Answers to ‘Four Tough Questions’ & More….
Blog # 255 Copyright 2013 21 July 2013
Perspective. ‘Land lease lifestyle communities, a.k.a. manufactured home communities, & earlier, ‘mobile home parks’, are the real estate component of manufactured housing.’
Purpose of this blog. ‘To be a national Advocacy voice, statistical Research reporter, & communications Resource for LLLCommunities, of all sizes, throughout North America’
‘Four Tough Questions’ & Heavy Reader Response!
When It Rains It Pours – Imperfectly at Times….
‘Four Tough Questions’ & Heavy Reader Response!
Every once in a while, the gist of this weekly blog ‘hits a nerve, resulting in a plethora of response’. Well that happened last week, when blogs # 253 & 254, in a two day period, posed Four Tough Questions within the news story, ‘More Manufactured Housing Shipment Statistics’. Here are those Four Tough Questions, along with lightly edited, thought – provoking responses from manufactured housing executives from throughout the U.S. My favorite? “I find your questions and comments similar to my observations. Now, how do we get the (salaried & elected) executives of the HUD – Code manufactured housing industry to answer them?” Answer? Unlikely to happen…
1) ‘Why does the MHIndustry eschew (‘shun’) national brand promotion in lieu of stealth deal – making at the local housing market level? Possible answers: Maybe corporate self – protection, a woeful lack of macro vision regarding the industry at large, and or simple resistance to change.”
“There are many partial explanations, most of which are steeped in the tradition of a fragmented industry, dependent upon independent (street) MHRetailers and ‘company stores’. Now however, we have (three) dominant manufacturers (garnering 86 percent of national market share of factory – built housing), known as the ‘Big – 3Cs’, so time is ripe for dealing with the issue, but it remains a highly complex matter, with no simple or quick answers – especially mid – crisis, like now. BV *1
Another blog flogger (reader) writes: “We recently went back and reviewed our (state’s) image campaign activity, and was it ever discouraging. The excitement level was high, until we got to implementation, and then the ‘wheels fell off’, as participants discovered we didn’t have the money to buy coverage deep enough in all the targeted housing markets; and then the competitive juices drowned the project altogether.” RK
Here’s Newport Pacific’s image changing strategy for the next dozen or so years: “Rent new solar homes to upcoming Baby Boomers, with probable life expectancies of another 15 – 20 years, replacing our existing crappy pre-1976 era ‘trailers’, improving the desirability (of the lifestyle) and improving our image along the way.” SL. Amen to that!
“It appears advertising, with some firms, targets a defined demographic, unfortunately (?) perpetuating that pesky ‘trailer image’, rather than a broader cross section of the national market, e.g. ’Clayton Homes has rolled out a Good Call promotion, endorsed by stars of the reality TV show Duck Dynasty. The promotion features a sweepstakes that’ll give four winners, from four geographic regions of the country, opportunity to meet some of the Duck Dynasty cast on location in West Monroe, LA.’
2) ‘Why do HUD – Code housing manufacturers continue to perplex independent (street) MHRetailers and land lease lifestyle community home – buying customers, by routinely ‘mixing & remixing’ building product quality, standard features and unit pricing? Possible answers: Maybe to purposely breed confusion; and, lack of understanding, appreciation, even respect for other business models and segments of the MHIndustry.”
“It’s because the LLLCommunity market you cite, is a small part of a complex manufactured housing market, where every manufacturer is struggling for survival, and every aspect of the small remaining market has its’ own concerns. Development of special CSH Model homes was and is, a major recognition of one relatively small portion of the overall market that remains. Manufacturers find it difficult to cater to changing market requirements, especially in perilous times. The ‘community market’ is hardly new, and represents about as large a proportion of the new home market as in the past. In unit numbers, it’s very small today. Don’t expect too much in a hurry. What’s far from clear now, is when robust growth returns, will there be new MHCommunities to fill?” *2 BV
3) “When will someone finally and definitively ‘make the case’ for HUD – Code manufactured housing, and its’ sister business model, the LLLCommunity, as being this nation’s Perennial Affordable Housing Type & Lifestyle? Possible answers: Maybe the soon – to – be – released, ‘Contemporary Archetype of Truly Affordable Housing in the United States!’, as a lagniappe in the August issue of the Allen Letter professional journal, will be a first step in that direction *3; and, when HUD finally (Maybe too late already) recognizes and promotes manufactured housing to that end!”
