New Sale / Finance Model For Parks and Communities
A very smart, experienced, knowledgeable community owner wonders if, because of the lack of financing, the new way to sell a park/community is for the owner to finance/manage/oversee the sale.  Here’s what his situation is:  For a couple of years he tried to sell his park.  The market was falling and lending was constricting.  After a few deals fell through, he was approached by a buyer and the deal they struck was that the owner/seller would still collect the rent and pay the bills, but the buyer/manager would bring in homes, refurbish homes, market, sell and manage the park.  They have a formula for pricing and executing the closing.  In the meantime, the buyer/manager must meet certain benchmarks for keeping the occupancy stable and ideally increasing it.  It is like a contract sale except that it gives the owner/seller a degree of oversight and safety.  The owner/seller has the right to cancel the agreement if the benchmarks aren’t met, i.e., the occupancy decreases.  Is this the new model for selling a park or community?
Living Smaller
Residential real estate agents report that homebuyers today want a smaller home.  Maybe this is an opportunity for community owners.  Realtors say that baby boomers entering retirement, young adults delaying marriage, and the economy still not doing well, results in homebuyers embracing the idea that less is more.  People are questioning how much “stuff” they really need and paring down and de-cluttering homes.  Less stuff also makes a home feel more spacious.  Perusing the covers of shelter magazines indicates that consumers want to de-clutter, de-junk and re-think what they really need.  For community/park owners that belong to the local real estate board and network with  residential agents, there may be some opportunities—especially for a current homeowner wishing to downsize.  They will have cash from the sale of their home.
Abandoned Homes Solution
A community owner finds that by giving away an abandoned home (after the community owner goes through the legal process to obtain title to the home), they are able to get these homes back on the rent roll.  They require the new homeowner to skirt, side, paint, landscape or whatever tasks are needed to bring the home into compliance with community guidelines.  Once the home is in compliance on the exterior, the new homeowner gets the title.  This  community owner says often the prospective homeowner is a current resident that has doubled up with another resident and just wants their own place.
Best Bets 2010
From the Urban Land Institute Emerging Real Estate Trends for 2010
“Buy or hold multifamily.  It’s the only place with a hint of hope because of demographic     demand.  Scarce new construction (developers can’t get financing to build) sets the stage for a strong rebound in any economic turnaround. There could be a shortage of apartments by 2012″.
Could help the demand for homes in communities?
For Rent
A regional manager says that rental homes have added a huge amount of time to the workload of the onsite manager.  The rental homes are a harder business (if the owner is interested in doing it right).  Advertising (Craiglist, newspaper, website) brings in say 50 calls for one home.  Of those, the manager may show the home 20-30 times, take 10 applications and approve one.  That’s a lot of time to rent one home.  On the one hand there is a market, but going through the screening process, really whittles down the list.
HouseLogic.com
A website sponsored by the National Association of Realtors gives homeowners information on owning, maintaining and repairing a home.  Quite a bit of the information will be useful to Manufactured Home homeowners, for example, looking for signs of energy leaks, how to make an insurance claim, and even how to use green household standbys for cleaning.  Any government programs for tax credits (i.e., energy) are described.  It’s a resource for your residents.
Decent Momentum In New Homes For Communities
An account executive for Clayton Homes is having “decent momentum” on sales of single section homes in Western states.  The community is focused on the $26,000—$30,000 price point plus set up.  What’s interesting is that community owners are putting more money into sets for landscaping, more poured concrete for parking, patios, and sidewalks, and more elaborate decks.
Teach Resident/Homeowner
A Midwestern community owner strives to teach his residents the concept of saving money and paying down more on their home mortgages and contracts.  Homeowners haven’t been taught about compounding and discounting.  They don’t realize that by paying an extra $50 per month on a $15,000 loan at 9% they will shorten a 10 year term by 3 years.  This benefits the community owner, too because the more equity the homeowner has the less likely he is to abandon the home.  Anything the manufactured home business can do to dispel the notion that our homes don’t appreciate in value, helps everyone in the MH business.
Insurance On Manufactured Home Rentals
A community owner with a considerable number of rental homes says that he can’t afford to insure the homes and that many other community owners don’t either.  Is this the next black eye for the MH biz waiting to happen?  Headline:  “Fire Destroys Mobile Home—Landlord Has No Insurance”.

