Walker & Dunlop’s ‘A Tale of Two Cities’
Blog Posting # 630 @ 19 March 2021: EducateMHC
Perspective. ‘Land lease communities, previously manufactured home communities, and earlier, ‘mobile home parks’, comprise the real estate component of manufactured housing!’
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INTRODUCTION: This should be an interesting and informative ‘read’ for you. In it we share some late-breaking housing stats with you, followed by a critique of a 17 page report of questionable origin, and ending with some addtional helpful housing insights. Enjoy!
Walker & Dunlop’s ‘A Tale of Two Cities’
The winter 2020 Quarterly Report in MULTIFAMILY OUTLOOK, contained a few thought-provoking gems worth repeating here.
“While unemployment rates dropped quickly from 14.7 percent in April (2020) to 8.4 percent in August, a more detailed look shows widening inequality …yet to be resolved. For those with a bachelor’s degree or higher, unemployment peaked at only 8.4 percent in April and has since fallen to 5.3 percent – a rate …once thought to be near the point of equilibrium for the economy. Unemployment rates for those with less than a high school education peaked at 71.2 percent and for those with a high school education, at 17.7 percent. More than one in ten people of the 42 million people in these segments of the labor force still remain unemployed as of August.”
“…the economy is far from being back to ‘normal’. The Federal Reserve’s balance sheet increased to nearly $3 trillion this year, as subsidies such as those provided by the CARES act backstopped businesses, individuals, and farmers. That’s almost triple the subsidies provide in 2008 which have yet to be paid back, igniting a debate about whether the economy can grow out of its increasing debt burden, print money, or continue in a low interest rate environment to pay back the debt.”
Monopolization of the American Manufactured Home Industry
Here’s how the publisher of MHPro News introduced this controversial topic. “Samuel Strommen of the Knudson School of Law (a.k.a. USD Law) provided…(a) copy of his research paper that focused on Warren Buffett-led Berkshire Hathaway, Clayton Homes, their related lending, other Manufactured Housing Institute (‘MHI’) members, MHI itself, and the industry’s Real Estate Investment Trust (‘REITs’) sector.” Who is Samuel Strommen?
Precise title of this typescript? ‘The Monopolization of the American Manufactured Home Industry and the Formation of REITs: a Rube Goldberg Machine of Human Suffering.’
Now, don’t go and get all excited about this 17 page report with its’ ballyhooed 131 footnotes – if you can even find it online. An interesting ‘read’ sure, but not, in my opinion, of academic quality or much use to our industry and realty asset class.
First off, no record of Samuel Strommen being at the Knudson School of Law (a.k.a. USD Law), past or present. So, no idea as to what, if any, academic or manufactured housing credentials this individual possesses. I was thinking professor; now thinking law student, if that.
There’s passing mention of REITs in the report title, plus what you read in the introductory remark above – but no mention, beyond “increasingly consolidating landlords”, (that I read) in the report proper. A near total disconnect! Hint. This awkward wording suggests the identity of the real writer. Otherwise, the phrase would have been better penned as “landlords increasingly consolidating…”
Then there’s this salacious opinion appearing in the four sentences Introduction. “… (manufactured housing) the only form of residence in the United States that carries its’ own pejorative connotation, ‘trailer trash’.” Really? And I (you) should want to read further into this insulting screed?
“The aim of this paper is thus: to expose a number of antitrust violations – both blatant and subtle – in the form of the increasing monopolization of the manufacturing, financing, and the increasingly consolidating landlords, and to call for reforms within this industry.” And that’s pretty much what the writer does, except for NO further mention of, as pointed out earlier, ‘increasingly consolidating landlords’. Wonder why? Though there is mention of “25-30% of all manufactured homes are situated in manufactured home communities (commonly referred to…as ‘trailer parks’).”Called such by whom? Three paragraphs later, the writer refers to this unique, income-producing property type, properly, as a ‘land-lease community’. So, obviously, he has no expertise in the nature and use of manufactured housing trade terminology.
