Three Pillar Communities: 2022 Year in Review

This year-end review is divided into 5 sections: 1) 2022 WINS, 2) 2022 LOSSES, 3) 2022 DEAL RESULTS, 4) 2022 LIFE BEYOND WORK, and 5) 2023 OBJECTIVES.

TL,DR: We acquired ~$120,000,000 of real estate in 2022, taking our portfolio to roughly half a billion dollars.?We grew our team to 90+ employees and grew our investor base to 500+ individual investors.?We invested millions of dollars and countless hours to create safe communities that our Residents are proud to call home--including safety improvements, new infrastructure, and aesthetic upgrades.?We distributed $15,300,000 to investors in 2022, and we’ve generated a 47% average IRR on our 12 deal round-trips to date.??Our rockstar COO Corey Wikstrom is transforming our operations and strengthening our culture, including rolling out quarterly KPI-based compensation for our field employees.?We are thankful that challenges in the broader real estate market are not affecting us yet—due to our fixed-rate debt, affordable rents, hands-on operating team, and limited supply of mobile home parks relative to demand—so we are optimistic about continued growth in 2023.

2022 WINS

• The big picture: Fundamentally our business is performing really well, despite inflation and the Fed's interest rate hikes.?Our residents are home-owners with skin in the game.?Consequently, 97% of our residents pay rent on time every month.?Inflation has raised our expenses, but we have implemented appropriate rent increases that offset expense growth.?Our debt is almost entirely fixed rate, and our cashflow more than covers our debt service.?
• Portfolio value: Lots of investors (including the world’s biggest financial institutions) want to own mobile home parks, precisely because these assets tend to deliver stable performance during an economic downturn.?There aren’t many of these parks, and they trade hands infrequently.?As a result, mobile home park valuations have remained robust through the second half of 2022, even as interest rates have spiked and even as apartment, industrial, office, and retail real estate values have declined.
• Operations leadership: Bringing Corey Wikstrom onto our team as COO in 2022 was a game changer.?Corey is a seasoned industry leader who previously led thousands of employees in turning around hundreds of manufactured housing communities all over the country.?In 2022 Corey helped us roll out a program to compensate all our field employees based on their properties' quarterly KPIs (Key Performance Indicators), to make sure everyone is financially incentivized to think like an owner.?Corey also did a ton of work getting our field employees fully involved in our 2023 budget process so that our Community Managers fully “own” their property budgets.
• Acquisitions:??Under the leadership of our head of acquisitions, George Han, we had great deal flow in 2022 (with 14 parks closed after reviewing hundreds of opportunities).??And we continued to show brokers why we should get first look at deals.??If you’re a broker reading this and you want to understand how we create win-win partnerships with brokers…holler.??You can call Daniel or George, or email?[email protected]?
• New roles: In 2022 we added a Director of Construction, two more Regional Managers, another Acquisitions Analyst, several Regional Support Specialists, a Utilities Analyst, a Director of Accounting, and numerous bookkeepers, increasing our bench strength and adding specialization to our team.
• Culture and values: Karaoke madness at our headquarters retreat in Portland, OR in August.?Company values scavenger hunt in wine country.?Launched quarterly company values seminar, quarterly employee newsletter, and recurring all-company Lunch and Learns.?Added MLK day as a company-observed holiday.?Launched Maintenance?Appreciation Month in November (where we spoiled our hard-working maintenance techs).?Conducted an employee survey in Q4 and results were overwhelmingly positive.?Epic all-company holiday party in December with chocolate tasting, an ugly sweater contest, and a screaming rubber chicken.
• Construction and capital projects:?Thanks to the leadership of Richard Lundstrom, a 30+ year construction prodigy whom we wooed to join us in 2022, we have longer-range planning, a better bidding process, and tighter contractor oversight than ever before.
• Manufactured home sales:?Director of Home Sales Jack Walls and his team posted a number of wins on the scoreboard, including breaking?our company record by selling a manufactured home for $287,000 at our Youngstown park in Petaluma, CA.
• New park development: We are turning dirt at our development projects in Bozeman, MT (check out www.cameron-crossing.com) and Greenville, SC.?We’ve pre-sold 16 homes in Bozeman prior to launching formal advertising.
• Third party property management: Our?Regional Manager?Madison Rodne launched our third party management offering in 2022.?We have gotten rave reviews from the park owners who trusted us to manage their assets.?If you are looking for professional management of your manufactured housing community, or if you know park owners who could benefit from professional property management, please email [email protected].
• Finance/Back Office:??Our CFO Mike Skoczylas, Controller Sangita Patel, and Director of Financial Planning and Analysis Ruby Verma led a ton of initiatives in 2022 to make our finance function more scalable as our company grows, including centralizing our accounts payable function (processing 1200+ transactions per month), launching AvidXchange and Divvy for spend management, restructuring accounting by region, streamlining insurance procurement, and adding more detailed performance metrics to our investor reporting.
• HR:?The inimitable Mindy Haus, our Director of HR, launched a new PEO for all employees and rolled out a brand new employee benefits package with a lot more bells and whistles.
• Industry advocacy and thought leadership:?We testified in the Colorado State Senate, wrote case studies about our parks, and wrote letters to the New York Times and Washington Post to counter false narratives and to educate people about the high quality, financially attainable housing that we provide.
• Investor relations: We hosted fun in-person events in Silicon Valley, Phoenix, Boston, Miami, Dallas, and Israel in 2022, and we got consistent feedback that our detailed quarterly investor reporting is best-in-class.

