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Response On a Bold Proposal for Moving MHI, MHARR and Manufactured Housing Ahead

November 21st, 2011 No comments

 

One of the proposals being run up the flag pole is to merge MHI and MHARR with Danny Ghorbani to run the areas that are related to manufacturing and with George Allen running the areas related to communities. One obvious omission here is retail – not to mention lending, suppliers and other Industry elements at the Manufactured Housing Institute (MHI) – but the proposal has other issues that would suggest against implementation of such a concept.
 
 
Danny Ghorbani is imminently qualified to serve in a role overseeing the manufacturing issues within MHI. From Danny's point of view though, how long would he function before a clash in organizational culture styles might force him out the door?
 
 
Danny is fiercely defensive of issues that negatively affect his organization's members. Many of those members are small or even single plant operations that rightly or wrongly feel they do not have a sufficient voice in MHI. That perception is the reason MHARR was formed. Without some strong reassurances that small manufacturers will gain confidence regarding their voice and that Danny could not summarily be dismissed after the dismantling of the Manufactured Housing Association for Regulatory Reform (MHARR), I do not see a merger having success.
 
 
The merger idea has been floated before and gained little traction. I have spent approximately ten years working with both MHI and MHARR through my role on the Manufactured Housing Consensus Committee (MHCC). The two organizations functioned very well together in that regulatory environment, but Danny has been free to take up potentially controversial issues that MHI has been able to avoid.
 
 
I have pointed out previously that MHI, by its nature is a trade association that represents the entire industry. By that very nature, it serves in an umbrella or big tent role and all participants may not support an aggressive stance against actions taken by the Federal Government that impact our industry.
 
 
From the perspective of a medium or small manufacturer a significant concern would be to make sure Danny was mentoring a replacement as he gets closer to a time he may choose to retire.
 
 
Recent defensive stances taken by Danny include opposition to unwarranted increased regulatory monitoring activities (implemented by HUD) by the PIAs, exposure of inaccurate fire safety reports by NFPA, and presenting strong arguments for repositioning 3285 installation regulations into 3280 standards to allow for pre-emption of installation guidelines. Would Danny have been free to raise and argue these issues (just to name a few) as an employee of MHI?
 
 
The two individuals suggested certainly have the qualifications to share running a newly configured MHI. But:
 
  • Could MHARR member manufacturers have confidence in such a proposed restructure?
  • Could retailers and others have confidence in a proposed restructure where they are not even mentioned?
 
 
As a manufacturer, I would want to have a membership in both MHI and MHARR. I would look to MHI to continue to serve in the broad role as the industry's trade organization. I would look to MHARR to continue to monitor government actions that are an overreach with negative impacts on affordability for our customer base. # #
 
 
by Doug Gorman,
MH Retailer
HomeMart

CONSPIRACY or INACTION: Which is to blame?

July 15th, 2011 No comments

by Martin V. (Marty) Lavin

Our Friend

Ah, finally, I was intent on reviewing the innumerable documents, which built up on the computer I had used for several years.  As I scanned the dozens, no hundreds of files in my documents, I came upon some, which stirred memories.  Probably none more than R. C. “Dick” Moore’s “Perspective #61” of July 18, 2008.  Mr. Moore, as most know, is a longtime MH retailer and community owner.  As the spirit moves him, he puts out an occasional newsletter, Perspective.

And what was this memorable missive all about?  Well it was a fairy tale about a mysterious “friend up east” who had MH powers similar to Superman, able to unite the GSE’s, (Fannie Mae and Freddie Mac), Clayton Homes and maybe even Citibank, and Warren Buffett himself, in an effort to stifle all competition for chattel retail lending to the industry.  Wow!  Strong stuff indeed.

The gist of the tale is that our “friend” was paid by the GSE’s to advise them “not to buy MH paper.”  This would also lead to Citibank “pulling the rug” on Origen Financial and Palm Harbor.  Then, as all competition is wiped away, Buffett borrows $2 billion in the market which he deposits in the account of the Clayton Homes’ lenders, Vanderbilt Mortgage and 21st Mortgage.  While the story didn’t as much as make the back page of the Wall Street Journal, I hear Hollywood is interested enough in the story so they’ve spoken to Brad Pitt to play “our friend up east.”

Who is He!

