Consequences of LLLCommunity Consolidation
COBA7® via community-investor.com Blog # 310 @ 17 August 2014 Copyright 2014
Perspective. ‘Land-lease-lifestyle communities, a.k.a. manufactured home communities and ‘mobile home parks’, comprise the real estate component of manufactured housing.’
This blog posting ‘is a national advocacy voice, ombudsman press*, statistical research reporter, & online communications resource for all LLLCommunities in North America!’
To input this blog &/or affiliate with Community Owners (7 Part) Business Alliance®, a.k.a. COBA7®, use Official MHIndustry HOTLINE: (877) MFD-HSNG or 633-4764.
*ombudsman press. ‘Manufactured housing’s ronin, fielding inquiries, complaints, etc..
Introduction to this week’s COBA7 blog posting at community-investor.com website:
FREDDIE MAC Panel at ROUNDTABLE. 23rd Networking Roundtable shaping up to be Best Ever, in terms of program timeliness and variety! Not too late to register. Just phone Official MHIndustry HOTLINE: (877) MFD-HSNG or 633.4764 today.
Consequences of LLLCommunity Consolidation. This is the sort of profound reporting that spawns ‘kudos’ & ‘brickbats’ (i.e. ‘insulting remarks’) from diverse leadership groups. Small businesses generally agree; some big business reps backstab.
Calling All Golfers – Again! Last week we told you about the joint IL/WI Golf Tournament, on 4 September, at the Hawk’s View golf Club in Lake Geneva, WI. This time around, One More Great Reason to attend the 23rd annual Networking Roundtable!
FREDDIE MAC Panel at ROUNDTABLE!
Will be joined by the FHFA, maybe Fannie Mae; &, a HUD rep(?).
Yes, you read that right. Friday morning, 12 September at 11AM, three executives from Freddie Mac’s Production & Sales Multifamily, and Underwriting & Credit Multifamily departments will conduct a panel presentation titled, ‘All You Ever Wanted to Know About Freddie Mac, but Didn’t Know Who to Ask!’ So, if you’re contemplating acquisition financing, for a land-lease-lifestyle community, or refinancing thereof, you’ll be ‘in the room’ during the 23rd International Networking Roundtable that day! To register, use brochure attached to this week’s blog posting or phone the Official MHIndustry HOTLINE: (877) MFD-HSNG or 633-4764.
And that’s not all! COBA7® is in active conversation with the Federal Housing Finance Agency, or FHFA, about their attending at this year’s Roundtable – to learn more about our unique, income-producing realty asset class, and to engage in interpersonal networking with the hundreds of owners/operators present at the event. One more reason why the CONFIDENTIAL Official WHITE PAPER (‘Understanding the Manufactured Housing & LLLCommunity Asset Class’) – being distributed to Roundtable registrants, is so timely and useful! This is one manufactured housing industry document you do not want to miss reading from start to finish! In fact, it alone is worth the cost of admission to this stellar annual educational, networking, and deal-making event.
Oh, and lest I forget; we’re also talking to the Atlanta office of Fannie Mae to see which executive there will be in attendance at this year’s Networking Roundtable. And an invitation has been extended to HUD as well…but no word back from that agency. But wouldn’t it be Great though, if a HUD rep attended, and left convinced, to finally promote manufactured housing as the best ‘affordable housing’ resource in the U.S. today?!
Bottom Line? There’s a bunch of em this year! 20 educational seminars & panels; eight social networking meal events; dozens of opportunities for LLLCommunity deal-making; two history-making National Public Forums; and, possible reemergence of Manufactured Housing Executive Women, or MHEW (Several women execs have already phoned, expressing their excitement over this possibility! Hey, Chris, Dee, Ann, Edith, Suzanne, Pam, Jenny, Sharon, Shelia, Joanne, Barbara, Lois & Barbara; are you listening? Come on down!). And now, representation from two GSE’s (Government Sponsored Enterprises) and possibly, other agencies! There’s not another MHIndustry &/or LLLCommunity venue in the U.S. and Canada today, that comes even close to this variety, depth, and timeliness of presentations and number of deal-making opportunities! And lest we forget, we host the annual, early Friday morning informal prayer meeting for Our Nation & Its’ Leaders! How can you not want to be present for all this? See Part III following…
Consequences of LLLCommunity Consolidation
Some Pros & Cons of Consolidating Sole Proprietor-developed Land-lease-lifestyle Communities into 500+/- Property Portfolios
In 1987, Roulac’s Strategic Real Estate newsletter published its’ final list of 25 ‘Largest Mobile Home Park Owners’ in the U.S. Today, 25 years later, we know the names and addresses of no fewer than 500 privately and publicly-owned entities. That’s a 20 fold increase during a relatively short period of time. And like most industry trends, this massive consolidation of sole proprietor-developed LLLCommunities into said 500+/- property portfolios has had consequences, ‘good & not so good’. But first, a short history lesson….
