Revitalizing Mobile Home Communities In Opportunity Zones, With Sam Hales

Opportunity Zones are helping drive capital into the revitalization of mobile home park communities in some of the country’s poorest areas.

Sam Hales, founder and CEO of Saratoga Group, joins the show to discuss how he has used Opportunity Zones over the past few years to revitalize poorly run mobile home communities, and why MHCs can be a good inflation-resistant asset class for investors.

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Episode Highlights

  • A basic overview of mobile home communities as an asset class and investment opportunity.
  • Some of the unique characteristics of the mobile home park asset class that can make it recession-resistant and inflation-resistant.
  • Why management of a mobile home community can be easier than other property types, especially once the property is stabilized.
  • Why the affordability of mobile home parks makes it a great housing alternative during periods of economic downturns.
  • How increasing rents have helped offset the rising costs of labor and materials over the past two years.
  • The impact of market conditions and rising interest rates on Saratoga Group’s operations.
  • A summary of Saratoga Group’s Opportunity Zone projects to date, and how they’ve used the tax incentive to improve their communities over the past few years.
  • How Saratoga Group is able to unlock additional value after revitalizing an MHC with their property management expertise.
  • An explanation of the NOI “J-curve” that MHC investors experience when taking over and revitalizing a property.

Today’s Guests: Sam Hales, Saratoga Group

Sam Hales on the Opportunity Zones Podcast

About The Opportunity Zones Podcast

Hosted by OpportunityDb.com founder Jimmy Atkinson, The Opportunity Zones Podcast features guest interviews from fund managers, advisors, policymakers, tax professionals, and other foremost experts in opportunity zones.

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Show Transcript

Jimmy: Welcome to the “Opportunity Zones Podcast.” I’m Jimmy Atkinson. Joining me today is Sam Hales, founder and CEO of Saratoga Group, a private equity real estate fund management firm focused on the purchase, revitalization, and operation of mobile home parks.

Sam joins us today from his new offices in Knoxville, Tennessee. Sam, welcome to the show. How are you doing?

Sam: Jimmy, it is a pleasure to be talking to you. Doing great.

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Jimmy: Yeah. Great to have you back on the show. Sam, you’ve interacted with the OpportunityDb audience and the AltsDb audience a couple of times in the past. You were one of my very first, if not my first if I recall correctly, webinar presenter way back a couple of years ago, spring or summer of 2020. So, great to have you back on the podcast.

And our viewers of the podcast episode, if you’re watching us on YouTube, will notice that we’re rocking some sports gear today. It’s casual Friday, you mentioned to me, Sam, at your office there in Nashville, so you’re rocking some BYU gear, and I’ve decided to throw on my Notre Dame hat for the episode today.

There’s a big game coming up between our two football teams this weekend in Las Vegas, Nevada. I’m really looking forward to that. And I’d be remiss if I didn’t say, “Go Irish.” Sam?

Sam: Go Cougs. Yeah, I think it’s going to be a good game, Jimmy. And, you know, I’m feeling a little salty about it because BYU visited Notre Dame and Notre Dame was supposed to come to Provo and play, and somehow it got changed into Vegas. But it’s going to be a great game. Looking forward to it.

Jimmy: Yeah, Provo’s a great college scene. I was there last fall and really enjoyed my experience there taking in the BYU-Utah game last September. Yeah. It’s too bad we’re not playing you guys in Provo, but Vegas will be fun. Well, that aside, let’s dive into the episode today. We’re going to talk about mobile home parks and Opportunity Zones on today’s episode and how they intersect and why Opportunity Zones are really a great program for mobile home park development and revitalization.

But, Sam, put Opportunity zones aside for a moment, just really high level, kind of hoping you can give our audience a little one-on-one crash course on mobile home park investing. What can you tell us about mobile home parks as an asset class and as an investment opportunity?

Sam: Yeah, awesome, Jimmy. Happy to talk about that. And I could tell you my journey was basically asking this question. I’d done other types of real estate investment, specifically a lot of single-family home rentals, and this was, gosh, let’s see now, five years ago, almost six years ago, and it felt like needed to find something else that would do well in uncertain economic times, a recession specifically.

And started looking around, and with the help of kind of some different people in my life, kind of came to mobile home parks, and as I dug in, started realizing, “Wow, like, during a recession, I can’t think of a better place to be than mobile home communities.” And there are some reasons for that.

