Archive for March, 2011

Time to Hunker Down!

Sunday, March 27th, 2011

Time to Hunker Down!

• MHFinance. Yet another paradigm shift in the way we do $$$?

• Your response to last week’s posting regarding muzzling this blog…

• New Day a – Coming? Dissolution of GFA Management, Inc., dba PMN Publishing.

I.

MHFinance. Yet another paradigm shift in the way we do $$$? Here’s an Executive Summary of sorts: ‘The days of third party chattel (personal property) finance for HUD Code manufactured housing – particularly homes in, or going into, landlease (nee manufactured home) communities, are all but gone; Yes, LLCommunity owner self – finance works for the few, but is ify for everyone else – Thanks to federal S.A.F.E. Act & other pending regulatory legislation. Today’s new and resale home transactions trend to be cash deals; leased homes (apartments) on – site; rejuvenated, modified lease – option arrangements; maybe even a True Lease alternative.’

Anyone active in the HUD Code manufactured housing (‘MH’) business since the turn of the century, knows of the industry’s financial self – emasculation (i.e. Turning homebuyers ‘upside down’, by dint of predatory lending practices) during its’ too brief renascence before and after 1998, a year when we shipped 372,843 new homes. Subsequently and consequently, we suffered more than 250,000 repossessed (manufactured) homes; saw LLCommunity occupancy plunge at least 10 percent, from an historic high national average of 95 percent; and rarely saw MH chattel loans securitized and sold on the secondary market – slowing our source of new capital for subsequent home sales. That situation has remained unchanged for a decade, and few see any possibility of improvement in the near or even foreseeable future.

LLCommunity owner self – finance of on – site home sale transactions has been around since the emergence of this unique, income – producing property type 60 years ago. It’s just taken different forms, and has been practiced to varying degree, over the decades, in response to infill needs, local housing market conditions, national economy, and availability of third party finance from local banks and credit companies. Self – finance hit its’ stride during the past ten years, as it’s somewhat filled the post renascence chattel finance gap described in the previous paragraph. In the Manufactured Housing $$$ Primer, published by PMN Publishing during 2010, the two most common, self – finance methodologies are defined as:

• ‘buy here – pay here’. A chattel finance or mortgage process that occurs on – site in LLCommunities when the property owner/operator collects mortgage payments from homeowners, and services said mortgages.

• ‘captive finance’. A chattel finance or mortgage process that occurs on – site in LLCommunities when a third party collects mortgage payments from homeowners, and services said mortgage in behalf of the property owner/operator.

As finance – related federal cum state legislation, and new bureaucratic watchdogs, are added to enhance regulatory oversight of consumer lending practices, both methodologies come under increased scrutiny, making the first alternative costly and treacherous; the second one, only slightly less so. For statistical data relative to estimated billions of dollars of ‘contract sale paper’, held among the 500+/- known portfolio owners/operators of LLCommunities, read the 22nd annual ALLEN REPORT. *1 This brings us to the third and latest paradigm shift in ‘the way we do $$$.’

Sunbelt regions have long experienced, and oft benefited from, periodic plethora of cash transactions, when marketing and selling new and resale homes on – site in LLCommunities. And in some blue collar local housing markets, as well as near military bases, even adjacent to college campuses, the availability of ‘manufactured homes (weekly or monthly pay) rentals’ in LLCommunities, has long been a symbiotic relationship for landlords and tenants. And now, partly in reaction to ‘enhanced regulatory oversight’ mentioned in the previous paragraph, LLCommunity portfolio owners/operators, large and small, have rejuvenated a rewritten Lease – Option (‘LO’) alternative that generally skirts the federal S.A.F.E. Act (‘Safe And Fair Enforcement’ of Mortgage Licensure), and state implementation thereof. Description of this LO program? Read details in the April or May issue of the Allen Letter professional journal.*1 And then there’s True Lease – which gives us something further, along this line, to cover in a future blog posting.

With all that said, where’s your future lie, as a HUD Code manufactured housing aficionado (e.g. manufacturer and MHRetailers) and or landlease community owner/operator, relative to the marketing and financing of new and resale home transactions on – site per this property type? In the first instance, manufacturers need – no, must, sell more new homes to survive, and eventually reverse, this nigh 15 year malaise (i.e. During last three years we’ve shipped only 50,000+/- new HUD Code homes per year!). How to improve on this? In part, continue to design and aggressively market Community Series Homes (‘CSH’) – usually singlesection models with front end porches or small multisection homes, to LLCommunity owners/operators. How to do this? Via nearly three dozen (should be four to five dozen in number!) Business Development Managers (‘BDM’), named and tasked with ‘walking and talking LLCommunityese’ from coast to coast. For information about CSH, contact Don Westphal via (248) 651-5518. And, for a copy of the latest BDM list, see end note # 1.

