Archive for March, 2010

Official MHIndustry Briefing Format

Sunday, March 28th, 2010

Official MHIndustry Briefing format @ April 2010

Have you wondered what Wall Street analysts, investment bankers, and major real estate investment portfolio managers pay thousands of dollars to hear and learn? Well here’s one example that’s used frequently and updated monthly…

An Overall Perspective of the MHIndustry as a ‘double dual industry & realty asset class’

HUD Code manufactured housing is one key type of factory – built housing, characterized by federal regulatory oversight via a preemptive, performance – based national building code. First half the ‘double dual’ characterization = housing design and manufacturing; then, housing distribution per towed steel chassis, with marketing thru ‘company stores’ and a declining number of independent MHRetailers. Today however, an increasing number of landlease (nee manufactured home) communities, throughout the U.S. regularly market, sell and often self – finance new and resale homes on – site! Housing market share, measured by annual shipment volume (e.g. only 49,789 new HUD Code homes shipped during 2009), not sales volume! Clayton Homes = 46%+/- of national HUD Code market share. Trends? Consolidation (e.g. Fleetwood acquired by Cavco; Champion acquired out of bankruptcy by three creditor investors) of housing manufacturers. Production/shipments continue to trend downwards, and will continue to do so sans reliable, continuing source(s) of chattel (personal property) financing for new and resale home transactions! At present rate of annual decline in shipments, it’s estimated only 250 homes will be ‘shipped’ during year 2020.

The second half the ‘double dual industry & realty asset class. The landlease (nee manufactured home) community, a.k.a. ‘LLCommunity’ income – producing property type, historically sited ‘mobile homes’ (pre – 1976 vintage) and manufactured homes (post – 1976) Today? Add modular homes, ‘park models’, RVs for a season, and stick – built homes constructed to look like manufactured homes (in Florida), to the historic mix, hence recent evolution in trade terminology. National inventory = estimated 50,000+/- such properties; 85% of which = fewer than 100 rental homesites piece in size. 500+/- portfolio owners/operators of LLCommunities (i.e. minimum portfolio size threshold = five properties and or 500 rental homesites). See additional stats in 21st annual ALLEN REPORT available via this website: www.community-investor.com

Examples of recent ground – breaking joint initiatives and efforts between HUD Code home manufacturers and LLCommunity owners/operators: nearly three dozen business Development Managers (‘BDMs’) appointed a year ago to increase manufacturers’ market share of new homes going into this property type (some factories now have 50% of production headed into LLCommunities); recognition of special design, size and features for LLCommunity – sited homes = Community Series Homes or CSH; and, regular scheduling of Super Symposiums & Showcases of Homes, in IN, OH, IL, GA & NY, with dual goals of teaching LLCommunity folk’ how to market, sell and self – finance new and resale homes on – site’, and exhibit CSH product for purchase consideration. Symposiums also replace regional shows (e.g. Louisville, KY.), which have been canceled of late.

SPECIFIC PERSPECTIVES

Manufactured housing valuation. Historically, and for the present – per GSE preference, ‘book valuation’ (replacement method) still very much in play. Book value adjusted per condition of housing unit being valued, and location of home. Valuation by ‘market comps’ is preferred method by MHIndustry and LLCommunity businessmen and women desiring to move beyond near automatic depreciation of MHousing values per ‘book valuation’ method. Datacomp in MI sets the pace and standard(s) in this effort. Difficulty of conversion from ‘book value’ to ‘comp value’ also hinderd by local housing market practices and prejudices, oft instigated and perpetuated by real estate sales licensees and brokers; and sad to say, some folk within the manufactured housing industry.

Current Market Trends. Local housing market trends are ‘all over the place’ per climate (e.g. Sunbelt vs. non – Sunbelt), economy ($ available for home purchases and lending), employment increasing or decreasing, & active workforce or retirees, etc.); competition (e.g. site – built housing repossessions & presence/lack of multifamily rental or apartment communities, etc.) NATIONAL. Relative to HUD Code home manufacturers: beyond above – referenced consolidation, 80/20 mix of singlesection vs. multisection homes swinging again, in part due to $ available for housing purchases and increased interest in siting new homes in LLCommunities. (This did not happen prior to five years ago!). Relative to LLCommunities: consolidation here too (e.g. 25 portfolio ‘players’ 21 years ago; 500+/- today, including three REITs), as well as a near perpetual ‘seller’s market’ due to scarcity of product (new properties not being developed due to NIMBY, LULU, & BANANA*1); ‘recession proof’ nature of the property type (explain); very low annual turnover rates for homes and homeowner/lessees; lowest operating expense ratios (‘OERs’); more opportunities for AITR (‘alternative income to rent’) than any other realty asset class; and, innate ability to ‘add value’ by marketing, selling, and self – financing new and resale homes on – site…from a few million $$$ in 1999 to $3 ½+/- billion, among 500+/- major ‘players’ alone, by end of year 2009. Downside? Due to too high rents (first with REITs, then greedy private operators), some large LLCommunities are now in foreclosure or forbearance. Occupancy trend? Down slightly, but not nearly as bad as would have been the case without on – site home sales. In fact, national physical occupancy among portfolio LLCommunities is higher, for the first time in memory, than percentage experienced by conventional apartment communities during 2009

