Frank Rizzo, CEO of Stone Capital, an owner/operator of mobile home communities across the Southeast, joins host Slocomb Reed on the Best Ever Show. In this episode, Frank discusses the biggest value-add opportunities in mobile home park investing and how owner/operators can cultivate long-term residents. With a focus on community-building rather than managing parks like a typical multifamily investment, Frank shares the strategies that helped him and his partner go full cycle on multiple deals.
Frank Rizzo | Real Estate Background
- CEO / Stone Capital
- Based in: Staten Island, NY
- Portfolio: Owned and operated over 21 Mobile Home Communities
- Say hi to him at:
- Best Ever Book: Patrick lencioni, Your Next 5 Moves
- Best Advice: The Market Collapse of '07
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Transcript
Slocomb Reed (04:41.558)
Best ever listeners, welcome to the best real estate investing advice ever show. I'm Slocum Reed. Mark your calendars for the best ever conference, April 9th to the 12th in Salt Lake city. You can go to best ever conference.com to secure your ticket today. Use code connect C-O-N-N-E-C-T to say 15% on your tickets at best ever conference dot com.
Today we are joined by Frank Rizzo, who is joining us from Staten Island, New York. He's the CEO of Stone Capital, which is an owner operator of mobile home communities throughout the Southeast. They have owned and operated 21 mobile home communities with a total of 14, 167 pads. Those numbers include a couple of deals that recently went a full cycle, which I'm interested in asking about. But first, Frank, can you tell us a little bit more about your background and your current focus?
Frank Rizzo (05:36.526)
Absolutely. Slocumb, thank you very much for having me on this program. For those of you that don't know, I mean, I've been in real estate for a little over 20 years. Started out working with a developer, specifically looking for distressed properties in the Staten Island market, where we would acquire them, renovate them, and bring them back to the market, market ready, essentially.
Um, as we, as I progressed throughout my career, eventually opened my own office, uh, with a focus on niche real estate investments where we, we did non-performing loans, uh, during the recessionary period. And when I was first exposed to the manufactured housing space in 2013, something about being involved in a mobile home park, Slocum kind of checked all the boxes for me.
It was really community development 101, where you can go in and each of these communities was its own ecosystem. And as you made these changes, you could see the impact that was happening, not just on the home itself, but in the community as a whole. And, you know, I had a, you know, fast forward a couple of years from there on 2016, my partner and I, who we had just started working together on some local transactions. We started getting a little cautious about the New York city market.
Some things concerned me about what we were seeing on the legislative front. And in terms of being an owner operator, you know, how that was going to affect, you know, rental properties and the challenges that might, might face. So we started to reallocate capital out of New York.
And we really took a deep dive into mobile home parks. And my partner and I started that together in 2016. And from there, we just kind of expanded out the business to where now this is, we're in three states right now with our mobile home dealers license in three states. And we just launched our first mobile home park fund specifically to allow access into the manufactured housing space.
Slocomb Reed (08:39.074)
Frank, you were telling me a little before the interview and I was reading in your bio, the emphasis that you place on culture at a property, at a community, and getting the whole turnaround process involved in making a mobile home community feel like a community and a great place for people to live, but also making it a performing financial asset. Are you all primarily focused on, uh, what at least we apartment investors would consider a more, uh, traditional value add business plan with a targeted hold period of around five years with a disposition afterwards.
Frank Rizzo (09:23.782)
So, I mean, that's a great question. The first thing we do look at is in establishing culture, wherever we go. One of the things, Slocumb, that really stood out in my first view of this space was that your average mobile home park resident who owns their home will stay in a community if the place is dirty or dangerous, right? Those are the number one and number two reasons why they will exit. But if you run a clean community and they own their home, they are vested in that community right alongside of you. That allows for clarity of vision. And in some cases, what we've seen, we've seen residents who would stay in what we would consider substandard communities because they had an attachment to where they were.
So where we feel and what we've seen really as this industry has exploded in the last three or four years with new entrants is that on a spreadsheet, the numbers here look great. It's a very compelling investment for an outside and for an investor, but they miss that piece of that on the ground, kind of boots on the ground feel that ties that resident in. So we believe in and instilling that first. And that allows for us to project out with clarity, five to seven years out where we expect to be based on those fundamentals.
