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Manufactured Home Community Best Practices Debate, Rentals vs. Sales and Accounting Methods

May 26th, 2017 Comments off
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Arial photo credit, MHC-MD.com.

A recent post from Eric Enloe, Managing Director of JLL Valuation and Advisory Services has revved up debated topics in the industry – home rentals versus sales – as well as a look at various best practices regarding accounting and corporate structure methods.

Most participants in the manufactured housing industry know that the best way to add value over time to a land lease community is to drive maximum rental growth rates while holding expenses to a lower growth rate,” writes Enloe.

But, did you know you can often add value to a community without investing any time or capital?”

Enloe then provides three “tricks” to maximize community value, as viewed through what he calls the eyes of a lender:

  • Ensure that your leases allow for a pass-through of increases in real estate taxes and other government assessments.

Enloe writes that this lease clause will ensure that, as your property rises in value, a hypothetical increase in real estate taxes doesn’t impair the underwritten value of your property.

  • If you have community-owned homes, make sure you charge yourself the same rent as your third-party pad tenants.

If you charge yourself—or a related entity— below-market pad rent, you could be reducing the value of your property from a lender’s perspective because they are often limited to underwriting rents supported by the rent roll,” Enloe said.

Alternatively,” says Enloe “the lender is not likely to allow you to count community-owned pad rents in excess of unrelated third-party pad rents, but be sure not to short change your community by failing to ensure that community-owned pad sites depict rental rates at least in line with other tenants.”

  • If you have community-owned homes, some of your payroll, as well repairs and maintenance expenses, is likely associated with maintaining these homes rather than the actual land lease community.
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Credit: The Investor.

Enloe writes that, “if you can track these labor and materials expenses separately, or at least make a reasonable estimate of them at the end of each month, many lenders will allow you to deduct these expenses from your property’s operating expenses, thereby increasing the underwritten value of the community.”

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Eric Enloe. Credit: CRE.

He continues, “if the lenders can’t give you credit for your personal property (chattel), you shouldn’t be penalized by counting the expenses for maintaining such chattel as a community operating expense, reducing the underwritten value of your property.”

Following these three simple suggestions,” writes Enloe, “will maximize most lenders’ underwritten value of your community, ensuring the best possible financing terms for yourself or a potential buyer.”

 

Gathering Industry Feedback

As the manufactured housing industry’s trade publication of record, MHProNews asked for industry feedback from professionals in the community sector on Enloe’s article.

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Richard Nodel, owner, Nodel Parks, photo credit, LinkedIn.

I agree with all three points made. I think the most important one has to do with segregating all expense attributable to the home operation separate,” says Richard Nodel of Nodel Parks.

As we know lenders do not like to count the ‘home rental income.’ To help offset that, we need to clearly show all the expenses that could be cut if the rental homes were not there.  Again, nothing controversial there, just good common sense.“

I am in favor of more attention being paid to the ever-growing segment of our business, which is rental housing,” said Nodel.

Sun, ELS and UMH are among those community operators that turned to rentals as a faster way to fill vacant home site.

Bucking the Rental Trend with Home Sales

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Video still from Roberts Resorts are from an exclusive interview, A Cup of Coffee with Scott Roberts of Roberts Resorts, linked here.

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http://www.mhmarketingsalesmanagement.com/cup-of-coffee/a-cup-of-coffee-withscott-roberts

Scott Roberts of Roberts Resorts, is one community professional who is “bucking the trend” in the tide of rentals in communities.

Roberts says that his operation is focused on selling homes, rather than renting them.

Other industry professionals point out that renting homes routinely results in a drop in new manufactured home sales.

While some renters may, over time, decide to buy the home they lease/rent, the total conversions reported to MHProNews typically hover in the low single digit a year range when it comes to the percentage of buyers that become renters.

Other Views

I disagree with the first bullet – rising real estate taxes would be a reflection of rising site rents or occupancy – both of which should cover increases in RET. I assume owners are already charging what the market will bear for site rent,” said one industry professional, off the record.

Other comments included this from a Midwestern operator.

If the owner is at that max, and the RET finally catches up, does it really make sense to go to residents and say, “I just increased your rent for 2018 by $15.  That was before I knew I’d pay an additional l $5 per pad for increased RET.  So I’m passing that on too? Isn’t the increase in RET reflective of the ongoing increase in site rent?”

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Brian Gallagher. Credit: LinkedIn.

