Manufactured Housing – Investors Taking Notice?
While the value proposition for manufactured housing is well known to industry professionals, showing or explaining that value to the mainstream can be a challenge.
According to recent information from NAREIT, that appears to be changing.
New data shows that manufactured housing REITs now occupy an enviable place in real estate, combining a dearth of new supply with a heavy demand for affordable housing options.
“Approximately ten new manufactured home communities have been built in the United States in the past two decades, an eye-popping anomaly among real estate sectors,” said Ryan Burke, an analyst at Green Street Advisors.
“Aging baby boomers are driving demand at age-restricted communities, while all-age communities are popular with younger families looking for affordable housing options. Nowhere else in real estate do we see this complete lack of new supply and the favorable demand dynamics. It’s a pretty good story.”
R.W. Baird analyst Drew Babin agrees.
“Manufactured housing REITs and existing owners of manufactured housing communities currently have a chokehold on the market,” said Babin.
While it may seem that the favorable metrics would be lost in the shuffle with investors, that isn’t the case. In 2016, manufactured housing REITs delivered returns of 28.5 percent, beating out apartment REITs by nearly ten percent, and single-family home REITs by nearly 14 percent.
“As manufactured housing continues to outperform other sectors, particularly in the private market at the property level, there’s no way the outperformance will go unnoticed,” said Burke, who also addressed some of the challenges to entering the market.
“Among the barriers to entering the manufactured housing market are the communities’ long lease-up periods. It can take more than five years to reach a stabilized occupancy level. It’s tough for a developer to be able to underwrite that lease-up period,” said Burke.
Other market analysts predict acquisitions in the space will be “episodic.” According to Green Street, manufactured housing REITs own about 1 percent of the estimated 50,000 manufactured housing communities in the U.S., but nearly 15 percent of the institutional-quality stock. (It should be noted that some MHC experts put the total number of communities at about 45,000 nationally).
With new supply largely non-existent, analysts believe that REITs will try to grow their portfolios through acquisitions, and through expanding existing sites. An example cited was Sun Communities 2016 acquisition of Carefree Communities Inc., for $1.7 billion.
And, while there may be more “whale” sized acquisitions – like Carefree communities – available in the market, Burke says that he sees smaller deals on the horizon – at the right price.
“Most of the manufactured housing parks [sic] are held by smaller investors that own up to three properties,” said Burke.
“They hesitate to sell for several reasons: they make a good living from the properties; they would be hit with high taxes if they sold; and many sellers would be unsure how to reinvest the proceeds to achieve similar yields. There’s a whole lot of demand for these properties across the board from REITs and institutional investors and very few properties coming to market relative to other property types.”
Overall, analysts agree that manufactured housing REITs have strong growth potential, including the ability to expand existing sites where they own, or can acquire, additional land.
“They’ve been very aggressive about doing that because it’s so hard to find entitled land. Oftentimes the best land is on their existing properties,” said Babin.
Some Mega Deals in Recent Years
The linked stories above are among several that involve Carlyle Group, UMH Properties, ELS and other private or public portfolio operators, often involving one hundred million to a billion dollars plus packages.
Does holding the number of new communities being created down impact the market? Of course. Does the time to fill a community – due to image or regulatory reasons – impact the market? Again, yes.
Moguls Understand Value
The Daily Business News, MHProNews and MHLivingNews have covered the case for manufactured housing as a viable solution to hope for the American Dream of home ownership at a reasonable price extensively, including Bloomberg making a statement to the same effect.
The ability to significantly cut down on production time, provide a high quality product to federal standards, all at a lower price point serves as the ideal solution to inventory and housing challenges. The titans of business recognize the opportunity as well, as giants and independents alike are actually “doubling down” on the industry.
ELS Chairman Sam Zell has been famously quoted as correcting misconceptions about the industry, saying during this interview, “Everyone calls them trailer parks. Pencil head, it’s not a trailer park.“
For more on manufactured housing being the solution that’s hiding in plain sight, see MHProNews and MHLivingNews Publisher L.A. “Tony” Kovach’s insight into the opportunity linked here. ##
(Image credits are as shown above, and when provided by third parties, are shared under fair use guidelines.)
Submitted by RC Williams to the Daily Business News for MHProNews.