Now, how ‘bout the LLCommunity owner/operator? To begin with, these properties have to be READY in which to sell and finance new and resale homes. Most are not! Begin with attractive Curb Appeal (i.e. ‘How the property looks and smells, so to speak, to the casual passerby’); Ensure ‘good resident relations’ to Ensure ‘more resident referrals’, to Ensure ‘ maximum resident retention’; Practice professional property management (Are all your on – site managers trained and certified as Accredited Community Managers® or Manufactured Housing Managers? If not, they should be!); and, just as important as the first three readiness conditions, be sure managers and sales staff KNOW HOW to calculate ‘affordable’ and ‘risky’ Price Points for new and resale homes in their local housing market, using AMI (Area Median Income) for the local housing market, and AGI (Average Gross Income) of the individual or family buying the home. *2

Finally; when the property is truly READY, follow the lead of the too few forward – looking portfolio owners/operators, who’re aggressively marketing new and resale homes and properties, effectively using euphemisms (Reread last week’s blog) to position their product and lifestyle right amongst the best of the best alternatives in site – built housing, in and outside Sunbelt regions! *3

Your considered opinion and practical feedback on this timely $$$ description and industry/asset class recovery prescription?

II

Your response to last week’s posting, regarding muzzling this blog. Here’s a sampling of written responses, lightly edited, from blog floggers (readers) like you. There wasn’t a single response suggesting agreement with muzzling this blog!

“Good stuff. Personally, I do not like muzzles on anyone or anyone’s perspective, but especially not on someone who loves the industry and wants it to flourish. At the end of the day, whether we agree or not, we always have to answer the tough question, paraphrasing John Stuart Mill: ‘Either we find a better way of doing things or we confirm and thereby strengthen the current way.’ “ TC

“It sounds like you’ve hit on some ‘soft spots’ on the underbelly of the (our industry’s) beast, now the beast is pissed and trying to bite back. Good job. This is what journalism is all about, isn’t it?” JK

“I would hardly characterize your blog as doing ‘more harm than good’. To the contrary, it’s a timely, refreshing, candid source of valuable industry information that never comes across, to me, as negative, or in any other way intended to hurt our chances for an industry recovery. To me, it’s quite the opposite – you may point out where our weaknesses are, or where leadership is lacking, but you always do it in a way that motivates me, and others, to implement change and become more involved in the restructuring, and ultimately – the revival of the manufactured housing industry. Keep up the good work.” GH

“Wow, George. You are hitting the target! This straight talk is what the industry needs. Will it matter? Fall on deaf ears? Many of these folk (as you call them) are in a similar denial as Gadaffe is over in Lybia. None are mean – spirited, just still worshipping false gods of ‘how things used to be.’ “ MP

Hey, Thanks for the strong positive response to the unexplained ‘Attempts to muzzle this blog’ subtitle in last week’s blog posting. I, and hopefully many of you, feel empowered anew! GFA

III.

New day a – coming? Dissolution of GFA Management, Inc., dba PMN Publishing.
Maybe some details next week, or the week or two thereafter. Will tell you this, however; some of what I’ve been doing these past several decades will likely be used to enhance LLCommunity owners/operators presence on the national scene; others seek to improve statistical research and reporting, relative to the asset class; yet others, are desirous to improve professional property management training and certification; and, last but not least, a new initiative might be on the offing, to unite and serve small LLCommunity owners/operators nationwide! Bottom line? I’m cautiously optimistic my plans to at least semi – retire by the end of 2011, are realistic and achievable. What will I be doing in 2012? Stay tuned….

IV.

Tomorrow I fly to Albany, NY., to participate in the New York Housing Association’s Super Symposium II. Sure hope to see and talk with many of you there. As I’ve written here before, this is the strongest lineup of presenters I’ve seen, in the MHIndustry & LLCommunity asset class, in a long time. How can you not be present? To register, phone (518) 867-3242. Tell Nancy, ‘George sent me!’ See YOU there!

V.

Potpourri. ‘Thanks’ to the many of you who’ve sent your ‘Congrats!’ this past week. Means a very great deal to me. Maybe we’ll be together the evening of 1 August 2011 at the RV/MH Heritage Foundation’s Hall of Fame Induction Banquet in Elkhart, IN. For details, phone (574) 293-2344 and talk to Al Hesselbart.

And watch for an exciting story to soon come out of Maine! Talked with Karen Brown – Mohr this week, and is she ever ‘pumped’ about her association’s recently completed, day long strategic planning, brainstorming event. Can hardly wait to write about it! Are YOU planning a similar ‘take control of your future’ event? If so, invite me to participate as a provocateur, scribe, and historian.

Are YOU reading, Factory Built Bulletin? Quite a few ‘industry insiders’ do. For $5.00/year, receive this periodic ‘source of factory – built housing information’ (for homeowners), published since 2003. I do. Phone (866) 764-5505 to subscribe.

*****
End Notes.

1. To order the 22nd annual ALLEN REPORT (Ask for special pricing); and or the Manufactured Housing $$$ Primer, only $29.95 postpaid, phone (317) 346-7156

2. For ACM® information, phone Lisa Brechtel @ NCC: (703) 558-0666. For MHM class information; and to order a FREE copy of the ‘Ah Ha! & Uh Oh! Worksheet’ for calculating new and resale home price points, phone the MHIndustry HOTLINE: (877) MFD-HSNG or 633-4764.

3. Here’s a tip to know whether your property and staff is truly READY to go! Be sure the Five ‘Ps of Marketing’ are in place and positioned, e.g. Place (location); Price (housing prices & site rent in sync with local housing market); Promotion (measure the volume and conversion rates of phone calls to on – site visits to approved applications); Product (Homes & property ready to SHOW now?); and, in this observer’s opinion, People (Is your on – site staff trained and motivated to effectively sell homes and lease homesites?). How to really know all this is coming together ‘rightly’? Have the property(ies) Mystery Shopped, by telephone and via unscheduled on – site visits, by anonymous, experienced professional ‘shoppers’! For information, call the MHIndustry HOTLINE.