Brian Gallagher, Chief Operating and Financial Officer Santefort Real Estate Group, LLC, shared his take regarding point number three in the Enloe article.

Rather than record all home and site expenses on the books of the entity which owns the community and is the borrower on the mortgage, and then ‘deduct’ home related expenses from site operations, it’s much better to establish a separate LLC to account for all home operations, separately from site operations,” Gallagher told MHProNews.

 

A Closing Disclosure

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On the consulting side of MHMarketingSalesManagement, there are companies our sister operations work successfully with that fall into each of these camps.

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MHProNews is not taking a public position on these questions.

Instead, as the industry’s trade publisher of record, we’re highlighting the evolving discussion and debate in the important manufactured home community sector on how these issues are viewed by professionals.  This fuels the useful discussion of what are the best practices for community owner/operators?

The Daily Business News will continue to track these and other industry debates and discussions. ##

(Image credits are as shown above, and when provided by third parties, are shared under fair use guidelines.)

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RC Williams, MHProNews.

Submitted by RC Williams to the Daily Business News for MHProNews.

 

(Copyright Notice: This and all content on MHProNews and MHLivingNews always have been and are Copyrighted, © 2017 by MHProNews.com a dba of LifeStyle Factory Homes, LLC – All Rights Reserved. No duplication is permitted without specific written permission. Headlines with link-backs are of course ok. A short-quoted clip, with proper attribution and link back to the specific article are also ok – but you must send a notice to iReportMHNewsTips@mhmsm.com of the exact page you’ve placed/posted such a use, once posted.)

Marty Lavin Lashes the Manufactured Housing Institute’s (MHI) Latest Initiative

February 21st, 2017 Comments off
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The Manufactured Housing Institute (MHI) Logo is their property, and is used here under fair use guidelines. Lion tamer, GraphicStock, Lavin photo and collage credit, MHProNews.

Is anyone “…eating this dog food?”

emailed comment to MHProNews about Marty Lavin’s topic.

 

We welcome outside oversight and criticism as it allows us to objectively evaluate our actions.”

Sam Landy, explaining UMH Properties perspective on media, public critiques.

 

Let’s fight bad information with good information, and not have to resort to unAmerican activities like censorship of the media.”

Richard Nodel, principal of Nodel Parks.

 

 

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Marty Lavin, JD.

I like to say to myself “If you live long enough, you’ll see it all,” says Manufactured Housing Institute (MHI) award winner, Marty Lavin, JD.  “I have now lived long enough to see a second MHI effort to do “major consumer research” to “profile the housing needs and opportunities for the industry among various underserved homebuyers.” Who can forget the first effort?”

For those who have forgotten – or those too new to the manufactured housing industry who’ve never known – Lavin walks readers of his unsolicited op-ed through the first consumer research done by the Roper organization for MHI over a decade ago.

The respected, and award-winning, Lavin spent several decades in manufactured home retail, communities and lending. He is also an expert witness, which leads him to assignments that often requires a pro-consumer perspective. His critique comes on the heals of a broadside by Frank Rolfe, previously reported on the Daily Business News at this link here.

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Richard “Dick” Jennison. Credit: MHI.

In view of the history on this thing, it is logical to be skeptical of the entire process,” says a dubious Lavin, who expressed his doubts about Richard “Dick” Jennison’s announcement, potential and timetable.

Lavin was part of the last task force, saying: “I was very much involved in the Roper effort, which died an ignoble death, dealt a crushing blow to the industry (from which it hasn’t recovered), supposedly couldn’t be afforded financially then, and the industry condition seems even weaker now.”

MHI has offered no response to Lavin’s op-ed, even though there are facts they could bring to light that might be persuasive for some.

MHI did, however, include the following quote in their recent emailed message to members. “This initiative will help us develop a robust, fact-based analysis to drive strategy and serve as a basis for change,” wrote MHI’s communication director, for MHI President and CEO Richard “Dick” Jennison.

On the flip side of this MHI effort is Rolfe, who said: “The folks at MHI – the industry lobby group – are nice people, but what’s with the concept of silence is golden? Negative articles on the industry are met with ‘no comment.’ Positive news opportunities are met with ‘no comment.’ I’ve never seen anything like it.”

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Images on MHProNews are routinely used under fair use guidlines, as is the case with the images in the collage above.

