Analyzing lender criteria speeds up niche product financing.
Investor demand for multifamily properties has driven up prices and
lowered returns, causing many multifamily investors to seek niche
product such as mobile home parks as an attractively priced alternative
to traditional apartment buildings. These less-familiar properties can
offer similar returns, yet obtaining financing requires understanding
how these properties differ.
Mobile home parks have some fundamental multifamily characteristics
that allow lenders to view the credit risk as comparable. For instance,
mobile home parks are multitenant properties similar to apartments, and
many lenders view them favorably in terms of reducing economic vacancy
and risk. Though absorption rates may be lower in mobile home parks
than in apartments, the resident turnover rates generally are lower.
addition, lenders use a quality rating system for mobile home parks
similar to the system used for apartments. Mobile home parks are given
from one to five stars based on criteria such as location, percent of
double-wide versus single-wide units, and the presence of paved
streets, curbs and gutters, skirting around the units, and amenities.
Five-star mobile home parks can feature pools, clubhouses, and tennis
courts and often are in prime locations such as coastal retirement
areas. Lower-end properties generally are located in secondary and
tertiary markets, have few to no double-wide mobile units, and lack
Competitive debt financing is available for mobile home parks, with
loan-to-value ratios and interest rates comparable to those offered for
apartments. Some lenders will finance up to 90 percent LTV for these
investments, opening the door to new investors looking for higher
returns. In addition, higher-end properties are perceived to have less
risk, allowing them to qualify for lower interest rates. Investors
should review these factors when considering mobile home parks as
investments as they can directly affect the availability and cost of
First, lenders typically will not underwrite income
from mobile or manufactured-housing units that are owned by the park
rather than individual residents or third-party investors. In addition,
lenders will not use the mobile homes' value as part of their
collateral. Investors should separate the value of the land, pads, and
amenities from that of park-owned units.
Second, some lenders view
park-owned homes as additional risk. In lenders' eyes, renters have
less pride of ownership, and maintenance, turnover rates, and tenant
creditworthiness also may be concerns. Many lenders limit the number of
park-owned homes or do not allow them at all.
Third, mobile home parks
located in rural areas may be difficult to value due to a lack of
comparables. Be sure to ask the lender if it finances projects in rural
Lastly, many parks rely on wells and septic systems because
they do not have access to public utilities. These factors can add risk
for investors as well as for lenders. Ask the lender if it finances
properties with wells or septic systems.
In the current market, many
investors are capitalizing on the similarities between mobile home
parks and traditional multifamily investments. Yet it is important for
commercial real estate pros to realize that mobile home parks are not
synonymous with multifamily properties in lenders' eyes. When seeking
financing for such investments, exercise the same caution and thorough
due diligence as is necessary for any multifamily investment.