Yes, We’re a Big Deal(s)! (&) ‘An Underutilized $ Tool!’ (+) One Unique Book Review a-comimng!
Blog # 525 @ 17 March 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 posting is sole national advocate, official ombudsman, historian, research reporter, education resource & online communication media for North American land lease communities
To input this blog, &/or affiliate with EducateMHC, formerly Community Owners (7 Part) Business Alliance, or COBA7, use Official MHIndustry HOTLINE: (877) MFD-HSNG or 633-4764
Motto: ‘U Support US & WE Serve U!’ Online media goal? Inform, opine, transform & improve manufactured housing & land lease community performance! Visit www.educatemhc.com
INTRODUCTION: Manufactured housing industry & land lease community consolidations have been facts of business life for these related enterprises since the late 1970s – upon implementation of the HUD-Code, and appearance of limited partnership syndicators. Today ‘the trigger words’ are mega-manufacturers & mega-property portfolio ‘players’. Read on…
It boggles my mind how otherwise savvy businesspeople ignore the most easily accessible of demographic indicator tools, Area Median Income per postal zip code, when estimating how much house prospective homebuyers & homebuyer/site lessees can afford to purchase!
Not often one reads a book that describes their life experiences during an earlier period of time. When Lou Vela gave me ‘the book’, little did I expect it’d propel me back 50 years in time to when my life was on the line as a young Marine lieutenant. But it certainly has done that…
Now Part of a Much Bigger Busine$$ Picture!
Private Equity Industry Targets Land Lease Communities
By now you’ve likely heard of, if not read, the misnamed ‘Private Equity Giants Converge on Manufactured Homes’ (i.e. insert ‘land lease communities’ in lieu of manufactured homes). And how, in the eyes of some homeowner/site lessees, activist organizations and ethnographer authors, high rental homesite rates levied by private equity owners of communities coast-to-coast, are ‘manufacturing homelessness’ in their pursuit of super profitability.
In the aforementioned report, private equity firms Stockbridge Brookfield, TPG Capital, Apollo Global Management, Federal Capital Partners, Blackstone Group, and Carlyle Group are named as owners of land lease community property portfolios.
The March 11, 2019 issue of Blomberg Businessweek magazine singles out private equity firms in this illustrative fashion:
“…private equity firms manage upwards of $3 trillion. …one firm, Carlyle Group LP…has a total of about 900,000 employees in all the companies it currently owns. Other major players include …Apollo Global Management LLC – which in 2017 raised a record-setting $24.7 billion for its’ ninth fund…TPG Capital, and the biggest of them all, Blackstone Group. These firms raise money from insurance companies, pension funds, endowments, and other big investors. They’re well-paid for their work: typically “2 & 20” – a ‘2 percent annual management fee & 20 percent of any profits’. They remake the purchased companies, sell them off to private buyers or take them public, and reap the rewards.”p.9.
So, where’s the damage being done? From aforementioned report: “When community owners raise the lot (sic) rents, residents are trapped, choosing between paying rent and abandoning their home.” & “…private equity investors are relying on manufactured home residents’ limited mobility to ensure steady revenues, squeezing fast profits out of low-income families and seniors.” Understand, this report is apparently the joint project of MHAction, Private Equity Stakeholder Project, & Americans for Financial Reform Education Fund, so has a specific axe to grind. Continuing, “…realtors estimate that for every $100 increase in space (sic) rent, a manufactured home loses $10,000 in value.” (per Los Angeles Times).
Bottom line? Today we are enduring the effects of a third consolidation wave to hit this real estate asset class since the late 1970s: first, syndicators of limited partnerships who benefitted from an income tax (loss) loophole until mid-1980s; then the mini-REIT wave of mid 1990s, with strident ‘pressure to perform’ from Wall Street analysts; and now, massive acquisition consolidations by private equity giants! Yes, all you just read can adversely affect homeowner/site lessees (i.e. residents) living in communities owned/operated by one or another giant – and some not so giant – private equity firms and funds. But as was oft said during the previous consolidation waves, ‘This too will pass!’ – just maybe not quick enough.
