Financing Focus

Mobile Investments

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.

Comparing Properties

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.

In 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 paved streets.

Financing Considerations

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 debt financing.

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 locations.

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.

Todd A. Kuhlmann, CCIM

Todd A. Kuhlmann, CCIM, is President/ Founder of TheAnalyst PRO, a CRE Tech, Inc. company in Austin, Tex. Contact him at todd@TheAnalystPRO.com.

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