An error? “…production of manufactured homes hit its’ apex (i.e. highest point. GFA) over twenty years ago, with a maximum production of some 375,000 units in 1998.” NOT! That was simply a renascence year for the industry. Its true acme year was 1973 (25 years earlier) when 579,940 new ‘mobile homes’ were shipped nationwide! Perhaps that’s the ‘diff’; ‘mobile homes’ vs. manufactured homes shipped.
Earlier, I made reference to 131 footnotes in this report. Interestingly, the following observation is presented sans documentation: “While claims that Berkshire Hathaway vis-à-vis Clayton Homes have (sic) violated American antitrust law have (sic) not been litigated in court, ample evidence that violations are taking place are myriad.” (‘myriad = 10,000 times’. GFA) What evidence? Where’s ‘the footnote’ when one needs it?
Now here’re some interesting word choices: “What was previously a top ten (manufacturers) has amalgamated (‘consolidated) into a top three. What the industry has presented as apotheosis is closer to apoptosis.” (i.e. from ‘glorified’ to ‘self-destruction’). And this, “In public, Buffett boasted through a rictus (‘gaping grin’) that Clayton and its financing arm were performing a good deed….” These elitist word choices are what lead me to think (maybe) a law student is penning this rough document.
One of the most telling – and to me, helpful, sentences in the entire report, is this: “Clayton Homes (and their affiliated lenders) would suffer a detriment if (the) GSEs were to re-enter the chattel mortgage industry.” Really? And here I believed it was the two GSEs (and FHFA) who were digging in and dragging their heels when it came to implementing aggressive Duty to Serve (‘DTS’) plans and programs in favor of manufactured housing finance. So, which is it?
True or False? “…currently , half of the MHI executive (committee board members) are former employees of Clayton Homes.”
The report ends with the same question I’ve been posing for months. “Why has manufacturing yet to cross the 100,000 unit threshold, much less come anywhere close to its’ most recent 1998 peak?” While I criticize much of the content of the report, I do support this question!
‘A Rube Goldberg of human suffering’ is the subtitle of this research report. Personally, I don’t think the writer, professor, student, or whoever he/she is, addressed this salient point.
Everyone Wants a Piece of Our Action!
When was the last time you read anything in Apartment Management Magazine about manufactured housing and land lease communities? Well, YARDI breeze, a property management software designed for multifamily rental properties recently (February 2021) contributed an article, based on a recent NorthMarq report, to this publication, titled: ‘Five Reasons Manufactured Housing Could Outperform the Market in 2021’. The first reason being high demand for land lease communities as being desirable places to live (especially during the pandemic. GFA). And the next four reasons?
1. Affordable manufactured housing (i.e. article simply put it: ‘MHCS’) can help solve the affordable housing crisis. Nothing new there, except the article is ‘silent’ on the lack of reasonable access to chattel capital for home-only loans on units going directly into land lease communities onto rental homesites.
2. There’s plenty of investment opportunity. (Said out of one side of the writer’s mouth – or pen) Versus mentioning the majority of ‘investment grade’ land lease communities (i.e. 100+ rental homesites in size) are already consolidated into one or another of 500+/- property portfolios throughout North America!); meaning, ‘plenty of investment opportunity’ among the 80+/- percent of the national rental community inventory, those properties containing fewer than 100 rental homesites. For more on this subject, read the 32nd annual ALLEN REPORT (January 2021), available for purchase via www.educatemhc.com
3. Manufactured homes are (un) surprisingly high quality. Best sentence in the article? “If renters are looking for a high-value deal, they need to take a closer look at well-built, competitively priced manufactured housing.” Note that ‘renters’ is used here, as opposed to ‘buyers’, since this is a multifamily rental property association trade publication.
4. Retired baby boomers are a growing demographic. To entice them, according to the article, use “many of the same rental perks used to bring in millennials:” Those being online rent payments, communal spaces, eco-friendly amenities, hosted events and activities, and fitness areas.
And Thanks to Dick Bessire, founder and partner at Bessire & Casenhiser in San Dimas, CA., for sending along this material.
George Allen, CPM, MHM