Impact of subprime collapse and housing crisis on the manufactured housing industry. To answer this, be aware MHIndustry continues to endure its’ subprime lending collapse and housing crisis, that began eight years earlier than site – built housing, from when 372,843 new manufactured homes were shipped in 1989 – down to only 49,789 last year! Impact of contemporary subprime and housing crisis among stick – built homes, on MHIndustry? Varies from local housing market to market. Yes, some folk with bruised credit have ‘returned’ to HUD code housing (After all, site – built housing boom stole half our traditional market of the ‘newly wed & nearly dead’), but there’re still 1,000,000+/- repossessed site – built homes to be resold as bargains (competing with non – repo, new MHomes) before we’ll see any groundswell of new homebuyers. AND, since MHIndustry lost its’ access to third party chattel (personal property) financing post 2000, our ability to loan to 600 FICA score borrowers is sorely limited – except for on – site sale and self – financing of new and resale homes in LLCommunities! Bottom line? Minimum impact at this time. And there is one major bugaboo on the asset class’ horizon: the unknown impact of the federal S.A.F.E. Act once implemented on a state by state basis. At present, this legislation has the potential to put most on – site, self – finance operations out of business…

Here ends the Official MHIndustry Briefing format ‘exercised for hire’ several times each month. If you’d like to comment about it, offer suggestions, etc., do so via this website or phone the MHIndustry HOTLINE: (877) MFD-HSNG or 633-4764.

SPECIAL ANNOUNCEMENT. Manufactured Housing $$$ Primer being printed and bound as this blog is posted! The 100 page guide contains original work prepared by two dozen MHIndustry experts. This is the first such text ever published on the complicated subject of chattel (personal property) finance, as it applies to HUD Code manufactured housing. This is a limited print run, so if seriously interested in owning a copy of this historic and helpful publication, respond directly to this Blog or via (317) 346-7156. Some copies will be available for purchase (Price indeterminate, but likely $19.95+/-) at the Manufactured Housing Congress in Las Vegas @ April 13 – 15, 2010. Call (703) 558-0678 to register for this important industry event!

George Allen, Realtor®, CPM®, MHM
Consultant to the Factory – built Housing Industry &
The Landlease Community Real Estate Asset Class
Box # 47024
Indianapolis, IN. 46247
(317) 346-7156

Get Ready, Get Set, LEAP!

Sunday, March 21st, 2010

‘Get Ready, Get Set, LEAP!’

A salmagundi of advice, observations, and opportunities to help you Learn, Earn And Prosper, during these difficult times for manufactured housing!*1

First, for the landlease (nee manufactured home) community owner/operator.

1. Mind your own business like never before! And remember this about your personal and business character: Malcolm Forbes, had a net worth of about $250 million, when asked how he decided where to invest his own fortune, said: “I bet on the jockey, never the horse…I don’t need to know what industry the company is in, or what its’ financials are. All I need to know is what kind of person the CEO is!”*2 “…the character of an organization is established by the character of the people who work there. And that character is determined by the integrity of the leader.’ Rosen & Brown, in Leading People, 1996.

2. Don’t be greedy! Apply the Minnesota/Kentucky Rule of Thumb!*3 In the landlease community (‘LLCommunity’) business environment, ‘Total monthly PITI & rent payment, for a new or resale home transaction and homesite lease combined, must be $50.00/month less than monthly rent for a large conventional apartment unit in the same local housing market, or you’ll lost the deal every time!’*4

3. If personal or corporate funds are available, self – finance new and resale home transactions on – site, forming a separate business entity for this purpose (i.e. ‘captive finance’); or hire a capable, experienced, motivated third party financial services firm to underwrite and service these chattel (personal property) loans! To this end, reserve your copy of the Manufactured Housing $$$ Primer scheduled for release April 13th at the National Communities Council (‘NCC’) FORUM in Las Vegas. How? Call (317) 346-7156 or email: gfa7156@aol.com Price? Indeterminate, as the guidebook is being edited as this blog is being posted.

