Best Kept Secrets…Calm Before the Storm (&) Here Comes Preemption Again!
2019; Copyright 2019; www.educatemhc.com
Perspective. ‘Land lease communities, previously manufactured home communities, and earlier, ‘mobile home parks’, comprise the real estate component of manufactured housing.’
This blog is sole online national advocate, official ombudsman, asset class historian, research reporter, PM education resource & communication media for all land lease communities!
To input this blog &/or affiliate with EducateMHC, telephone Official MHindustry HOTLINE: (877) MFD-HSNG or 633-4764. Also email: email@example.com & visit www.educatemhc.com
Motto: ‘U Support US & WE Serve U! Goal: promote HUD-Code manufactured housing & land lease communities as U.S. source of affordable attainable housing! Next MHM class @ 9/11/19
INTRODUCTION: Consider reading this week’s blog posting in reverse order, i.e. Part III, then II, and finally, # I. Why? Because Part III talks of important ‘breaking affordable housing news’ on the national level! Part II is your ‘heads up’ WARNING of MH political and leadership maneuverings in Washington, DC. Part I is important in its’ own right: Trade secrets ready for Change, Embrace, & Practice! Next week? Have already started it, describing the Housing Finance Reform Plan, relative to GSEs, released 5 September 2019.
Best Kept Secrets of Manufactured Housing
As one frequently called upon to introduce individuals and firms to the manufactured housing industry and its’ realty segment, land lease communities, there are perennial anomalies (‘something abnormal or irregular’) ever- clouding our otherwise good affordable housing presence! These are two trade secrets that besmirch us, and two underutilized tools of the trade.
1. Secret sin. Manufactured housing industry reports monthly shipments of new HUD-Code homes as two different totals. For example, last week MHI reported 7,131 new homes shipped during July, while MHARR, HUD, NAMHCO & EducateMHC each reported 7,135 units. The source of this data, the Institute for Building Technology & Safety (‘IBTS’), reported to all subscribers, 7,135 new HUD-Code homes had been shipped during July. So, how the difference? MHI takes IBTS’ official tally of 7,135 units, and subtracts 9 Destination Pending (‘DP’) units from it, then adds back 5 DP units deducted from IBTS’ June tally. Did you follow that? Meanwhile, MHARR, HUD, NAMHCO & EducateMHC make no adjustments to IBTS published data. And the secret sin continues. WHY?
2. Secret sin. Manufactured housing industry, in my opinion and in many instances, routinely sets home-buying customers up for potential failure (loan default)! The most widely used of six measures of affordable housing, the Housing Expense Factor (‘HEF’), suggests no more than 30 percent of one’s annual gross income (‘AGI’) be used to pay for total housing costs. With a home sited on a scattered building site conveyed fee simple, this means 30% HEF should include PITI (loan principal, interest, taxes, insurance) and household (utility) expenses. With a home sited in a land lease community the 30% HEF should include PITI, household expenses, and homesite rent. But that’s NOT the way it often works in manufactured housing circles. Rather, the 30% HEF, in both instances, includes PITI, and in the case of the land lease community, site rent. However, household expenses are rarely included! This means a prospective homebuyer, and homeowner/site lessee, can afford to ‘buy more house’ with the 30% HEF allowance, taking on more risk, as household expenses must to be paid ‘in addition to’ the 30% HEF set aside for PITI (& site rent). Consequence? Homeowner winds up paying between 30 & 40% or more HEF for the life of the home loan. So, the secret sin continues. WHY? In this instance, borrower & lender reasons are easy to see….
3. Not a secret sin, but secret nonetheless. How many of you, reading these lines, have heard a ‘State of the Manufactured Housing Industry’ presentation? Most of us have. But how many of you know there’s a more comprehensive alternative ‘State of the MHIndustry’ presentation that includes statistics and trends characteristic of 50,000 land lease communities spread across this country? The ‘secret’ is well enough known, for this ‘more comprehensive lecture’ to be shared annually at the SECO Conference in Atlanta, sometimes at the annual Networking Roundtable, and almost monthly at one or another state MH association gathering. But never has sit been featured at any MHI or MHARR-hosted national event! WHY? Guess you’ll have to ask them. My guess is, they’re manufacturer-dominated organizations, and land lease communities are little more than a tolerated adjunct.
4. New Rule of 72. This unique mathematical formula has been around for awhile, but is still new – a secret? – to many. What is it? Well, first, understand the original Rule of 72. ‘How long will it take to double one’s income at a set ROI (return on investment)’? E.g. ’72 divided by, say, 20% (or .2) ROI = 3.6 years’. Now, the New Rule of 72. ‘How to estimate the capitalized income value of an ‘average’ land lease community, at 100% and 80% occupancy levels?’ E.g. ’72 X 200 occupied sites X $200/month site rent = $2,880,000.’ & ’72 X 160 occupied sites X $200/month site rent = $2,304,000. These are identical values obtained when using the IRV investment formula, where V = I divided by R or Value = NOI divided by cap rate, e.g. 200 sites X $200 X 12 months X .6 (reciprocal value of 40% industry average Operating Expense Ratio) divided by .1 (10% cap rate for an ‘average’ LLCommunity) = $2,880,000. A useful tool, but only for ‘average’ land lease communities, i.e. using 10 percent income capitalization or ‘cap’ rate.