So when we come into a community, we look to focus on transitioning those residents if they are true renters, we like a resident or tenant owned home because we believe that creates stability, there's a pride of ownership and that you're able to build a culture around that. And I think that's one of the differences maybe in the apartment rental model, because in most cases, the apartment rental I found, is it's transitory. Someone rents an apartment, they're looking eventually to get into a home. Here, the resident owns their home, and it's more of a community feel because they're leaving their largest asset in most cases on your property. They just wanna make sure that property is being maintained.
Slocomb Reed (11:56.374)
That makes a lot of sense from an operational perspective. And you know, also it's, it should be noted that one of the things is keeping mobile home owners in communities, even and maybe especially when they're, the communities are not as nice as the ones that you all renovate. Renovate's not quite the right word, but you know what I mean, I'm coming from an apartment perspective. Is the fact that they own that home and it's expensive to move.
I know that's been a source of criticism for the mobile home investing space as well. Um, but you do have a longevity of tenancy in mobile home parks that you don't necessarily see in apartments for sure. So, um, are you all, uh, do you consider yourselves value add investors? I know you said, um, we were just speaking, you said you got into mobile home communities in 2016.
Frank Rizzo (12:52.51)
So our, my first exposure was in 2013. Um, quick quite by accident. My partner and I really teamed up and decided to drill down in this asset class in 2000, 2016. That's when we really made it a focus point.
Slocomb Reed (13:07.458)
Gotcha, and you've gone full cycle a couple of times.
Frank Rizzo (13:11.646)
Correct. We were fortunate enough that we got in really prior to 2020, when I think there was a kind of a new wave of investor that came into the space. And during that time, we were able to make a lot of the mistakes that operators would make entering into a new space and kind of get our sea legs into it. So during that, you know, during that time, our life cycle of some of our, you know, syndications kind of ran its costs, the valuations we were hitting numbers that we had projected, um, maybe a little bit earlier based on, you know, more how the market expanded over the last few years.
So, you know, we had a responsibility at that point for our LPs to, you know, create liquidity events for them. And we were very pleased to be able to do that and return that capital to them to be able to to find some new opportunities to go forward on. And to your other point, yes, we are, I would say deep value add investors. We typically look up prototypical, you know, buy, we're buying, you know, one star communities, one, one and a half star communities, and we're raising the standard there. So we, I like to tell people, you know, I might not have any hair, but my deals have a lot of hair on them.
And we will go into some, areas where maybe even other operators probably shy away from. I mean, but we're not scared of rolling up our sleeves and getting our hands dirty because we think that's where we can have the best impact. And specifically, I'll give you, I mean, we just closed on a 47 unit community in Jacksonville, North Carolina.
I don't know if you've Jacksonville, North Carolina is a pretty large MSA right off of I-95, Camp Lejeune is there. It's a 47 unit, multi-generational property where the father who built the park and really ran it, he just got ill, passed on, and his children who were well accomplished just didn't feel like running the park. And for the last four years, kind of let it go by the wayside. So you have a number of residents there that either haven't paid, or you have an element that's moved in that you really want to get them out because the good people are trapped inside and the bad people are circulating all around.
That's the kind of situation where we're comfortable knowing the landscape that we can step in there, we can clean that community out and kind of give it a fresh look and really look at a truly opportunistic play in the manufactured housing space. So, we do look at some very challenged properties, but we look at it as part of our DNA to turn those communities around and to see that revitalization take place.
Slocomb Reed (16:14.39)
That makes a lot of sense. And I resonate with what you were saying about, uh, you got into mobile homes, uh, mobile home communities, uh, few years before they got hot and it gave you some runway to make some mistakes before it truly got competitive. I feel the same way, at least about a residential multifamily that I got started in apartments in 2014. And I had quite a few years there before, uh, before multifamily hit its peak. And you really needed to know what you were doing and be an excellent operator in order to wave, uh, in, in order to make it through whatever we're calling, whatever is happening right now, Q1 of 2024. So on that note, you, uh, acquired a property recently. You said, uh, you're continuing to acquire even with the number of investors and operators in rural home communities, uh, increasing, uh, cap, have been compressing a bit, haven't they?
