End of an Era & Beginning of Another!
End of an Era & Beginning of Another; In Search of a Formula That Works
If you manufacture homes & or own one or more landlease communities, listen up!
Here’s a sampling of responses to last week’s blog, ‘PRO & CON, & Not Much Else!’, describing the public distancing by GSEs, and federal regulators, from anything having to do with HUD Code manufactured housing chattel (personal property) financing pursuant to siting new & resale homes landlease (nee manufactured home) communities:
1) “George, it really is an end of an era, and I’m not the least bit happy about it. What will we do? If we don’t have access to significant long term capital sources for buying, selling and financing homes ourselves, we are in serious trouble. It’s been 10 years in the making, but the ‘perfect storm’ is at its’ climax….”
2) “Business is really tough out here, but my clients are now convinced, we must buy, install, sell, and finance new (manufactured) homes ourselves, if we have any desire to grow and prosper in the next two to five years.”
3) “Here’s a copy of new GNMA guidelines. I’m told the program will require a 10% reserve. That alone will doom the program to non – use, as it is cash flow negative.”
So, what is one to do? To begin with, it depends on one’s business perspective or role in the MHIndustry and or LLCommunity real estate asset class.
First the manufacturers! YOU took two bold steps during the National SUMMIT Meeting at the RV/MH Heritage Foundation’s Hall of Fame facility in Elkhart, IN., on 2/27/09. You entered into dialogue with counterpart owners/operators of LLCommunities from throughout the U.S. Results? You redesigned homes, making them more appropriate for in – community siting, and identified Business Development Managers (‘BDM’s), tasked with growing your market share of homes within this 50,000 property arena. And six months later, at the 18th International Networking Roundtable we labeled your redesigned housing product as Community Series Homes or CSH. So today, when LLCommunity owners/operators access the regularly updated and widely distributed BDM list, they call and ask for floor plans and elevation drawings of CSH models, from which to order new HUD Code homes for infill! Ask me for a free copy of the BDM list.
But there are still as many manufacturers who haven’t figured out this ‘drill’ as there are of you who’ve benefited from it. Despite encouragement to designate additional BDMs, and design more CSH product, it’s been slow to happen. Sp, if you’re reading this blog, and have influence within the two national trade advocacy bodies, MHARR and MHI, please ‘Pass this word’: Selling new HUD homes into LLCommunities is the future of manufactured housing for the time being, maybe even the long haul! And, while you’re at it, give financing more creative thought. Now that GSEs and others, ‘inside the Washington beltway’, have distanced themselves from us, every home manufacturer should/must be aligned with source(s) of wholesale and retail capital, as in the manner of Clayton Homes and CAVCO. If you don’t know who to talk to, give me a call and I’ll provide some names.
Also know, there’s a quiet effort afoot, among some of the largest private and publicly – owned property portfolios, to justify legitimate rekindled interest in, and eventually restore, chattel ‘paper’ for use in the landlease community investment environment, as well as marketing fully compliant collections of such home loans. For more information, as it becomes available over time, follow this weekly blog posting….
Now for the LLCommunity folk! Actually this segue from ‘one era to another’ has been underway ‘for us’ for more than a decade – as was alluded to in one of the three opening quotes. As you likely know from the 21st annual ALLEN REPORT, published in January of this year; among the 500+/- property portfolio folk alone, we’ve seen the total volume of ‘contract sale paper’ held by LLCommunity owners/operators swell from ‘maybe a few million dollars’ in years 1999 & 2000, to more than $ 3 ½ billion dollar by year end 2009! And, last week I read an estimate, published by what appears to be a knowledgeable source, where said total is now approaching five billion dollars plus! So, ‘We’re there, right smack in the midst of a (re)new(ed) business model, one popularized in the late 1970s (When, upon HUD Code implementation, shipments plunged from 575,940 new ‘mobile homes’ shipped in 1972, to an average of 250,000 homes per year over the next 20 years), now popularly known as (property) ‘owner – assisted finance’ of new and resale homes sold on – site!
FYI! Whether you’re already into this new business model, or now seriously thinking about it, be sure to read the July 2010 issue of the Allen Letter professional journal! Why? The entire issue is devoted to describing this paradigm shift occurring in the manufactured housing industry and landlease community asset class. ‘Seven Steps to Success’ selling and financing new and resale homes on – site, including the timely and increasingly important role of nurturing a secondary market for selling used homes, will also be detailed. In addition to that, there’re just as many Bullet Points, identifying the Lessons Learned ‘first time around’ (i.e. ‘back in the 1970s’) that LLCommunity owners/operators must be diligent not to replicate ‘this time around’! Hint. Ever hear of ‘churn’? I hope not, but it’s related to another five letter word, GREED, that helped create our industry and property type’s enduring negative image – unchanged for the past 30 years. Let’s not make those, and other mistakes again!