Joanne M. Stevens, CCIM
Park and Community Specialist
NAI Iowa Realty Commercial
Brokering mobile home parks & manufactured home communities throughout the U.S

Barry gave “Four Key Strategy Areas” that, if adapted by a community owner would have a big improvement on the   bottom line and the growth prospects for the community.  The four key areas are things anyone can do now without a lot of cost, but the clincher is changing the     mindset.  As you read Barry’s list, think about what kind of a community business you would have if you adapted even one of these.

1)  Market Niche Focus

When you bought your first community, were you more knowledgeable then about where your customer was coming from?  Were they coming from apartments?  What was their reason for moving into your community?  Where would they have lived if they weren’t in your community?  Are community owners as up-to-date on housing choices in their local markets as they need to be in order to compete?  Maybe not, suggests Barry.  We need to address the new realities of the housing market. Has our niche changed?  Do rents need to go up or down?  Has our market changed?  To rent sites and sell and rent homes, the community owner needs to adapt to a changed and changing marketplace.  In my market, for example, the demand is for rental homes, but not so much for buying homes.

2)  What is My Plan?

Barry says that we need to be realistic and figure out if we can afford to address the new market realities.  What he is suggesting is that community owners need to know the following about their customer:

• What is the credit profile of the customer I am willing to finance?
• Can they make a down payment?
• What is the age of the home?

What is the plan for the capital to finance the homes?  Two important things Barry noted are:

• Community owners need to be in compliance with the law to finance homes.
• Many owners are running out of cash to finance homes.

(In conjunction with financing of homes, Warren Buffet noted in his 2009 annual   report that unless reasonable financing becomes available, manufactured housing demand will continue to shrink).  To finance homes we need systems that are effective, efficient and compliant.  Do our homebuyers know that they are building equity in their home and how much their equity is? Do they know, assuming their buyer passes the tenant screening for the community, they can sell their home and move on?  On this last point I’m    guessing probably not.  Residential real estate agents do this all day for site-built homeowners, but in the community business, residents don’t get much support from anyone when it comes to figuring out their options, equity being one.  Which may be one reason for the customers’ not buying in a community to begin with.

3)  Resident Pride

We need residents that feel proud about living in the community and want to stay.  This can be accomplished by having management structures in place to retain existing residents.  The retention system needs to include activities for residents and keeping the appearance up.  The rules need to be enforced firmly but politely.   Residents that are under water on their home’s value are no more stable than a renter.

4)  Financing Homes
Community owners need to get creative and think of ways to raise capital to buy more homes and finance them.  The Manufactured Home business is starved for  capital for the consumer to purchase a home.

There is plenty of capital piled up on the sidelines and investors are looking for investment opportunities.  For a well run income producing operation, there are investors.  One idea is to take on a partner, perhaps in a minority position.  Barry said that today a chief worry for the communities is that community owners may not be able to afford to keep up their communities. In addition to rising real estate taxes and operating costs, the cost to buy, fix up, market and finance homes in communities may mean that some, perhaps many, owners simply won’t be able to afford to be in the community business.  Hard choices about selling their community may be in store for some.

MONEY IS COMING BACK TO REAL ESTATE

Dr. Peter Linneman, Chairman of the Wharton School of Finance and economist for NAI states that not only is the money coming back to real estate, but that:

• Multi-family real assets will rebound first, before office, retail, industrial.

• We are at the top for cap rates.  Translation—prices have hit bottom.

