Have Manufactured Housing & Land Lease Community Consolidation Become Too Big & Too Far to be Fair?

Blog # 481; Copyright @ 9 April 2018; community-investor.com

Perspective. ‘Land lease communities, previously manufactured home communities, & ‘mobile home parks’, comprise the real estate component of manufactured housing.’

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INTRODUCTION: Should I leave this ‘sleeping dog’ (i.e. industry & asset class consolidation) lie; or put it out into the open, encouraging dialogue and open discussion among colleagues? You tell me if this expose’ has been a good and timely idea or not.

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Where will YOU be on 8 & 9 May 2018? Hopefully, if you’re buying and selling new HUD-Code homes on-site within land lease communities, you’ll be at the Two Days of New Home Sales & Plant Tours, hosted by the IMHA/RVIC (Indiana) at the RV/MH Hall of Fame in Elkhart, IN. I certainly plan to be present, to learn and meet with businessmen and women from throughout the Midwest. For more information, visit www.imharvic.org/homesalesplanttours/ & or phone (317) 247-6258X14. Only $195/person! Attendance is limited to 200! So, don’t delay registering.

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FYI. Preliminary plans are being made for an MHAlive! (‘think tank’) session at the RV/MH Hall of Fame, Monday morning (9AM-Noon), 6 August. Topic? ‘Solving Our Nation’s (Lack of) Affordable Housing Crisis, with Factory-built Housing & Land Lease Communities!’ This will be followed, from 1-3PM, by a memoir writing seminar titled: ‘Preserving Your Personal & Corporate Legacy’. For more information about either or both minimal cost opportunities, phone the Official MHIndustry HOTLINE: (877) MFD-HSNG or 633-4764, or inquire via gfa7156@aol.com

And plan NOW, to stay for the RV/MH Hall of Fame Induction Banquet that same evening, 6 August! For more information, and or to register, phone (574)293-2344. If you’ve not attended in the past, know this: ‘Anyone who’s anybody in the manufactured housing & recreational vehicle industries will be present at this gala annual event!’

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I.

Have Manufactured Housing & Land Lease Community Consolidation Become Too Big & Too Far To Be Fair?

A recent (4/2/2018) Opinion Today column in The New York Times posited that

“The United States has an oligopoly problem – a concentration of corporate power that’s been building for years, but only now starting to receive serious attention from policymakers, think tanks, and journalists.”

Their op/ed columnist David Leonhardt then quoted Barry Lynn & Philip Longman, writing in the Washington Monthly, in 2010:

“In nearly every sector of our economy far fewer firms control far greater shares of their markets than they did a generation (i.e. 30 years) ago.” Suggesting this “consolidation holds down wages, raises prices, and reduces job growth – while lifting corporate profits.”

So, do these observations apply to manufactured housing (a type of factory-built housing*1) fabricated in accords with a preemptive, performance-based national building code since 1974-76, and land lease communities*2?

In round numbers, the manufactured housing industry has consolidated down from 25 firms in 1977, to what is commonly referred to today as the ‘Big Three C’ firms: Clayton Homes, Inc., Cavco Industries, Inc., & Champion Home Builders, Inc – soon to maybe add the Skyline Corporation; and yet still, a dozen or so smaller, mostly regional firms.*3 & *4

In round numbers, roughly 15 percent of the estimated 50,000+/- land lease communities in the U.S. today (i.e. characterized as having 100+ rental homesites per property) have been consolidated into 500+/- property portfolio firms, up from only 25 such firms in 1987.*5 However, the 85 percent ‘smaller land lease communities’ (i.e. with fewer than 100 rental homesites per property), for the most part, remain in the hands of sole proprietors, partnerships, and a few portfolio ‘players’ who specialize in small property acquisition.

So, what have been the consequences of corporate and investment property consolidation during the past 30 or so years? Well, it’s a decidedly mixed bag…

HUD-Code home manufacturers, good and not so good:

• Good! Far greater production efficiencies, enhanced inventory buying power, easier absorption of regulatory measures, and ability to experiment, e.g. ‘net zero energy use’ housing design and fabrication, as well as other such advances.

• Inordinate influence (i.e. power) in trade advocacy matters at the national level, shutting out smaller corporate players; by holding meetings in expensive venues, limiting participation; allowing only selective proxy voting, etc..