Frank Rizzo (17:14.366)
Correct. They have. Now, we've been very disciplined in our buy box. So when the market really took off, while we had the capacity to do more, we kind of stepped back and we would wait to find the value that we felt when we were stepping in. We weren't chasing just because we were looking to deploy capital. We were waiting for the deals that we felt that were right.
And we made sure that we were underleveraged or levered correctly. So we're not sitting in a situation now where we're looking at resets over the next 12 to 18 months and we're concerned about where rates might be. So in sticking with that discipline, there's always gonna be opportunity out there if you're able to uncover the right nuggets. We're finding now that some of those operators that you're talking about, or those investors that you're talking about that don't have operational capacity, they're having a second look.
And one thing about the manufactured housing space that we've noted, there's so many different verticals in the space. And there's so many different nuances that if you're not completely focused in the MHP space, if you're not a full-time operator or you're relying strictly on third parties, you can't control what that product is going to be at the end of the road.
And so we're starting to see some of those recent operators or recent investors, they're starting to trade back some of those assets. And I think our persistence is paying off and our networking is paying off where we're getting some deals come back to us that maybe traded away 12 months ago or 18 months ago. So I think by being persistent, by being able to execute that longevity has definitely helped us or will help us as we're dealing, like you said, in whatever this environment is that's so unusual. But I think that's part of the key.
Slocomb Reed (19:21.142)
I want to transition this conversation a bit Frank, but before I do, you referenced the many verticals and complexities, even within mobile home park investing and operations.
Slocomb Reed (19:40.63)
Given the climate that MHP Investing finds itself in early 2024, cap rates, interest rates, crowded space when it comes to buyers for deals. Where is the profitability right now in mobile home park investing in deals that would we acquire today?
Frank Rizzo (20:02.626)
That's, so you really have to pierce through your numbers and look at the financials that, sometimes they don't have the financials, right? But if you're looking at a deal, you have to be able to pierce through those numbers and really project out where that property can move, right? Move to.
So a lot of people, I spoke with somebody at a company and I'm not going to name them, and they just came on board to this company because they were moving over their entire operations team. They went out and they've bought over 100 communities in the last few years based on the depreciation that they could get from mobile home park, owning a mobile home park, the accelerated depreciation.
And secondly, they thought that it was easy. They had a sticky resident. I could raise lot rents, people will stay, I'll make more money. When they found out that residents will move if they don't see value, they've gotten rid of their entire operating team and they're bringing in a new team to run their assets right now. If you ask me, they have a big mess on their hands, right? But that's where they're at. Those types of assets, when they come back, you can pierce through those numbers and figure out where that value lies and where you can create some value there.
Additionally, there's a whole subsector of communities where owners are, they're tired. They're still looking for an exit and they want to lock in some of that equity gains that they've had in the last few years, but they are challenged properties. They need significant capital improvements. Maybe it's beyond roads. Maybe there's some infrastructure improvements. Maybe there's some things that might scare away an operator who doesn't have that experience. And those were, I think, where you're going to find your best value deals, Slocomb.
And I think that's one of the things that we look for when we are acquiring a property. Where can we create that value for our investment or our investors? Maybe there is an expansion play. And we have a couple of deals right now where we're in the process of expanding an existing community because there's all this additional land that might be associated with the park that just has not been maximized. And at the heart of all this, we do have an affordability crisis in this country, right? We do not have enough housing to meet the needs of where we are. And manufactured housing is still the most affordable of the affordable housing stock. So that becomes a key component to all of this.
Slocomb Reed (23:03.33)
That makes a lot of sense. If we can get into some specifics here, Frank, tell us where, what are the specific opportunities that you're finding right now to add value to parks? You mentioned expanding the pad count by tapping into land associated with the park that's not being used. What are some of the other ways that you're currently adding value to parks?