Since “our friend” goes unnamed in the several other Moore Perspectives with stories which mention him, there has been substantial speculation on who “our friend up east” is.  Presumably with all the players involved in the alleged scenario, this has got to be one powerful S.O.B.  Who could it be to wield such power?  It’s not Warren.  He’s “our friend from Omaha.”

Some came forward during this series of Perspectives and had the gall to suggest that I, the writer herein, was the powerful and mysterious “friend up east.”  They have also suggested that Brad Pitt is a good semblance of Marty, and would be perfect for the starring role in the movie, or TV miniseries.  Well, I’m obviously flattered but can I be the mysterious, unnamed “friend up east.”  As H. Ross Perot said, let’s go to the chalkboard to figure this out.

The first clue is that “our friend” has been paid by Fannie Mae and Freddie Mac to “advise them not to buy MH loans.”  That assertion is partially right.  I did advise Fannie Mae for a number of years on many matters MH, especially about retail chattel lending.  Other than informal, unpaid conversation, which we all have with others, I did not work for or with Freddie Mac.  Nice people and all, but I never did have that paid assignment there.  Too bad.

No Secret

Parenthetically, my assignment with Fannie Me was never secret, no attempt was made to hide it, by either side, and I always had the assignment on my resume on my web site.  So, if I am “our friend up east,” Mr. Moore, who writes that he uncovered that “our friend” was being paid to advise the two GSE’s “about MH paper,” that “secret” information was hiding in plain sight on my web site.  Best place to hide is in plain sight, they say.  And while I counseled caution in buying MH loans, based on MH loan portfolio experience, I never counseled anyone not to buy any loans, only those likely to cause alimentary canal back up.  But that doesn’t establish me as “our friend up east,” does it?

A second allegation is that “our friend” and the Clayton folks were dining together.”  Well, yes Kevin Clayton is a longtime friend of mine, I’ve dined with him contentedly many times, including once in D.C. when I went to the hopper late in the dinner and Kevin managed to convince me when I returned that I had lost in a game to determine who got the check for the night’s dinners.  Since it was a very large group with lots of big eaters and drinkers the tab was well over $1,000.00.  I’d have paid, but . . . . Kevin had the last laugh, he intended to pay all along and he did.  Good boy.

Global Heart Burn

I must admit I did have dinner one night in Omaha, Nebraska with the Clayton folks during the Berkshire Hathaway annual meeting.  Kevin had invited me out as a guest and I was invited to dinner by Keith Holdbrooks of Southern Energy Homes, a Clayton subsidiary, and a whole host of Clayton “Big Shots” were there.  What was discussed at the table that night?  The only memorable discussion I recall is that the table of 12 or 14 people all believed in the myth of man-made Global Warming, except OleMartyBoy, who tried to hold his ground.  With religious fervor the group accused me of my disbelief as though I was skeptical of the Immaculate Conception, an uncomfortable situation for all.   Since that 2008 dinner my vindication is nearer.  But still, every American has the right to an opinion, even an uninformed one, and there are plenty around these days.

So the “dining with Clayton folks” can’t be used against me, unless we were discussing how man-made Global Warming could be used to de-stabilize MH chattel lending.  Can it?  Some would have you believe it can and perhaps that explains the religious fervor at the table that night.

Conspiracy Theory

So why do I go on about this?  Certainly Mr. Moore is not the only MH figure to write about an industry conspiracy.  The estimable George F. Allen, one of MH’s brightest stars, has often brought up the possibility of a conspiracy.  And of course, the conspiracy always centers around Berkshire Hathaway and Clayton Homes.  Fleetwood, Palm Harbor and Oakwood go unmentioned.  The conclusion being that the reason Clayton Homes is the best of what’s left is conspiracy related.  The strong management there, excellent home lines, disciplined retail lending by two of their companies, and the fortuitousness of being owned by cash rich Berkshire Hathaway, apparently account for nothing.  Would or could Clayton Homes be brought down to Earth if their financial backing disappeared?  Perhaps.

And finally, yes I do live in the “east,” Burlington, Vermont, being far east and regrettably, far north.  But let’s go back to the chalkboard and look at facts, not conjecture.  Here are some of the various facts to be considered to explain the industry slide.