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

Will Euphemisms Save the Manufactured Housing Industry?

Sunday, March 20th, 2011

Will Euphemisms Save the Manufactured Housing Industry
&
Landlease Community Lifestyle?

• Wordplay. Euphemisms increasingly used as marketing smokescreen

• National Communities Council. Bully pulpit at fork in the road?

• Attempts to muzzle this blog….

I.

Wordplay. Euphemisms increasing being used as a marketing smokescreen of sorts.

‘Euphemism’ According to The New American Webster Handy College Dictionary, is “…the use of a mild word in place of a plainer but possibly offensive one.”
Will liberal use of euphemisms SAVE the manufactured housing industry and landlease (nee manufactured home) community lifestyle? In the former instance, from continuing to crawl along at its’ past three years 50,000 ‘annual home shipment’ pace. And, in the latter case, heading off declining physical occupancy of rental homesites? Too early to tell; but let’s take a look at some of the euphemisms ‘in play’ in print and online advertising today.

Last week’s blog posting ended with this teaser: “There’s a whole new privately conceived, funded and implemented national manufactured housing product and image marketing strategy already in play, regarding the smart positioning and advertising of an entire retirement landlease community property portfolio!’ The strategy referred to is the liberal use of euphemisms to describe manufactured housing and landlease communities (‘LLCommunities’). Well, since last week’s posting, I’ve learned of at least three additional landlease community portfolios ‘doing the very same thing’! And we’re not talking about properties just located in Sunbelt regions either. During the past month, I’ve spotted and visited euphemistically – enhanced in a Middle Atlantic state, the upper Midwest, and elsewhere.

In the current issue of one national magazine catering to retirees, euphemisms were used to describe ‘manufactured housing per se, in LLCommunity environs’ this way: “…carefree retirement living, wonderful homes, fantastic amenities, professional community management, and friendly neighborhoods.” Nary a mention of manufactured housing or LLCommunity in the mix! And know what? That’s perfectly fine! New HUD Code manufactured housing product is akin to site – built housing in just about every way except for genuine brick/stone veneers and prevalence of two story models. Similarly with LLCommunities. Today’s properties are oft indistinguishable from subdivisions, except for the presence of ‘professional management’ (Frankly, I take umbrage with firms who advertise such, but whose managers – from top to bottom, are sans commonly – recognized “PM’ credentials to that end: CPM®, ACM®, MHM, etc.), and indicators of leases and home site rental rates.

Are there other euphemisms in play these days? You bet.

Relative to LLCommunities? All the following end with the word ‘community’ and are listed in order of declining frequency of use: retirement community, life – care, rental retirement, residential, resort – style living, campus – style, certified retirement, senior, Mediterranean village –style gated, accredited, garden neighborhood, country club – style, full service – retirement, luxury retirement, senior living, gated, & waterfront retirement – living.

Relative to manufactured homes? Again, listed in order of declining frequency of use: cottages, villas, garden homes, single – family homes, wonderful homes, residential living homes, patio homes, ranch homes, town homes, duplex homes, free – standing homes, single story accommodations, & garden villas.

Even ran across a euphemism for what we commonly refer to as ‘rental homesites’ (nee lots, spaces, stalls). How ‘bout ‘homesites for investment’. Nope, not talking about being conveyed fee simple here.

Don’t know about you, but I surely hope this strategy works! The recent call for a National Image Improvement Campaign certainly hasn’t. Anyway, the concept is simply to remove the ‘manufactured’ label from our quality housing product; and, while ‘landlease’ clearly describes our type income – producing property, the use of consumer – friendly euphemisms helps here too. But the ‘catch’, the caveat! To effect such a forward – thinking strategy, senior management must be marketing and selling the best housing product possible, at truly affordable prices; and, the host property must be deserving of the new moniker used to market it! This latter point harkens to the earlier parenthetical criticism of our asset class’ general lack of professional property management training and certification, and our avoidance of regularly using ‘capable, experienced, motivated’ third party professional Mystery Shoppers to take ‘hard looks’ at what and how we’re marketing and selling, by telephone, online, and in person, now using consumer – friendly, or should we say housing and property – enhancing, euphemisms!

By the way, there’s more to this strategy than simply using euphemisms. It might well involve completely altering a firm’s identity and more. But we’ll talk about this, and other measures, in a future posting….

II.

Manufactured Housing Institute’s (‘MHI’) National Communities Council (‘NCC’) division. Bully pulpit at a fork in the road?

I got two things out of last week’s meeting (3/14/2011) of MHI’s National Communities Council division. 1) Numbers tell a compelling story, and 2) there might well be a way around the infamous S.A.F.E. Act for landlease (nee manufactured home) community owners/operators!

In the first instance, here’re the hard cold facts. Only 78 names on MHI’s meeting official registration list. I’m one longtime member who recalls attendance eclipsing 200, in years past; and, at times, we’ve had nigh as many folk (75) at an NCC meeting! Of the 78 present, 19 were state association execs present (didn’t count Certified Reps) – the best represented segment of the MHIndustry for a change; a dozen landlease community (‘LLCommunity’) owners/operators; and, five HUD Code home manufacturers.

