Issue link: https://read.dmtmag.com/i/486601
APRIL 2015 15 THE JOURNAL COMMUNITY MANAGEMENT PERSPECTIVE N ow that the bubble has burst on oil and gas markets, it's easy for me to say "I told you so" as I have been putting down the notion of "man-camps" for years now. But oil and gas is only the latest example of the weakness and risk caused by non-diversified employment areas (also affectionately known as "one-horse" towns). So why is this a problem and how can you mitigate such expo- sure? A healthy market must have a range of employers with equal power Just as a healthy stock portfolio must have diversity, so must a market's economy. I have seen markets in which just one manufacturing or service employer accounts for 90% of the jobs in that city or town. Examples are everywhere. Duncan, Oklahoma has Hal- liburton. Bartlesville, Oklahoma has Phillips Petroleum. There are cities that are dependent on oil and gas, defense, meat packing – just about everything you can think of. These cities and towns are ex- tremely risky to own properties in. When looking at a new property, we always ask ourselves "what would happen if the #1 employer shut down?" If the an- swer is "Armageddon", then that's a market to avoid. When doing your due diligence on any manufactured home community, you should look at the top ten employers in the area and see if any is extremely dominant. If the market is a "one-horse" town, then it may be best to hold off and instead seek a community in a more "balanced" market. Not all employers are created equal Of course, not all employers are created equal. There are some employers who are extremely recession- resistant, such as hospitals, colleges, government, school districts and the like. These remain funded and in business when all the private enterprises dry up and blow away, typically through tax dollars. Our favorite markets have a top ten em- ployer list that includes (in typical order of importance) a hospital or two, the school dis- trict, a college or two, city and county government, and then a diversified mix of manufacturing and service employers. That's one reason that so many of our properties are county seats – those are typically the markets that have the most government jobs and regional health centers and colleges. Throughout the Great Recession, our markets have remained strong and vibrant, but only because we deliberately selected them and avoided others – it was not luck. I know other community owners that did not follow this approach and ended up in markets that are so far behind the eight ball that they cannot sell or re- finance the property for years to come. Watch for megatrends Oil and gas was an obvious risk. It has cycled many times, and left unlucky commu- nity owners holding the cards when the musical chairs game ended. But there are other risks that are less easy to spot, and may have equally serious consequences. One of these is the great drought that has affected the southwest for years now. This has made a huge impact on agricultural and even threatens future drinking water supplies. If you think the drought must be nearing an end, think again. There was a recent study done in Europe that shows our drought may extend another three decades. Another trend to watch is the classic "snowbird" movement of northern retirees to the south in the winter, typically in RVs. There are large communities in south Texas that rely on this influx of annual residents to pay the bills. New studies are showing that more northerners are deciding to stay at home in the winter – it's a whole lot cheaper to set the thermostat to 80 de- grees than it is to drive your RV a thousand miles and pay monthly lot rent. There are even mega- trends on population shifts and competing home prices that should be watched. The worst thing you can do is to be on the wrong side of such per- manent shifts. Someone once said you should "go with the flow" and that's true. It's a whole lot easier to go downstream than upstream – and much more profitable if you've structured the deal properly. Conclusion We've owned over 200 manufactured home communities, and never put ourselves in a bind with any of them. Some have been phenomenal winners, some base hits, and some went nowhere. But in no case did even one become a catastrophe. That's because we have chosen to never buy in a market that is not diverse enough to withstand a direct shot from a cannon of re- cession, layoffs or bankruptcy. Stick with mar- kets that are sound and balanced. When you're market will not let you down, you have one huge worry off the table. Frank Rolfe has been a manufactured home community owner for almost two decades, and currently ranks as part of the 10th largest community owner in the United States, with more than 16,000 lots in 20 states in the Great Plains and Midwest. His books and courses on community acqui- sitions and management are the top-selling ones in the in- dustry. To learn more about Frank's views on the manufactured home community industry visit www.Mo- bileHomeUniversity.com. The Brutal Lessons of Non-Diversified Markets B y F r a n k R o l f e T J