Seizing Value-Add Opportunities in Manufactured Housing
As the asset class grows in popularity, Havenpark Communities’ Robbie Pratt discusses improvement strategies for its aging stock.
Interest in the manufactured housing sector has exploded since the onset of the health crisis, with the lack of sufficient affordable housing options pushing MHCs into the limelight as a viable alternative. But the decades-long stigma surrounding this asset type has prevented new properties from being developed, so the appeal of value-add properties is skyrocketing.
Manufactured housing owner and operator Havenpark Communities has been actively investing in improvements across its portfolio. Last year alone, the company spent $24 million on infrastructure, landscaping and amenities upgrades at 80 of its properties. For 2022, the company set aside an additional $35 million to continue revitalizing and upgrading its portfolio.
Robbie Pratt, CEO & co-founder of Havenpark Communities, revealed details about these improvement plans and weighed in on challenges across the industry.
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What are the most important changes you’ve seen in the manufactured housing industry since the onset of the health crisis?
Pratt: As an owner and operator of manufactured housing communities, I’ve observed two very significant trends in the industry.
First, demand for housing that is affordable, safe and modern is incredibly high. Demand for our product type was high before the pandemic, but the health crisis accelerated that demand, especially as people in apartments and shared living spaces sought more private space. People who had never considered manufactured housing an option before—often imagining the old trailer and mobile home stereotypes of the past—started giving us a second look and fell in love with everything today’s manufactured homes have to offer.
The second change is a result of the pandemic and the financial strains that many Americans experienced. Like several other operators, we worked very hard across our communities to help our residents apply for rental assistance. We encouraged everyone who was eligible for emergency assistance to get it so that they wouldn’t be confronted with one massive bill as the moratoriums lifted. As a result of companies generally taking a proactive approach in helping their residents, the industry ultimately saw far fewer evictions than analysts were projecting.
What exactly do you intend to upgrade at your properties this year? What do you expect the biggest hurdles to be?
Pratt: One of the challenges with our product type is the lack of new development. As a result, most of the existing MHCs being operated today were built between 1960 and 2000. All this infrastructure, both visible and subterraneous, has a limited useful life and needs to be upgraded and completely replaced in many cases. Additionally, certain amenities fall out of favor over time, along with original branding that goes out of style and needs to be upgraded.
This year we will be replacing and upgrading utility infrastructure; resurfacing roads; replacing aged concrete sidewalks and curbing; renovating clubhouses; adding new amenities such as sports courts, pickleball courts and dog parks; and adding more cosmetic curb appeal projects such as adding landscaping, new interior signage and new entryway signage.
The biggest challenge in many of our communities is ensuring we have contractors lined up to complete these projects—especially in our cold-weather communities where the season to complete capital projects is shorter and there is still a backlog of work that has carried over from COVID-19 with most contractors.
Which upgrades in value-add communities do you consider to be the most important for residents?
Pratt: While the infrastructure is tremendously important, oftentimes those things go unnoticed by residents. So, anything that is part of the daily experience of the resident and that boosts curbside appeal tend to go a long way with them.
Have supply chain disruptions or rising inflation impacted your value-add plan so far?
Pratt: Like most other operators, we have had to moderate our infill rates due to home production supply shortages. We’re seeing some early signs that this may be alleviating in some areas as we get into the spring months.
Are there any upgrades that offer superior ROI?
Pratt: It’s hard to pick a single upgrade. Our approach to capital improvements is comprehensive and projects tend to build on one another. It’s going to be hard to get credit for a new dog park from residents if you have poor roads and neglected trees in your community. As a result, MHC community revitalization is a multiyear process that adds value to both residents and community operators over a longer-term horizon.
You previously mentioned that the industry is facing a critical lack of new supply. What is restraining new development of manufactured housing communities? Is it developers’ lack of interest in this asset type? Is it legislation or zoning?
Pratt: It’s certainly not due to a lack of interest. Zoning and NIMBYism continue to be an issue, but obtaining full entitlements is also an extremely long cycle and has discouraged many developers in recent years. We have found expansions of existing communities to be significantly less costly and time intensive. We currently have two expansion projects underway and plan on breaking ground on another four later this year.
How do you anticipate the manufactured housing sector to perform in 2022? What are your longer-term expectations?
Pratt: Occupancy will continue to tighten—it’s already nearing or at capacity in most major markets and secondary markets and not far behind in several tertiary markets. As interest in the space continues to break records and conventional entry-level homes continue to trade at record prices, development will gain further momentum in our space.
However, there is a multi-year lag to completion on those projects. In the meantime, operators will increasingly look to expansions to bring new stock online. That said, I expect demand for quality, attainable housing to continue outstripping supply for the foreseeable future.