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It’s obviously affordable housing, right? And so what happens is in terms of kind of non-government sponsored affordable housing, it’s the best alternative. And we can get more into that, but, really, there’s not enough supply and there’s so much demand.

So, even when times are hard, what that creates is kind of downward pressure, meaning pressure from other people that can no longer afford that really nice apartment or are no longer in homeownership, standard homeownership, and need an affordable place to live. And so, you know, mobile home communities kind of become that backstop a little bit. And that was played out as I did some research and looked at a couple of publicly traded REITs that are focused on mobile home communities.

One of those is Sun Communities, another one is ELS, a Sam Zell company you may be familiar with, Jimmy. And sure enough, like, right through…so, you know, they were both publicly listed, I think, 1998. And so right through kind of the dotcom crash and then the Great Recession. There’s been a couple of other hiccups, specifically in kind of multifamily.

And throughout all of that, so over a period of over 20 years, both of those firms had had positive NOI growth every quarter. So, right through the Great Recession, obviously, you know, share prices went down, right? I mean, because they’re publicly listed and the scare impacts everybody, but they were still growing the bottom line through, you know, what we could say was thick and thin.

So, why is that? Like, you know, what’s going on there? Part of that is you have a very sticky resident base. So, the average mobile home park resident that owns their home stays in that home, in that community for over 13 years.

That’s actually longer than your average single-family stick-built homeowner. And the reason for that is, you know, they bought their home or maybe they’re in the process of paying off their home. They’re paying us for the rent at the lot, but it’s very expensive for them to take that home and move it to another community.

And there’s good and bad to that, right? Because that can kind of induce an operator to be like, “Well, maybe it doesn’t matter so much if I’m running a great community,” or, “Maybe it doesn’t matter if I really jack up rents and don’t provide value because they’re stuck.” And that’s not the idea. Like, we want to create value for the residents. But if you do that, it becomes a very sticky tenant base.

And then, of course, we talked about the affordability of it as well. Another thing that I really like about it is if you’re in a model where the residents own the home, you’re not renting out homes, which is generally what we do, then your kind of repairs and maintenance and your upkeep, it’s…you know, really all you’re talking about there is maintaining the community, maintaining the underground infrastructure, maintaining electrical connections, maintaining the roads, you know, playground, kind of common area sort of things.

In other words, if the toilet leaks and it makes a mess or the light bulbs go out, you know what I mean? Like, the things that you usually have to take care of in a multifamily, you don’t have those issues and those concerns. And so initially, they’re actually harder to manage because I think just generally of being kind of the class of housing that it is, and so you have to really create a culture, a community, and enforce rules.

But once you can kind of stabilize that, they become quite easy to manage. And so that was really appealing about the space as well.

Jimmy: I’m not sure I quite followed that last point, and forgive me, I’m a little bit naive about mobile home park communities, I haven’t gotten involved in one before as an investor. What did you mean when you said there really isn’t a lot of maintenance? You don’t have to worry about the toilets and the light bulbs, why is that?

Sam: Well, because the model is the resident owns their home and then we own the land.

Jimmy: They own the physical structure on top, and they’re basically renting the pad site from you. Is that the…?

Sam: Yes. Exactly.

Jimmy: Got you. Got you. Okay.

Sam: So, that’s why I say, you know, so when they own the home, then they’re taking care of the home, and we’re not having to address those issues.

Jimmy: Okay. Well, let’s talk a little bit more about that later in the episode. I’m curious, you know, how that model plays into exactly what you’re doing with your properties that you’re managing through Saratoga Group. You mentioned a little bit about, you know, some of the differences between mobile home parks and single family or multifamily.

Are there any other big differentiators between mobile home parks and other property types within the residential sector?

Sam: Yeah. I mean, you know, when we first got into the space, part of my frustration around the single family, which is kind of where I came from, was it was just inefficient. And so, you know, you’re seeing a lot of it, so you’re hearing all these things about the build-to-rent model, right?

And, hey, what’s so exciting about that is, like, you get the economies of scale that you have in multifamily because it’s all in a single location, but then you get single-family homeownership. Well, mobile home parks are built to rent, really, right? I mean, all those advantages that we’re talking about there, where you have a community, you have the efficiency of a single location versus single-family homes that are kind of spread out all over, which is the business that we were in.