  1. The packages of chattel loans originated and sold into the ABS market from 1995 to 2003 are amongst the very worst loans of any type ever sold to investors.  If sub prime real estate is a problem, and it is, MH ABS paper is the Uber King-of-Sub Prime.  Investors are loath to touch these MH ABS offerings, to this day.
  2. While the industry has severe operating model deficiencies, little has been done by the industry to shore up these deficiencies.  Get the same liquidity to the industry it enjoyed in 1995-1999 and securitize these loans, and the result would still be bloody.  Far too little has changed to make much difference.  And investors not always being stupid, know this.
  3. The MH industry is not seen as important enough by government to subsidize its loan losses.  It has been prepared to do so with conventional housing, but not chattel MH lending.  Scream about it if you will, but that’s the way it is.

Subsidy Withdrawn

So, how much easier it is to cry conspiracy than to accept that from 1950 to 1998, when the music stopped, the success of the industry has constantly been subsidized by lenders?  When that subsidy was withdrawn in the late ‘90’s-early 2000’s, the industry tanked.  Yet, I still hear from many “it worked for 30 or 40 or 50 years.”  Worked for whom, I might ask?  It did not work for the lenders, so most have left.

This brings us to the present, with 2011 expecting between 40-50,000 new home shipments, a continuation of a slide of 90% since 1998.  This is serious, right?  Yet the industry response has been anything but serious.  Most industry response has centered around Washington, D.C. activity.  How’s that working for us?

The question for some would be how to return to the 1974-1995 trend line of about 240,000 new home shipments per year.  This avoids the 1969-1973 bulge, during which we averaged 477,000 home shipments per year, and the 1996-1999 period when we were over 300,000 homes.  You know the record since 1998.

Whence the Volume

Let’s look at this return to a much larger industry size for a moment.  One would think that given the facts we know, the 40-50,000 home shipments might be “where it’s at” into the future.  Baring any new flood of “loose” retail lending money, how do we get back to 250,000 homes annually, or even to the 2004-2007, 125,000 homes, give or take?  We can depend on FEMA for some homes, floods, disasters and hurricanes willing, but not too many.  The LLC’s would like to buy new homes, but their forays there with buy here – pay here have not created profit enthusiasm for this model.  Thus we can’t expect much new home volume there.  Retail chattel lending is very constricted, so retailers are unlikely to help with volume.

Title I, the former “great hope” has proven to be a volume dud, not surprisingly so.  Most non-Clayton retail lenders have to stay on the positive side of 700 FICO to survive.  Can’t look to them for much volume, eh?

The Berkshire Group goes deeper, but they ain’t Greenseco re-incarnate.  Only their disciplined lending and strong servicing culture and yes, experience, makes it all work.  They are not about to pump out $6.3 billion in MH loans as Conseco Finance did in one year around 2001-02.  I would guess if the two Berkshire lenders got to $2 billion combined annually that would be a wondrous job.  So even there, not too much excitement either.

This leaves real estate placements of HUD’s, a long cherished dream to go against the site built industry and whip their azz.  We know that isn’t about to happen, no matter how fervent our dreams.  New “easy” lenders coming to the rescue?  Perhaps.  Have you tried to finance anything in your personal life recently?  If you have you well know the absolute difficulty of any sort of success.  Add in our depreciating asset, the manufactured home, and generally scratch and dent credit capability for most of our buyers, and the hope of a new lender exploding on the scene seems demented.  But hey, we all live in hope.  Remember, Tarzan always said, as he went in and out of terrible scrapes, “Where there is life, there is hope.”  Amen.  Just don’t plan your entire business on the return of Conseco, CIT Group, The Associates, Green Point Credit and the others, though heaven knows their return could carry on long enough to shore up my retirement.

Regulatory Guillotines

Unaddressed yet are the new laws affecting lending and the new consumer agency.  I can only make one comment here.  When was the last time you encountered very complex lending laws, licensing requirements, and a super consumer agency which fueled a burst of sales activity for you?  In my time in the industry since 1972, I’ve seen none.  Perhaps the impact of many new laws, such as the very HUD code itself were overstated, but without the HUD we were shipping up to 580,000 homes per year.  Have you seen that many since in one year?

My best guess, and it is only an experienced guess, is that the industry will not be able to roll back the requirement that most industry transactions will come under the purview of one or more of these regulations, will control transactions, and will cause another reduction in HUD volume.  Even as the industry struggles with ways to avoid their prohibitions, the impact is most likely to be substantial.  I do surely hope I’m wrong.