We always hear about the tornadoes, flooding, fires, residents getting evicted from their homes so a shopping center can be built, unreasonable rent increases, how manufactured homes depreciate in value, etc,” said MHI member and association defender, Darren Krolewski. “I think it’s less about the industry not responding appropriately, than it is us constantly having to play defense when we do.”

Interestingly, Krolewski’s points noted above presaged some of Lavin’s stated concerns about MHI’s plan.

To see Marty Lavin’s complete commentary and history on the current and prior MHI effort, see: DÉJÀ VU AGAIN? A New Manufactured Housing Institute (MHI) Initiative. ##

(Image credits are as shown above.)

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As Cities Zone Out, Industry Pros Ask – are HUD Code Manufactured Homes Discriminated Against?

December 16th, 2016 Comments off

AlamosaCOmanufacturedHome-creditZillow-com-postedManufacturedHousingIndustryDailyBusinessNewsMHProNewsThe HUD Code has de facto become a discrimination code,”  attorney Marty Lavin told MHProNews some months ago.

Lavin – an award-winning expert with decades of manufactured home lending, communities and retailing experience – was pointing to incidents like the one in the Meyersdale Borough Council, near Somerset, Pennsylvania.

The council are moving towards a ban of manufactured homes outside of land-leaes communities, as the Daily American reports.

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Marty Lavin, JD.

The Alamosa, Colorado city council is likewise planning a public hearing next week on a temporary moratorium for manufactured homes in their city.

The Alamosa News reports that City Attorney Erich Schwiesow and City Public Works Director Pat Steenburg explained that the city’s code is unclear regarding pre-HUD mobile, manufactured homes and modular homes, but they are updating the code, a process that Schwiesow is hoping will be completed before May when the moratorium would end.

Homes would still be allowed in manufactured home communities but not in other parts of the city until the code is revised.

Homes that are IRC (International Residential Code) certified would be permitted regardless. That too is a de facto discriminatory act against federally certified HUD Code manufactured housing.

The city’s code currently does not make a clear distinction between mobile homes, manufactured homes and modular homes,” said Schwiesow.

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Would private property installations like the one shown above be prohibited by the growing number of local jurisdictions seeking to limit or ban manufactured homes outside of land-lease communities or specifically zoned MH developments?

The code prohibits ‘mobile homes’ [sic] anywhere in the city except mobile home parks [sic] but does not define ‘mobile home [sic].’”
Schwiesow added that the moratorium would affect a relatively small number of homeowners during that time.

Apparently, Schwiesow and/or the Alamosa News is unaware that there have been no mobile homes built in over 40 years, and that the definitions are defined by federal law.

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Pat Steenburg. Official photo.

Right now the problem is trying to determine mobile home, manufactured home, modular,” Steenburg added.
Steenburg stressed that they city needs to be clear on this subject, and the code update that is underway would accomplish that goal.

Views From the Industry

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Richard Nodel, owner, Nodel Parks, photo credit, LinkedIn.

It is not unprecedented for a city to issue a temporary moratorium on a specific activity while they rewrite a statute,” said Richard Nodel, Owner of Nodel Parks.

That being said, this could just be another case of MH being unfairly restricted. Situations like this is where the state manufactured housing association can be of great help. In many instances the association will present testimony and bring other resources to combat those that are opposing the placement of homes. I would wait to see what the city does in May and then take action if necessary.

These cases underscore the HUD program’s utter failure to fulfill a fundamental purpose of the Manufactured Housing Improvement Act of 2000 — i.e.,”facilitating the availability of affordable manufactured homes … for all Americans” and utilizing enhanced federal preemption under the same law (as well as other tools available to the Department) to prevent communities from either barring HUD-regulated manufactured housing altogether, or unreasonably restricting where today’s high-quality HUD Code homes can be placed,” said attorney Mark Weiss.

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Mark Weiss, MHARR. Photo credit, MHProNews.

Weiss is the president and CEO of Washington, DC based Manufactured Housing Association for Regulatory Reform (MHARR), which primarily represents the independent producers of HUD Code manufactured Homes.

Weiss said, “While the program has continually ratcheted-up needless regulation, it has sat on its hands when it comes to protecting the basic right of manufactured home owners to live where they wish.” ##

(Editor’s note: a similar incident was reported in the report, linked here.)

(Image credits are as shown above.)

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RC Williams, for Daily Business News, MHProNews.

Submitted by RC Williams to the Daily Business News for MHProNews.