Then there’s this contrarian, or perhaps ‘realist’ view. “One thing we could do is give up on the prideful claim to be the only form of unsubsidized housing. Where has that gotten us? (Nowhere). The developers building apartments with tax credits are the darling of city hall – not us.” Now that’s what some might call ‘harsh reality’; but should we simply give up and take our affordable football home with us and ‘play no more’ – or continue to rail away at the manifold barriers to affordable housing in general, manufactured housing and LLLCommunities in particular? RK
“I’m working on that very problem George. However, it is far from clear to me that LLLCommunities are the key to the road ahead. What is strikingly clear, however, is manufacturing has become, and remains, the nation’s most affordable way of building housing, and land availability for low cost housing remains the nation’s biggest housing development challenge. Despite the heavy burdens of expensive financing, and requiring more acreage (i.e. greater density), manufactured homes are roughly competitive with apartments, and generally preferred by dwellers. If governments and local community planners have their way, apartments will win the low cost housing market, as they have done worldwide. If ‘our’ product is to win, we’ll all have to pull together more than we are today.” BV
4) “Does the HUD – Code manufactured housing industry Really Want to See the Return of ‘easy access to chattel capital’, stimulating new home shipment volume, and filling vacant rental homesites in LLLCommunities, of all sizes, throughout the U.S.? OR, has the nearly five year shipment nadir (‘Lowest point’ in MHIndustry history!’) become an accepted and manageable status quo benchmark in the minds and operations of one or more fully (regulatory) compliant lenders who’ve cornered the severely constricted manufactured housing loan origination market?
Here’s what one of our peers has to say on this business – model changing trend: “There’s long been an appetite for ‘stupid money’ in the (manufactured housing) industry. For a long time, it was my opinion, the bulk of the industry thought easy money would return, but it might take longer this time than before. However, a combination of factors, but most notably banking regulators and regulations, have made that eventuality all but impossible. Can this industry survive as an all cash business? Most new home sales in our state are currently cash transactions; or circumstances where LLLCommunity owners and investors turn them into rentals. This is changing the business model in ways we‘ve not seen before. The traditional LLLCommunity model, where the property owner owns and rents homesites to homeowners is transitioning to: 1) community – owned home rentals, 2) investor – owned home rentals, and 3) low end new or aged homeowner – owned units and the resale thereof. And nowhere in this trifold mix are there moderate to high end homeowner – financed new homes, the very homes that drove our industry’s growth in the 1995 – 2000 period. So, the question might not be so much as to whether the industry wants the return of ‘easy money’ OR is satisfied with the 50,000 shipment status quo, but IF ‘easy money’ returned, would shipments actually increase – or has the model shifted, as described, and said structure is the New Reality for our industry? In my state, the Big Box = Big Bucks’ house is no longer HUD – Code, but modular in nature, with decent financing, based on favorable value appraisals and quality collateral, making them attractive to local lending institutions.”
Hey; it’s not too late for YOU to weigh – in with your considered opinion and answers to these Four Tough Questions. Again; to do so, simply phone the Official MHIndustry HOTLINE: (877) MFD-HSNG or 633-4764 – or as most folk do, email your input to me via email@example.com
1. Big 3Cs of HUD – Code manufactured housing: Clayton Homes, Inc., Cavco Industries, Inc., and Champion Home Builders, Inc.
2. Rejoinder: presently 250,000+/- vacant rental homesites to fill with new and or resale homes; asset class was last at 95%+ physical occupancy in 1998, now at 85%+/- nationwide – so plenty of such homesites available now, and in the near future, for new HUD – Code manufactured homes. GFA
3. To subscribe to the Allen Letter professional journal, phone the Official MHIndustry HOTLINE: (877) MFD-HSNG or 633-4764. The 24th annual ALLEN REPORT (a.k.a. ‘Who’s Who Among LLLCommunity Portfolio Owners/operators Throughout the U.S. & Canada!) is available FREE to subscribers; otherwise, $500.00 per copy.
