George Allen / EducateMHC Blog Mobile Home & Land Lease Community Advocate & Expert

September 3, 2022

Perspective

Filed under: Uncategorized — George Allen @ 6:22 am

Blog Posting # 704. Copyright 2 September 2022. EducateMHC

Perspective. ‘Land lease communities, previously manufactured home communities, and earlier, ‘mobile home parks’, comprise the real estate component of manufactured housing!
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As often happens here at EducateMHC, we received a pithy and thought-provoking paragraph penned by a veteran multi-land lease community owner who’s as frustrated with the predatory purchasing and operation of this unique income-producing property type as we are. This time around however, his/her (You ‘woke’ folk out there like that? I don’t) comments stimulated some deep thinking on property prosperity-to-failure cycles that have occurred since the mid-1970s when I got into this business. First comes the pithy paragraph, then an historic timeline that should interest every one of you.

“Who me?”, “Screw you!”, and “A wing and a prayer!” are colliding throughout the land lease community asset class these days! One can argue, ‘sellers’ shouldn’t be criticized for selling their land lease community at dumb-high prices, e.g. ‘If someone wants to buy your 10 year old Timex for $1,000, sell it with ‘buyer-beware’ innocence.’ The fallacy here, within our property type, means having to justify ultra-high prices by firing existing employees (Who made the property what it is) and raise rents 50-100 percent. On the other side of the equation are investors who think homeowners/lessees have no choice but to pay higher rents. Wrong. They move out, leaving community owners with abandoned homes, vacant rental homesites, increased ‘common area maintenance’ costs, density that prohibits move-in of new homes, and frankly, prospective homebuyers/site lessees reluctant to move into the community because of the ‘rape & pillage’ attitude of the property owner. Meanwhile, state regulators, legislators, and lenders are now questioning the efficacy of ‘affordable housing’ in land lease communities! (lightly edited. GFA)

Please reread that paragraph before proceeding. Why? You’re about to learn how history repeats itself in the manufactured housing industry and among land lease communities.

My history in this ‘double dual industry’*1 goes back to 1978, two years after the infamous HUD-Code was implemented, in effect, driving annual new ‘mobile home’ production from a record high of 579,940 units down to 274,901+/-*2 in 1978! The fallout? Thousands of newly developed ‘mobile home parks’, nationwide, built to handle the 500,000 new homes per year volume – went begging, for move-ins that never materialized.

Well, during the late 1970s, investment real estate syndicators arrived on the (then) mobile home community scene. Syndicators oft sold ‘tax loss’ positions to wealthy investors who’d use them to offset high incomes from professions, etc., (e.g. doctors, lawyers, etc.). All this came to an end in 1985-6 when the federal income tax laws changed, pretty much outlawing use of tax losses in underperforming properties. Many syndicators stopped their deal-making at that point, and some early portfolio owners/operators went out of business, e.g. Ellenburg Capital.

Another casualty of this tax law change was the widespread failure of S&Ls (savings & loan associations) across the U.S. In 1989 the RTC (Resolution Trust Corporation), a federal agency, launched – to sell off bad loans and investment realty accumulated by the S&Ls. For a while there were many low-priced acquisition opportunities for interested investors. And, for a while, the (now) manufactured home community property type rebounded as an opportunistic investment.

Then, in 1994-5, four portfolio owners/operators, of this property type, went public as real estate investment trusts (‘REITs’); those being ELS, Inc., (formerly MHC, Inc.), Chateau Communities (merged with ROC in 1997, acquired CWS in 2001 & Hometown America in 2003), Sun Communities, and UMH Properties. There have been two other REITs: the original ARC in 2004 & 2005; followed, from 1998 thru 2008, by American Land Lease, until it was acquired by Green Courte Partners. And today, there’re two additional REITs: Flagship Communities (Formerly SSK Communities, and traded on the Canadian stock exchange) and MHPC, Inc. (Manufactured Housing Properties, Inc.)