2022 LOSSES

• Home sales velocity: Our 2022 home sales were far behind target (60 new homes sold this year, vs. our target of 100).?We can partially blame factory backlogs and contractor delays, but mostly we need to look in the mirror and acknowledge that this is due to our execution.?We need to get better at home procurement, home sales readiness, marketing, sales training, pricing/incentives, and guiding homebuyers through the chattel finance process.?
• Debt for development projects: Construction debt for greenfield MH projects is more elusive than we’d expected.?One lender in particular wasted a lot of our time with false promises….which is ultimately our fault.?We should not have put our trust in an unproven lender.?We should have proactively sourced multiple lender relationships until closing a deal with a proven partner.
• Construction costs: We’re paying too much for construction, and we are beholden to contractors that don’t always deliver in the promised timeline.??We think the eventual solution is to vertically integrate.
• Confusing messaging to investors: We confused our investors in 2022 with our rapid pace of offerings (which included our bread and butter manufactured housing investment opportunities, as well as several industrial deals and a joint venture fund). ?On the one hand we were being opportunistic as we unearthed compelling opportunities.?On the other hand we did a bad job of communicating the basics to our investors, i.e. what type of deals investors should expect to see from us, and how frequently.?
• >> The answer: Manufactured housing is our core business.?You should expect to see one or two mobile home park fund?offerings from us per year.?That is our core product.??You are also likely to see us offer a few one-off mobile home park deals per year, for parks that don't fit the risk/return profile of our funds.
• >> In addition, we launched a new business line in 2022: Three Lake Ventures, a joint venture with our partner Stew, which acquires under-valued industrial real estate properties.?Stew is an industrial real estate expert who previously did?billions of dollars of deals at Prologis, the world's biggest owner of industrial real estate.?Three Lake Ventures closed three deals in 2022 and we expect to bring more of these opportunities to our investors in 2023.
• Missed opportunities because we have more deals than capital: We passed on roughly $300,000,000 of truly compelling manufactured housing deals in 2022 because we didn’t have the right capital partner.?Typically, these were big/expensive deals where our business model (i.e. syndicating equity from lots of individual investors) could not compete.?For this reason, we are actively pursuing a strategic capital partner in 2023.

2022 DEAL RESULTS

• We sold Foothills Solar Mobile Home Park for $11,450,000 on 10/15/2022 after buying it for $6,000,000 in 2018.?Value increase: 91%.?Gross IRR: 23%.?Read the case study about solar energy, wildfires, wastewater treatment plants, and park expansion here: shorturl.at/bdwDI.?
• >> Note that we’re currently arranging a 1031 exchange for our Foothills investors to help them defer paying taxes on their capital gains from the sale. We’ve identified two replacement properties which we think will be homerun deals.
• We refinanced Frontier Urban Village at a $5,360,000 valuation on 9/30/2022 after acquiring the park for $2,725,000 in 2018.??Value increase: 97%.?Gross IRR: 32%. ?Net IRR: 24%. ?Read the case study about how we revitalized this affordable community here: shorturl.at/lpxS4
• >> Note that in 2022 our Frontier investors got back all the money that they invested in the deal (without having to pay taxes on the refinancing proceeds, which are treated as a return of capital)… and now our investors will remain as our partners in the deal, receiving ongoing quarterly distributions even though they no longer have any capital tied up in the deal.?This is what we refer to as an “infinite return.”
• We refinanced Sequoia Mobile Home Park at an $8,020,000 valuation on 5/31/2022 after buying the park in 2020 for $3,825,000.?Value increase: 110%.??In other words, we more than doubled the park’s value in less than 2 years, generating a nearly 4x return on equity in less than 2 years.
• >> Note: This deal is not typical.?The city was threatening to shut this park down when we bought it, due to the prior owner’s negligent mismanagement.?We saw good bones in a solid location so we bought it and set to work: fixing roads, building security fencing, working with law enforcement to remove a human trafficker and other criminal elements, and upgrading homes.?The city has thanked us profusely, and we have created a safe, affordable neighborhood while generating extraordinary returns.