4. Speaking of ‘captives’. NOW is finally the time to seriously consider joining with approximately two dozen other LLCommunity owners/operators, to form a ‘captive insurance’ firm during 2010, emulating what our campground and RV park peers did so successfully decades ago! For more information, contact Jay Zandman @ (800) 211-0468 x 117. I plan to participate! GFA

Next up; is manufactured housing industry ‘an either or’ proposition or a singular entity?

‘Up & Down’, ‘Left & Right’, ‘Port & Starboard’, Manufacturer & Distributor’, ‘Housing Production & Post Production’. Specifically, Housing Production = HUD code home manufacturers & OEM suppliers; while Post Production (nee ‘the aftermarket’) = lenders, MHRetailers & LLCommunity folk!*5 Does our Business Model really pencil down to being a simple couplet, comprised of one or the other perspective, relative to HUD code manufactured housing; or, are we inextricably bound up ‘in this together’? That’s the first pivotal question being asked, with increasing frequency today, from different corners of this industry and its’ unique realty asset class.

A second question being asked of and from both perspectives: ‘Are we satisfied with the advocacy efforts and trade representation in place inside the Washington beltway at this time?’ Are you?

Now, neither question is particularly new. What’s novel, is the patent recognition the ‘industry’ per se, may have passed the point of (near) ‘no return’. Specifically; did you see, as I did, there were No HUD Code manufacturer ads, of any size whatsoever, in the February issue of The Journal? And after a 50 year run, no Midwest Manufactured Housing Show in Louisville, KY? And the 50+ year old Manufactured Home Merchandiser folded during 2009. For a complete and sobering list of the many HUD Code manufacturers who exited during 2009, read The Grissim Report.

In the meantime, the realty asset class, though some are paying the price for past greed continues to profit from intrinsic benefits of scarcity (few new LLCommunities being developed); being ‘recession proof’; ‘adding value’ via home sales and finance; and, enjoying the fruit of generally low annual turnover of homes and residents, as well as lowest OER among all income – producing property types.*6

How’re answers to the leadership – focused questions going to pan out? For sure, we’ll have to wait and see. In the meantime, MHARR rails against federal regulators (e.g. ‘Further Evidence of HUD Program Mismanagement’, per email correspondence on 3/19/2010). The very same day, MHI’s weekly email report contained little more than pabulum. Just know there’re contingency plans in place, to ensure continuation of political advocacy, regulatory defense, and trade representation – with a minimum of interruption, should a worst case scenario present itself.

And finally; while it’s not really for me to announce; the MHRetailer, some say MHIdea, rejuvenation initiative appears to be dead for now. In last week’s blog posting I apologized for not announcing Big News, stymied by an unexpected power failure in central Indiana. Well, guess what? Still no Big News – of a positive nature, this week either. The truth is, No News. A half dozen and more, really concerned independent MHRetailers and affiliated parties, were ‘standing by’ in the hopes a charismatic leader of financial means, would step up to the plate, and unite disparate ‘players’ throughout this segment of the industry. It simply didn’t happen. However, if the content of this paragraph lights your ire fire, and you decide to get actively and intimately involved; let me know, and I’ll put you in touch with the aforementioned core of seriously concerned independent MHRetailers and affiliated parties.

The week or two ahead. If planning to be in central Massachusetts on Friday, March 26th, consider joining LLCommunity peers at the day long Manufactured Housing Manager (‘MHM’) professional property management training and certification class there. Call Mary McBrady @ (508) 460-9523 ASAP. And early the next week, if you have any excuse to be in Albany, New York, attend the New York Housing Association’s Super Symposium & Showcase of Homes! To date, more than 100 registered to attend this combination of sales and finance seminars and home tours. For information, contact Nancy Geer @ (800) 721-HOME or info@nyhousing.org

Have you been following the ‘Best of MHARR & MHI’ column in the Allen Letter professional journal, penned by ghost writer M.H. Ronin (last name means ‘a covet operations specialist with no governmental ties’)? To subscribe, access the website bearing this blog: www.community-investor.com

*****
End Notes.

1. salmagundi. ‘a little of this, a little of that’
2. Material quoted from Boa, Buzzell & Perkins’ Handbook to Leadership, Trinity House Publishers, GA, (800) 372-9632.
3. Minnesota/Kentucky Rule of Thumb. Moniker recognizes a wise pricing perspective recognized and espoused by two veteran LLCommunity portfolio owners/operators who independently arrived at the same conclusion; a.k.a. the Schraeder/Smith Rule
4. PITI = principal, interest, taxes, insurance
5. MHRetailers = official abbreviation for manufactured housing (nee street) retailers; and OEM = original equipment manufacturers (e.g. appliances, etc.)
6. OER = operating expense ratio(s). For FREE copy of Official Industry Standard Chart of Accounts and accompanying OERs for the LLCommunity asset class, phone the MHIndustry HOTLINE: (877)MFD-HSNG or 633-4764.