And that’s where Blackstone, and Waypoint, and all these people started as well. So, really, those advantages in build to rent are the same that you have in the mobile home parks, it’s just a much cheaper option. And that’s really, I think, the big differentiator. We talked about this is…we have a weekly team call at Saratoga Group, and actually, I shared a little bit about this past week to where if somebody’s buying a home in one of our communities, you know, they’re going to get a mortgage, just like anybody…

They’re maybe paying $50,000, or $60,000, or $70,000 for that home. And that home 2 years ago used to be 30% cheaper, just like everything else, but now…so a home that was $35,000 is now $50,000, so it went up by $15,000. It’s like, wow, that was a pretty big jump percentage-wise, but in terms of total dollars, it’s not that much money.

And, again, that part of it is fixed. And then, you know, if rents are going up, then if your average lot rent is $350 and it goes up by 10%, we’re talking $35. Percentage-wise, it might be the same as what would happen in other places, but in the economy that we’re in, we’re going to continue to see mobile home parks as a very viable, in relative terms, alternative for great housing for people because of some of those factors.

Jimmy: That makes sense. Well, let’s turn our attention to the economy now. Really, the last time you spoke to my OpportunityDb audience was in…I think it was spring or summer of 2020 when you were on that webinar with me, Sam. And by the way, I’ll make sure that I link to that webinar, and I think we did a podcast episode around that webinar.

I’ll be sure to link to that in the show notes for today’s episode if anybody wants to go back and watch that. But we were in a very different period in time. The economy was in much different shape back then two years ago at the beginning of COVID. The market was tanking a little bit, maybe it was just starting to rebound, but inflation was still very low. Interest rates were still very low.

People were quitting their jobs in droves because the federal government and the state governments tacked on a lot of unemployment benefits, pandemic response-driven unemployment benefits. Now we’re in a period of really tight labor markets, low employment, but very high inflation. And the Fed has reacted by increasing interest rates.

I think they’ve issued three 75 basis point interest rate hikes over the last 3 meetings in the last 3 months. The most recent just coming about a week or two ago now. So, high inflationary environment. We’ve got inflation above 8%, according to the last CPI print. Going back to that webinar you did, you know, the focus of that webinar was why mobile home parks were a great recession-resistant OZ investment.

Two years later now, I want to ask you, in addition to being recession resistant, Sam, are mobile home parks also an inflation-resistant asset class, with inflation as high as we’re seeing?

Sam: Yeah, right? I can tell you that when I thought about getting into this business, it wasn’t like, “Hey, what’s going to do really well when inflation is over 10%?” Right? I don’t know how many people…I mean, that happened 50 years ago, and if we study that, we knew it could probably happen again, but, like, it’s been a surprising development for a lot of us, certainly for me.

That being said, I think mobile home communities are going to fare quite well. And let me maybe first talk about the headwinds that we’re seeing and, I think, are maybe common to other operators. Number one, it costs us more in labor, and that’s anywhere from, you know, our community managers as well as probably more pronounced would be as we’re buying these value-add communities and we’re needing work done, and we got to do new roads, and we’ve got to renovate homes and bring…like, all those things cost dramatically more than they did a couple of years ago.

But on the other side of that…and this is maybe where we could dive into this a little bit more in terms of the responsiveness and the elasticity, maybe a little bit in regards to the rent pricing that we’re able to charge. So, we basically have a schedule where we put our communities all on basically the same schedule. We do a rent raise once per year, and it’s kind of in the spring time.

So, this last spring of 2022, our average rent raise was about $55. And, you know, if I was a multifamily operator and I tell you, “Hey, we raised our rents this year by $55,” I think the question would be, like, “That’s it? Like, that’s all?”

But $55 when our average rent was around $300 is significant, right? I mean, we’re talking about nearly 20% in one year. And hopefully, that doesn’t sound egregious. You know, we’re starting from rents…these communities we buy are mismanaged, have been undercapitalized from these owners that we buy them from.

So, the market rent we’re still kind of chasing just to get back to market, but that’s because we’re dumping money and making these communities a lot nicer. Anyway, so if that was our average rent raise, but then… And let’s just kind of reset. Let’s talk about maybe the go forward, which is, hey, if inflation’s 10%, that’s an easy number.

