Difficult Choices; Progress Report; &, Cut Bait or Go for the Big One!
Blog # 438 Copyright @ 19 March 2017; community-investor.com
Perspective. ‘Land lease communities, previously manufactured home communities, & ‘mobile home parks’, comprise the real estate component of manufactured housing.’
This blog posting is the sole national advocate voice, official ombudsman & historian, research report, & online communication media for North American LLCommunities!
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
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INTRODUCTION: Hang onto your seats! On the next several pages we’re going to ‘step on superman’s cape’, disturb a couple sacred cows, and stimulate thinking-if-not-action about changes to the manufactured housing business plan as we know it today. There’s also ‘good news’ about how keeping score (new MH shipment counts each month) has been usurped by folk committed to getting the data right for present and future research.
Four Manufactured Housing-related Scenarios to Ponder
For owners/operators of land lease communities (a.k.a. manufactured home communities), these are the most challenging and potentially prosperous of times! Most Challenging, in that filling vacant rental homesites today, oft requires owners/operators to buy, sell, and seller-finance new HUD-Code manufactured homes on-site. This increases owner/operator risk and encumbers the income-producing property with home mortgages until paid off, or otherwise – affecting investment value either way. Now, there’s also the disturbing development whereby one or another home manufacturer appears to use marginal quality new homes as ‘loss leaders’, to get their in-house chattel capital finance programs into LLCommunities for the long haul. Potentially Prosperous, in that superfluous investment dollars, wielded by LLCommunity portfolio-builders and naive outsiders, have driven ‘cap rates’ *1 down, down, down, in many parts of the U.S., coincidentally, growing the number of portfolio firms, via consolidation, from 25 in 1988 to more than 500, by year end 2016.
For manufacturers of HUD-Code manufactured homes, mega-prosperous times – measured by ‘hundreds of thousands of new homes shipped’ (372,843 during 1998), not the ‘tens of thousands’ suffered today (81,136 during 2016), continue to be out of reach. Why? Easy access to chattel capital continues to elude the industry, and new home distribution is still adjusting to the loss of more than 10,000 independent (street) MHRetailers since the turn of the Century. Fortunately, for manufacturers, LLCommunity owners/operators have picked up some of the slack, since 2009 when 24 percent of new homes went into this property type, to nearly 50 percent by year end 2016. And while some manufacturers now design, build, and ship Community Series Homes (i.e. singlesection & modest-sized multisection homes with durability-enhancing features & more), in my opinion, many resist this emerging trend, by not providing the level of service characteristic of the heretofore MHRetailers. Nor have home manufacturers figured out how to identify and sell new homes to sole proprietors of an estimated 40,000+/- individual LLCommunities nationwide – of the 55,000 total properties.
Is national advocacy and representation, in behalf of manufactured housing, ‘by members’ within a specific national trade entity, or ‘to the business benefit of a few’ at the top of the housing production and chattel finance market shares pyramid? That is the question on more and more minds these days! For example; according to recent communiqués, is it better to expend political capital, on the national scale, ameliorating specific legislation and regs affecting ‘the few’, or realizing securitization of seasoned chattel loans, to free up capital to effect more on-site transactions ‘by the members’ of the national trade entity? At present, in my opinion, it appears these decisions are made at the pinnacle of the national advocacy influence presence, not by dues-paying members – who should be the one’s being served! While industry unity has long been a problem for the manufactured housing industry; the idea is being floated, to soon launch a new national advocacy entity, comprised of post-production segments of the industry, not numbered among the elite presently making decisions for everyone else. It’s also been proposed, floor fees (dues) be redirected to the national entity best representing its’ members across the board.
Then there’s this question. Whether the federal regulator of manufactured housing, the Department of Housing & Urban Development, should/will actively promote the industry’s housing product, as the practical, non-subsidized answer to the U.S’. critical need for affordable housing; OR, after 40 years, sunset the federally preemptive performance building code – given the high quality of today’s manufactured housing – removing this expenditure from the federal budget, as well as freeing up one more area of unnecessary regulatory oversight. In my opinion, the only unanswered question that remains is: Manufactured housing industry ready to enter the national housing market without regulatory protection from competition, on terms akin to site-built housing? A longer treatment of this Difficult Choice is being prepared for HUD’s manufactured housing newsletter. (More of this later in this blog posting!)