And what will be the impact of LLC owners extending their own financing for the sale, or rent with option for homes in their communities?  Again, like everything, things not done during good times but becoming a fallback during bad times usually have warts on them.  Self-financing may well be a necessity, and I readily accept that.  If you have an LLC with substantial vacancy and the normal financing available will not fill it, one must save themselves, and self-financing, properly executed, can do that.  But, it does not speak to the substantial work and personnel necessary to make it work, the need for your own capital, the ever-decreasing used homes availability, the specter of violating some arcane lending law, and not least, a liquidity crunch which would drive one to try to cash out their loans and find there are no buyers or only buyers with a huge 80-90% haircut in value.  Some deal.  Pay attention here.

LLC Fallback

So one can’t help but think that as the LLC sector, perhaps the most vibrant and last to fall goes through a contraction in numbers, that only well-located communities with a value component to their offering will weather the storm.  It has been happening already, as the supply of used homes dries up, and new homes are found wanting for self-finance, the corn fields which became communities may be headed back to corn fields or for other use.  Wal-Mart, anyone?

If you struggled through reading my “Saving Chattel Lending” you had to ask yourself, “Can it be this hard, Marty?”  I surely ask myself the same question each time I prepare one of these papers.  If it’s going to be this hard, where does one start, and of the umpteen cures I recommend, which are the five most important?  Answer:  I don’t know.  Second answer:  Note that virtually none of my suggested measures have been tried.  The only change in the industry financing model, which is “the” defect, is that we’ve gone from “fogging a mirror” to 700 plus FICO, real credit capability, a completed application, full and adequate documentation and a belief the borrower is qualified in every way to get the loan and pay for the home successfully thereafter.  That is the quantum industry leap, which has occurred, and it certainly increases lender survivability, but has destroyed lender and industry new home volume.  Want to increase home sales volume?  Find a way to attract many more folks with better credit.  Stop building many new HUD code homes and selling them and what do you think the outcome will be for most industry segments?

So I come back to an industry conspiracy.  This all has to have happened because a mysterious, unnamed “friend up east” used his magical powers to convince some very large, knowledgeable lenders to quit MH chattel lending to throw all the volume to just a few special lenders.  Now if only that powerful friend can get SACU, Triad, and USBank to leave the industry, that will be the final step in the conspiracy.

Come Now

Speaking from atop the “Grassy Knoll,” I’d feel better if the industry might look at the known factors, which have brought the industry to its knees, and worked hard to Saving Chattel Lending.  Believing in “The Conspiracy” may let you off the hook of having to do anything, but will do nothing in resurrecting the industry.  It will take far more than conspiracy theory to do that.  # #

Martin V. (Marty) Lavin
attorney, consultant, expert witness
practice only in factory built housing
350 Main Street Suite 100
Burlington, Vermont 05401-3413
802-660-9911, 802-238-7777 cell
web site: www.martylavin.com
email mhlmvl@aol.com

Editor’s Note:  As with Mr. Lavin’s earlier articles, we have honored his request to post his article “as is.”  Read his other articles:

 

George Allen Forecasts Manufactured Housing Industry Change and Future

April 6th, 2011 No comments

Part IV: Manufactured Housing Industry Change and Looking Forward

Editor’s Note: This is the fourth of a four-part series of the exclusive interview George F. Allen gave MHMSM.com Industry in Focus Reporter Matthew J. Silver.

MHMSM: What have been the major changes in the industry you have witnessed in your 25+ years in the business? 

GFA: We’ve covered some of it. But it goes back to some of the trends, mainly the consolidation trend. But you have to understand, before 1990 there was not even a dearth of knowledge about operating statistics, or occupancy percentages, or any kind of numbers – it just did not exist. And the prominent players at the time did not want it to exist. They may not say that, but it’s true.

When I hung out my shingle as a consultant, I thought of what kind of statistics would be helpful to the industry. But my detractors were the very people I was trying to help. The attitude back in the 90s was, “Why document this information, and publicize it; it’s only going to attract investors.” People are only going to want to compete for this limited number of properties. It wasn’t until Sam Zell took MHCs public, and the Wall Street analysts asked, “What’s your occupancy, what’s your operating expense ratios?” Basically, what the companies claimed to do did not make the Wall Street guys happy because they had no norms to compare them to.

