Why Infrastructure Matters for Manufactured Housing Communities
- Aug 17, 2021
Manufactured housing has experienced significant growth since the onset of the pandemic, emerging as a viable solution for the ever-growing need for affordable housing. While manufactured home communities seem to only occupy fringe portions of the residential sector, some 20 million people live in such a home, according to the 2013 U.S. Census.
Over the past few quarters, the combination of stable occupancy rate and severe lack of new supply has caught the attention of investors, both small and large, with the influx of capital targeting mainly value-add properties previously owned and managed as mom-and-pop operations.
While the low acquisition costs might be appealing, the new owners should keep in mind that most of these properties are outdated and in dire need of renovations, especially when it comes to community infrastructure elements. “The more capital-intensive infrastructure items tend to be the most neglected ones,” Luke DeGrossi, principal at Pioneer, told Multi-Housing News.
Road to improvement
When talking about community infrastructure within manufactured housing properties, the first pain point that comes to mind is roads, which tend to be the most neglected, mainly because of high maintenance costs.
Road improvement is one of the first aspects investors should tackle after purchasing a property, especially if the seller was a long-term, private owner—and most roads require substantial investments. There is a consensus among manufactured housing operators that roads are the costliest element of infrastructure.
“In ninety percent of our properties, we upgrade or pave the roads due to potholes, alligatoring or because the roads were unpaved at the time of purchase,” said Matthew Davies, CEO at Harmony Communities.
A good example of after-purchase renovations is Holiday Hills, an 85-site community in Lincoln Beach, Ore., located in an area that gets 300 days of rain per year. Harmony Communities invested in paving the loose rock roads at Holiday Hills and installed driveway pads for all the residents. “In one of our newer parks, we’re addressing the roads first and the homes second,” Davies said. “It would be difficult to sell new homes with potholed, alligatored roads.”
Manufactured housing communities are usually located in smaller cities or the outskirts of metros. While this might have been an issue before the pandemic, the rise of the work-from-home model and the growing need for affordable housing transformed this disadvantage into a selling point for people looking for inexpensive, more spacious housing alternatives that also offer outdoor space.
Furthermore, even though internet access was deemed a human right by the United Nations Human Rights Council in 2016, the lack of high-speed internet is a nationwide issue, especially in rural areas. Most manufactured home communities still rely on copper cable networks instead of newer fiber optics technology, which provides faster and better-quality internet, TV services and VOIP services.
Communities that are aimed at over 55 residents or blue-collar workers might not see remote work as an incentive for upgrading the internet infrastructure of the community, but the pandemic has proven just how important staying connected is. As travel bans were put into place, internet access became vital for residents to see and talk to their loved ones. And as the health crisis deepened, most essential activities, from education to social services, moved online.
Happy residents, happy investors
In most cases, changes in ownership make residents weary—especially about rising rents—but also appreciative of old issues finally being addressed. Newly paved roads have a huge esthetic impact, but they also prevent car damage due to potholes and debris.
“Road repaving and brick paver driveways tend to yield the highest ROI”, Jorge Figueiredo, vice president at Capital Square 1031, told MHN. “Proper replacement of roads with fresh asphalt over a solid base foundation can last upwards of 20 years, but requires core sampling and engineering study of the foundation under the road.”
Upgrading older amenities is a cheaper—and faster—way of achieving almost immediate results at an outdated manufactured housing community. From shuffleboard, pickleball and bocce ball courts to pools and shared green spaces, updating or changing these elements can considerably improve the appeal of the asset, helping it upgrade a star or two. Other sought-after additions are common-area amenities such as a dog park, a spa or a clubhouse.
READ ALSO: PGIM Arranges $178M Refi for MHC Portfolio
One of the biggest misconceptions surrounding this asset type is that they are of poor quality. This might be the case with older constructions, but all assets constructed after 1976 had to adhere to HUD’s strict Manufactured Home Construction and Safety Standards code. Today’s manufactured home is built in modern factories, with less room for structural issues. Because they are transported to the site, the homes are more flexible so as to withstand the transportation.
Extreme weather events are becoming more frequent and more dangerous—and most manufactured housing communities are located in states with higher chances of extreme events, such as California and Florida, making safety a top priority for those properties’ owners.
“Since Hurricane Andrew hit Florida in August 1992, the building codes for manufactured homes in the state have changed dramatically,” Figueiredo pointed out. In addition, in recent years, galvanized metal roofs and impact glass have both been a popular feature in higher-end manufactured housing, which provides even more storm and high wind protection up to 160 MPH and greater in some designs. “Homes are also installed at elevations that meet FEMA’s required minimum elevation to avoid losses due to flood,” Figueiredo added.
These building codes make the homes safer, but the surrounding area should be maintained as well. Most commonly this calls for routine tree removal and branch trimming to prevent fire from spreading, as well as installing backup generators in case the power with the well and sewer lift stations goes down.
The idea that manufactured housing communities are unsafe or target low-income people is vastly exaggerated, but some properties do experience issues with infrastructure maintenance, which may lead to safety hazards for both residents and the surrounding area.
Regulatory involvement varies from state to state, but there is a relatively positive sentiment among property operators that some governmental involvement should exist in order to hold neglective owners accountable. Local code enforcement should maintain a healthy, frequent and open line of communication to recommend preventative maintenance strategies to avoid bigger problems along the way.
The California Housing and Community Development, which aims to help provide stable and safe affordable homes, is a good example of a valuable partner, according to Davies.
Apart from enforcing best practices, authorities should also consider providing incentives. According to Figueiredo, “incentives could prove beneficial is to reduce the cost and red tape for older communities to convert from private to municipal water and sewer and abate their old systems.” In most localities, the expense and bureaucracy are prohibitive, Figueiredo noted, despite the fact that owners and municipalities benefit from “all residential including MHC” public utility services.