ownership, condition of the park itself, vacancy status, the MHP rental market in the area, some indication that the group is or can be organized, and, importantly, the ability to assemble a Purchase Committee eager to buy the park.

With this transaction, I went forward great reservation.  

On the plus side, the local market was strong, the park was fully occupied, the price was high but not unreasonable, the park didn’t appear to need much infrastructure work, and, of supreme importance, the owner was willing to work with the group.

On the negative side, the park showed poorly.  1/3 of the MH units were rentals and appeared to be trash.  There was NO resident group organization.  Park rules were not enforced and residents were uneasy and divisive about the lack of enforcement.  It was difficult to generate interest because the group was unfamiliar with the concept of resident ownership.  Finally, it was difficult to assemble a representative purchase committee.

I should have passed on the deal.  But the owner was willing to work with the group.

The leadership group in this case started out small and got smaller.  There were divisions within the committee – lots of bickering over minor stuff.  No real effort to organize the other homeowners and educate them about the purchase.  And finally, no real understanding of their negotiating position, and no attempt to really understand the details of the purchase.

In a way, failure was probably a good outcome, since, although I want to see residents purchase their park, I really don’t want the purchase to turn out badly, with a park poorly run and ultimately failing because the leadership group can’t handle it.

So I guess the real frustration is that I ignored my instincts (but the owner was willing to work with the group, which is so rare) and wasted the time.

Oh well, we move on, older and, hopefully wiser.


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