George Allen, Realtor®, CPM®, MHM. c/o Box # 47024, Indianapolis, IN. 46247

NEXUS is US!

Sunday, March 14th, 2010

NEXUS is US!

Some sense ‘Change is in the wind’; not the President Obama type, but pro & con initiatives & measures affecting every segment of HUD Code manufactured housing & the landlease community real estate asset class!

NEXUS is US!? Dictionaries list three definitions for this word, each characterizing one or another aspect of our unique, American born, ‘double dual industry’.*1 Nexus is ‘a means of connection, link or tie’; also, a ‘connected series or group’; and, ‘the core or center’. If you’re an entrepreneur businessman or woman with sole proprietorship, partnership, or corporate stake in HUD Code manufactured housing, and or ‘re salaried executives and employees of these businesses, partnerships, and firms! Bottom line? We’re in this predicament of historic proportions, together; and as ‘the nexus’ of manufactured housing & landlease communities (‘LLCommunities’), we must steer ourselves clear of this Near Perfect Storm, or as some opine, Grand
C o n s p i r a c y; or perish! But, how to do so?

Since we continue to await word, plans, and action from elected and salaried leaders of our two national advocacy bodies, within the Washington, DC beltway, we must, by default, rely on grassroots initiatives, and rumors of political and regulatory measures, for hope, if not faith, a new or revised Business Model is in the offing. A Business Model that’ll 1) attract favorable and consumer – favored transaction financing for our type factory – built housing, oft sited in professionally – managed, multifamily rental communities; and, 2) consequently, ‘Save Our Industry!’*2 In the meantime, we wait….

So, what is today’s ‘warp and woof’ of inter – segment threads connecting grassroots initiatives and rumors cum reality of political and regulatory measures?

Any talk of a new or revised Business Model, for this industry and asset class, will be for naught if the HUD Code manufactured housing industry doesn’t, once and for all, decry its’ recent past mantra: ‘Bigger Boxes = Bigger Bucks!’ Then, publicly and forthrightly, seize the initiative and proffer a workable definition and description of ‘affordable housing’ &/or ‘housing affordability’, applied to those features (e.g. low cost per square foot, transportability, energy efficiency, and more) characterizing contemporary HUD Code manufactured housing! *3

Next? Manufacturers of HUD Code manufactured homes. As has been pointed out in The Grissim Report, many many HUD Code housing firms went out of business during year 2009; or have been changed, maybe forever, by dint of merger and absorption (a.k.a. consolidation); and in some cases even new ownership, e.g. Fleetwood Enterprises now Fleetwood Homes, owned by CAVCO; & Champion Enterprises, acquired out of bankruptcy by three investors.*4 Only one mega firm remains intact, controlling 48+/- percent of the national market share of this unique type factory – built housing. So, how will all this pencil – out during the months ahead? Depends on several factors: availability of chattel (personal property) financing – or some other novel approach to this business perpetuation necessity; states implementation of the federal S.A.F.E. Act (i.e. Safe And Fair Enforcement of Mortgage Licensing); and, what restraint of trade measures one or another agency or department of the federal government applies, or does not apply, to the ongoing consolidation among HUD Code housing manufacturers.

Manufactured housing (nee street) retailers, whether independent or company stores. Had hoped to have Big News for you today, in this arena. However, due to a local power failure in central Indiana last Friday, I was unable to effect the telephone call many hope will spark a phoenix – like rejuvenation of the housing ‘distribution’ segment of our ‘double dual industry’. In the meantime, the in – house marketing of new Community Series Homes (‘CSH’), via Business Development Managers (‘BDM’), existent at several dozen HUD Code home manufacturing firms, is generally proceeding according to plan, with some plants – we’re told, shipping as much as 50 percent of their new home production into LLCommunities!*5 And frankly, as far as can be ascertained, ‘company MHRetailer stores’ are doing as well or poorly as their manufacturer bosses allow. It’s the plight of the 10 percent remainder of independent MHRetailers (as compared to the number selling Land & Home packages in year 2000) that’s motivated the birth of MHIDEA, to rally and organize these MHBusinessmen and women throughout the U.S.*6 Let’s hope some exciting Big News will headline next week’s Blog posting here at community-investor.com/blog! Where’s MHI’s National Retailers Council division in this mix? At present, they aren’t. All the initiatives cited earlier in this paragraph, e.g. CSH, BDM, & MHIdea, have been grassroots in nature. Hopefully MHI’s NRC division will climb aboard the MHIDEA bandwagon, if and when it pulls out of the barn to begin its’ work rejuvenating the distribution segment of the MHIndustry, and supplementing the marketing of new homes into LLCommunities!

