Selling MHCs to the People Who Call Them Home

Residents are likely to pay a premium to capture control of the properties that their units occupy.

Image courtesy of ROC USA

Most commercial real estate investments are sold to another investor and properties are managed in such a way to maximize the return for when the property eventually sells. For manufactured housing investors, however, a new avenue for exit has opened in the form of resident-owned communities.

Commercial property tenants do not usually provide an exit opportunity, but manufactured home park residents are a different breed of occupier. The average multifamily resident is under 40 years old and will stay at a multifamily property for just over 24 months. Conversely, the average manufactured home park resident is over 55 years old and will live at that park for an average of 14 years.

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Apartment dwellers see their living arrangement as transitional. They will be there for a few years until they get married, start a new job or experience some other life-changing event. Manufactured home park residents have usually decided that they want to stay there for longer periods of time or, in many cases, for the rest of their lives.

Park residents aren’t renters—they are homeowners with a ground lease. Therefore, residents have an emotional connection to the property and an interest in its future that is not seen in other residential assets.

Why residents want to own their parks

ROC USA is a nonprofit organization that works with over 270 resident-owned communities. According to Mike Bullard, the company’s communications and marketing manager, the parks ROC works with see an average annual rent increase of less than 1 percent. This is considerably less than the 3.5 percent average annual site rent increase, as reported by the Manufactured Housing Institute.

Manufactured home park residents have “lived for a long time with this nagging sort of concern in the back of their heads that someday they will come home and find there’s a notice in their mailbox that says the community is for sale or has sold and either the rent’s going to go up considerably or the new owner wants to redevelop this land, and you have 60, 90 or 120 days to get out and take your house with you,” Bullard told Multi-Housing News.

The prospect of being forced to move is far worse for manufactured home park residents than with multifamily residents as the cost of relocating a manufactured home starts at $5,000 and can be significantly higher in many cases.

Meadowstone Mobile Home Park in Hastings, Mich. Image via Goole Street View

According to Fannie Mae, the median household income for manufactured homeowners is about $35,000. Many of them cannot afford a large rent increase and certainly can’t afford to move their house. Buying their own park gives residents more control over the future of their own park. They democratically elect management, decide on park improvements, and can determine what their own rent will be.

ROC USA has been busy lately facilitating the resident purchases of four parks in June alone. Most recently, the Sans Souci Mobile Home Park located in Boulder, Colo., was purchased from Strive Communities for $3.3 million. Sans Souci comprises 66 lots and spans nearly 11 acres.

Strive also sold the River View Mobile Home Park in Durango, Colorado just five days earlier. River View holds 120 lots and sold for $14 million. In the past year, ROC USA has assisted in the purchase of 16 parks located throughout the U.S.

Benefits for park owners

Manufactured home park investor Frank Rolfe, co-owner of MHP Funds, the sixth-largest owner of mobile home parks nationwide, is a big believer in resident-owned communities.

“It’s one of the most natural things to have the residents of the park own the land that their homes sit on,” Rolfe told MHN.

Rolfe sold three of his properties to residents and was pleased with the results. He noted that selling a park to residents is not that different from selling to a traditional investor except that there are a few additional “wrinkles” to it.

First, it takes a lot more time traditionally—because, in order to sell to residents, the homeowners have to form an association, elect officers and have different forms of voting, followed by the regular due diligence items. Working through ROC USA, the sale of these parks only took around 60 days more than a traditional sale, and the residents came through with the highest bid.

A different kind of buyer 

In addition, a resident-owned community is more motivated to buy a particular park than an investor would be. Investors are chasing yield. They see the potential Internal Rate of Return (IRR) on an asset and try to structure a deal in such a way that gives them their desired return. If the deal doesn’t pencil, they will look for another opportunity.

Resident-owned communities aren’t interested in buying anything other than their park. They aren’t looking at future yield or past performance and have no interest in taking their capital elsewhere. This puts them in a strong position to offer bids that are higher than a savvy investor would be willing to offer. They are also able to finance at favorable rates from nonprofit organizations and take advantage of state government grants to help them raise capital.

Investors benefit, too

The existence of these resident-owned communities creates an opportunity for an investor immediately after purchasing a park. It is effectively an asset with a built-in exit strategy already occupying the property and contributing to NOI.

This is particularly valuable in the case of manufactured housing parks, as they are typically located outside of major investment markets, and the pool of investment capital is much smaller than that of other asset classes. At the same time, they are a long way from becoming a threat to traditional investors—there are over 43,000 manufactured home parks nationwide, with only a few hundred of these communities being resident-owned.

Andrew Kern is a senior research analyst at Yardi Matrix.

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