The first wave of (then) ‘mobile home park’ consolidation occurred during the late 1970s and early 1980s, as ‘syndicators’ scoured the countryside, far and wide, forming limited partnerships to acquire thousands of such income-producing properties in foreclosure. This wave, a result of the national and industry finance tribulation, as well as HUD-Code legislation implementation circa 1974 – 1976. Some, though not many, of those partnerships – based on and sold per ‘tax loss advantages’ until the federal law changed in 1986, continue to exist to this day.
That wave was followed by a bit of a wash-out (again), when savings and loans institutions (i.e. ‘S&Ls’) failed across the nation. Then the federally chartered Resolution Trust Commission, or RTC, took on the task of selling-off S&L realty trapped in limbo, facilitating the birth of many more property portfolio firms coast to coast, and enhancing the growth of existing portfolio ‘players’.
And in the early 1990s, 1994 to be precise, a few real estate investment trusts, or REITs, burst onto the scene, taking their privately-owned property portfolios public via IPOs (initial public offerings of stock). That wave was characterized by (then) MHC, Inc. – but today, ELS, Inc. with 28,407 rental homesites; Chateau Communities, Inc. with 15,689 sites; Sun Communities with 13,500 sites; and long time REIT, (then) United Mobile Homes, Inc. with 5,623 sites. Today, those site counts have changed as follows: ELS, Inc. as of 1 January 2014 with 138,869 rental homesites; Sun Communities at 65,500 sites (but with the soon addition of 19,000 Green Courte Partner/American Landlease sites = 84,500 sites total); and, (now) UMH Properties, Inc. at 4,623 plus recent addition of more sites. Chateau Communities, Inc., dropped from the REIT scene in 2003, when acquired by Hometown America. And a short-lived American Landlease REIT existed from 1998 thru 2008; and even shorter-lived ARC (formerly Affordable Residential Communities, then – under new ownership, renamed American Residential Communities – or was it the other way around?), was a REIT in years 2004 & 2005.
The latest ‘wave’ (2004 to date) has been a relatively small one to date, characterized by the equity plays of Randy Rowe, and a few other realty investment pioneers – mostly from outside the manufactured housing industry.
SO, what have been the positive aspects of this widespread consolidation of sole proprietor-developed LLLCommunities into 500+/- property portfolios? Well certainly the creation of wealth via profit, for awhile for many, but not all ‘players’. How so? LLLCommunities have long been considered, by many within and outside the asset class, as being ‘the best kept secret in real estate investing!’. Why? Simple. Here’re ten reasons:
• Relative scarcity! Only 50,000+/- nationwide, with few being developed today. Some existing properties, however, have added new rental homesites. And from time to time, a few – mostly much older LLCommunities, are closed for good.
• Low annual turnover! ( LLLCommunities @ 5-10% on the average, vs. 50+/-% with conventional apartments) This due mostly, to high cost of relocating homes.
• Stable, competitive site rent! – when not abused by property owners. When was the last time you heard/read of a LLLCommunity reducing its site rent rate?
• Lower operating expense ratio! (LLLCommunities @ 40% Allen Model & national average OER, vs. 55+/-% with conventional apartments)
• Economy of scale! Watch OER drop from 40 to 20+/-% & lower, when 200+ sites are occupied and paying site rent, and operating expenses are well-managed.
