On this episode of The Mobile Home Park Lawyer, Ferd speaks to Larry Abramowitz. Ferd and Larry discuss Larry’s background and go through some vital tips and stories you should hear as a mobile home park owner.
HIGHLIGHTS:
0:00 – Intro and background on Larry
3:30 – Ferd asks about a specific deal that Larry did and asks him to take him through it
7:49 – Larry talks about what he’s doing to change the park and some of the things that are happening with it right now, including how the city are paying to pave the roads
10:32 – Larry talks about how he tackled private utilities in one of his parks
13:48 – Ferd highlights some legal points on that project
15:35 – Ferd asks Larry what are some tips he’s learned along the way
19:30 – You have to check your state laws on evictions, especially in these current times
21:51 – In Florida, you can now evict again but there’s still a moratorium in place elsewhere
23:00 – Larry talks about other things he’s learnt along the way
FIND | LARRY ABRAMOWITZ:
Email: larry@broadviewcap.com
Website: broadviewcommunities.com
FULL TRANSCRIPTION:
Ferd: Welcome back mobile home park nation, Ferd Niemann here again. Mobile home park lawyer with another great episode for you. Our guest today is a friend of mine, he’s a mobile home park owner-operator. He’s also done some syndication, he has apartments. He has other asset classes now. He’s joining me, he’s joining you in the MHP ranks, please help me welcome Larry Abramowitz. Larry, thanks for coming on.
Larry: Hi, thanks for having me.
Ferd: You got it, man. Well, I obviously know you already, but for some of our listeners who may not know your background. Give us a little bit more about your background, and how you got into MHP space as well.
Larry: Yes. I mean I’m a manufacturing engineer. I mean in the past worked in aircraft engines and appliances in general electric. Then got my MBA at Wharton, at the University of Pennsylvania. And after that worked in industry, moved to Colombia. And while I was there, I did some development deals on land that we bought and just played a little bit with real estate at that time. Then moved to Florida in early 2000, and really started investing in real estate heavily was 2014, started buying foreclosures. Houses here in the auction in basically Miami, I live in Miami, Florida. And I was buying homes, there the auction flipping them, just going in fixing them and flipping the homes. I kept some as rental, other ones I sold. Also did some industrial, I bought them foreclosure, a warehouse, I bought a restaurant in foreclosure with a retail space. It was a retail space with an office, so I also did that. And anything I could get that the numbers made sense until that dried up. I mean the market in foreclosures pretty much dried up. I would say 2000, late 2015 it was very hard to find deals anymore. And then I wanted to do something larger, so I decided to go into multifamily and did a syndication of 108 units in Daytona Beach, which I still have that deal and it’s performing very well. And now lately I’ve invested in two mobile home parks, about two parks this year and the idea is to grow that business.
Ferd: Great. So obviously you’re the kind of guy that if I don’t pay my mortgage, you’re going to come after my house. So I need to make sure I pay all my bills because you’re the foreclosure expert. Now I know this is one of your MHP deals I know I’m real familiar with it wasn’t a foreclosure, but that was probably a similar deal that had some hair on it like a foreclosure. What lessons have you learned from you’ve got a relatively brief timeline at MHP, but you’ve got years of experience by working on some challenging deals, private utilities, challenging seller? Give us some of the highlights and low lights on that deal.