Frank Rizzo (23:32.842)
So the main thing, right, when we go in there, and this goes back to building out the culture, is the infrastructure improvements that you can make. One of the things, what makes this space so unique, Slocum, is that you buy the land, you might not own the assets on that land, right? So someone's renting a piece of that land, they own a home.
Now, if those homes are older or tired or not up to community standards, right, that could impact your infill opportunity, right? So if I have a community that I know I need to bring in new homes to fill this out, but it's sitting next to, you know, 10 homes that maybe the skirting's not right, maybe the roofs need to be cool sealed or maybe the house needs to be painted, that's going to impact.
My future resident, is it not? I mean, nobody wants to live on a block where their neighbors, they got the nicest house and their neighbor's house looks a little tired or run down. So one of the things that we will do, and we just build this into the underwriting, we'll know if there's homes there that need to be improved and maybe our resident doesn't have the ability to do that, we're willing to lend that hand to make that exterior improvement to their, you know, home with the intention that, A, now, if we've got to move their rents up closer to market, they've gotten some value. I've given you skirting. I've put a new roof on your home. I've cleaned up your exterior. So are you happy with me? Are you disappointed with me? Right. You're, you're, you're probably really happy with me.
And additionally, it makes my job easier as I infill those lots with new homes because people like to live next to a neighbor who's got a nice, fresh looking home. So it's a win-win situation. And we find that adds value for the resident. It adds value for us. It adds value for our future resident. And I think that's been a key component for us helping to build the community in the community.
Slocomb Reed (25:52.014)
That makes a lot of sense. Frank, I wanna shift the focus of the conversation here.
Acquisitions has been complicated for a lot of commercial investors in a lot of asset classes the last couple of years. When I ask this question, I don't want to talk about acquisitions. I want to talk specifically about operations. After, since you've had the time in the portfolio to get good at this, specific to the last couple of years, Frank, what's been more difficult in operating your communities than you expected?
Frank Rizzo (26:48.222)
That is a really, really great question. I think that the most challenging part, right? First of all, you got to find the right people, right? So finding the right people to do that. And what do I mean by the right people? It's the people who are going to buy into what you're doing organizationally, who are going to feel the sense of purpose every day. And because we're operating remotely, right? So we have people that are, you know, eight states away and how do you build that culture within without being there every day?
It's easy when people are coming into your office and they see you for them to know and love you and respect you. Right. But when you're eight states away, how do you create that sense of, you know, being part of something and you're not off on a silo and that's been a challenge we've been very blessed and fortunate. We have some really great people that, that have been with us and the people that have done well, we've grown with and we've incentivized them correctly.
But that's, it's in managing those people and getting the right people in place and then making them feel that they're part of something and having them understand what you're doing and why you're doing what you're doing. And that's been, you know, a learning curve, I think for every entrepreneur and every real estate operator on how to do that.
Um, but we've, like I said, we've, we've built a good team. A lot of that is built on communication and trust that you've got to build up there and then it's allowing your people. You know, believing in them that they're going to be able to make decisions or come back to you with ideas that's going to help you in the long run, be more efficient and operate those communities the way you're looking to drive them.
Slocomb Reed (29:13.368)
That makes a lot of sense, Frank. Are you ready for the best of our lightning round? Awesome. What is the best ever book that you recently read?
Frank Rizzo (29:21.714)
So I'm gonna give you two names, Who Not How by Dan Sullivan, and then Choose Your Enemies Wisely by Patrick Bett-David.
Slocomb Reed (29:34.466)
Tell me about, I'm very familiar with who and how Dan Sullivan and Benjamin Hardy, but tell me more about Choose Your Enemies wisely.
Frank Rizzo (29:41.074)
So Patrick Bette David, I was introduced to his first book, Your Next Five Moves, which was just about organizational planning and getting your mindset right. I thought the book, it really opened up. Listen, everybody's heard. You hear a lot of things repeatedly. But then he puts it in a way which I think resonated with me as someone who started from the ground up, built your business and enterprise. And if you're familiar with Patrick Bett-David, I mean, he started his financial services company, built out to one of the largest financial services companies in the world.