Of the dozen LLCommunity owners/operators present, seven were bona fide property owners, albeit ‘small ones’, owning from one to 16 properties apiece, for an average of five LLCommunities each, though three of us own but one of these unique income – producing properties. The five remaining NCC members were senior executives representing five mid – to – major portfolio ‘players’, averaging more than 50 LLCommunities apiece! Bottom line? Majority of attendees at this sparsely attended NCC meeting were small Mom & Pop owners, ‘yours truly’ included. However, the lions share of properties (i.e. 265+/- vs. 30+/-) were represented by five salaried execs. Previously agreed upon replacements for recently departed Greg O’Berry – chairman, and as other council executive positions, were summarily filled by three of these large portfolio operators. Interestingly, none of the three real estate investment trusts (‘REIT’) were represented at this meeting.

A timely question that begs answering, given the ‘near even – but also lopsided’ representation at this NCC meeting – described in the previous paragraph, is this:

Will MHI’s National Communities Council continue to be regarded, as it presently is by many asset class aficionados – as the ‘big boys club’, a semi – derisive commentary regarding presence and control of proceedings by major portfolio owners/operators; OR, will NCC leadership take definitive steps in the near and not too distant future, to identify advocacy, property management training, information, and related needs of smaller owners, to aggressively recruit them as new and active members of the council division?

Hence, maybe we’re at a fork in the road, relative to LLCommunity representation. The following sentiment is often expressed privately, but rarely publicly: ‘We’re either in this (‘NCC’) altogether in demonstrable fashion, or perhaps we – being major portfolio ‘players’ & Mom – Pop investors, should go separate ways, based on sometimes dissimilar marketing, operational, legislative needs and resources. And NO, this is not the opening gun to creating a new national trade or advocacy body for small LLCommunity owners/operators! It wouldn’t work anyway. Why? Lack of charismatic, widely known, national leaders, to take folk in a new direction; and, getting Mom – Pop owners/operators motivated to join with their peers, after 60 years of being loners.

However, rejuvenation of NCC membership, under the administrative leadership of Lisa Brechtel, and new chairman Steven Schaub of YES! Communities, David Lentz of Green Courte Partners/American Land Lease, and Stephen Braun of Hometown America, is entirely possible! The question is whether there’ll be directed and concerted efforts to increase membership and services across the board, or in one ‘group size’ direction or the other.

A related sidebar to all this, is while 43 percent of MHI’s budgeted income for 2011, is predicted to come from the manufacturers division, 19.5 percent is expected to come from the National Communities Council division; taken together, 62.5 percent of MHI’s total annual revenue is scheduled to come from these two divisions alone! To date, 42.8 percent has come in from manufacturers, and 20.6 percent from LLCommunity folk. Who’d a thunk; nearly 18 years ago, on 31 August 1993, when 18 LLCommunity owners/operators convened in Indianapolis, IN., to form the Industry Steering Committee (‘ISC’) – predecessor to the NCC, this real estate asset class would be 20 percent of the financial lifeblood of the Manufactured Housing Institute.

Oh yes, the second important thing I learned at last week’s NCC meeting! The lease – option, for self – financing new and resale homes on – site in LLCommunities, is experiencing far broader corporate application these days, in certain quarters, than previously realized. How’s it work? There’ll be a feature story in April’s issue of the Allen Letter professional journal, either integral to the newsletter or enclosed as a lagniappe, detailing ‘How to Do Lease – Option Right!’ Be sure to get and read your copy. Why not share details here? This blog posting is already long enough (Some will opine, ‘too long’) as is; and I really want to do this ‘expose & How To’ justice! Need a subscription to the Allen Letter professional journal? Read last paragraph of section IV of this blog, or phone the MHIndustry HOTLINE: (877) MFD-HSNG or 633-4764.

III.

Attempts to muzzle this blog

Let’s go into this at a later time. Just know, for now, some of the frank commentary appearing in this blog is perceived, by some, as maybe doing more harm than good. Do YOU see it that way? If so, please let me know in writing (see signature block at end of this posting). If not, I’ll also appreciate your encouraging words….

IV.

Inquiring minds want to know – and will be told, on 29 & 30 March, in Albany, NY.

If YOU own and or operate landlease communities East of the Mississippi and North of the Mason Dixon Line, YOU owe it to yourself to be present at the New York Housing Association’s Super Symposium II in 1 ½ weeks. Expecting close to 200 LLCommunity owners/operators to be present to be engaged by the best lineup of presenters, on in – community financing, ‘in years’. For information, phone Nancy Geer at (518) 867-3242.

And, if you’re selling and self – financing, or even leasing, new and resale homes on – site in your LLCommunities, but can’t be present at this stellar event, then at least buy the only book ever published (in 2010) on this timely and strategic subject. It’s the Manufactured Housing $$$ Primer, available only from PMN Publishing, for $25.00 (or $29.95 postpaid) per copy, by phoning (317) 346-7156. And while you’re at it, consider buying a copy of the 22nd annual ALLEN REPORT and one year subscription to the Allen Letter professional journal for total of $250.00 (postpaid) for both items! Also know the April issue of the newsletter will contain FREE copies of the 13th annual National Registry of Real Estate Lenders & Brokers Specializing in LLCommunity Mortgages, and the 12th annual ‘Who Ya Gonna Call in 2011?’ directory of freelance national consultants active in the MHIndustry & LLCommunity asset class.