When It Rains It Pours – Imperfectly at Times….
‘Two New Surveys in as Many Weeks’
Two weeks ago, it was the mislabeled ‘2012 Mobile Home Market Facts’; this week, a ‘Manufactured Housing Survey Summary’. The first, a corporate study updated every four years by Foremost Insurance Company; the latter, a first time effort by Colliers International Valuation & Advisory Services (Specifically, Bruce Nell, MAI® & Charles Schierbeck, II., MICP).
Why ‘mislabeled’? Frankly, having served homeowners’ insurance needs of the manufactured housing industry for decades, one would think such an established business would have long ago moved away from trade terminology officially scrapped by the industry’s regulator, and most of the firm’s peers, way back in the mid – 1970s. Let’s hope, in 2017, when the next study appears, it’ll be labeled as ‘2016 Manufactured Housing Market Facts’
Want copies of these seminal reports? In the first instance, free copies of the Foremost MHMarket Facts are available by contacting Joe Kaffenberger via (616) 956-2514. the MHHousing Survey Summary via Bruce.Nell@Colliers.com
I’ve already quoted many of the interesting and helpful statistics and trade trends identified in the Foremost report, in earlier postings of this blog, within the Allen Letter professional journal (That’s why you need to be a subscriber), and the Allen CONFIDENTIAL! business newsletter. So, just scroll back through the blog archives at this website (community-investor.com) to review them.
Now for a multi – part commentary of the Colliers’ MHHousing Survey Summary:
• TERMINMOLOGY. These guys know better than to use four different property – type labels: mobile home park(1), manufactured home community (1), manufactured housing community (7), and manufactured community (1). As this blog’s aficionados know, my preferred contemporary label for our unique type income – producing property is ‘land lease lifestyle community’, or LLLCommunity in short. But some, if not many folk active, in the realty asset class, aren’t as ready for that moniker, and opt for one or another of the aforementioned aberrations. The one most out of line however, is the rendering of ‘manufactured HOUSING community’. Know when and how this aberration first appeared? Well, back in the mid – 1990s, as the second REIT wave began (First REIT wave occurred in the 1980s; think UMH Properties, Inc.), one of the firms launching their IPO (Initial Public Offering of stock) apparently thought it’d be a strategic marketing coup, to convince their peers a trade term that aped (imitated) their firm’s name would (somehow) be a good idea for all. Not. But that’s when the practice started – despite the fact in 1994, J. Wiley & Sons published Development, Marketing & Operation of Manufactured Home Communities, a text replete with ‘agreed upon trade terms’ based on national terminology surveys via the (then) Manufactured Home Merchandiser magazine, with results confirmed by state MHAssociation execs. The preferred term? Manufactured HOME Community. And, to take the matter a step further; here’s the rationale for the LLLCommunity label. This property type no longer sites just pre – 1976 ‘mobile homes’ & post – 1976 manufactured homes, but modular homes (Think BayWood in DE, etc.); ‘park model RVs’ – throughout FL & other Sunbelt states; ‘RVs for a season’ (i.e. Transients splitting their residency between the Midwest & Rio Grande Valley in TX, etc.); and ‘stick – built homes constructed to imitate manufactured homes’ – in Florida after major hurricanes. One more reason to use HOME & not HOUSE: As an industry, we sell manufactured HOUSING to prospective homebuyers. Once they ‘buy’, the HOUSE becomes their HOME, often sited among other like (manufactured) HOMES. So, ‘Why would anyone want to sully the HOME in which our homeowner/site lessees live, by referring to the property where they live as a ‘manufactured HOUSING community’?’ Again, Not!