So, what say you?
Agree; disagree; angered; pleased to read about what’s really happening, or what? Share your views on these timely matters via firstname.lastname@example.org, or phone the Official MHIndustry HOTLINE: (877) MFD-HSNG or 633-4764.
A DRAFT copy of this op/ed piece was circulated to a dozen Serious Thinkers & Contemporary Influencers active in the manufactured housing industry and land lease community realty asset class. Here’s one typical response:
As a LLCommunity owner, my primary interest is in filling vacant rental homesites, to increase cash flow, the value of our properties, and upgrade curb appeal and living environments, with new homes and better clientele. Make our business model better by 1) removing S.A.F.E. Act & Dodd-Frank legislative restrictions on seller-financing new homes in communities; 2) removing the interest rate restrictions on chattel financing so conventional lenders can/will finance homes in our properties; & 3) Accommodate ‘hybrid’ financing whereby conventional lenders and communities, together, mitigate the risks associated with chattel financing (e.g. property owner assists with collections, and guarantees part of the loan, assist with rehab and resale in event of default.
So again; what do you think of these four Difficult Choices? How do they affect you?
1. ‘cap rate’ = Income capitalization rate; Rate = NOI divided by Value; e.g. $100,000 NOI, divided by $833,333 asking or selling Price = 12 percent ‘cap rate’ or income capitalization rate.
PROGRESS REPORT: Verifying Accuracy of Annual Manufactured Housing Shipment Totals, Using IBTS Data
Annual new manufactured housing shipment totals for years 2013, 2014, 2015, & 2016 have been verified as accurate, using data supplied by the Institute for Building Technology & Safety, the research body contracted by HUD to collect and distribute this benchmark information.
Specifically, the year and related new MH shipment totals are as follow:
2013 = 60,228
2014 = 64,331
2015 = 70,544
2016 = 81,136
Don’t let anyone tell you differently. For each of these years, IBTS provided the 12 monthly new MH shipment totals appearing in their records.
What about the years before 2013? Well, that information, for some reason, is not easily available for proofing purposes. But that’s OK. We’ve got four years ‘on the books’ now, and given the statistical turmoil of the past – which some seem to want to continue, COBA7 will continue to ‘crunch the (shipment) numbers’ each month, and provide what’s already widely recognized as being the most accurate ‘#s & $s’ report available anywhere from anyone! And as a reminder, HUD and MHARR respective new MH shipment totals are the same as those calculated by COBA7. The only difference lies in estimating the $ value of any given month’s shipment total.
HUD: It’s Time to Go for the Big One, or Cut Bait!
Executive Summary. After 40 years of manufactured housing oversight, but with little to no overt product support, HUD should enthusiastically climb aboard the industry’s affordable housing promotional bandwagon; OR, let the federally preemptive, performance-based, national building code sunset, freeing-up dollars and other resources, to concentrate on subsidized housing, low income housing tax credits (‘LIHTC’), and other social secular housing programs.
So reads the title and executive summary of an article being prepared for HUD’s Manufactured Housing Newsletter, The FACTs. When will it appear? Depends on several factors really: how quickly it can be finished and submitted; the new HUD Secretary’s (Dr. Ben Carson) penchant (or not) for big change in the manufactured housing program at HUD; and, how much of a fuss HUD-Code housing manufacturers make over a four decades change to ‘making lemonade (‘protected status’) out of a lemon’ (the HUD Code proper).
If you have views on this controversial topic, and would like to make them known, send same to email@example.com or via GFA c/o Box # 47024, Indpls, IN. 46247. Or phone the Official MHIndustry HOTLINE: (877) MFD-HSNG or 633-4764.