Helping Residents Buy Their Manufactured Housing Communities

6 min read

Lenders versed in these transactions are helping maintain the affordability of this multifamily segement, according to Owen Breheny of Lument.

Homes at Sun Villa in Reno, NV.

Manufactured housing is one of the largest sources of naturally occurring affordable housing in America.  Industry sources estimate that nearly 20 million Americans in households earning less than $28,000 annually live in a manufactured home.

As in other sectors of the housing market, spiking costs threaten this critical source of shelter for lower- income American households. Pad rents are on the rise—a benefit for investors who see rent growth and mobile home park occupancy rates as attractive. But pad renters are increasingly turning these factors into an advantage by embarking on the process of converting their communities to resident owned—creating opportunity not only for them but also for well-equipped lenders that are versed in the best financing options.


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Most residents of manufactured housing communities (MHCs) own the home in which they live but not the land on which it is affixed, commonly known as a “pad.” Instead, they lease the pad at a monthly rent and maintenance fee from a privately-owned and -managed MHC.

Historically, the growth of pad rents was moderate and stable. According to industry organization ROC USA, pad rents grew at a 3.9 percent average annual rate over the 30 years ending in 2019, mirroring apartment rent trends; however, the cost of pad rents, like all types of housing in America, has increased significantly in the past year, in many cases by 10 percent to 25 percent. Strong demand for space, limited or declining pad supply and increased concentration of MHC ownership in the hands of total return oriented institutional investors have contributed to this phenomenon.

Owners of manufactured homes are especially vulnerable to rent hikes. Most earn less than the area median income and have limited savings, and a substantial portion live on fixed incomes from social security or modest pensions. Moreover, unlike apartment tenants manufactured homeowners cannot easily relocate to a more affordable community when rents rise. While manufactured homes are technically mobile, the cost of moving a unit typically exceeds $10,000, and many older units may not survive the rigors of being lifted and transported.

Consequently, owners who are priced out of a community are relegated to selling their units, often at a loss, renting them to third parties or abandoning them to the community owner along with any equity that may have accrued. None of these options may generate enough cash proceeds to convey them to another home, leading many former owners to slip into homelessness.

Resident-Owned Communities

A growing number of pad renters are embracing joint resident ownership of MHCs as a solution to the affordability crisis. Residents may purchase their community from its private owner, operate it as a corporation or cooperative and govern themselves through an elected board of directors. While residents continue to own their units and pay monthly rent and fees, the cooperative holds legal title to the community real estate and improvements, and each resident receives a proportional interest in the ownership vehicle in the form of a security.

The benefits of an ROC are several. Foremost among these are the ability to set rents according to the needs of members and to obviate the risk that residents will be displaced should the owner elect to sell the property or convert the land to another use. In addition, the ROC can allocate surplus income to necessary capital improvements, such as streets, utilities and landscaping, and establish rules and bylaws that satisfy the interests of the homeowners rather than those of a private owner who may have different priorities.

Establishing a Resident-Owned Community

Converting a private MHC to a ROC is a challenging undertaking. The owner must be willing to sell the property, and the residents as a group must be prepared to take on the financial and time burdens associated with arranging the acquisition and maintaining the asset.

Purchase money may be raised in one of two ways. The most common method is to effect a “limited equity” transaction with the assistance of a non-profit organization, like ROC USA, wherein residents contribute a small amount of equity and finance most of the purchase with subsidies and subordinated debt arranged by the capital partner. By contrast, in an “equity” transaction, residents make substantial cash contributions, and the cooperative obtains a low-LTV conventional mortgage to complete the capital stack. In an equity acquisition, shareholders benefit from any value appreciation that the ROC shares may accrue over time, an option unavailable to owners of limited equity shares.

Financing the Purchase

Financing for “equity” transactions in some cases may be obtained from a commercial bank as well as non-bank lenders like CMBS conduits and government sponsored enterprises. Conduit and GSE loans may be preferable because they are non-recourse under nearly all circumstances, whereas banks typically require some variety of personal guarantee. Groups pursuing a conversion to an ROC should engage an experienced mortgage broker to assist with identifying possible funding sources and completing a loan application.

ROC Financial Performance

The financial performance of MHC assets in the United States over the past decade has been strong, providing robust credit support for secured debt. Park occupancy averaged nearly 96 percent during the first quarter 2022, according to CoStar, reflecting an increase of 30 basis points (0.30 percent) over four quarters. At the same time, pad rents advanced at the fastest annual pace in the last 10 years (3.4 percent), up from a 2.6 percent increase during the previous four-quarter period.

Performance in states, like California and Florida, where the price of a single-family home is beyond the reach of most households, has been moderately stronger than average. In California, average pad occupancy consistently exceeded 97.5 percent since mid-2021, and never fell below 94 percent over the last 10 years. State rents increased nearly 4 percent over the last four quarters, the fastest rate recorded in four years.  Since 2012, rents have grown consistently every year at rates between 1 percent and 4 percent.

Florida occupancy was nearly as high on 97.1 percent, an increase of 20 basis points year-on-year, and state occupancy averaged at least 94 percent for the past six years. State pad rents grew nearly 3 percent since 2021, the largest annual increase in more than ten years, a period in which rent growth trended within a 1 percent to 3 percent range.

Consistent moderate rent growth and high stable occupancy translated to robust credit performance. None of the 123 CMBS loans secured by California and Florida mobile home parks was delinquent over the past year, in no small measure due to significant improvement in debt service coverage since origination. According to servicing data reported by Trepp, the portfolio value weighted average debt service coverage ratio popped from 1.65 times to 2.26 times after average seasoning of only 41 months.

The stability of MHC cash flows has attracted broad investor interest, often to the chagrin of pad renters. Acquisition cap rates for U.S. parks overall averaged about 7.8 percent in 2019 and declined to approximately 7 percent last year. Rates for higher quality assets, particularly located in states like California and Florida, were lower, falling in the mid-3 percent to mid-4 percent range.

The manufactured housing option is growing in popularity among American households seeking an affordable avenue to homeownership. Unfortunately, pad rent growth is accelerating along with housing rents generally. MHC residents can protect themselves from high pad rents by acquiring their community and converting it to a resident-owned cooperative.

Owen Breheny is managing director with the small loan production group at Lument.

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