Interest increases in this niche.
It is evident that
demographic trends are creating a greater need for affordable housing for the
largest aging population in our nation’s history. Financial analysts are
reporting that big investors are betting heavily on the rising demand for
low-cost housing, particularly manufactured homes.
Extremely popular in the
1990s, when syndications and real estate investment trusts invested heavily in
this niche industry, today mobile home communities are attracting a new tier of
private portfolios acquiring midsize parks. Big investors, such as Equity
Lifestyle Properties, with more than 100 communities, prefer well-located large
properties of 200 or more spaces.
The Carlyle Group, a
private equity firm, recently acquired two manufactured-housing communities for
a total of $30.8 million, according to The Wall Street Journal. Investors
already active in this often overlooked specialty market are aware of its
steady cash flow and potential for significant land appreciation. This flexible
acquisition is suitable for long- or short-term investment, expansion, and/or
future development plans.
“Trailer parks” of
yesteryear are now trending as manufactured-home communities with increased
consumer interest as either retirement or vacation homes. Singlewide trailers
and aluminum-sided, flat-roofed structures have been replaced by an assortment
of modern modular or manufactured homes with vaulted ceilings, second stories,
granite counters, stainless appliances, fireplaces, shingled roofs, two-car
garages, and countless other features that have rendered them nearly
indistinguishable from stick-built single-family residences.
communities are competing with planned-housing developments with upscale
amenities such as swimming pools, gyms, walking trails, dog parks, tennis
courts, and even golf courses, but at affordable prices.
“It’s a straightforward formula,” says Clarke
Fairbrother, President of Newport Pacific Capital Co. “As single-family home
prices continue to increase, manufactured-home park rents can also go up. Even
then, mobile-home living is a good value. Additionally, as the job market
improves, the financial stability of the tenants improves, making for a
reliable return on investment.”
While some older
properties may have small sites that will not accommodate the newer, larger
homes, these can often be purchased for half the cost of building a new
community, and the obsolete utilities and amenities can be upgraded to command
increased monthly land rental rates and a higher return on invested capital.
Existing sites can also be repositioned and enlarged, and oftentimes adjacent
land can be acquired to expand older communities.
Retirement meccas such as
Arizona and Florida have an abundance of land and communities, and California
has large, well-located parks in coastal, wine, or desert regions. Because of a
quirk in California state law, there isn’t a well-defined marketplace for
buyers. A large percentage of purchases and sales take place without public
listing of the property. Specialized brokers, financial institutions, and
lawyers network within the industry to facilitate acquisitions.
Who Lives in Manufactured Housing
Compared to apartment
complexes, manufactured-home communities have an average annual occupancy
turnover rate of 5 percent versus 55 percent for apartment dwellers. Due to
steep relocation costs, manufactured homes are typically sold on site. The
homeowners tend to stay in place, with the same pride of ownership found in
single-family home neighborhoods.
For the right property and
investor, there are a variety of future options for these developments. Some
entrepreneurial investors over the past decade have undertaken subdivision of
their communities, offering the individual lots for purchase. Often these lots
are sold for more than 200 percent above their value as a rental lot.
Or, if desired, the land
can be sold to a developer for its highest and best use, with minimal
demolition expense. Depending on its location, it may potentially be suitable
for industrial, commercial, mixed-use, or multifamily housing.
Real estate financing is
available from certain lenders who recognize and value the predictable income
stream, with higher-end properties qualifying for more favorable terms.
Capitalization rates will vary based on quality and characteristics of specific
properties and in 2014 may likely range from 4 percent to 6 percent. Valuation
structures and regulatory issues will vary between states.
communities are somewhat of a hybrid in which residents own their homes and
lease the land beneath from the property owner. However, some community owners
rent both the homes and land to the tenants. There are a variety of business
models depending on long- and short-term investment goals. Many communities are
now marketing to specific demographic groups, such as young working families
that may be priced out of the stick-built market, or retirees who want the
amenities, security, and communal activities these affordable communities
Richard Close is a partner
with the real estate law firm Gilchrist & Rutter PC in Santa Monica, Calif.
Contact him at firstname.lastname@example.org.