• Affordable home ownership and equity, when home prices and rental homesite rates (Total Value Proposition or TVP) are in sync with local housing market! How so? One way: Use 3:1 ratio, not 2:1 ratio, relative to 3BR2B apartment rents in same local housing market. For example: $900 apartment rent = $300 LLLCommunity homesite rent; not $450, unless located in a specific local housing market that’ll support the higher rate.
• Recession proof! When all else fails….
• More opportunities to ‘add value’! ‘Alternative Income to Rent’ measures include new & resale home sales on-site, seller-financing of transactions, after-market sale and installation of carports, awnings, and housing parts. There’re more AITR measures with LLLCommunities than with any other income-producing realty!
• More versatility! No longer just pre-1976 ‘mobile homes’ & post-1976 manufactured homes on-site; but now, also modular homes, ‘park model RVs’ (A.k.a. Accessory Dwelling Units, or ADUs, per HUD – even ‘granny flats’; and ideal for installation on functionally obsolete rental homesites), RVs for a season, and stick-built homes constructed on-site (in FL) to look like HUD-Code manufactured homes. This has given rise to the change in realty asset class label, from ‘manufactured home – or housing community’, to finally, ‘land-lease-lifestyle community’ or LLLCommunity.
• Opportunity to serve society! By providing the most ‘affordable’ type of factory-built housing in a generally ‘affordable’ lifestyle multifamily rental community, comprised of the unique homeowner/tenant, or better yet, homeowner/site lessee, enjoying aforementioned TVP..
For more information on these ten factors, read Landlease Communities, Manufactured Home Communities, Mobile Home Parks, Trailer Courts & Camps, & Affordable Housing, PMN Publishing, 2011. Available for purchase via the Official MHIndustry HOTLINE: (877) MFD-HSNG or 633-4764.
What other positive aspects have there been, relative to consolidation? On the national advocacy scene, property portfolio firms desiring to be properly and effectively represented in our nation’s capitol, precipitated the emergence of the Manufactured Housing Institute’s National Communities Council division during January 1996 (A presence originally conceived by 19 LLLCommunity owners/operators on 31 August 1993). For more on this interesting historic topic, read Bruce Savage’s The First 20 Years!, PMN Publishing, 2013.
And for awhile, a couple of the larger property portfolio players financially supported initiatives to bring more sophistication to the realty asset class, via research and reporting of operating statistics, effecting improved communication in print & online, support of national interpersonal and corporate networking venues, showcasing of deal-making opportunities, professional property management training & certification, even sharing of intellectual property resources. Today however, those initiatives continue to be financially supported by a different few large portfolio firms, most of the financial load is borne by small to mid-sized owners/operators, via affiliation with the Community Owners (7 Part) Business Alliance®, or COBA7®. In the meantime, the largest property portfolio firms now cultivate some to much of these measures in-house..
SO, what have been the not so positive aspects of consolidation of sole proprietor-developed LLLCommunities into 500+/- property portfolios? Here opinions will vary, depending on one’s perspective.
• State manufactured housing associations in general, and ones comprised mostly of LLLCommunity owners/operators in particular. Overall, association membership numbers and revenues are decidedly ‘down’ from where they were ten years ago. This is due in large part because new HUD-Code home shipments (and hence ‘floor dues’) have slipped from 372,843 units in 1998 to 130,940 five years later in 2003, then 60,228 in 2013 – with but 70,000+/- ‘expected’ during 2014, but there’s ‘more to that story’. We have far fewer independent (street) MHRetailers today than in years past. And, as more and more sole proprietor-developed LLLCommunities were bought/brought into property portfolios, membership dues revenues dropped accordingly – as well as did regional chapter representation. Sole proprietors, as a rule, faithfully supported state MHAssociations; however, many property portfolio firms do not. A few pay for all their properties in a given state, some pay for just one membership in said state, and many others pay nothing at all – sometimes opting to maybe be direct, dues-paying members of MHI’s NCC division – despite bylaws designed to prevent such circumlocution.