Landlease community owners/operators. Much has been penned of late, about what is generally the healthiest of all MHIndustry segments. You’ve heard or read the drill. Today, nearly all owners/operators, certainly property portfolio ‘players’, actively market, sell, and frequently self – finance new and resale homes on – site! The Success Formula? Used to be simply, ‘Maximum Income + Minimum Expenses = Max ROI! Now there’s this corollary: ‘Recession proof property + Ability to add value = More than Survival; and if not greedy, Financial Success!*7 Sure, there’re properties (often larger ones) going back to lenders these days, either in forbearance (think ‘tied up in CMBSs’), or foreclosure, as REO (‘real estate owned) assets.*8 But there’s usually a sorry story behind those reversions, and much of the time it has to do with raising rental homesite rents to much higher than justified levels in the local housing market. *9 Besides the self – help measure(s) described in this paragraph, probably the best things the 50,000+/- property strong asset class has going for it, are MHI’s National Communities Council (‘NCC’) division, and the Urban Land Institute’s Manufactured Housing Communities Council (‘MHCC’) de facto Think Tank for both the HUD Code Manufactured Housing Industry & the LLCommunity asset class. And in the case of MHI’s NCC division, the sooner it hires a capable, asset class – experienced, highly motivated executive to devote 100 percent of his/her time to growing membership, and providing valuable services, to property owners/operators, the brighter our collective future will be!

And there’s more. Not even talked about in this blog, is the present need for MHIndustry & LLCommunity elected and salaried leaders to come together to parse some pretty serious questions. On the manufactured housing side; how much longer is it going to take for MHI to get off its’ duff and establish/nurture a viable secondary market facilitating the sale of resale homes? This means some difficult decision – making relative to how manufactured homes are valued for marketing and sale (e.g. ‘book value’ vs. ‘comp value’); encourage multilist use (Made easier, of late, by U.S. Supreme Court’s direction to National Association of Realtors® to open MLS to our brand of housing); as well as use of escrow accounts and realty – type ‘closings’ when consummating deals; and, probably most controversial of all, require home sales staffs to be licensed real estate salespersons and brokers, in states where they operate! Did I just hear a primal scream out there? I truly hope so….

It’s also high time to address the oft extreme disconnect between the 1) well – designed, attractive and professionally – managed, family and 55+ LLCommunities, and the 2) often old and functionally obsolete, unattractive, and poorly managed (if managed at all), multifamily hovels perennially giving our contemporary, quality, attractive, ‘green’, energy efficient, non – subsidized, transportable, factory – built housing a bad bad name, and ugly ugly social image in most local housing markets, on TV, in novels, and on Broadway! Are you on board to address the issues just described in these two paragraphs?

As a related aside; the serious questions described in the previous two paragraphs demonstrate why Manufactured Housing Association for Regulatory Reform (‘MHARR’) has not been, is not, nor will ever be – sans a major change to its’ restricted membership base (i.e. Non – manufacturers need not apply!), in a leadership position to Save Our Industry! Until, as MHARR puts it, aftermarket issues – like the ones just described, are resolved and corrected, manufactured home owners are handicapped when ‘buying up’ into a new home (i.e. One more new home shipment for a HUD Code manufacturer!), since their present dwelling has likely depreciated in value; and, why should lenders extend favorable chattel financing terms on home deals to be sited in substandard properties, poorly managed by passive investors, and subject to landlord whims? Keeping federal regulators at bay, protecting the intrinsic affordability of our unique brand of factory – built housing, is simply one, albeit important, part of our overall challenge!

Well, that does it for this week. Hopefully one or more of these revelations, and restatements of hard truths, has motivated you to become part of the solution to Save Our Industry! and not continue to sit back on your haunches as part of the problem. Don’t forget; if a business owner and or executive active in any segment of this ‘double dual industry’, NEXUS is US! So, as such, respond directly to this Blog with our ideas, comments and suggestions via one or another of the contacts listed in the End Notes to follow!

