April 20, 2007

Mobile Home Park Owner News 

Published by: Jim Carmichael, April 20, 2007

THE FUTURE OF MOBILE HOME PARKS 

The bulk of this article was written on the return flight home last Friday the 13th from the National Congress and Expo in Las Vegas. I wanted to get my thoughts down from the event so I could give you my fresh impressions and thoughts. By the way, if you own a community that is mostly 55 and older folks, this will have a smaller effect on you for a while. 

As I sit here on the plane homeward bound several thoughts come to mind, like four days in Vegas is my limit. But more importantly, where were you? Now I finally have some of the answers to the questions I have been posing here for the last couple of years. First I must compliment MHI on a well thought out and organized event. I was totally impressed and sorry that this was the first time I attended; I should have been coming for the last several years. 

The show is well attended, very focused and most of the heavy hitters in the industry are there, which for networking purposes is great. But as a percentage of the industry it was a small turn out. A couple of thousand people I am guessing. And that is not good. Unlike the Midwest Mfg Housing Show in Louisville in January, which is about manufacturers, suppliers and retailers, Vegas is about community owners and retailers with a small presence of manufacturers and suppliers. 

The first day of the event is all about community owners. The more I talked to other industry and asset experts some things became very clear. The national view and outlook for MHP’s and their owners doesn’t include you, the “mom & pop” or single asset owner. Even though you own 85% of the MHP’s, your lack of input and participation in the process had opened the window for some dramatic change and it is happening now. 

So what’s all the drama for? I attended over fifteen hour’s lectures and break out sessions this week and the entire theme, without exception is simply this: MHP owners and operators must become dealers if they want to increase and control their occupancy levels. Just like a street retailer with a couple of park models, sales people and service operations. Really the model is that of a residential developer when they are building a new subdivision. The good news is you control tenant and housing quality. The bad news is the asset totally changes. 

Most industry experts conclude that the days of the “mom & pop” are over. Why? Well, do you want to spend the time and money to start a dealership? You see, the street retailer IS NOT sending SW to your community (unless you have a cash buyer demanding it). Instead your community has to be an “in demand” place to live and to live there you have to buy there. The quality of the tenant will be great. US Bank is one of six national lenders left. Their chattel criteria are this; 630 beacon score, 5% down, 15 year (maybe 20) financing. I can tell you when I was selling mobile homes and managing a dealership we didn’t see that kind of credit very often. In North Carolina, I don’t think I ever seen it. If the customer goes to the street retailer with those qualifications, you will never see them. The dealer makes more money by putting them in a land home package and the deal is easier to get done now. Chattel lending IS NOT coming back in any form like we previously had. The new secondary market will come from the MHP/ dealer financing homes themselves and after some time for performance sell the portfolio themselves. Unfortunately, you have to have a large portfolio (>$5 million) to get the attention of those buyers. 

The reluctance of MHI and its members to be a more transparent, full disclosure industry is keeping the secondary market away. George Allen, Marty Lavin and other leading experts in the industry have been pointing out what needs to happen long before I started this newsletter, yet the MHI has rejected it. The new plan is yet another out of the “stick built” playbook; make your community like a residential developer’s. This means becoming a dealer and getting the associated licenses and certifications. 

How does this change the asset class? Follow this scenario, once you have a successful dealership at the community and vacancy is back to less than 5% you decide to sell. Instead of all of the individual investors we have now driving prices there will only be a few players who can take on the operations part of the asset now. The community will have a value and the business will have a value. But they are totally dependant on each other. Therefore a limited pool of buyers will dictate the market thereby driving prices down. Additionally the model of the asset will become similar to that of a hotel. That is another asset that the operations are tied directly to the asset itself with a small pool of investors. 

As my regular readers are aware I won’t go on about a problem without providing some solutions. Here is what I gathered after listening to and interviewing our industry experts: 

1. If you are operating a 55 and older park you do not see many of these issues and probably won’t for a while if ever. So keep it up. You can get top dollar now and for the next several years. 

2. If your community is 200 sites or larger (or a few close by to get to that size) and you want to take on a new challenge, get set up as a dealer, hire trained professional sales people and go for it. Centralizing a sales office to a group of parks in close proximity will work too. 

3. Sell while the investment market is large and aggressive and you are able to get top dollar. The investors are looking for large MHP or groups of smaller ones close by. 

4. Do nothing. This is NEVER recommended. Inaction is usually worse than making a bad choice. 

Of course I would be happy to provide you with a free market analysis including what’s next. I have heard many times “what would I do with the money? Or “What will I buy; I don’t want to pay the taxes?” I will include active examples of what you can reinvest in via a 1031 exchange with good to very good returns with very little risk. 

One last thing, if you are not a member of MHI or state association you are missing out. They do listen, but no one is speaking. Unless the MHP owners join in the process and decision making now there will be no stopping the path we are on.

WHAT”S NEW?

I just received this email from Ohio MHA 

This week OMHA had a meeting with the Ohio Housing Finance Agency to discuss the state financing programs available for affordable housing. The meeting went very well. Generally, modular homes can qualify for loans anytime. HUD homes can apply if permanently sited, titled as real estate, and meet FHA guidelines. OHFA also anticipates a Fannie Mae program to begin sometime this summer. This will be very similar to the Pilot Program MHI has referenced: which calls for architecturally compatible manufactured homes (more site built oriented complete home packages-ex: permanent foundation, garage, landscape, 4:12 roof pitch. 

OHFA is preparing an outline of the programs they have available for OMHA to distribute to members and is willing to set up a meeting with interested lenders who would like to become affiliated with OHFA. For specific information on the financing programs please visit their website: http://www.ohiohome.org/ If you are interested in meeting with OHFA please let us know. 

There were a few items that came up during the meeting that we'd like to get members feedback: 1) How/Are industry lenders going about insuring real estate loans? 

2) Would OMHA Lenders/Retailers be interested in homeowner education/counseling for their clients? 

3) Are there any programs our lenders currently offer that are similar to the FHA/F

Should you have further questions please call our office at 614-799-2340.

Thanks,

Andrea Reichman 

Ohio Manufactured Homes Association 

201 Bradenton Avenue, Suite 100 

Dublin, OH 43017-3540 

614.799.2340 (Phone)

If you have other information that should be in this newsletter feels free to send it to me

As always, I encourage feedback. If there is enough interest I will arrange a conference call to discuss this article further.