And the average we were actually…the example I shared this week is in Greenville, North Carolina. We have 1,000 pads in that market. The average 3-bedroom, 2-bath unit, could be a house, could be an apartment, is about $1,550 a month, and our average rent at our mobile home parks is about $350 in that market.

So, if the rent goes up by 10% this next year, you’re talking about a rent raise of over $150 for the apartment, and you’re talking about $35 for the mobile home park because the rest of the housing, let’s say, in that mobile home community is the home.

And that person either, number one, owns their home outright, which is actually the majority of people, or they are…you know, somehow maybe they have a loan on it and they’re paying for the home. But, again, that’s a fixed arrangement so that that payment stays fixed over time, so they’re using inflationary dollars to…it’s a good situation to be in, right?

Jimmy: They owe less and less money on it every month inflation adjusted, basically.

Sam: Exactly. Exactly. Which is another reason to own real assets in inflationary times, right? Whereas if they’re just rent an apartment, like, it all gets passed on, not just the rent, but the utilities, you know, all those things get passed on, and so it’s a much bigger impact on the resident if they’re in multifamily versus in a mobile home community.

And I feel good about that, right? I mean, I’m concerned about, I guess you could say, just the average American in all this inflation. And yes, there’s wage growth, but there’s not enough wage growth for everybody. The wage growth is kind of really showing up for the white-collar workers and that sort of thing.

And kind of the working class is really getting hit hard. So, anyway, it’s awesome to be able to kind of provide that value proposition while at the same time, economically, 10% rent raise, hey, for, you know, our community, I mean, that’s very meaningful for us. Even though $35 might not sound like a lot, you know, if our NOI on a lot is $100, then that’s huge, right?

That’s a huge increase in the operating income.

Jimmy: For sure it is. Yeah. A lot of good points, a lot of good insights you bring up there. That was really interesting, that point about how…I guess it’s almost a hybrid model for the renter. He or she is renting from you, but he or she owns the actual structure. And in most cases, you mentioned, own it outright, and if not own it outright, maybe paying at least a fixed rate, which is quite valuable when rates are on the rise if you’re able to lock in a lower rate a year or two ago or whatever the case may be.

Well, are there any reasons why given the market conditions today, the market drop since the beginning of the year, the inflationary environment we’re in, that you might be bearish on any particular aspects of the market right now, or has the market impacted any transactions or anything in your pipeline?

Sam: Yeah, no, definitely some impacts. I mean, you know, I’ll maybe talk about financing first and then some project-related stuff next. But because of the nature of what we’re buying, which are these value-add communities, our typical loan is a 10-year bank commitment, and it’s typically 5 years fixed, with a reset, and then you have another 5 years.

So, you know, we’re looking down the horizon and saying, “Okay, well, some of this stuff that expires next year, it’s going to get reset, and their interest rate’s going to be significantly higher.” So that’s not good. That’s not great. Fortunately for us, and we, you know, model this all the time, but we’re not that impacted by the interest rate.

And the reason for that is our debt to value or debt to basis, either, I mean, we are under…so if we just use our basis, we’re less than 50% debt to basis. And if you look at value, it’s even, you know, significantly less than that. And so it’s not a huge impact for us, but it’s not a great thing.

We don’t love that. And we’re working on basically a large facility that would lock in some nice long-term financing for us. Should have done it a year ago, right? It’s definitely more expensive than it was 12 months ago, but we weren’t quite ready with our portfolio at that point.

But anyway, the other thing I want to talk about is the impact on our business in terms of some of these projects that we have. So, if I could characterize, like, our standard Opportunity Zone mobile home park, which isn’t that different than our non-Opportunity Zone mobile home park, but we’re buying a community, it’s maybe 60% occupied, so a lot of vacancy.

It’s probably the roads are a little bit beat up. There’s maybe some older homes in there that either need to get pulled out or definitely refreshed and renovated. You know, there’s probably a few infrastructure problems. I mean, hopefully, I’m painting a picture here, like, there’s a lot of things that need to get done to basically revitalize this community.

And so that’s what we do. We go in, and we put new roads in, and we pour new concrete driveways, and we, you know, take out the old homes and bring in new homes, and put a children’s park in, all this sort of stuff. And all of that, even though the costs of those things have gone up, some as we talked about, they still economically make a lot of sense because on the other side, you know, our rents are more than our projection, right?