Here’s a compelling reason to acquire these two Signature Series Resource Documents: If no one steps up to the plate, during 2011, to acquire copyrights to these items, they’ll likely not be available in 2012, if I’ve at least semi – retired by then! Think about it….

*****

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

Your Turn to Vent & be Titillated

Sunday, March 13th, 2011

YOUR TURN TO VENT & BE TITILLATED!

Tales, Opinions & a Lament, from MHIndustry Blog Floggers (readers); &,
Allusion to Major Occurring MHIndustry News You’ll Read Nowhere Else!

But first. Given the remote possibility you don’t know HUD Code manufactured housing continues to be ‘in the tank’ – ‘an historic nadir’, annual shipment volume – wise, know this: Year 2010 HUD Code manufactured housing shipments numbered 50,046 units; up just 257 homes from year 2009 total of 49,789. This is probably why an industry pundit recently labeled the past decade, ’a mhcession in the midst of the national recession’. And ‘No’, this is not the allusion to major occurring MHIndustry News available nowhere else….

I.

DISCLAIMER. The following tales, opinions and lament, provided by MHIndustry and LLCommunity aficionados, have been edited for length and clarity of expression, and are not necessarily the views of the blogger! GFA

The vicious cycle. This from a licensed MHInstaller: “Recently went, on behalf of a HUD Code home manufacturer, to a home that had problems. Had lots of water under it, the roof was dripping, floor squeaked, and doors stuck. Asked the MHRetailer, “Who set this up?” He replied, he did. I asked, “Why the water?” MHRetailer said he made a deal with the homeowner, that the homeowner would grade the lot. I said, “Well, couldn’t you see he did it wrong?” MHRetialer, “Not my problem!” I said, “Really, so why are you here now?” His response was that the home manufacturer said to show up, so he did. The manufacturer’s rep was outside, beating his head against a tree (figuratively speaking, I think), saying “How can you make someone care?” The vicious cycle: ‘The manufacturer can’t or won’t fire the MHRetailer. The MHRetailer can’t fire the homeowner for grading the lot wrong; and, the local building inspector is clueless and couldn’t care less. It was, after all, ‘just a trailer’.’ Frankly, this is how as an industry, we are sometimes our own worst enemy.

In search of a solution. This from a veteran landlease (nee manufactured home) community owner in the Southeast, asking ‘What’s wrong with this, if anything?’ “I buy a home from a resident or finance company for $10,000. and fix it up. Now I want to sell it outright for $20,000. or am willing to do a ‘rent to own’ if need be. So, a resident moves in and pays me $600 per month, with $200 of that earmarked for site rent, the balance is credited toward the eventual purchase of the home. Assuming there’s ‘no cash down payment’ and no interest or carrying charge, the home is paid off in 50 months. If resident want s to pay it off early, there’s no pre – payment penalty. If they abandon the home, the arrangement ends. I go into the home each month to change the AC filters and spray for insects. This allows me to oversee the condition of the home as long as I own it. If the arrangement goes bad, no public tax money is lost, no lender suffers, only me.” In search of a solution. What do YOU think or know?

The Mom & Pop Lament. This from a veteran LLCommunity owner in the Midwest. “The name of the game is to keep buying homes, so our rental homesites can remain filled, or sell out. My local bank doesn’t want me to sell out, but I get weary always being right at my credit limit for the home sales part of my business. And I really don’t like the ‘rent to buy’ avenue, even though it doesn’t differ much from a contract sale. But buyers do tend to feel a little more obligation if they’re buying on contract, rather than renting to own. It’s only semantics, to me, as ‘contracts’ are simply glorified ‘rentals’.” The Mom & Pop Lament. What would YOU do? What are YOU doing?

Large versus small owners/operators. This from a longtime LLCommunity owner in the East. “As I’ve said before, George, large operators and small operators of LLCommunities, march to different drums. The (operational) problems are identical, but solutions totally different; in that small operators can (and do) make decisions instantly, without worrying about stockholders, multistate regulations, Wall Street analysts, and the SEC. Smaller operators are more secure and comfortable in what we’re doing, and are more forthcoming – willing to share all when asked, describe what works and what doesn’t, with others in the business. People who work for big outfits think they’re going to get dismissed if their boss finds out they got a good idea from someone else. Hence, they oft parade around telling everyone they’ve got everything figured out. Usually takes two to three years to learn they don’t, then they get canned and the process begins over again. Do I care those guys disregard my advice or what I do? It would be real hard for me to care less!” Large versus small owners/operators. Has this been your experience, or something different? In fairness and truth, salaried LLCommunity executives are vulnerable to the whims of their bosses, while sole proprietors have ‘all their skin in their game’, understanding the concept of profit as being their ‘reward for taking risks!’

II.

In an earlier blog posting, we introduced the latest ‘trick pony’ to fill pages in real estate – related publications. Not any particular ‘generation’ demographic, or how to ‘leed’ the way ‘going green’, rather the concept (or fad?) of Sustainability – one more idea in play to end the national recession, mancession (i.e. More unemployed men than women), maybe even the decade long mhcession! (Described in first paragraph of this blog!)

Well, here’s how one blog flogger addressed Sustainability – ‘the innate ability to withstand normal use’. The writer comes at this, within the context of the MHIndustry, by citing personal and career expertise and experience as a home designer, consumer advocate, manufactured home owner, even MHLobbyist….