Now, since the turn of the century, we’ve seen continued consolidation of the realty asset class (a.k.a. land lease community portfolio count now at 500 sole proprietors, corporations, REITs, ROCs, and more), via equity deals (Think Green Courte Partners), hedge funds (from outside the manufactured housing industry) – too numerous to name here. But therein lies the perennial question: ‘When, and among whom, will the next great shakeout occur?’ Why is a ‘shakeout’ almost inevitable?

During the past decade, first among larger institutional investment grade land lease communities, but now – it seems – among all-sized such properties, traditional valuation of investment real estate has been ‘thrown out the window’ and exorbitant prices are being paid, i.e. 10% ‘average’ cap rate deals now sell for 7 & 8%; and top grade properties, previously sold at 7 or 8% now go for 5% or less income capitalization rates. But that’s only half the story.

Once the transaction deal has been consummated or ‘closed’; in order to cover very high mortgage payments on the newly acquired land lease community, operating expenses are trimmed, and rental homesite rates are increased far greater than CPI (Consumer Price Index), and new fees introduced (e.g. water and sewer fees, etc.). Decades ago, discouraged homeowners/site lessees could relocate their manufactured homes across town at reasonable moving fees. Not today. Homes, especially multisection homes, are far too large to move, and given generally high occupancy elsewhere, there’s nowhere to go. So, discontent and frustration reign. That’s why we see efforts ‘everywhere’ it seems, to introduce and pass various forms of landlord-tenant legislation.

So, what’s next? Time will tell. But we’ve kinda been here before. On one hand manufactured housing is ballyhooed as being our nation’s answer to ‘affordable housing’; but at the same time, a relatively few predatory income-producing property owners sour the barrel for everyone.

What do I see? Perhaps state and national advocates for manufactured housing will implement some of my past advice in this arena, i.e.

• Voluntarily peg rental homesite rates in sync with other forms of multifamily rentals in the same local housing market. How’s that done? Simple. Via market survey, ascertain the average 3BR2B rent rate among conventional apartment communities (not subsidized); then divide by ‘3’ for a suggested base rental homesite rate rate among land lease communities, e.g. $1,200/month for apartment rent, then $400/month for rental homesites.

• Voluntarily implement long term rental homesite leases that extend beyond the mortgage term of a homeowner/site lessee’s residence.

• Voluntarily promote professional property management training and certification among on-site personnel, along with implementation of positive resident relations measures.

And Yes, there’s even more that can be, should be done, to improve today’s questionable, sometimes discouraging environments among land lease communities nationwide. What ideas and suggestions do you have? Please let me know via gfa7156@aol.com

Don’t you find it strange that no one else, anywhere, in the manufactured housing industry seeks your input on such critical matters as this? Well, here’re two suggestions to make that happen.

First off. If you haven’t already registered to do so, plan now to be present at the 11th annual SECO Conference in Atlanta, GA., on 3-5 October 2020. I’ll be there; and I believe, timely matters such as what’s covered in this blog posting, will be addressed in panel discussions. Google SECO for more information.

And those of you who’re MHI/NCC devotees, particularly the latter, do you find it strange that my services have never been retained, as an industry/asset class resource, to lead a discussion of this matter at any of their meetings? What is everyone afraid of?

End Notes:




1. ‘double dual industry’. A term I coined decades ago to describe how our overall ‘industry’ is comprised of four parts: housing manufacturers and independent (street) MHRetailers; and, land lease community owners/operators and property management operations (to now include on-site home sales and seller-financing)

2. These MH production statistics are quoted from the only deeply-resourced and published history of said information (from 1955 to present day): SWAN SONG, George Allen, PMN Publishing, 2017, updated 2018. The (+/-) designation cautions readers that there are parallel presentations of this key data; that provided by IBTS, HUD, MHARR, & EducateMHC, and that adjusted by MHI.

George Allen, CPM, MHM
EducateMHC

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