Rochester, MN MHP Deal Analysis: 215 pads, 59% Occ

[Jaden Ghylin]

All, I've been poring over the numbers for a park just north of Rochester, MN and would like some other perspectives.  The park is Oronoco Estates, and I'm guessing a few of you have looked this one over already.  I live about an hour away from the park, so I know the area pretty well.  The main draw for me other than being close to it, is that it's near Rochester, MN on the good side of town in the direction of Rochester's rapid expansion.  Rochester currently has a $5 billion city/state/private investment project for the Mayo Destination Medical Center going on.  This is driving down vacancies and driving up rents, but it's only just getting started.  There is another 18 years oe so of investment to go.  This would seem to be as recession-proof of an investment as you could find. Mayo is unaffected by recessions.

The park, Oronoco Estates, is a disaster. It's an REO being auctioned May 16-18th. 215 pads, 59% occupancy. It's on a lagoon, which may need some serious work in 2019 when the permit is up. The secondary lagoon required $300k+ of work recently and the primary lagoon is much larger. The park is about 80 acres, has a lot of vacancy and has a number of abandoned homes and homes that should be abandoned. Net income in 2015 was about $82k. Lot rents are at $275/mo for 127 rented lots, well below market rate. It is sounding like the reserve for the auction is over $1 million, which doesn't jive with a 10 cap buy price, however, there appears to be massive upside on this project. By my calculations the park should be worth at least $4.5 million if it's brought up to 90% occupancy, which means bringing in 67 homes or so and selling them. A big project no doubt, but a big spread to pay for it as well. A lot of my experience is in rehabbing/flipping residential properties, and a spread like this would be unheard of in that business.

What am I missing here? Is it really that important that the buy price be at a 10 CAP if there is this much upside? Wouldn't it make more sense to analyze the deal as a rehab/flip focusing on the ARV? I'd appreciate any insights here. Maybe this project is just too much of a headache to be worth it, but I just keep coming back to the potential value of this thing.

Jaden