• National association participation, in my opinion, has suffered during the past decade, as a few of the largest property portfolio players have maneuvered to control the NCC division, passing executive committee jobs back and forth among themselves. Proof? With 50,000+/- LLLCommunities nationwide; and 500+/- LLLCommunity property portfolios; there’re fewer than 100 members today – and slightly more than half of them as direct, dues-paying (LLLCommunity) members, the remaining serving as Certified (state) Representatives. And there’s hardly ever more than a dozen ‘members’ present at any national meeting of the division – for a variety of other reasons (Affluence gerrymandering anyone?) we’ll omit sharing in detail here today.
• A relatively recent phenomenon or trend has been, figuratively speaking, the ‘trading’ of LLLCommunities, even portfolios back and forth between the largest of the firms, without assistance or involvement of licensed real estate brokers – and hence, sans the outflow of commission dollars to them. While this is perhaps praiseworthy as an operating expense control measure, the practice has the unintended (or intended?) consequence of marginalizing this key real estate investment segment of the manufactured housing industry – as national and regional brokerages struggle with ‘How to add value’ to the remaining services they provide the realty asset class at large.
• Then there’s the issue of rental homesite rates. Back when the ‘REITs were young’, Wall Street analysts treated the firms as, let’s say, ‘growth stocks’, expecting positive, increasing dividends quarter after quarter after quarter. Well, the REITs responded with (operations) cost cutting, increasing site rent rates, and other measures. Since rent rates are local housing market-sensitive, raising rents too much too fast had/has dire consequences, i.e. 1) decreasing occupancy (or increasing vacancy) as ‘homeowner/site lessees’ can no longer afford the high site rent rates and relocate; 2) ‘taking value’ from homes already on-site, &/or 3) limiting what prospective homebuyers can afford to buy – as they’re maneuvered to redirect what would have been PITI (loan principal & interest, as well as tax & insurance escrows) dollars to site rent. While there’s been a shakeout of sorts, during the past five years, and many properties, as well as some portfolios, have gone thru foreclosure, been bought anew, and site rent ‘adjusted’ closer to local housing market parameters, it’s still possible to find privately-owned LLLCommunities ‘across the street’ from some portfolio-owned ones, charging half the rent being expected by the latter. What to do about this? How to set site rent in sync with one’s local housing market? Read chapter 1 of the Book of Formulae, Rules o f Thumb, & Helpful Measures, PMN Publishing, 2012. Also earlier cited ratio in this blog posting.
That’s my ‘take’ on the pros and cons of LLLCommunity consolidation during the past 40 or so years. Have I missed anything? Do you agree or disagree with these observations? As I’ve often penned here before: ‘Inquiring minds would like to know’ – and I’m no exception. Email your responses to email@example.com
Calling All Golfers – Again!
Hey, how many blog floggers (readers) will I see and talk to at the first joint Indiana/Wisconsin Golf Tournament, on 4 September, a the Hawk’s View Golf Club in Lake Geneva, WI.? And remember, for non-golfers like myself, there’ll be a two hour Open Discussion of manufactured housing and land-lease-lifestyle community issues, trends, and more, during the afternoon that day, at the clubhouse. Interested in participating? Phone Frank Bowman, IMHA’s exec, via (217) 528-3423 or visit IMHA.org. An added bonus for golfers and non-golf attendees. I plan to bring copies of Bruce Savage’s book, The First 20 Years! to distribute FREE to everyone present who wants a copy! See you in Lake Geneva, WI., on 4 September.
And the following week, at the 23rd annual International Networking Roundtable in Peachtree City, GA, 10-12 September, at the DOLCE Conference Center, bring your golf clubs! In the immediate vicinity of the DOLCE are three Cannongate Championship Golf courses offering a challenging experience designed by some of the biggest names in professional golf. ‘Sloping emerald fairways, dazzling water hazards, and acres of thick forests make Peachtree City’s courses some of the finest in the U.S. today!’ The courses are Braelinn @ (770) 487-2101; Flat Creek @ (770) 631-5700; and, Planters Ridge @ (770) 487-2102. When making golf reservations let them know you are a registered guest of the DOLCE Conference Center. The Best Plan? Arrive a day early, on 9 or 10 September, &/or stay a day or two late, on 13 & 14 September, to enjoy these terrific amenities to this year’s networking roundtable event.