Next step? While we collectively continue to await ‘words, plan and action’ from MHARR & or MHI, perhaps we should begin talking now, about a third National State of the Asset Class (‘NSAC’) caucus.*10 What say You; at the Nexus?!

***
End Notes.

1. ‘double dual industry’ refers to HUD Code manufactured housing’s distinct ‘manufacturing’ and ‘distribution’ systems; and, landlease community raw land ‘development’ and ‘investment/property management’ perspectives.

2. Manufactured Housing Association for Regulatory Reform (‘MHARR’) @ (202) 783-4087: Danny Ghorbani; and, Manufactured Housing Institute (‘MHI’) @ (703) 558-0678: Thayer Long. Are you a direct member? If not; join today!

3. Much of this work has already been published in HOUSING AFFORDOGRAPHY, ‘Study of Affordable Housing Formulae & Measures of Housing Affordability’, PMN Publishing, IN, 2008; to wit: Housing Expense Factor, Housing Opportunity Index; Housing Wage; and other parameters.

4. The Grissim Report. (360) 683-1458 & http://grissimreport.com

5. If you’d like a FREE list of the 33+/- BDMs presently marketing HUD Code homes, in behalf of their firms, to LLCommunity owners/operators nationwide, call the MHIndustry HOTLINE: (877)MFD-HSNG or 633-4764 and request it. And while phoning, ask for Don Westphal’s seminal article describing the nature of CSH!

6. For more information, go to MHIdea.org (apology for incorrect web address cited in last week’s blog posting).

7. ROI: ‘Return On & Of Investment.

8. Commercial Mortgage – Backed Securities

9. For a Do It Yourself forms designed to calculate the appropriate rental homesite rent in any local housing market, using AMI (Average Median Income) and or AGR (Average Gross Income of an individual or household); as well as the ‘affordable’ and ‘risky’ price points on any new or resale manufactured home in or outside a LLCommunity, phone (317) 346-7156, and request FREE copies of the EQUALIZER worksheet, and the new ‘Ah Ha! & Uh Oh!’ multipurpose form.

10. Brief description and history of the National State of the Asset Class (‘NSAC’) caucus. An informal grassroots movement comprised initially of landlease community owners/operators; but now, also HUD Code housing manufacturers, who gather when there’re enough significant national issues afoot to warrant a one or two day caucus attracting seriously interested and already successful businessmen and women. First caucus was held 2/27/08 in Tampa, FL., and agreed on Five Action Areas (For a list of these foci, read 21st annual ALLEN REPORT, p. 6.). Second caucus, titled: an Historic SUMMIT Meeting, between LLCommunity owners/operators & HUD Code home manufacturers, was held 2/27/09 at the RV/MH Heritage Foundation Hall of Fame, Museum & Library facility in Elkhart, IN. That’s where those two major segments of the industry relearned, after a nearly 30 year hiatus, to work together to ‘sell new manufactured homes into landlease communities’! Can you imagine what might occur if we gathered, once again, to address the issues, questions, and challenges described in this blog posting?

*****

George Allen, Realtor®, CPM®, MHM
Consultant to the Factory – built Housing Industry &
The Landlease Community Real Estate Asset Class
Box # 47024
Indianapolis, IN. 46247

The New Old Model for Manufatured Housing Fiknance!

Sunday, March 7th, 2010

The New Old Model for Manufactured Housing Finance!

“In 1999, only a few of the 500+/- portfolio owners/operators of landlease (nee manufactured home) communities engaged in on – site marketing, sales and self – finance of resale manufactured homes. Virtually no one sold & self – financed new manufactured homes on – site. However, ten years later – by end of 2009, most did so,
to the tune of $ 3 ½ +/- billion dollars – in contract sale ‘paper’ carried by these owners/operators!” To learn why, read the 21st annual ALLEN REPORT (a.k.a. ‘Who’s Who Among Landlease Community Portfolio Owners/operators Throughout North America!’). *1

In the meantime, how ‘bout manufactured housing chattel (personal property) finance of new and resale home transactions outside landlease communities? If you truly don’t know, ‘it’s nigh nonexistent TODAY (March 2010)’, except from what’s generally referred to as The Big Four, along with some lenders in various local housing markets. *2