• A DISCONNECT? Thinking the MHHousing Survey is national in scope, see if you consider the following sentences, quoted from an introductory letter, track logically. “Manufactured Housing Communities are an area of real estate that lacks comprehensive market data that research institution (sic) supply for other segments of the real estate industry. There are some providers of general data in the industry, but Wisconsin is an area that was largely ignored by these firms.” NOTE: (sic), by the way = ‘quoted exactly as written even though incorrect.’ So, is this a national or Wisconsin survey or both? It’s both, but with unclear delineations, here’s another disconnect. The authors state “The manufactured housing industry does not have a standard rating classification.” But it does! The ABClassification System for the Manufactured Home Community Real Estate Asset Class’ was copyrighted in 1998, revised but not endorsed by MHI’s National Communities Council in 2001; and further updated in October 2003 – ten years ago! The ABClassification System rates LLLCommunities per A, B, C & D grade quality, based on a quantified score (maximum of 100percentage points), drawn from the seven evaluation areas of Appearance, Layout, Individual Homesites, Individual Homes, Infrastructure, Amenities, and Community Management. FREE copies of the ABClassification System score sheet are available from PMN Publishing. To order, see end note (above) # 3.
• ERRORS, or matters in need of CLARIFICATION &/or DOCUMENTATION. Early on in this survey, relative to availability and cost of consumer financing, this statement is made: “One third of all manufactured home purchases are financed through credit.” Credit meaning debt financing or something else? Does that mean two thirds or purchases are cash transactions? And ‘all’ = new and resale transactions taken together, or just the former? And, most important; what’s the empirical source of this statistic? There are no footnotes, to speak of, in this survey. Somewhat apropos to this point, is a recent communiqué (7/16/2013) from the Manufactured Housing Association for Regulatory Reform, telling us: “…per U.S. Census Bureau statistics in 2011, 76% of all manufactured hosing placements are titled as chattel.”, suggesting a much higher credit (debt?) presence than just 33%. Then, later in the report, there’re these unclear statements: “Smaller communities operated with only a resident manager (only two of the surveyed communities which indicated this structure, had more than 76 homesites). One employee was also typical of the smaller communities. Only three smaller communities had more than one employee.” Simply: What homesite number characterizes a ‘small community’; 76 or 100 or some other number? What ‘structure’? And are these fulltime or part time employees?
• CONFIRMATION of an ASSET CLASS Rule of Thumb. While the specific nature of ‘high quality’, ‘moderate quality’, and ‘fair to average quality’ grades, among LLLCommunities, was not specifically defined in this survey, the bar graph numbers for each, confirmed the asset class’ widely used Rule of Thumb – ‘subject to local housing market research and adjustment’, as being: ‘A’ or ‘High Quality’ grade being 8%+/-; ‘B’ or ‘Moderate Quality’ grade being 9%=/-; ‘C’ or ‘Fair to Average Quality’ grade being 10%+/-; and, ‘D’ grade (not covered in this survey) being 11% or worse.
Frankly, this survey was a pretty good ‘first effort’ by Mssrs. Neal and Schierbeck. We have no idea how often they plan to research and update, if ever, this Manufactured Housing Survey Summary, but they’re certainly addressing a longstanding need, for reliable and current statistics regarding this 50,000+/- property real estate asset class, and its’ 500+/- known property portfolio owners/operators domiciled in the U.S. and Canada.
Some may have already noticed. A recent updating of the LLLCommunity Standard Chart of Operating Accounts and related Operating Expense Ratios, distributed as a lagniappe to the Allen Letter professional journal, contained not only the ‘standards’ first published in the early 1990s, but new OERs recently researched and published by the ARA Manufactured Housing Community Group in Austin, TX and Denver, CO. Other national real estate brokerage firms, with a specialty department, marketing LLLCommunities, have been invited to share their like data and have it considered for addition to the next updating of said Standard Chart of Operating Accounts & OER Percentages chart. For a FREE copy of this newly revised document, contact PMN Publishing per end note # 3. Better yet; every LLLCommunity owner/operator should have a copy of the ‘Book of Formulae, Rules of Thumb, & Helpful Measures’ (for this income – producing property type) on their desk or in their corporate library. This 2012 book available for only $19.95 from PMN Publishing.
George Allen, CPM & MHM
Consultant to the Factory – built Housing Industry,
The Land Lease Lifestyle Community Asset Class &
Affordable Housing Purists & Enthusiasts Nationwide
Box # 47024, Indpls, IN. 46247 (317) 346-7156