Larry: Yes. The first deal I did, which by the way took me, after I went to Frank’s course Multifamily University, I did that of May of last year which was 2019. And I was looking a deal for a while, and just starting to learn the business on the writing deals, and it took me almost close to a year to find the first deal, it was an assignment. It was a hairy deal, which that’s what I’m used to doing. There’s a lot of hairy deals with a lot of issues and it was an interesting deal. But it was a 65-pack park in Mais, Kansas, which is right north of Wichita. With only 20 occupied, and it was a park that’s been abandoned. It was inherited by the owner from his father. The park used to be full about 10 years ago, and then after his dad passed away, basically the park was pretty much abandoned, wasn’t really being managed. So we put that under contract or like took over the assignment back in December to close around March and then COVID hit. So that just delayed the deal, we extended the deal till July for closing because really we couldn’t travel. And actually, we’re closing July 1st and then I had COVID, right? So I actually had to close that deal from my home with COVID. I was pretty sick and it still went through the closing, and I mean I wasn’t able to physically be there, but implemented everything remotely and was lucky to have a great manager that I hired for that park, somebody living there, so that really helped me out to take over the park. That deal, my understanding when I met with the city because I was really involved with the city on this deal is that I was the seventh buyer for that deal and nobody had really closed on it. And the reason is because the city changed the ordinance for mobile home parks, just because they were fighting with the prior owner because he wasn’t playing well with the city, they were fighting all the time. So they implemented all these new policies just against the park. And there’s only two parks there maze, and he was the one really being a pain with the city. So they wanted the roads to be paved, they wanted driveways, they wanted to have a new park, a shed for every home. New storm shelters, I mean so it was a huge investment. So everybody looked at the deal basically said these numbers don’t work. What I did is I met with the city and told them listen, you tell me I’m the seventh guy and I want to make this work. The problem is to put half a million dollars into the roads which is what you guys want, nobody’s ever going to buy this and you’re going to have a sore spot right next to the school there. That it’s not going to work out, and I actually presented to them the homes I was bringing in. I showed them some photos of the brand new homes which they’d never seen. So they were very impressed, and I was able to negotiate for them to finance the new roads with a 20-year bond at two percent.
Ferd: That’s the most unbelievable thing I think I’ve ever heard MHP that not only did you get permission to maybe get out of some of the owner’s restrictions, but you’ve got the city. It normally only happens on sexy retail projects or big employment centers, but you literally have a subsidized mobile park, that’s great. So I mean a couple obvious lessons learned there for audience’s one, get a good manager because you’re halfway across the country in Miami to middle Kansas. But then two, don’t just take what the city says and accept it. This wasn’t the zoning letter per se, but you negotiated with the city in good faith and you went through to some degree a political process to bend the rules to your favor. So you can better perform, better provide more affordable housing, save this moment. So definitely good work on that, not a lot of people would be able to pull that off, obviously, you’re a seventh guy in line. And I know that market, it’s a great market, Putchdown general. And I know from talking with you that May school district is highly sought after, so I’m sure that’s going to be a great project for future demand and everything.
Larry: And I also negotiated to rezone the park from 66 homes to 88. Sorry, from 66 lots to 88 lots. So I mean it was a lot of relationship-building with the city and just a lot of meetings remotely and in person. And they’re very happy with the progress we’re doing with the park, and the idea is to really fill it up. I mean we got to bring in about 60 homes in there, and we just started bringing in homes, set up a model home that was there this week and we got that setup. And now we have two homes arriving this week, one next week, and total have about 30 homes pre-ordered. I also was able to buy a used house this week. I went to a park that was two hours away. I was just doing research on the internet, I found out a park that was being shut down by the city for development and everybody had to leave by the end of February. So I was able to talk to that city, and they got basically gave me the homes that were abandoned for free. So I was able to get that done just this trip, and we’re picking up the homes next week, they already approved it. So I mean I was able to pick two homes that were worth it, the rest were really junk and I was able to buy a home for five grand from a couple that needed to move out. So yes, just a lot of activity at the park right now. I mean we have a lot of stuff going on, we have to clean up a lot of trash, junk that was left behind. We did a park clean up, we’re trimming trees. So yes, it’s exciting. I mean the park, actually, the other thing is the city while they do the roads, the paved roads they also helped me fix the roads, so they actually came in and fixed all the roads and fill up all the holes and everything for about a thousand dollars. I mean that was a great deal. They brought all their equipment, and they repair all my roads and they’re just working very well with them. I mean just cleaning up the park.
Ferd: I think I need to put a disclaimer on this episode, that this is not normal, because I don’t tell people oh, it’s really easy. You just go to the city and they pay for your cash.
Larry:No, it’s not easy, it took me six months of negotiation.
Ferd: I need to hire you the other way around, you might have it.
Larry: It was a lot of work to get it done, but we finally made it work.