Our rent increases are more than what we originally projected. And those increases in the cost of doing these improvements is still very viable for kind of the business model. Where we’re seeing issues is we’ve also got five different projects where there was additional land associated with the purchase, and maybe it’s a different parcel, maybe it’s the same parcel, but we’re in the process of getting entitlements to basically expand these communities.

So, you know, I’ll give you an example. We have one out east of Austin, Texas, has around 90 existing sites, and we got approval for doing another 140 sites. And, you know, went through the entire entitlement process, everything that’s needed, and we have approval to move forward with the project.

And this happened maybe five, six months ago, and we’ve been getting, soliciting multiple bids to, you know, choose a contractor and kind of start the work, and the bids are coming in literally double what we anticipated when we originally started.

And a lot of that just has to do with the labor shortages, of course, you know, inflation in some of the material costs, but it’s really more about, like, what I’d call labor inflation. And the fact that these contractors are so busy that it’s kind of like, “Well, yeah, if you really, really want me to do this job, like, here’s my price.”

And so we’re actually looking at…we started to do this. We have a small crew on staff now, and they’re doing a lot of our projects for us so we can get better turnaround time and more predictable pricing. And we’re looking at kind of building up the ability there to do some of this development. But in the meantime, we’re just kind of…with these different projects, we’re moving forward, we’re getting the entitlements, and we’re just kind of waiting to see what will happen with pricing.

I think because of everything that’s happening and the way that that is tightening, that it’s going to certainly have some ripple effects on the construction industry, and I think we’re going to get much more reasonable pricing in the next 6 to 12 months, and we’re kind of holding out for that.

So, that’s definitely been a big impact for us and slowed us down on some of these projects. But, you know, overall, it’s hasn’t really impacted the business plan.

Jimmy: Got you. That makes sense. You started talking about your Opportunity Zone strategy a little bit there during your last response, Sam. I wanted to dive into that a little bit more. You know, what exactly is it you’re doing?

Are you only working on existing communities? Are you building any new communities? And then I guess second part of the question is, does your strategy differ based on whether it’s an OZ deal or not, or is your strategy consistent and it just, you know, it’s either an OZ deal or it isn’t? If it happens to be slated into an OZ, you put it in an OZ fund.

Tell us a little bit more about your overall strategy there at Saratoga Group.

Sam: Yeah. So, definitely, you know, what we try to do is say, look, we’re ambivalent. We’re looking for good opportunities. Maybe not trying to use that word too much, we’re talking Opportunity Zones, but good projects, right, and regardless of whether they’re in an Opportunity Zone or not.

So, it really generally doesn’t matter, like, the characteristics are pretty much the same. The exception would be, for example, we’re in [inaudible] Property in Atlanta, 194 units, and it’s 98% occupied. There’s improvements that we’re going to do, but a project like that, there’s just not enough to do to meet the basis requirements.

So, we don’t…

Jimmy: That wouldn’t work within a qualified opportunity fund strategy.

Sam: Exactly. Exactly.

Jimmy: Right. Got it. Okay.

Sam: So, we haven’t yet come across one of those that actually was in an Opportunity Zone where it’s like, “Oh, man, we wish we could put this in our OZ fund, but we can’t.” But theoretically, you know, that would happen, and we’d take that. and if the deal made sense, we’d buy it, we just couldn’t do it in the OZ fund. So, we don’t come across too many of those, but this is probably our fourth one like that. But generally, it doesn’t matter.

It’s kind of the same business plan, go in, and so you were asking, you know, are we doing…is it mostly revitalization versus development? And it’s really almost exclusively revitalization. Sometimes the revitalization looks like development because that lot got abandoned 25 years ago, and the forest grew back, and it’s like, “Well, I’m pretty sure there’s, like, a sewer connection in there somewhere,” but you got to go dig it out.

You know what I mean? It’s almost like you’re creating a new lot, you’re reclaiming a new lot. But generally, it’s really just kind of revitalization, is our business.

Jimmy: Got you. Well, let’s talk about, you know, a couple of years ago, last time I had you on, Sam, and, you know, this goes for a lot of my earlier webinars and podcast episodes, the focus was on, “Well, here’s what our pipeline looks like.