And there’s a third strategic, upcoming opportunity to bear in mind. With all that’s happening right now, in social, political, and business circles, one can’t do enough to stay abreast of what our MHIndustry & LLCommunity peers are doing successfully – initiatives we should consider implementing as well. And there’s a proven way to do so; by attending the 19th annual International Networking Roundtable in Phoenix, AZ, during 15 – 17 September 2010. The agenda has been set. Marcus & Millichap will lead off at 4PM on 9/15 with their annual LLCommunity Investors’ Symposium, sharing 2010 ‘stats’ and showcasing dozens of such properties for sale. Next morning, Randy Rowe, founder of Hometown America and Green Courte Partners, (and, with David Lentz, heading the management team at American Land Lease) will lead – off as keynote presenter, sharing his informed and insightful ‘State of the MHIndustry & LLCommunity Asset Class’! After Randy? All told, there’re 20 educational seminars and panels scheduled – and CSH model homes on the plaza next to the meeting rooms! Program brochures will be enclosed as lagniappes with the July issue of the Allen Letter professional journal. Since this is a semi – ‘by invitation only’ event, ensure your invitation to attend, by subscribing to the newsletter and or requesting the brochure (and a reprint describing last year’s exciting program, with three CSH models, in Chicago), by phoning the MHIndustry HOTLINE: (877) MFD-HSNG or 633-4764, or (317) 346-7156. Also check this website for Roundtable meeting registration information.
OK; by now, if a loyal reader of this blog series (Incidentally, this is the 90th consecutive blog posted during the past nearly two years!), you know my angst about ‘too high rental homesite rents’ in LLCommunities throughout this land. And you likely know I believe LLCommunity homesite rent, ideally, should be somewhere in the neighborhood of one third the dollar amount charged by the largest (comparably sized, square foot wise) conventional apartment or townhouse in the same local housing market. For example, if a 2 or 3BR, 2B apartment (not subsidized) rents for $900.00/month sans water/sewer charges, then a LLCommunity homesite in the same local housing market might/should rent for roughly $300.00/month sans water/sewer charges. Adjustments to these amounts are likely warranted given comparable quality of respective living environments, whether family properties or all adult, even good vs. poor location.
But here’s a new wrinkle, maybe. In the same local housing market where I’ve seen the above $900 – $300 relationship in balance per the 3:1 Rule of Thumb or ratio, I’ve learned, via zipskinny.com, the individual citizen or consumer’s Average Median Income (‘AMI’) is $36,000.00 per year. Hmm. ‘Wonder what, if any, relationship there might be, between a local housing market’s AMI and aforesaid homesite rent?’ Here’s the way it pencils out in the market described in the previous paragraph:
AMI @ $36000.00 divided by 12 months = $3,000.00/month divided by an arbitrary divisor of ‘10’ = $300.00/month target site rent; the very same amount calculated using the aforementioned 3:1 Rule of Thumb or ratio, comparing conventional (3BR2B) apartments & LLCommunity homesite rents.
Know what? Using John Turzer’s rent surveys, I’ve found markets where this formula works ‘spot on’, but not as well in others; apparently having to do with whether looking at family or 55+ LLCommunities. So, what do you think or, better yet, actually experience, in your local housing market, to this end? Does dividing AMI, for your local housing market(s), by 12 months, and then by 10, come up with a homesite rent rate comparable to application of the aforementioned 3:1 Rule of Thumb or ratio? Does it trend in one direction or the other? I’d like to know your thoughts on the subject….
What you’ve just read, in parts I & II of this blog posting, is but ‘half the complete story’. For ALL the NEWs on these, and other timely manufactured housing and landlease community matters, you should be reading the Allen Letter professional journal each month! It’s the only print trade media penned and published by individuals active in the MHIndustry & LLCommunity asset class, as business and income – producing property owners/operators; and, participants in most – if not all major industry events, and a direct, dues – paying member of every appropriate national advocacy and trade body, e.g. MHI’s NCC and ULI’s MHCC! To subscribe, at only $134.95/year for 12 monthly issues, phone the MHIndustry HOTLINE listed in paragraph II above, via this website, or simply phone (317) 346-7156. AND, to learn even more firsthand, be present at the 19th annual International Networking Roundtable in Phoenix, AZ., 15 – 17 September 2010! While subscribing, ask for a FREE copy of the next monthly issue of the Allen CONFIDENTIAL! business newsletter…read by most MHIndustry execs!
In the meantime, plan to meet with manufactured housing executives and landlease community owners/operators at the Manufactured Housing Institute’s Summer meeting in Washington, DC @ 13 – 15 July 2010. For registration information, contact Thayer Long via (703) 558-0678. I plan to attend; how ‘bout you? If so, make it a point to talk to me there, about this and other weekly blog postings, giving me your ideas and suggestions on how to make it an even better, useful communication tool for our industry and asset class at large! FYI. We’ll likely have the second meeting of the Print & Online Trade Media CONSORTIUM sometime during the MHI meeting. Interested?
Also let me know personally, if you’re seriously willing to help plan, and or host, a Grand ‘Once & For All’ Tour series of meetings, comprised of actionable seminars and issue discussion groups, scheduled for seven geographic regions throughout the U.S., later this year and during 2011, in preparation for the launch an independent, not for profit, Manufactured Housing & Landlease Community Think Tank in year 2012. Yes, this is a key event(s) spawned by the ‘End of an Era & Beginning of Another’. The question for YOU is, are or will you be an integral part, better yet a leader, within this latest, and maybe largest, manufactured housing and landlease community paradigm shift?
George Allen, Realtor®, CPM® Emeritus, MHM Box # 47024
Consultant to the Factory – built Housing Industry & Indianapolis, IN. 46247
The Landlease Community Real Estate Asset Class (317) 346-7156