2022 LIFE OUTSIDE WORK

• Daniel’s personal highlights:?A summer get-away with Atara at our happy place in Mendocino, CA. Taking my kids on their first surf trip and ski trip. Watching my toddler son pour his heart and soul into Magna-Tiles and floor puzzles with total devotion and concentration.?Watching my daughter blossom into a spunky, opinionated seven year old (and knowing that her intensity, while challenging now, will serve her well).?Hearing from my daughter’s teacher that my daughter stuck up for a "developmentally different" kid in her class whom other kids were teasing (this was the proudest I have ever felt as a parent).?Spending time with my 91 year old maternal grandfather, Gideon Goldstein, who is my business role model and my all-time best buddy, and commemorating the end of life of my paternal grandfather, Douglas Weisfield.?Building truly fulfilling friendships with my mobile home park and entrepreneur posse (you know who you are).??Hiring a boxing coach.?Volunteering on the board of Camp Eden Village West.?Having the opportunity to contribute financially to causes that Atara and I believe in: vibrant and inclusive Judaism, imagination and arts in education, protecting nature and ecosystems, and sticking up for women and kids. Gratitude, at all times to Stephanie Colley, my amazing EA who helps me keep my life together.?
• Yoel’s personal highlights: ?Welcoming our daughter (born Thanksgiving 2021) to our family and seeing her big brother Yeshaya (now 3) step up as a big brother. Selling our 2 bedroom apartment in Boston and moving into a 5 bedroom rental house with a backyard. ?Moving our son to a new school where he’s making friends and learning Hebrew. Enjoying hiking, tennis, lake swimming, and golfing during the summer in New Hampshire with my in-laws. Having the whole Kelman crew – my parents, my three siblings and their spouses, and all 9 grandkids—together at my house during the Jewish High Holidays. Taking a weekend Caribbean cruise with my brother, cousin, and childhood best friend. ?Hitting the road again,?after limited travel in 2021, to see mobile home park industry friends and to visit many of our communities. Hosting an interfaith Jewish/Christian Bible study at the April mobile home park conference in Chicago. Scuba diving at a sunken ancient Roman port with my brother Yechiel and my brother-in-law (also known as Daniel Weisfield…in case you didn't know that we're not just business partners, we're family).?Signing up to run a 10k in March.?Learning from and working with great joint venture partners, especially Dean and Stew. I’m excited to see what we will accomplish together in 2023. Please G-d, looking forward to a fulfilling, healthy and exciting 2023!

2023 OBJECTIVES

• Operations:?We are launching "The A League Initiative" to make sure all of our communities look and feel "A League."?This means attractive signage, attractive landscaping, an inviting and professional leasing office, company-branded shirts for field employees...and lots more.?
• Acquisitions:?We need to keep educating brokers and bird dogs on how we partner with deal finders to create win-win outcomes.?Email [email protected] to learn more.
• Manufactured home sales: We know what we need to?do here.?We are launching an action plan in 2023.
• Culture and values: Continue to integrate our five company values--Integrity, Respect, Teamwork, Owner's Mindset, and Growth Mindset--into our training, operating cadence, and performance reviews.
• Investor relations:?We need to communicate better to give our?investors more transparency into what's coming down the pike.?And we need to increase staffing so we can be more responsive to inbound investor inquiries.??If you emailed us in 2022 about investing with us and you didn't hear?back…we're here and we're ready for you in 2023.
• Third party property management: We're ready, willing, and able to manage more manufactured housing communities on a fee-for-service basis.?Do you know any park owners who could benefit from proactive professional management??Email [email protected] to learn more.
• Finding the right capital partner: We have robust off-market deal flow and a robust operating platform, and we are actively seeking a long-term capital partner who believes in the manufactured housing asset class and wants to invest with our team.

Wishing you and your family a healthy, joyous, and fulfilling 2023,

Daniel, Yoel, and the whole Three Pillar Communities team