Know what? There are even more ‘secrets’ not described here. Perhaps in a future blog posting.
A Calm Before The Storm, or Worse?
In the words of Bob Dylan, “The times they are a-changin.” During 2017 and 2018, the Manufactured Housing Association for Regulatory Reform (‘MHARR’) encouraged anyone who’d listen, or read their press releases, to form a new national advocacy entity to represent ALL non-manufacturing segments of the manufactured housing industry – even though Manufactured Housing Institute (‘MHI’) claimed to be doing so at the time. Well, by year end 2018, the National Association of Manufactured Housing Community Owners (‘NAMHCO’), was formed in Arizona, with tacit support from Nevada and encouragement from many property owners around the U.S. And in early 2019, the five year old Community Owners (7 Part) Business Alliance (‘COBA7’) was reconfigured as EducateMHC, to be the primary, if not only, for-profit source for all land lease community-focused products (i.e. newsletters, books, forms) and services (e.g. professional property management training & certification, property Performance Evaluations and more).
And now, as year 2020 looms on the industry and real estate asset class’ business horizon, there’s growing concern and rumors about changes in top leadership at one of the forenamed national manufactured housing advocacy entities. At this point in time, details are sketchy, as comments fly and individuals jockey to fill these leadership positions. So, for the time being, the only things penned here are these thoughts:
• Since the manufactured housing industry, and two of its’ national advocacy entities, are dominated financially and leadership-wise by HUD-Code housing manufacturers; and in one case, the three firms controlling 80+/-% of national market (housing shipment) share, is there valid concern said organization might become dominated by one, or another, of the Big Three C firms?*1 Especially, if thru some turn of events, one or another or both other mega-firms no longer sit on the entity’s board of directors?
• It’s well known one national advocacy entity will be in need of a new salaried top executive by year end. What isn’t known, outside the official search committee, is whether this search will extend beyond MHI staff, to the industry at large, or not. There are pros & cons to hiring within either sphere, as well as value of searching for new leadership talent experience, and motivation untainted by past interpersonal relationships. Another concern is whether the new ‘leader’ will continue past practice of parroting board directives, or be strong enough lead in his or her own right?
Enjoy the relative organizational calm in place right now. But know there’re already maneuverings, behind the Washington, DC scene, to fill board seats as well as top salaried and volunteer leadership positions. If you have particular insights into this matter, and are willing to share them with me, in confidence or not, do so via firstname.lastname@example.org or phone, the Official MHIndustry hotline: (:877) MFD-HSNG or 633-4764.
End Note: 1. Big Three C firms: Clayton Homes, Skyline-Champion, & Cavco Industries
In the August 2019 report titled ‘Eliminating Exclusionary Land Use Regulations Should be the Civil Rights Issue of Our Time’, author Michael A. Stegman, on pages # 11 & 12, includes this bold, and surely controversial, solution to solving the title issue:
“A state’s failure to (remove local barriers to affordable housing), or make an inadequate effort (to do so), would result in…loss of its ability to issue tax-exempt bonds for housing and of its authority to allocate housing tax credits.” Goes on to say, how “…preemption is a more direct alternative to conditioning federal grants in aid.” And how Congress might “…act directly to eliminate restrictive suburban land use practices by exercising its own constitutional power to regulate commerce.”
Whew! Did you read what I just read, and reprinted here for you? Manufactured ‘housers’ know all ‘bout preemption, and how this industry made that 1974-76 regulatory ‘lemon’ into sweet lemonade. Will same will occur working with local land planners & zoning boards?
This report is chock full of helpful background information on the timely and troubling topic. It documents five presidential commissions and federal initiatives of the past 50 years. Also lists five bullet points describing how regulatory barriers raise housing prices; plus, how barriers reduce and delay housing development; and finally, how barriers increase income inequality and reduce economic growth. These will be detailed in the October Allen Letter.
This report also, to my surprise, details nearly 40 specific measures designed to address the exclusionary land use problem. The list begins with measures proposed during the Obama administration (a.k.a. Development Toolkit 2016) and going forward to today. These aggressive measures will be replicated in the October’s the Allen CONFIDENTIAL! business newsletter.
Both newsletters available, via subscription, at www.educatemhc.com
And there’s so much more ‘new news’ coming down the pike, so to speak, about changes to the federal housing scene, e.g. ‘Housing Finance Reform Plan’ for GSEs, pursuant to the Presidential Memorandum Issues March 27, 2019 – and released on 5 September 2019. More on this heady topic, likely in blog posting # 552 next week.