Connected Community Owner “Should be Facing Criminal Charges” for conditions at the “park”

August 26th, 2016 Comments off
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Photo credit, Houston Chron, text credit, MHProNews.

Most manufactured home communities are run by owners and professionals who care about their residents, the conditions at their location(s) as well as the look and safety of their property.  But when a community operator runs their location like the proverbial “trailer park,” it’s bad for residents and impacts the image of the industry at large.

That harm doesn’t sit well with most professionals in the industry.

I become incensed when I see examples of the absolute worse type of landlord,” said Richard Nodel, owner of Nodel Parks, an operation that spans 10 states and some 7000 home sites.

Nodel was speaking about McCartney’s Mobile Home Park, owned and operated by Baytown City Councilman David McCartney.

Mike Snyder, writing for the HoustonChronicle described the property this way, “Trash lay everywhere. Water stood in huge ruts and holes, inviting mosquitoes. Most of the mobile homes were in sad shape: peeling siding, holes in walls or ceilings, rusty air conditioners sagging from windows. A tangle of extension cords connected two homes to a generator. An electrical box stood open, its metal casing dismembered.”

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Karl Radde, Southern Comfort Homes, Chairman, National Retailers Council, MHI, past Chairman Texas Manufactured Housing Association.

Stories like this are the kind of thing that generally helps cast such a negative light on our industry,” said Karl Radde, President & GM, of Southern Comfort Homes, in Bryan, TX. “It is very hard for me to advocate for manufactured housing when not only do I have to overcome the typical negative stereotyping of our product, but also stories such as this.

Radde has served as the past Chairman of the Texas Manufactured Housing Association and is currently the Chairman of the National Retailers Council with the Manufactured Housing Institute (MHI).  “At the end of the day it takes everyone working together to better the situation, and that must include reasonable, fair and balanced regulations by cities and towns, and not the trend to have outright bans on all manufactured housing,” Radde explained.  “Our product is a good one and I for one will do all I can to promote it.”

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MH Industry pros know the quality and value that manufactured housing offers the public today. The photo above is of one of the single section model homes at Karl Radde’s Southern Comfort Homes, Bryan TX.

Houston’s Channel 2 TV did a report on the property just days before, and filed the video report shown below.

 

 

Baytown’s city manager, Rick Davis, told Channel 2 that “We have no intention of continuing any condition that presents a danger to health and safety.” But in fact, the condition has persisted for years, according to health records.  The location has been operating without a permit for years.

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Baytown City Councilman David McCartney, owner, McCartney’s Mobile Home Park.

Maybe I’m a little too compassionate with people. I have a hard time throwing a long-term resident out on the street,” McCartney said. The councilman has owned the property for some 15 years. It’s pending a sale, with a national retailer in line to redevelope half the nearly 3-acre parcel at 1306 N. Alexander, with the other half also reportedly under contract too.

Nodel told MHProNews,These are people that prey on the poor and powerless members of their community. It’s obvious this guy has been able to keep the property open only because of his position in the city.”

I just want people to know we’re trying to do everything we can with that property so it fits in with the community, so that in the long run, they’ll be glad I did what I did,” McCartney said.

McCartney reportedly owns other property in the area, so McCartney’s Mobile Home Park isn’t his only investment.

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One of Richard Nodel’s manufactured home communities, photo credit, NodelParks.

MHProNews reached out to the TMHA for comments, which had not responded as of the time this story was published.  But in the past, the TMHA has stated they are not in the business of protecting bad actors.  Members of that and other manufactured housing associations commit to professional and ethical standards. Most, like Nodel and Radde, aren’t at all happy with this type of conduct towards residents; nor about the black eye it gives to hard-working owners and professionals in the manufactured home industry.

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Richard Nodel, owner, Nodel Parks, photo credit, LinkedIn.

Having done business in many small Texas towns like Baytown,” Nodel stated, “I can tell you that the “good ole boy” system is still in effect. If it were you of me, we would not be getting away with it. Whether it is a MHC, rental home or apartment building, property owners like this should be facing criminal charges.”  ##

(Image credits as shown above.)

(Editor’s Note: Matthew Silver is taking some much needed and well-earned time off, and L. A. “Tony” Kovach will be helping fill the Daily Business News role in the interim).

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L. A. ‘Tony’ Kovach is an MH industry veteran, service provider, consultant and the publisher of MHProNews.com and MHLivingNews.com.

Article submitted by, L. A. ‘Tony’ Kovach, for Daily Business News, MHProNews.com.