So, what is this New Old Model for Manufactured Housing Finance? *3

L(.)(.)K L(.)(.)K L(.)(.)K L(.)(.)K L(.)(.)K L(.)(.)K

The 20 year (i.e. 1979 to 1999 +/- ) business model, of relying on outside lenders to handle all or most landlease community manufactured housing financing, is long gone! This reality was confirmed during an October 2009 meeting, in San Francisco, CA., of the industry and asset class’ de facto Think Tank, Urban Land Institute’s (‘ULI’) Manufactured Housing Communities Council (‘MHCC’). At that time, a 13 point ‘Baker’s Dozen’ of focus areas was identified and articulated per how LLCommunities looked ten years ago (1999), today (2009), and possibly ten years hence (2019). One focus area had to do with chattel (personal property) finance of new and resale home transactions on – site. Their prediction for this focus area in 2019? ‘Chattel $ on – site via (local) lenders and (excess) cash flow’ only! The other dozen focus areas? Read the aforementioned 21st annual ALLEN REPORT.

Despite what you just read, know there’re several quiet but concerted efforts afoot in Washington, DC., to improve the chattel finance climate relative to HUD Code manufactured housing and the landlease community asset class. First; contact the Manufactured Housing Institute (‘MHI’) to learn of their initiatives: (703) 558-0678, Thayer Long; then the Manufactured Housing Association for Regulatory Reform (‘MHARR’) @ (202) 783-4087, Danny Ghorbani. Second; know there’s ‘a consortium of major LLCommunity (portfolio) owners working hard to get FHA, Fannie & Ginnie Mae to increase their support for consumer financing to the MHIndustry’, in part, by broadening lending standards to ensure low – cost financing is readily available to worthy consumers who meet down payment and income standards. And third; there’s now a fledgling body of independent MHRetailers intent on rejuvenating their heretofore dying segment of the industry; visit MHIdea.com. Fourthly; there’s a printed work being prepared, hopefully in time for sale and distribution at MHI’s annual Manufactured Housing Congress in mid – April in Las Vegas, NV., tentatively titled: The MH $$$ Primer, ‘All You Ever Wanted to Know About Manufactured Housing Finance But Didn’t Know Who to Ask!’ Will also be available via this website hosting the Official MHIndustry & LLCommunity Blog. But even with all that said…

Today, many LLCommunity owners/operators continue to engage in what some psychologists call ‘magical thinking’; believing the manufactured housing industry’s decade long doldrums (i.e. 1999 to 2009) will magically end (somehow), and past normalcy will return! Another reality that flies in the face of such wishful thinking, is that even if a revised FHA Title I program emerges, it’ll enable third party chattel lenders (.e.g The Big Four) to service only a small percentage of would be homebuyers who should be our customers. This because of tightened qualifying requirements for would – be borrowers, and so many borrowers with already bruised credit incurred during recent and continuing times of economic stress.

Bottom line? LLCommunity owners/operators, not presently engaged in self – finance of homes sales transactions on – site, are going to have to get over lingering fears of this new old business model, and get actively into the fray, or remain on the sidelines unable to facilitate filling vacant rental homesites with new or resale homes, to ‘keep the site rent meter running’.

As was pointed out earlier, most property portfolio owners/operators now self – finance, and many (most) have built loan portfolios of significant size, some valued at millions of dollars apiece. Unfortunately, some, if not many, have patterned present day policies and procedures (i.e. business model) on ways lending was effected during the 1960s and 1970s; meaning, most of these loan portfolios have little liquidity, as they are of questionable legality, noncompliant with contemporary lending regulations, and often not properly underwritten. This reality is oft compounded by the presence of rental units, rent – to – own and lease – to – own homes, as well as retail installment sales contracts, effectively tying subject homes to the LLCommunity proper, consequently lowering the overall investment value of the income – producing property!

The alternative to the ‘old business model’ per se? Create a captive finance company, as automobile manufacturers did decades ago, and as others have done in other business types. *4

A captive finance company is different from the heretofore described ‘buy here – pay here’ (process), since finance actions are effected by a separate legal entity functioning apart from the MHRetail or landlease community operation. This approach limits liability, is easier to keep legal, simplifies compliance simpler, and is often less costly. So, where’s a captive finance company to get its’ funds to loan on housing transactions?

Some LLCommunity owners/operators borrow money against their assets, even their income – producing property(ies), to fund home loans, or make loans out of the property’s excess cash flow. Real estate mortgagees (i.e. lenders) worry such practices dilute the overall value of the realty asset, and favor situations where homeowners/borrowers/site renters are committed, at least in part, to a separate finance company; not a scenario where site rent, and home payments are all rolled up into one interrelated financial package.

