Blog, Market Updates, News, Uncategorized

Carlyle Group enters into $42 million Joint Venture deal, Pacifica, CA Mobile Home Park

From Silicon Valley Business Journal, Sept. 22, 2015

The Carlyle Group, the massive private equity firm based in Washington, D.C., has invested in everything from Dunkin’ Donuts to Hertz. Now it’s targeting a surprising spot for its next real estate deal: A 60-year-old Bay Area mobile home park.

Carlyle earlier this month entered into a joint venture with the longtime owners of Pacific Skies Estates, a 93-lot community in Pacifica that overlooks the ocean and is walking distance to Sharp Park Beach.

Under the deal, valued at $42 million, Carlyle and its partner will bring in new luxury manufactured homes, upgrade the aging streets and utilities and construct a new 1,000-foot-long boardwalk on the property’s ocean bluff edge. The deal value includes the cost of the improvements as well as Carlyle’s acquisition of a majority stake in the venture. A representative of the longtime ownership provided details exclusively to the Business Journal in response to questions over the past two weeks.

The transaction is the latest example of Wall Street money’s growing interest in mobile home communities, and it’s not Carlyle’s first rodeo. In 2013, Carlyle acquired two Florida communities for $30.8 million, as reported at that time in the Wall Street Journal. Carlyle didn’t return a phone call last week requesting an interview.

Investor attraction to mobile home parks includes steady, recession-proof income and high barriers to entry. Publicly traded Equity Lifestyle Properties Inc., the largest mobile home park owner in the nation, has seen its stock price jump by 38 percent in the last year; over the same time period, the New York Stock Exchange composite index is down by about 7 percent.

But the Pacific Skies deal differs from the usual business model in an important respect. While mobile home park residents typically own their manufactured homes and pay rent on the land, Pacific Skies will own the land and the vast majority of the new residential units — which are more like traditional single family homes than the trailers of yore.

The model allows the property owner to command much higher rents while maintaining its designation as a mobile home community — thus avoiding the political and regulatory headaches that come along with closing and redeveloping the communities. In San Jose, Pulte Group has run into a buzzsaw of controversy over its plan to redevelop the Winchester Ranch mobile home park near Santana Row; in Palo Alto, the closure of Buena Vista Mobile Home Park, home to hundreds of low-income families, has received national coverage.

Pacific Skies has been steadily transitioning the park out of the traditional homeownership model for some time, buying up units from owners and today just 12 homeowners remain. Under a deal reached with the landlord, about half a dozen residents will remain homeowners at Pacific Skies in newer units.

The rest of the park’s residents, who have been renting homes month-to-month, will receive a relocation assistance package of between $10,000 and $15,000. Sixty-day notices to vacate the units started going out this month to the first phase of 13 tenants.

This is not a density play. Carol McDermott, founder and principal of Entitlement Advisors LLC, which is working with the ownership, told me that the park would remain at 93 lots. “We’ll have a new, quality community that people will want to live in,” she said.

It’s unclear what kind of rents the park will see when all is said and done, but they likely won’t be cheap. The oceanfront property is a half hour from downtown Redwood City and San Francisco’s Financial District, but a world away from the hustle and bustle of Silicon Valley. In an email, McDermott said that the park would still offer “a wide range of pricing options.”

Pacific Skies’ owners, who have owned the roughly 10-acre site for more than 25 years, retain a stake in the property and the business, but McDermott declined to provide specifics. Greystar, which has served as the property manager at Pacific Skies, is staying on in the property’s next iteration.

Carlyle is no stranger to Silicon Valley, of course. In Los Gatos, it is the capital partner on Netflix’s new corporate headquarters in a joint venture with Sand Hill Property Co. In a deal that closed last week, Carlyle sold two of the office campus’s four planned buildings to Wealthcap for about $192 million.