• And as the ‘Big Three C’ firms collectively approach 80 percent national market share, housing product price becomes of increasing concern, particularly among land lease community owners buying new Community Series Homes*6 for sale on-site. While they hope consolidation economy of scale efficiencies work in their favor – all too often they do not, as fuel surcharges are added to invoices, and ‘floor fees’ are distributed according to manufacturer preference rather than homebuyer (community owner) desire, and more.

• Before chattel capital ‘took a hike’ from manufactured housing, shortly after the turn of the century – yet to return, a couple HUD-Code home manufacturers bought up many independent (street) MHRetailers, enabling continued shipment of new homes into local housing markets already saturated with product. Recall the consequences? According to a CFPB White Paper, 300,000 ‘repo’ homes and lost value of at least $1.3 billion.

Land lease communities, good and not so good:

• Good! After decades of minimal representation, property portfolio owners/operators, in 1993, took steps to ensure adequate national advocacy, as several in 1994, offered IPOs (Initial Public Offerings) of their stock, as they transitioned to real estate investment trusts (‘REITs’). Representation today, however, in this industry observer’s opinion, is intermittent at best, leadership less at worst. However, the asset class is well served with research, print & online media, networking & deal-making opportunities, and professional property management training & certification via the Manufactured Housing Manager (‘MHM’) program..

• Where some real estate investment trusts (‘REITs’) are concerned, too aggressive profit expectations early on (late 1990s), on the part of Wall Street analysts, led to sizeable and frequent rental homesite rate increases, ultimately changing the local housing market rent paradigm*7, and spawning contentious landlord-tenant legislation (Read ‘rent control’ initiatives)

• And today, there’s far less active lobbying participation in local and state legislative and regulatory matters, even interpersonal networking among businessmen and women, as entrepreneur property owners have been replaced by professional property managers working at the behest of centrally-located property management headquarters. Gone are the days of membership chapter meeting throughout most states.

• Market value distortion. In the words of one veteran land lease community owner: “…some portfolio buyers are paying such low cap rates upon property acquisition, they have no choice but to markedly increase the (site) rent to justify the exorbitant prices they are paying for the property. And yes, Mom & Pop-owned properties do often benefit from this buyout trend, with its’ low cap rates and high sale prices.” (Lightly edited. GFA)

For sure it’s been a mixed bag where consolidation consequences, pro and con, are concerned. And there’s certainly more, ‘good & not so good’, to the consolidation occurring in the manufactured housing production/distribution segment of the industry, as well as the real estate investment/management asset class. But all that’s just been penned, simply scratches the surface of this timely, telling topic.

If you’d like to add to this discussion, pro or con – and we hope you do, please send your remarks to

GFA c/o Box # 47024, Indianapolis, IN. 46247

gfa7156@aol.com

or via the Official MHIndustry HOTLINE: (877) MFD-HSNG or 633-4764.

Thanking You in advance for your input!

End Notes:

1. factory-built housing accounts for more than 95% of new U.S .single family housing today via on-site production builders, panelizers, manufactured housing, and modular housing.

2. a.k.a. manufactured housing, and before that ‘mobile home parks’.

3. SWAN SONG, George Allen, COBA7, Indianapolis, IN., 2017: figure B.

4. Signature Series Resource Document (‘SSRD’): ‘Major Factory-built Housing Manufactures….’ COBA7, 2016

5. SWAN SONG, Ibid, figure E.

6. Community Series Home, or CSH Model design concept birthed 2/28/2009 at a national meeting among HUD-Code home manufacturers and (then) manufactured home community owners, at the RV/MH Hall of Fame in Elkhart, IN. Concept name supplied later that year by landscape architect Don Westphal. CHS Model? Usually a singlesection, or modest-sized multisection home with at least one WOW! factor inside and out; shingled roof and house siding, plus durability-enhancing features to ease ‘make ready’ upon homeowner or renter turnover. An interesting sidebar here is that year 2009 saw record low number of new home shipments, at 49,789 units; and the FHFA & GSEs hosting a meeting in downtown Elkhart for the purpose of letting the manufactured housing industry know ‘henceforth’, it was on its’ own, when it came to accessing chattel capital.

7. Traditional 3:1 Rule for keeping land lease community site rent rates in sync with other forms of multifamily rental properties, in the same local housing market, has in some, if not many cases, been replaced with a self-serving 2:1 Rule. For example. Conventional apartment rent = $900/month? Then 3:1 rule suggests land lease community rents be pegged at $300/month. However, the 2:1 aberration pegs site rent, not at $300/month, but at $450/month.

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