Home designer. “A firm I worked for, marketed modular homes as being comparable to ‘stick built homes’. Why? Cuz the public kept comparing ‘mods’ to ‘mobile homes’, which ‘everyone knew’ were temporary structures, underscored by ease of relocation among ‘mobile home parks’.” Situation here, where structural design and quality of fabrication, to enhance transportability, did not translate as Sustainability.

Consumer advocate disguised as a production inspector. “The corporate focus, observed while a plant inspector, was ‘Get those boxes out the back door!’ From sales commissions, to production line worker incentives, to corporate exec bonuses, all was geared to how FAST the completed boxes could be pushed from the plant. Yes, some companies gave lip service to quality, but that’s all it was; and too often still is, little more than a corporate smoke screen.” If true, how difficult –if – not – impossible it is, to build and ship a structure that’ll withstand normal use over time (Think Sustainability!), while using particle board flooring in bathrooms, thin gauge flap door hinges, plastic plumbing fixtures, and the like….

Manufactured home owner. “While still working in the MHIndustry, I purchased one of the best manufactured homes on the market, ‘fully optioned out’, and sited it on my own land. Since moving into this home less than a decade ago, I’ve completely rebuilt one bathroom due to water line damage incurred at the plant – but not realized till much later. Replaced the water heater after three years of use; the original refrigerator and dishwasher after four years. Air conditioning system is in the process of being replaced, along with kitchen counter tops. Carpet is shot, but will have to wait till savings catch up with expenditures.” Sustainable? Not this one.

Industry lobbyist. “Here’s an acid test. Ask anyone who works in manufactured housing this question: ‘Do You live in a manufactured home?’ Not many do; prompting recollection of that classic joke about not marrying a virgin from a certain distant state. ‘Why not?’ “Because if she isn’t good enough for her own kin, she isn’t good enough for you!” So, people who work in the MHIndustry know the product is temporary. In fact, a former colleague, upon hearing me grouse about problems with my home, commented: “You work in the industry, you should have known better than to BUY one.” Not sure how this observation squares with being an industry lobbyist; but it does raise further questions about product Sustainability. What say YOU?

III.

Not entirely sure what direction I’ll go with next week’s blog posting, but will tell you this: There’s a whole new privately conceived, funded and implemented national manufactured housing product and image marketing strategy already in play, regarding the smart positioning and advertising of an entire retirement landlease community property portfolio! In a word, it’s stunning ‘re – branding’; though its’ creator might disagree, and opine it’s ‘debut branding of the first order’! Either way, it is quite the unfolding marketing tale, about which more research and documentation needs to occur, before sharing specific or generic details here and elsewhere. Think Trojan Horse….

IV.

Have YOU made reservations to attend New York Housing Association’s Super Symposium II in a little more than two weeks? Surely hope so! Expect to interact with close to 200 LLCommunity owners/operators. For information, and to register, phone Nancy Geer @ (518) 867-3242.

I certainly plan to be present, and will bring along remaining copies of the 22nd annual ALLEN REPORT, to sell at a very special price. Or, if you don’t want to wait until then, phone (317) 346-7156 and ask for the special offer combination of the ALLEN REPORT & one year subscription (12 monthly issues) to the Allen Letter professional journal, together for only $250.00. – that’s a $334.95 savings off the cover price of the report & $134.95 newsletter subscription price! Offer only good as long as there’re copies of the 22nd ALLEN REPORT.

*****

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

MHIndustry Business Prosperity Glass Near Empty or Soon Filled?

Sunday, March 6th, 2011

MHIndustry’s Business Prosperity Glass Nearly Empty or Soon Filled?

Manufactured Housing’s Title I (chattel) financing. Victim of past abuse, today’s macro economy, uncertain capital markets, & widespread misunderstanding? A Look at the latter

Gotta love landlease communities; just don’t abuse their inherent investment strengths

Join me in Albany, New York, on 29 & 30 March 2011 for Super Symposium II

I.

Manufactured Housing’s Title I (chattel) financing. Victim of past abuse, today’s day macro economy, uncertain capital markets, and widespread misunderstanding.

Two weeks ago, in this Official MHIndustry & LLCommunity Blog, I penned: “Yes, it snuck up on me too; the realization HUD Code manufactured housing has permanently changed during the past decade, to the extent of being market – stiffed; maybe forever, sans new sources of third party chattel (personal property) finance!” That observation was straight historical retrospect, relating to the latest round of lending abuse foisted on homebuyers and investors, by the MHIndustry, at turn of the 21st century.

Last week, I cited the following confirming observation, quoted directly from a recent communiqué’ of the Manufactured Housing Association for Regulatory Reform (‘MHARR’): “…the one HUD program that helps put lower and moderate income consumers (i.e. manufactured home buyers) into new homes they can actually afford – the FHA Title I manufactured housing program – is subject to unreasonable and unnecessary restrictions that effectively limit it to only one financing provider and a minimal number of loans (1,834 during fiscal year 2010).”

