MHC Investment Surge Prompts Brookfield’s $2B Refi

Motivated by the sector’s increasingly robust returns, the firm secured the loan for more than 100 properties.
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An affiliate of Brookfield Asset Management has secured a $2.2 billion refinancing on its portfolio of 124 U.S. manufactured housing and RV communities extending across 13 states.

Citi Real Estate Funding, DBR Investments, Morgan Stanley and Wells Fargo furnished the debt, featuring a two-year term with a trio of one-year extension options. 

The lenders intend to securitize the loan as CMBS debt sold to investors. Proceeds will refinance $1.07 billion of existing debt and pay off $248.8 million of preferred equity, as well as paying prepayment penalties of $92.7 million. Approximately $760.4 million of cash will be returned to Brookfield as part of the transaction.

Pine Lakes Ranch and Redwood Estates represent the most significant assets in the portfolio of 29,000 mobile home sites and 771 RV sites. The remaining communities within the portfolio’s 10 largest properties are all situated in Colorado, Texas or Florida. Portfolio properties range in size from 16 to 768 pads, and in age from approximately 19 to almost 90 years old, with 43 the average age.

Growing demand

Investment in the manufactured housing community (MHC) and RV site sector surged 32 percent in just 12 months, going from $3.2 billion in 2019 to $4.2 billion last year.

In recent years, robust returns and limited supply have spurred Brookfield, Blackstone Group, Equities Lifestyle Properties and others to pump investments into the sector. Several days ago, Capital Square 1031 paid $61 million for an MHC in Lakeland, Fla.

Growing demand, minimal capital expenditure mandates and structural barriers to new supply have all buttressed MHC fundamentals. Compared with multifamily and single-family homes, MHCs and RV resorts can deliver a more affordable housing alternative. Residents of MHCs typically own their own homes and pay ground rent to landlords, in what is essentially a land-lease business.

Relative to other asset types, MHCs’ positive sector performance can be tied to several contributing factors. Among the most significant: Those 50 and older account for a disproportionate share of the MHC market, and the U.S. population is aging.

In addition, the last decade has witnessed minimal supply growth. The size, amenities and quality offered in manufactured homes have grown. Meantime, apartment and single-family prices have risen above the budgets of some. As well, manufactured housing had among the lowest cumulative loss rates (2.6 percent), and one of the lowest cumulative default rates (8.4 percent) through 2018.

A typical manufactured home measures 500 square feet, but can be as large as four times that size. The conventional 500-square-foot home offers two bedrooms, one bath, an eat-in kitchen and a living room.

Age-restricted communities typically cater to those 55 and older and offer year-round as well as seasonal vacation homes. All-age communities target families and individuals seeking access to affordable housing. Both all-age and age-restricted communities offer annual pad leases.

Portfolio features

Specifically, the portfolio features 116 all-ages MHCs totaling 6,112 pads and 17 RV sites in 13 states, and eight age-restricted communities totaling 1,410 pads and 754 RV sites in three states.

Properties tend to offer an amenity mix that includes but is not limited to pools, playgrounds, clubhouses, covered mailboxes and fitness centers. Staffing usually includes an onsite community manager, one or more maintenance people and, depending on occupancy and sales efforts, one or more sales coordinators.

As of last month, the portfolio featured occupancy of more than 25,600 distinct residents. 

It benefited from robust retention, given the average person occupied the same pad for approximately 15 years. The stable revenue streams resulting from this long-term occupancy rival those of the multifamily sector. But they come with lower recurring maintenance and capital expenditure requirements.

Average resident home ownership across the portfolio stood at approximately 90 percent in March, having benefited from the sponsor’s effort to trim the number of physical home rentals.

To motivate sales of homes to current renters, the sponsor frequently conducts a promotion offering one month of free rent upon purchase, or a credit of one or two months of rent to home buyers who previously rented the homes.

Among states with the highest concentration of communities, Colorado has a total of 22 properties, which are located in two MSAs and comprise 34.7 percent of the portfolio.

Florida also enjoys a high portfolio representation, with 17 properties comprising 18.4 percent of the portfolio. Seven properties are situated in the Orlando MSA, four in the Jacksonville MSA and two in the Fort Lauderdale MSA. Three of the remaining properties are located in secondary markets and one in a tertiary market.

Utah has the third highest concentration of properties, with 17 communities making up 15.9 percent of the portfolio. All communities are in the Salt Lake City MSA.