Ferd: Yes. They’re not all that easy or that nothing’s easy, but they’re not all that good. I know your other part too, that one’s got some hair on it. Tell us about the private utilities and how you as an engineer, you’re obviously very analytical and I would say cynical at things that by nature where hey this what could go wrong, and you got to underwrite it, you got to look at it. And probably nothing more than private utility scares most owners. So you tackled it right out of the gate, tell us about that experience.
Larry: Well, the Mais park has a public utilities individually meters, so that was easy. The second deal is in East Peoria Illinois 147 pads, very hairy deal also. I mean you’re familiar with it because you helped me with all the legal stuff, which was great. And you’ve been tremendous help through that process. But that park had private utilities and water well, and also wastewater treatment plant. I had seen a few deals with wastewater treatment plants, and actually, while I was working in manufacturing, I had to manage a wastewater treatment plant in the facility that I was managing back in Colombia. So I’m familiar with them, I mean they’re, I mean you look at them the first time they’re scary. I mean it’s scary and nasty kind of thing. But I mean you just have to learn how they work and understand if the systems are operating well, the pumps are well, the pipes are well and the tanks are in good shape. I mean I did a lot of, I hired some engineering firms just to do some studies on them, and make sure that especially the tanks is the biggest expense in there, the rest are just pumps and pipes, I mean it’s not rocket science. And I mean the major thing is checking the permitting, I mean that’s where I spent most of the time was making sure the permits and violations were, there were no violations. This park had a violation which was disclosed by the seller about 10 years ago, and they took care of it and they added some additional tanks and clarifiers, so the water was coming out super clean. Cleaner water really was a requirement, so that part I reviewed and on the wastewater treatment plant, and then on the water, on the well. The nice thing about this deal is because they also had a violation from a few years ago. They had invested in a brand new well, pretty state-of-the-art would all do a hydro-pneumatic tank and was with a lot more capacity than the prior ones. So it was basically built to fill up the park.
Ferd: And wasn’t that about a hundred thousand dollar expenditure that the seller had to provide?
Larry: We spent a hundred grand on the wastewater treatment plant and about another hundred grand on the well. And the nice thing about it is they left the old well there, I mean so I have a backup well, which was a big deal for me. This deal took a while to close as you know because the new well didn’t have a permit by the EPA, and the seller waited until a week before closing to actually finish the paperwork, to get the approval and the EPA said they could take 90 days to do it. Especially with COVID, they’re working from home. So it was a it was another challenge just to get that permit, so that closing also took six months almost. I mean from on track to closing, I mean both of my deals have been, I would say about five to six-month closings. I mean just because, and it’s all the sellers really, the seller’s fault on both of them.
Ferd: Yes, a couple of things that I want to add, let’s obviously have a lot of familiarity with that project, some kind of lessons learned where you did a good job obviously was identify that there are permanent needs, a lot of people don’t do that. Like oh, you need a permit you got to look at your local permits, your state permits, typically things like private utilities are being supervised by department natural resources or state EPA organization, this was in Illinois is that IEPA. So you were able to identify a problem, then I don’t have any contributions we had eight amendments or something, problem with the problem to at least buy more time. So you didn’t close and then make better that risk, and also you made sure that seller didn’t get their money frankly until everything was rectified. But another thing that was great that you did, was you identified that the seller was, they had this massive violation ten years ago, so they had to pay I think it was weekly, a weekly inspector to go out there and test the water. When now it’s just doing new and refined in the superior piece of equipment, system, the current requirement’s only required I think a month. So you are right out of the gate, able to have cost savings for having less professional services help, and also from a reserves or a budgeted Capex, you didn’t have to do as much on that. Well in particular, because the last guy put it in there. So it’s just really being diligent on those sort of matters is going to allow you to have a better operation, and it also just proves the last guy, you get stung violations, it means you did not maintain your property okay, for a long time. They’ve only spent $200,000 in the last six months. I mean they’ve been better off spending 2,000 a year forever taking better care of it. But that was a lesson, kind of a school of hard knocks for them. But it worked out well for you, I look forward to watching you include that business plan.
Larry: Yes.
Ferd: What other tips or tactics can you share from your background or from the MHP experience that the rest of us can learn from?