I’ve since learned, the previous paragraph, relative to the FHA Title I (chattel or personal property loan) program, was viewed by some as misleading, causing confusion within some circles in the MHIndustry. To that end, I asked Thayer Long, of the Manufactured Housing Institute (‘MHI’), to set the record straight. Here he does so:

“The FHA Title I program is fully functional, and there is nothing in it that places unnecessarily high restrictions, preventing lenders from being Title I approved lenders! The reforms made to the Title I program were championed by all industry groups, and include a 90 – 10 risk share of loan loss; meaning, 90% of loan loss is covered by FHA, while the 10% loss remainder is assumed by the lender. I repeat, there is nothing wrong with the Title I program.”

“MHI has serious concerns, however, regarding capital requirements Ginnie Mae expects of securitizers of Title I loans, i.e. a lender must have a $10 million net worth, and keep an additional ‘reserve’ equivalent to 10% of the lender’s outstanding loans! Reasons? First, the aforementioned risk share. If a lender goes out of business, Ginnie Mae assumes the 10% loss incurred by the now defunct lender. Second; Title I loan actuarial data for their new program is lacking, since it’s so new, forcing Ginnie Mae to rely on old program loan performance for anticipated outcome. Third; Ginnie Mae’s approval is not structured for every lender. Only a fraction of FHA lenders ever become Ginnie Mae issuers. This is usually because one needs a large volume of loans to securitize, hence an aggregator to pull them together into loan pools.”

“Furthermore, MHI has had several meetings with FHA and Ginnie Mae staff, to encourage scaling back capital requirements for smaller lenders. Ginnie Mae can waive capital requirements if they feel comfortable with a lender. In fact, we believe if loan performance under the new program continues to improve, as we expect, they’ll likely reduce capital requirements for everyone.”

Bottom line? It’s not that MHARR’s statement was totally off track, but rather should have treated the matter as two related, but different aspects (i.e. FHA Title I & Ginnie Mae) of chattel (personal property) lending, relative to HUD Code manufactured housing. Anyway, Thayer Long ended his clarification by pointing out “…all this is a complex issue, impossible to fully explain in just a few paragraphs.” Now YOU know!

But even with the preceding explanation, not everyone in the MHIndustry believes ‘a better (lending) day is a – coming’. One MHVeteran, a highly respected financial advisor, lender and servicer, responded to last week’s blog thusly:

“I noted in your blog, you have finally come to realize Title I simply will not save the industry, no matter what _____________,or others, have proclaimed. And it’s not that Title I, or ‘Buy here – pay here’ and ‘captive finance’ methodologies can’t work in certain limited circumstances. It means, as I’ve oft said, ‘they alone’ cannot fuel a 100,000+ new home shipments per year industry! That seems to me, to be as apparent today as it was five to seven years ago. There simply is NO industry chattel loan silver bullet, none!” The writer goes on to suggest “The GSEs and HUD will not do any loans, even per our industry’s largest ‘players’, if they feature 16 – 19 percent default rates, and lots of work for originators” – the federal S.A.F.E. Act notwithstanding.

What’re the ‘certain limited circumstances’ referred to in the previous paragraph? Larger landlease (nee manufactured home) community portfolio owners/operators, frequently market and sell new and resale homes on – site, then (property owner) self – finance said transactions via ‘captive finance’ (i.e. using a third party financial service firms to collect mortgage payments from homeowners/site renters, etc.) or ‘buy here – pay here’ (i.e. property owner services his/her chattel loans to homeowners/site renters) methodologies.*1

Prevalence of this practice? Estimated chattel loan volume (contract sale paper) held by 500+/- LLCommunity owners/operators during 2009, was $3 1/2 billion. According to the 22nd annual ALLEN REPORT, by year end 2010, that total had swelled to nearly $5.2 billion! And it’s important to keep in mind, these 500+/- property portfolio owners/operators control only 10 – 15 percent of LLCommunities in the U.S., albeit the largest ones (i.e. properties containing more than 100 rental homesites apiece). *2 Furthermore, unlike a decade ago, when only ‘mobile homes’ (a.k.a. pre – HUD Code homes) and manufactured homes were sited in LLCommunities; today there’re at least four additional ‘types of housing’ to be found, e.g. ‘park model’ RVs, modular homes, ‘RVs for a season’, even site – built homes designed and constructed on – site to look like manufactured homes. So, word – playing the old country hit song, ‘A Community Owner Can Survive!’ – even ‘thrive’, as new HUD Code home shipments languish at 49,000 per year, as in 2009 and 2010. But there’s another side to this story. Read on….

II.

Don’t abuse inherent strengths of LLCommunities as realty investments!

Just what are the Eight Good Reasons LLCommunities ‘enjoy a near perennial sellers’ market among tens of thousands of real estate investors throughout the U.S. and Canada’? Well, they’re listed on page nine of the aforementioned 22nd annual ALLEN REPORT. But here we’ll identify three of them here, along with cautionary advice regarding how ‘not to abuse’ these inherent strengths:

• Stable competitive site rent! This is the second biggest bugaboo directly affecting property operating performance throughout the asset class. Time and again, novice – as well as some experienced realty investors, have been overly aggressive with rental homesite rent increases in specific local housing markets. Now some are paying a bitter price, typified by severely lower physical and economic occupancy at best, property forbearance or foreclosure at worst. Is there a formula for computing competitive but fair site rent? Yes. But rather than repeating it here, suggest you scroll back through the blog archive at this Official MHIndustry & LLCommunity website for earlier detailed descriptions. In the meantime, know an online resource has been identified, one that provides quarterly ‘apartment rent’ information for 200 SMSAs (Standard Metropolitan Statistical Areas, or urban markets), and is now being compared, ratio – wise, to LLCommunity homesite rental rates in the same markets, using data researched and published by JLT & Associates – to ‘proof’ or modify the aforementioned formula. Results of survey will be first published in the Allen CONFIDENTIAL! business newsletter, then the Allen Letter professional journal. *3