Be sure to read ‘the rest of the story’ in the April issue of the Allen Letter. Subscribe via www.educatemhc.com or phone Official MHIndustry HOTLINE: (877) MFD-HSNG or 633-4764
An Underutilized Analytical Tool
HUD-Code Housing Manufacturers & Land Lease Community Owners Selling Homes On-site, Should, Like Banks, Pay More Attention to Area Median Income (‘AMI’) per Postal Zip Code
In the same issue of Bloomberg Businessweek we read “…JPMorgan Chase branch openings and closings, since the first of this year, are determined by median household income of branch zip code.”
For example; in New York City postal zip codes, where AMIs ranged from a low of $27,000 to high of $106,000, bank branches were closed! However, in three areas (a.k.a. local housing markets) where AMIs ranged from $118,000 to $123,000, new bank branches were opened. While apparently not a hard & fast rule, in some markets banks do service a mix of low to moderate AMI consumers.
So, how’s this related to selling manufactured homes within and outside land lease communities? Simple. Using the strangely named, but popular ‘Ah Ha! & Uh Oh! Formulae worksheet, and AMIs of $36,000 in one instance (typical of land lease community residents in family properties), and $51,229 in another (typical of U.S. average AMI), it’s easy to see how homebuyer/site lessees moving into a community charging $333/month site rent, can afford to buy a new or used home for $68,000+/- (if paying household utility expenses separate from PITI or principal, interest, taxes, insurance), and only $41,000 if said expenses are paid along with PITI, together comprising 30 percent Housing Expense Factor (‘HEF’) measure of affordable housing. Therefore; why try selling $100,000 housing in either AMI market, unless prospective homebuyer has verifiable Annual Gross Income (‘AGI’) of that much or more?
And the same principle holds true for HUD-Code housing manufacturers selling into various local housing markets, characterized by AMIs per postal zip codes. Interestingly, the same ‘Ah Ha! & Uh Oh! Formulae worksheet calculates ‘land & home’ housing price points, per postal zip code AMI’s. For example: $36,000 AMI or AGI = $158,000 max housing value (less value of underlying realty), exclusive of household utility expenses. Why higher? Because no rental homesite rent to pay. And, using $51,229 AMI or AGI = $119,000 max housing value (less value of underlying realty), inclusive of household utility expenses.
So, you using AMI to analyze local housing markets targeted for acquisition investment? You should be! If needing a copy of the ‘Ah Ha! & Uh Oh! Formulae worksheet, visit www.educatemhc.com
Coming: A Most Unusual Book Review…
Greg Jones’ Last Stand At Khe Sanh, ‘The U.S. Marines Finest Hour in Vietnam’ (2014).
Why unusual? Because incidents described in this book often interface with my experiences during a 13 month tour of duty ‘there & then’. Book review likely to be published in the April issue of the Allen Letter. Here’s a sample of what to expect.
“About 5:30 a.m., as the North Vietnamese assault on Hill 861 sputtered to a close, the Marines on the battered hill were startled by an ominous sound to the southwest, toward the border with Laos, about seven miles away.’
BOOM BOOM BOOM
BOOM BOOM BOOM
BOOM BOOM BOOM
A few seconds later, they heard the sound of explosions southeast of their position. Forward observer Dennis Mannion looked at his radio operator. He recognized the sounds of big artillery guns firing, and he knew what it meant Khe Sanh Combat Base was under attack.” P.36
I arrived in Vietnam in time to participate, as a combat engineer officer, in the breakout from Khe Sanh, clearing roads of land mines, building bridges, and more. I heard about the ‘big guns’ hidden along the Ho Chi Minh Trail.
But it wouldn’t be until a year later, when as a company commander with the 3rd Shore Party Battalion, I saw them firsthand. At that point, they’d been captured during a daring assault by Marine infantry. Twelve 122mm field guns were captured, and all but two were ‘spiked’ (‘destroyed) by the NVA. Two Russian artillery advisors had been killed during the firefight.
My job, as battalion rigging officer, was to supervise the separation of the huge gun barrels from their wheeled carriages, then retrograde them, along with captured ammunition and firing tables, via ‘flying crane’ helicopters, out of the Ashau Valley, and back to the Dong Ha Forward Combat Base. During the night before the helolift began, we endured assault after assault by NVA and Red Chinese troops intent on recovering their weaponry. Once the Russian field guns were back at base they were shipped back to Quantico, VA., and Fort Leavenworth, KS – for test firing, and eventual display in the U.S. Marines Museum – and that’s where one of them is to this day. The other one? An exciting tale for another day.
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George Allen, CPM, MHM
Box # 47024
Indianapolis, IN. 46247