Larry: Yes, I actually made some notes that I told you before about, I guess lessons learned throughout this process. And I would say definitely budget to demo park on homes or abandoned homes because a lot of times not even worth it to go through the rehab. Especially if they’re really old homes in the 70s, early 70s that this park had a lot of. So I mean right out of the gate we’re probably demoing right now, we’re in the process of demo 26 homes, right? Which is a big project. They’ve been there for about now three weeks, and they still have ways to go, they’re probably done about. I think last time I talked to them they were about home number 16. It’s a huge project of clean up that park, it was a disaster, it looked like a war zone. But it was in a good area of town and I saw the potential just like my other park after we cleaned it up. You pick up the trash get rid of the old homes and give it a facelift and it’s things change, I mean even the tenants are cleaning up once you start. Once they see that you’re cleaning up and you’re enforcing rules, everybody or at least the tenants are going to stay I mean they start cleaning by themselves, you almost don’t have to pressure it, so it becomes kind of contagious. They’ve been used to living around trash, and suddenly that you start cleaning up, they all start cleaning up their yards, we brought some containers and that’s really working great. Other thing is one thing that I didn’t budget for, I mean you always budget and bad debt I know was a big issue going into this deal. But one thing I didn’t budget for is how many tenants were going to leave once we start enforcing the rules. And I think that when you’re going into a park that’s not stabilized, you got to make sure that you take into account you’re always going to lose people. Especially the ones that don’t want higher rents, and they don’t want and rules enforced. On this park, there were people that had, they were taking over three, four, five lots to store their stuff and we told them they have to get rid of it. And there are already some of people saying they’re leaving, others are going to leave because we’re still the lowest rent in town. But I mean that’s one of the things that I didn’t budget for. So I mean I was budgeting to start to kind of keep the same occupancy, and then started increasing my occupancies I brought in new homes six months down the road, and now I’m starting from a lower point, because I’m probably going to lose about 15% of the tenants that are probably going to leave or be evicted.
Ferd: Yes, I think that’s really hard to budget in my experience. You can put some sort of figure in there, it’s hard to know. I’ve bought rough parks where I’ve budgeted like half go away, and then like one or two did. I was like oh, and then obviously the inverse as well. And then some of them are bluffing and like you said where are they going to go? That’s what you’re going to take advantage of but like look this is going to be a better quality of living for you, I just need you to live by the rules. And there are some people that they just can’t conform to society, they’re just rough and tumble. I had a guy when he finally got him evicted, we had six containers that we filled from the junk in his one yard, it was unbelievable. And he didn’t see what’s wrong with that. He literally built a shed out of like sheet metal and attached it to the mobile home, just kept expanding it and they had other stuff in the yard and soda machine, you have a vending machine. I mean does it work? No. Why do you have in front of your house? I don’t know, I thought maybe one day I’ll try to fix it. And I think weighed like a thousand pounds, we couldn’t even get it out of the truck, it was just unbelievable. But those kind of people maybe you want them to go away, but yes definitely messes with your financial model when you get those surprises, yes let’s learn for sure.
Larry: Yes. And then the other thing is evictions, especially now with what’s happening, you got to make sure that you check your local state laws or whatever is happening with the moratoriums on eviction. Because for example, this park in Illinois, I was hoping that they wouldn’t extend it and they keep on extending. I thought it was going to be done in November, they extended the Moratorium until December and they just extended it for another month. And if this keeps on going, right now about 30 percent of the tenants are not paying rent and they’re just taking advantage. And that’s one of the things, I mean I budgeted about 25% because I already saw that we’re not paying from when I did the due diligence, but it’s getting worse now. And we’re still being affected by COVID, there’s unemployment. People are losing their jobs, so I mean it is affecting it. But I mean the people that are not paying are the ones that haven’t paid even pre-COVID with, so it’s not like it’s a COVID issue. I mean if it’s a COVID issue you work with the tenant, this is more of they’re used to just living for free and doing whatever they wanted. Crazy that the prior owner never did an eviction, they just let them go for free for years. I mean so there’s, I have one person with like twelve thousand dollars of bad debt, they’ve never paid their rent. I mean it’s kind of it’s ridiculous, but that’s kind of why it was inherited.