The aforementioned alternative is to establish an independent, but related finance (captive) company that raises its’ own capital and operates in a professional manner. Since the subject company makes the loan, there is no need for a ‘buy here – pay here’ presence in the LLCommunity, and therefore, nothing to ‘disclose’. Because the firm is indeed separate, it will normally operate on its own merits, meaning it will professionally underwrite its’ loans, and carefully observe the legalities and compliance issues, as well as strive to make a genuine profit.

So, if a LLCommunity owner/operator, where does this presentation of our industry and asset class’ new old model for manufactured housing finance leave you? If this author/blogger can be of assistance, in any way, don’t hesitate to respond to the blog proper, via our website: community-investor.com, or phone (317) 346-7156.

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NEXT WEEK. No promises; but unless something of greater importance or timeliness intervenes, watch this blog for a probable call for a third National State of the Asset Class (‘NSAC’) caucus sometime during 2010, or early 2011 if we can afford to wait that long.

This NSAC suggestion was proffered at the conclusion of a recent FOCUS Group gathering of LLCommunity owners from six states, meeting in Ruskin, FL. The first NSAC caucus convened in Tampa, FL. @ 2/27/08; a second, titled: an Historic SUMMIT Meeting, between HUD Code manufacturers and LLCommunity owners/operators occurred 2/27/09. This one? To accomplish something many have talked about ‘for years’, but have never had to brass to address collectively, i.e.

• Decide on our own (i.e. MHIndustry & LLCommunity segments),once and for all, a workable definition of ‘affordable housing’ &/or ‘housing affordability’, then apply appropriate descriptive terms and characteristics to those types of HUD Code manufactured housing design/production/distribution, applicable and marketable as such! It is past time for our industry to finally seize the high ground of ‘affordable housing’ via marketing and image improvement, and DELIVER!

• Again, once and for all, aggressively address the oft extreme disconnect between the 1) well – designed, attractive and professionally managed, family and 55+ LLCommunities, & the 2) often old and functionally obsolete, unattractive and poorly managed, multifamily hovels perennially giving our contemporary, quality, attractive, ‘green’, energy efficient, non – subsidized, transportable type factory – built housing a bad name & social image in most local housing markets!

• Decide now (2010) is time to establish and nurture a viable secondary market for the sale of resale homes, relative to valuation, multilist access, and transactions effected by licensed/certified realty professionals, using escrow accounts and realty – type ‘closings’!

Any of these areas ‘hot buttons’ for you, pro or con? I surely hope so; and if so, let me know! That way you won’t be left out when a third NSAC caucus is scheduled. Otherwise, you have only yourself to blame for not being involved in the now national effort to Save Our Industry! If you don’t know about this growing initiative and movement, scroll back through the blog archive at this website (community-investor.com) to ‘ManuFractured Housing C o n s p i r a c y or near Perfect Storm Sequel’ and previous blog postings. And if you’re reading this, thinking one or another national MH trade or advocacy bodies will (eventually) ‘take the lead’ in addressing the three pivotal matters, and more, just described, then you’ll likely wait too long. Remember; at the rate of decline in HUD Code housing shipments experienced during 2009, by year 2020 – only ten years hence, total shipments that year will number 225! Can we afford to wait any longer to address this industry’s core challenges? I think not, and hope you agree!

Respond directly via this blog posting, email: gfa7156@aol.com, or the MHIndustry HOTLINE: (877) MFD-HSNG or 633-4764. Better yet, let the elected and salaried leaders at MHI and MHARR know your opinions and feelings on these matters pro and con!

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End Notes.

1. To obtain a copy of the ALLEN REPORT, phone the MHIndustry HOTLINE: (877) MFD – HSNG or 633-4764. Available for $250.00 per report, or ‘free’ with $134.95 subscription to the new Allen Letter professional journal (12 issues).

2. The Big Four: 21st Mortgage Corporation: Tim Williams @ (800) 955-0021; Triad Financial Services, Inc.: Don Glisson, Jr. @ (904) 223-1111; C U Factory Built Lending, LP: John Harcher @ (216) 533-4797; & U.S. Bank – Manufactured Housing finance: Scott MacFarlane @ (501) 978-1020.

3. The following paragraphs were prepared from material supplied by Kenneth Rishel of Precision Capital Funding @ (217) 971-3968

4. Next Captive Finance workshop is scheduled for Dallas, TX, on 11 & 12 May. For information: kennethrishel@capativefinance.net

George Allen, Realtor®, CPM®, MHM
Consultant to the Factory – built Housing Industry &
The Landlease Community Real Estate Asset Class
Box # 47024
Indianapolis, IN. 46247