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There are roughly 50,000 self-storage facilities in the U.S., almost exactly the same number as there are manufactured home communities. Self- storage facilities are similar to manufactured home communities in many ways, including the lack of significant on-going capital improvements, the general concept of renting "land", the type of management and business model, and the age of the industry (1950's and 1960's for manufactured home communities vs. 1960's and 1970's for self- storage). Yet manufactured home community owners seldom even discuss this similarity. So what can we learn from studying our close rela- tive? Consolidation Those 50,000 self-storage facilities in the U.S. are 40% owned by professional operators who own two or more facilities. In contrast, at least 90% of manufactured home communities are owned by less-sophisticated moms and pops. The future consolidation of the manufactured home commu- nity business is going to be one of the big events of the coming decade. The announcement of SUN buying American Land Lease for $1.32 billion is just the start of the great roll-up. There's no rea- son that manufactured home communities should be four times more fragmented than self-storage, and that gap is certain to become more narrow in the future. There are two striking examples of how the self-storage industry is miles ahead of our in- dustry as far as consolidation. First, look at the largest player in each industry. ELS owns around 160,000 lots. By comparison, Public Storage owns around 900,000 units. There are three pub- lic REITs for our industry (ELS, SUN and UMH) while self-storage has four (Public Storage, Extra Space, Sovran and CubeSmart), each of which is massively larger than its manufactured home com- munity counterpart. Extra Space, for example, has 600,000 units, which is about four times more than SUN. Acceptance as main stream investment Here's a recent quote from Spencer Kirk, the CEO of Extra Space, one of the largest operators in the self-storage sector. "Self-storage has come out of obscurity. It's no longer the goofy real es- tate class. It's the real estate class that during the recession did better than any other." Can you think of a better goal for the manufactured home community business? Self-storage has overcome its "goofy" start by attracting mainstream invest- ment and debt confidence, while our industry lags behind. Manufactured home communities have a greater challenge, as the industry must also over- come its "stigma". Self-storage never had this hurdle. Already the "stigma" has declined thanks to the introduction of Warren Buffet into the in- dustry, and entry of the Carlyle Group and other prominent private equity teams. But the values will skyrocket when manufactured home commu- nities (which trade for 8% to 10% cap rates gen- erally) can trade for the same cap rates as self-storage (which trade for 6% to 8%). Getting rid of the industry's "stigma" could be one of the most profitable accomplishments of all time. Every day I feel that "stigma" being reduced, as the in- dustry gains respect from financial markets. In just the last twelve months, the industry has received positive press from the New York Times, Bloomberg, the Wall Street Journal, and other prominent publications. To calculate the true fi- nancial benefit of being embraced by financial markets and shaking that "goofy" image, look no further than self-storage. Benefits from U.S. economic woes Self-storage does well in times of economic de- cline and upheaval, as people store their goods while their housing situation is in limbo, or as they downsize. Manufactured home communities have the same effect. We become more in demand as the shortage of affordable housing becomes more severe. Self-storage has been able to play this up to the hilt with the investment community, which has consequently made self-storage REITs three of the top five in stock performance over the past year. Meanwhile, manufactured home commu- nity REITs have not fared nearly as well. We need to do a better job of conveying our recession re- silience to Wall Street, as that's a hot topic with investors who perceive the U.S. to be in a per- petual downward spiral. High returns Manufactured home communities are the only real estate asset class that regularly trades at 8% to 10% cap rates. Self-storage and all other sectors trade much lower. Self-storage used to be like us in that regard. There was a point in time in which manufactured home communities had lower cap rates than self-storage. Then they had a "value adjustment" when they became mainstream. We need to educate the investing public on our uniquely high return levels, and use that as a weapon. When I have written articles on the high returns in this sector, I receive nothing but criti- cism for "making the industry sound easy" or "being in bad taste". One self-styled industry guru took to the internet to dispute that you can even make big money in this industry. What is the sense in that? If we want to get the investor fer- vor that self-storage has attained, we need to pro- mote our performance as aggressively as they do. Enough with the soft-sell nonsense. We need to educate investors on the financial benefits to our industry in dollar and cents terms, and blow our own horn – at least as well as self-storage does. Conclusion We have a near identical twin in self-storage, who is as close to us in terms of business model and history than any other real estate sector. Our twin has grown up, taken the world by storm, in- creased valued gigantically and become the dar- ling of Wall Street. Our course is clear: be more like self-storage. There's no reason to re-invent the wheel. If we can break out of our rut, we can increase the values of every community owner in the U.S. simply by following our self-storage sib- ling's example. Frank Rolfe has been a manufactured home community owner for almost two decades, and currently ranks as part of the 12th largest community owner in the United States, with more than 11,000 lots in 18 states in the Great Plains and Midwest. His books and courses on community ac- quisitions and management are the top-selling ones in the industry. To learn more about Frank's views on the manufactured home community industry visit www.MobileHomeUniversity.com. OCTOBER 2014 12 THE JOURNAL What Can We Learn From The Success Of The Self-Storage Industry? BY FRANK ROLFE COMMUNITY CONSULTANT T J