• Little has changed in the economy in the first quarter of 2010 but the psychology of the recession has changed.  It’s been said that investors and consumers are mentally   either in fear or in greed.  During the boom years spending and taking risks were the so- called greedy behaviors. When the recession set in, greed quickly turned to fear.  Thus, the tightening of credit. According to Dr. Linneman, how people feel has changed.    Investors and consumers are edging from fear to courage, and from inaction to more  aggressive behavior.  The pendulum is beginning to swing toward greed.

• No new multi-family, including communities, are being developed.

• Pent up demand is and will continue to build.  One reason is the millennium generation coming out of college.  Because it is so tough for young people to find a job in the current economy, many are moving home or doubling or tripling up with friends.  Once they get jobs, they will be moving into their own homes.

• Inflation will be a factor.  As household formation picks up, rents will increase and so will home prices.

• Another recession will occur in 7 to 10 years.  Dr. Linneman says that when debt is cheap and/or easily available it mostly benefits sellers, not buyers.  If you are an owner that is wondering when is the best time to sell, you may want to think about…

      a) selling soon before capital gains taxes go up and interest rates go up, or

      b) waiting for another 7 to 10 years for the next “bubble” and sell at the top of that cycle.

• Interest rates will rise faster than cashflow. Prices of real estate will not go up as fast as interest rates.

• Real estate taxes will go up.

Distressed Buyers

CNBC, the cable business channel held a conference in Vancouver this year. They said that there are more distressed buyers than distressed sellers, meaning there are more buyers wanting to make investment in real estate that produces a cash flow than there are properties available.       Certainly for the park and community business there is a dearth of parks and communities available for investors to  purchase.

Water Usage & Water Cost

A midwest community owner knocks on doors in his community with a plumber in tow.  He asks the resident if he and the plumber may check the faucets, toilets, etc. for leaks. They fix the problem on the spot and charge the resident.

Switching From Investing in Communities to Apartments

A long time investor in communities said recently that he is now buying apartments, not communities.  The simple reason is financing.  Investing in communities is nearly impossible if there are community owned homes.  With apartments, the lender doesn’t lend on the real estate and not the apartments.  It’s a one stop shop for getting a loan.  With rehabbing, selling or renting homes and financing homes, he says that a manufactured home community has become a tougher business.

Murder Headline Misleads Readers

The following was a “Letter to the Editor” in the Cedar Rapids Gazette:

Regarding this March 11 headline, “Man Charged in Mobile Home Death”

I wonder why the editors focused on the type of residence in which the death occurred. Had the alleged murder occurred in a single-family home of traditional  construction style, would we see that in the headline, “Man charged in single-family home death”?  I think the implications being made here are rather irresponsible and are attempting to lead the reader to some unsubstantiated  conclusions. If there is a point the editors would like to make regarding crime and             socioeconomic status or lifestyle or  whatever, the opinion page is the proper place for such discourse, not the front page. In addition, I believe it was a young woman who died, not a mobile home.

Homes Moving Out

A community owner reports that some residents are getting heavy handed when it comes to getting the community owner to buy their   manufactured homes.  He says that a few residents have threatened to move their homes out if the community owner won’t buy their home

Joanne M. Stevens, CCIM

Park and Community Specialist

NAI Iowa Realty Commercial

Brokering mobile home parks & manufactured home communities throughout the U.S

Frank & Dave’s Analysis of This Story:

There will be more stories like this in the months ahead, as troubles in the commercial real estate financing market are finally dealt with. Would this be a good mobile home park deal? It might be. Most banks have absolutely no desire to be in the mobile home park business. Could you get a loan on it? The first source might be Wachovia. They might be most interested in just putting this loan back into the “performing” category.

Kurt D. Kelley
President
Mobile Insurance
25775 Oak Ridge Drive, Suite 110
The Woodlands, TX 77380
(281) 367-9266, ext. 17
(281) 292-7429 fax
email Kurt@mobileagency.com
www.MobileAgency.com
Member of the American Insurance Alliance

Also, as part of the contest, we will draw one name at the end of February for a free copy of our Mobile Home Park Home Study Course.