And the stories resonate in terms of how to get yourself thinking right, how to make sure that you're fighting the right battles and you're really being strategic about where you want to go. And it's about having that focus every day and to move yourself forward. So I thought that book really resonated with me. We just finished that in the, he just came out with it in the new year. We read right through it. And I thought that that's, that's a key book. I actually told a couple of people in my office to read that book as well.
Slocomb Reed (30:58.166)
Nice. What is your best ever way to give back?
Frank Rizzo (31:05.982)
Listen, I think that we're stewards of the land, right? And so you have to make sure that when you're, whatever you're doing, you're doing it with, intentionally to believe whatever you're doing in a better spot than where you started it from. So whether that's dealing with a resident issue and making sure your team is there to do that, whether it's enhancing a community to make sure that people have got a viable place to live or operate, or whether that's being involved in your local community when something is happening and you could participate in. So I think it's just being conscious of the people that are around you and when you're doing something, do it to make an impact. And we believe that we're doing it in the ways that we can and being involved locally in the areas that we operate. And I think that's super important.
Slocomb Reed (32:11.97)
For this next question, Frank, you've already talked about the difficulty of, um, a building culture, uh, from a remote location. So let's, let's take this, uh, question in a different direction, but on, uh, the properties currently in your portfolio, Frank, what is the biggest mistake you've made and the best ever lesson you learned from it?
Frank Rizzo (34:10.63)
So I think that the biggest mistake that we've made is, you know, if we jumped into something, not doing our homework, if we went against our better judgment, you know, in taking a resident in, when we felt that, hey, the numbers don't check out, but we like the story and we want to get the place occupied. I think that would be our biggest mistake that we've made operationally. And that's something that, and we've always ended up regretting it. So you have a policy, you have something in place, stick to the script, and that works for you best.
Slocomb Reed (34:44.813)
Specifically bringing in new pad tenants.
Frank Rizzo (34:48.898)
Yeah, I mean, I think it's, you know, you, when you take on one of these projects and you have vacancies that you need to fill, you know, you want to fill them quickly, right? And so sometimes you'll, you, you could in a motivation of trying to do something good, get you sometimes might, Oh, maybe I could look for an exception here. And I can look for exception there. It's eliminating that and realizing why you have a policy in place in the first place and sometimes saying no is the best answer, even when you want to fill that vacant spot. I'd rather keep things vacant for an extra month than take the wrong person in because that could ruin everything. So I think that's been our biggest mistake in terms of what we've done and what we look to eliminate.
Slocomb Reed (35:35.586)
Gotcha. And what is your best ever advice?
Frank Rizzo (35:41.006)
Make sure you have a clear plan of what you want to do in terms of your goals. And then once you have that set up, you can work backwards and fill out the house. But you need to know where you're going and more importantly, why you want to get there. Because that will keep you going even when things get challenging. So it's knowing your why and what that means for you.
And that helps you through the challenging times, because if you're gonna be in this business, and I'm sure you've experienced it, there's some great moments, and then there's some moments where you have a lot of challenges and things that come up unexpected. And you've got to have that fire in your belly that makes you go through those obstacles. And I think that's really key. So if you don't know that about yourself, that setback might cause you tilt and go in a different direction.
Slocomb Reed (36:43.53)
Last question, where can people get in touch with you?
Frank Rizzo (36:46.906)
Uh, you, we just launched a new platform. If you're interested in the mobile home park investing, it's called the MHP exchange.com. Um, you could check us out there. You could send me an email off of that. You could find listings, news information on anything MHP related. You could watch our podcast from there, the MHP change podcast. And we just launched, uh, the trailer park turnaround, which is kind of our video documentary series that you can check out on YouTube.
Slocomb Reed (37:16.606)
Nice, those links are in the show notes. Frank, thank you, Best Ever listeners. Thank you as well for tuning in. If you've gained value from this episode, please do subscribe to our show. Leave us a five star review, share this episode with a friend and don't forget to visit best to look into the speakers and the venue in Salt Lake City, April 9th to the 12th, again, the discount code of connect C-O-N-N-E-C-T is available for all podcast listeners as 15% off of your tickets. Thank you and have a best ever day.