Ferd: Yes, that might be a record. There’s something I want to point out, I’m familiar with Illinois too. I want to point out is the eviction moratorium in Illinois is more onerous than the CDC eviction order because there’s still evict in some places right now, just not for non-payment rent. You can dig for other rules and other violations. In Illinois, the governor is about as liberal as they come and just says people shouldn’t pay rent, the industry is sick. And my family lives in Illinois, and there are all these signs that say Pritzker sucks, governor Pritzker. Pritzker sucks and they suck the life out of business and the life out of families that kind of thing. In downstate, he’s very unpopular, Chicago they seem to love him. But yes his rules is like these people everybody in the state knows you don’t pay rent, so people are not by and large, and especially some of the people that have been sketching payers historically, yes that’s definitely exacerbated by governmental policy.
Larry: Yes, it’s crazy, but that’s what’s happening at least in Florida. Back in October, it was done and they didn’t renew it, and it’s helping at least if they don’t apply for the CDC, at least you can do it through a regular eviction. And what we see in Florida, is that once you start filing, they just leave. I mean it’s kind of they don’t want it in the record. But here, it’s a different crowd and it’s been very hard to get them to pay. I mean, so we’ll see. I mean right now I can’t wait for the Moratorium to end, because once they see that we’re serious about evicting, I’m sure that a lot of them will either start paying or will just leave the home, and already two people left. And that’s the other thing that’s interesting is that suddenly you start inheriting all these homes that they abandon. And if they’re in decent shape, you can actually go back and sell them and make money out of it, so it does help I guess to pay for some of the cleanup and Capex. So we just got two homes and they actually gave us the titles before they left.
Ferd: That’s great.
Larry: So they just said we’re not going to pay rent, but here are the title time then take the home. So which was, it’s great, I mean you don’t get a lot of those, but that was pretty good. Other things that I’ve learned, I’m installing individual meters even though it’s a private utilities because I found out from the IEPA and the Illinois commerce department that I can actually build back utilities to the tenants, even though they’re private. And it is costing a fortune in that park, people think private utilities are waters free, but it isn’t. You’re paying for a lot of lab tests, you have to have an inspector there five days a week and the same with the wastewater treatment plant, so just the inspector is 2500 bucks a month for the wastewater and the well. Then you got to pay the chemicals, the chlorine and you got to pay all the pump system, the electrical bill which is probably another grand amount. So I mean it adds up. So on the new lease is it already announces on this park, I’m charging back utilities. I did order the meters because there’s a lot of water leaks at the park. And well one thing I found out is you really can’t install water meters in the middle of the winter in Illinois, being a Florida guy. I just figure it out.
Ferd: You might be able to, you might be able to, it’s what this recording, it’s the 18th of December. We’ve got guys going to Des Moines, next week Des Moines even colder than that. It’s a dirty job man because especially water lines pressurized. I got a couple of guys that do it and they’re tough man. They’re underneath the home, they got the little poncho wetsuits on. But you get sprayed in the face, and you got to turn the water off the whole part if you’re going to do it if you want to do it right. But it’s hard to do that for hours and hours and days and these times sub-metering can be, it’s not for the weak of heart for sure. But maybe squeeze in this winter.
Larry: And then another thing I did find out that’s helping both deals is check your trash bill versus the actual occupied sites. Because on both parks I found out that were paying for like 20 sites that were never, haven’t been occupied that were not that, I mean the first part they didn’t even have homes on it and they were paying for the trash to pick up in those homes. The second part they had about 20 extra homes they were picking up trash for that didn’t really have any tenants. So that’s usually an interesting place to find some savings right up front I mean.
Ferd: Great. Well, I appreciate Larry. Any other thing else want to share or how can people reach you and find you, if they want to connect with you for this?
Larry: Yes. I have two websites, one is broadviewcap.com and my email is larry@broadviewcap.com if you want to reach me. We also have our community website, which is broadviewcommunities.com.
Ferd: All right, sounds great, thanks, Larry. I appreciate you coming on.
Larry: Well, thanks for having me, it was great.
Ferd: You got it.