Here are our projected IRRs, here’s what we are anticipating we’re going to do,” but now we’re a couple of years removed. Well, we’re in Q4 of 2022, so we can kind of look back and talk about some of the projects that are more or less stabilized and fully leased up now, and actually be able to demonstrate, “Well, here’s what we did. Here are the fruits of our efforts, the fruits of our labor.”

So, can you tell us a bit about a couple of your OZ projects that you have in the works right now? Let’s talk about your one in the Atlanta area right now. That one, if I understand correctly, is nearly stabilized and nearly fully leased up. What can you tell us about that project and how you’ve improved that community over the past couple of years?

Sam: Yeah, yeah. Awesome, Jimmy. It’s kind of fun to look back and think about the history. So, this project, 123 spaces in Marietta, which is just kind of northwest of Atlanta, great little submarket.

And it’s very specific and clear memory for me as we were doing due diligence and we went to the park, and we met with the code compliance officer, and it was like getting a rap sheet, right? She handed the rap sheet to us, and there were over 100 violations in the community.

Literally felt…I mean, I’ve had a couple of kids that have done missions to South America or Central America, went to Honduras, went to Chile, this felt like a third-world country. There were kind of chickens running around.

Almost every home had violations in terms of illegal things that were built onto them that weren’t code compliant and, you know, random electrical wires running to places that shouldn’t…like somebody could have shocked and killed themselves tapping into electricity illegally. And it was daunting.

So, that’s where it started. And along with that, like, the roads were a mess. It was really a pretty rough-looking project, but the submarket was excellent, and location was kind of what we saw there. And we really felt strongly that if we got in there and kind of rolled up our sleeves and started to improve the community, that there’d be no shortage of demand.

And so that’s what we did. And this was about two and a half years ago. And yeah, we’re now…110 of 123 spaces are leased out. There’s actually a few duplexes that we’re now turning and renovating those. And we had to demo some of…there’s a warehouse and just some other random kind of buildings that were there.

And we’ve been able to work with the county as we demo those and we get permits to put new mobile homes there instead. So, we’ve been able to increase the lot count, that sort of thing. But anyway, so that project, our basis is just over $5 million. We bought it for $3.6 million, I think. And I got to look at my notes here real quick, but we’re generating…our trailing 12 months NOI is $717,000.

So, on an unlevered basis, that’d be, like, a 14% return. If we just look at the NOI, the value of that property’s probably 12 million bucks based on a 6 cap. And actually, I wouldn’t sell it for $12 million. But anyway, so that’s been a very successful project for us. And, again, it was relatively risk-free.

Risk-free is not the right word, but it wasn’t that risky because there was no entitlement risk. We weren’t building anything very complex, you know, we put $1.5 million into it, but it was new roads, and it was prepping a bunch of lots, and it was demoing things and putting new infrastructure in, and it was all kind of done incrementally.

And as we would incrementally improve, then we’d be able to bring some new homes in and just kind of raise the character of the community.

Jimmy: Sorry to interrupt you. It’s not just those physical improvements to the infrastructure on-site, but, correct me if I’m wrong, I think you guys are also fully integrated or vertically integrated. You’re actually managing the properties as well. Do I have that right?

Sam: That’s correct. Yeah.

Jimmy: So, it’s a management expertise that adds some value there, too, I would imagine, right?

Sam: Absolutely. Absolutely. Yeah. No, it’s a great point, Jimmy. I mean, I’ve never quite understood this perspective, but I would say our average seller under-reports income because they take cash and they don’t want to pay taxes on it, right?

I mean, you know, you go down, there’s a litany of reasons, and you’re like, “Man, if you just were transparent and reported all this stuff, yeah, you got to pay some taxes, but the value of your community is so much more if you have records and you can show all the income.” So, just making it so, you know, everybody has to…nobody can pay in cash.

And we use this PayLease program where if they have cash, they can walk into Walmart, and they have an account number, and they hand them the cash, and it goes straight on their ledger, and we’ll see it that same day in our banking account. So, it’s kind of a cool program for people that, you know, maybe do get paid in their construction job in cash or something like that.

But anyway, yeah, you’re right. Absolutely, the management of it and just, like, hey, there’s rules, and you got to keep them, and kind of no tolerance for rule violation, and vicious dogs, and all the sorts of things that scare the people away that we want to live in the community. We call it the J-curve, but initially…and this community was no different, initially, when we take over a community, occupancy goes down, income goes down for some period of time.