• Low operating expense ratio or OER! One would think this is a ‘no brainer’, but it’s not. It boggles the mind, to realize how many owners/operators don’t know how to compute, let alone use, this key statistical benchmark of operating efficiency. Simply divide Total Amount of Annual Operating Expenses (not including debt service/mortgage $) – or the total expense amount from just one Industry Standard Chart of Operating Expense Accounts category (e.g. refuse/trash removal), by Total Annual Amount of Site Rent Collected: $192,000 divided by $480,000 = 40% or .40 overall Operating Expense Ratio or OER. While this percentage happens to be the OER planning model for this income – producing property type (a.k.a. the Allen Model, featured on above – referenced Industry Standard Chart of Operating Expense Accounts), know that conventional apartment national OER is frequently 10 – 15 percent higher (given high resident turnover, expensive maintenance ‘get ready’ of vacant units, etc.), while LLCommunity OERs are also known to drop by half, when larger (200+ sites) are managed efficiently. What’s the OER for your property or properties? If you don’t know, you can’t control, let alone improve it! *4

• Opportunity to add value. This is the primary, uncertain bugaboo – more accurately, ‘bugbear’, affecting LLCommunity ownership/management these days! How to add value? In this instance, ‘Buy homes, then rent or sell & finance them on – site…’ (quoted from ALLEN REPORT). So, how’s this a bugbear? Unlike late 1970s & early 1980s – the ‘first go round’ of this nature (post implementation of the HUD Code in 1976), when these practices were generally unregulated; the recent bursting of conventional housing’s finance bubble has caught the MHIndustry up in its’ consequences as well. This has meant a whole new array of housing finance regulatory legislation and measures. Think the federal S.A.F.E. Act (and variegated state implementation thereof), Red Flag, and the like. Today, only the largest of property portfolio owners/operators might have a handle on the matter. Relief? Maybe, but too early to tell whether concepts like True Lease (of homes) will shelter some owners/operators. Read about these developments here first, and in one or another of Rishel Consulting’s free and subscriber – supported monthly chattel finance newsletters. (217) 971-3968.

There’re five additional ‘good reasons to invest in LLCommunities’ we won’t parse in this blog today. But again, whether a potential or novice investor in the unique asset class, or even as an experienced owner/operator, YOU should be comfortably familiar with all eight inherent strengths! If not, order a copy of the ALLEN REPORT and strengthen your investor knowledge of this income – producing property type!

III.

“Changing demographics, including household formation and housing consumer tastes, pose significant challenges and opportunities for the manufactured housing industry. As we emerge from the ‘great recession’, hear projections on when and how manufactured housing can lead housing’s return. Gain insight into how the industry, and LLCommunity owners, can best position themselves by understanding trends in the overall housing market. This session will also examine housing affordability, efficiency, and related strategies for manufactured housing.” Dr. David Funk, Cornell University

Need I say more? This is Dr. Funk’s clear and comprehensive description of the keynote address he’ll deliver at the New York Housing Association’s upcoming Super Symposium II in Albany, NY., on 29 & 30 March 2011. Will YOU be there? I certainly plan to be; wouldn’t miss those insights, as well as others from several excellent presenters.

And there’ll be several new HUD Code ‘Community Series Homes’ on display during the symposium. Here’s a question for you: Know how to calculate the sale and mortgage ‘price points’ a prospective homebuyer, or even the average consumer, in any local housing market in the U.S., can ‘affordably’ afford when buying a new or resale home within a LLCommunity or to be installed on a fee simple scattered building site? If NOT, be sure to attend this symposium to learn how to use the widely – acclaimed ‘Ah Ha! & Uh Oh! Worksheet for this purpose! For a program agenda, hotel accommodations, and registration information, phone Nancy Geer via (518) 867-3242.

*****
End Notes.

1. For more information on this specialized subject, read the Manufactured Housing $$$ Primer, PMN Publishing, Franklin, IN., 2010. Phone the MHIndustry HOTLINE: (877) MFD-HSNG or 633-4764, or (317) 346-7156. $25.00 postpaid.

2. For a copy of the 22nd annual ALLEN REPORT, phone the MHIndustry HOTLINE (See # 1 preceding). For a limited time, the $450.00 annual report is available for only $250.00 – and if mentioned when ordering, includes a one year (12 month) subscription to the Allen Letter professional journal at no additional cost!

3. To subscribe to the Allen CONFIDENTIAL! business newsletter, phone the MHIndustry HOTLINE (See # 1 preceding). Cost? $950.00/year (12 monthly issues), but only $750.00/year for subscribers to the aforementioned Allen Letter professional journal.

4. For a FREE copy of the GFA Management, Inc., (2) Number Crunching Cards, containing all operating formulae characteristic of the LLCommunity asset class (e.g. physical & economic occupancy, home & resident turnover, OERs, ‘cap rates’, New Rule of 72 – for estimating capitalized income value of a ‘C’ grade LLCommunity, & IRV, phone above – referenced MHIndustry HOTLINE (See # 1 preceding)

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