We hope it’s short because then we’re going to start going up the other side of the J-curve. But that’s because we can’t bring in the people and the families we want to bring in until we’ve removed elements that are…maybe there’s some criminality, other issues. We just can’t have that in the community to make it a place for people that want to live…that we want to live in the community.

Jimmy: Yep. No, understood. And that’s valuable to your investors that you do that, that you kind of shake out the folks you don’t want living there that are bringing in a criminal element, of course. But, you know, if it leads to a short-term dip in your NOI in the long run, it’s probably well worth it for you, your investors, and the community at large or the residents who live there, the law-abiding residents, right?

Well, let’s talk about your current project, and I don’t think you’re raising capital for it anymore. I think you have enough capital, but you’re currently deploying capital into a project, a mobile home community just outside of Austin, Texas. You mentioned it a moment ago. What can you tell us about that project and your strategy there?

Sam: Yeah. I mean, this would be a classic, just kind of what we described with… The name of the community when we bought it, ironically enough, was Sherwood Forest, right? So, Robin Hood and the band of robbers or whatever. Like, I mean, the reputation was awful. And it really was…you know, you don’t often think of this in Texas, but this particular parcel, it’s 35 acres, was heavily forested.

And it was very dark at night, and there was a lot of criminal activity. And even an old manager that was involved in some of this stuff, I mean, there were some pretty deep and entrenched issues and problems.

And if I could take you on a drive through that community today and you didn’t know that history, it’d probably shock you because now we’ve got this beautiful $70,000 kids’ playground, and there’s a soccer field. You know, we’re in the process of building a community clubhouse and a pool, really nice streets, and we have these solar street lights where, you know, drive through there at dusk and it just feels like a community.

And it’s become a community. But this is an example, Jimmy, of one that I was telling you about, where there was additional land with it, and we actually already have the entitlements approved to expand the community by 140 spaces or so. There’s 90 existing. But we’ve kind of put that part on hold because of what I was telling you about, just, like, getting reasonable bids on construction and that sort of thing to kind of finish the project, but it’s valuable.

I mean, at some point, we’re going to go do that work, and we’re going to expand the community. But in the meantime, we’ve stabilized what’s there, and, you know, what was once an eyesore is now a beautiful community and, you know, something we’re pretty proud of.

Jimmy: Oh, that’s great. It’s great to hear about real-world Opportunity Zone success stories where a operator such as yourself and your group at Saratoga Group, Sam, come in and create value for investors, create value and positive social impact for the residents of these communities.

I love hearing these success stories. And yeah, hopefully, those labor costs, construction costs can come down once the economy kind of levels out a little bit here. Maybe 6, 12, 18 months from now, you can start the expansion efforts on that Austin project and deliver even more affordable homes, like you’re doing.

Sam, this has been great. Been a pleasure speaking with you today. If we have any listeners to the podcast or viewers of our podcast who are high-net-worth accredited investors or financial advisors and they want to learn more about your investment opportunities or you and Saratoga Group, where can they go to learn more about you guys?

Sam: Awesome. Yeah. Hey, Jimmy, it’s been a pleasure. I always enjoy talking with you, and I feel like I learn more than I give. So, yeah, I would say I’m pretty active on LinkedIn, so if you just put my name in there, Sam Hales, on LinkedIn, you’ll either get me or this guy that runs a band in England somewhere.

But anyway, that’s not me. I’m not the guy in the band. And then saratogagroup.com, that’s where we have our investor portal and, you know, you can get access to kind of some of the things that we’ve done in the past. And like you said, we’re not really raising money right now for Opportunity Zone projects, but we’ll be in the near future here.

So, really appreciate you having me on, Jimmy.

Jimmy: Yeah, absolutely, Sam. And for our listeners and our viewers out there, we will, of course, as always, have show notes available for today’s episode at opportunitydb.com/podcast. And there, I’ll make sure to have links to all of the resources that Sam and I discussed on today’s episode, and I’ll be sure to link to Sam Hales, not the guy who’s in the band in England, but the real Sam Hales, our real our Sam Hales at least, and I’ll link to saratogagroup.com as well.

And please be sure to subscribe to us on YouTube or your favorite podcast listening platform to always get the latest episodes. Sam, again, it’s been a pleasure. Thanks for your time today. Really appreciate it.

Sam: Yeah. Jimmy, thanks so much.