Then the major guys came to me because they wanted to go public, and started supporting me as an independent third-party researcher and writer. That changed the whole landscape. Other investors started showing up, and that made it a whole different ball game.

Some of that same attitude exists today, and it works in two ways:

1. I guarantee you in the next few months, I will get calls from people who want to know the numbers in the Allen Report, but they are the same people who refused to give me numbers when I was putting it together.

2. The other is, there are still areas that are totally unexplored. How much do you pay a community manager? Is it based on the size of the community? What’s the nature of the manager’s duties? Nobody wants to share. We’ve tried several times through MHI to survey these 500 portfolio people at national meetings, and no one wants to participate. They don’t want to reveal what they are paying, and they don’t want their managers to hear what other people are paying their managers. We are notoriously low pay for what we require. But they don’t participate in the HR surveys that they claim to want.

MHMSM: What are you going to do after you semi-retire this year?

GFA: I have a number of personal and family projects I want to be engaged in and enjoy. Not that I don’t enjoy what I’m doing now. The problem is I’m so passionate about the industry that it’s hard for me to pigeonhole my time to enjoy these other areas. I don’t plan to disappear entirely.

MHMSM: Do you have other speakers lined up for the International Roundtable later this year? Are you locked in on a location for this year’s Roundtable?

GFA: I’m working on that right now. I’m working on my speaker list and the location. Sept. 14-16 is what I’m targeting now. I always try to come up with some sort of a theme. I think it’s going to be, “The Past, Present, and Future of Landlease Communities.” I normally have one or two keynote speakers. But this time, if the three different entities I’m in negotiations with right now to sell my report, step up to the plate and buy sections of what I’m doing, they will come together at the Roundtable. They are looking at my Report from three different perspectives. I’m not going to identify them, but one is a national not-for-profit that’s looking at using certain things I do to continue to serve the portfolio owners from coast to coast. That’s the big picture. The second group is a for-profit that wants to serve the 85 percent of the small ‘mom and pop’s’ across the country. The third part of the puzzle could very well be a first time ever academic presence that wants to better serve the research and statistic gathering and publication requirements of both the manufactured housing industry and the land lease community asset class. I’m in discussion with all three of these entities.

It’s not just the report they’re looking at – it’s my newsletter, my database, various other reports I do. I think they could pick up what I’m doing and move ahead in their specialty areas. Nothing would please me more. And I think the three organizations could do a better job than just one person. That’s my cautiously optimistic view of what I would like to be able to market at the Roundtable this fall as being a turning point in the history of the asset class.

Thirty years ago, none of this existed. Today it exists in a sole proprietor fashion, but going forward, in 2012, it could be more encompassing, more efficient, and better serve all the community owners across the country. So, the plan is to bring these three to the Roundtable. Two of them have been there before. And even if we weren’t negotiating now, they would be there anyhow, but representing only much smaller parts of what they have been doing up to now. What I’m hoping is that the Roundtable might represent the coming together of all three of these entities, giving them the opportunity from the bully platform to say, “This is what we’re picking up from where George is leaving off.” The only thing I might have a problem with, is all three want me to continue to be involved. That could be a greater time commitment than I have now.

MHMSM: Do you think the industry as a whole is on an upswing, or will it just maintain this somewhat tepid – bumping bottom – atmosphere, with new home shipments hovering around the 50,000 home mark annually?

GFA: The school book answer is, “Of course I’m looking for a bright future for manufactured housing.” But the truth of the matter is, there won’t be a bright future for that half of the industry until third-party chattel financing returns. If the retailer could take the buyer by the hand and lead them to a Green Tree, say, and tell the customer that they can have a 650 score and we will underwrite the loan for your new home. Until that happens, and it’s not even on the horizon yet, we will be at 50,000 homes a year.

But I call it the ‘double dual’ industry. You have the factory and distribution side of the house that’s on the ropes. Then you have the real estate investment and development side of the house, the communities, smiling all the way to the bank. Yes, we have to take risks to make it work, but it’s a seller’s market. This is the only type of real estate investment you can be involved in that, if you are willing to take an extra risk, you can add value by reselling your homes on site and carrying your own mortgages.

MHMSM: If you had to do it over again, what might you do differently?

GFA: That’s a broad question. I could have been a much wealthier person concentrating on buying and selling more properties, than concentrating my energies on creating and developing all the resources I am now selling. Even if I get my dream price for this, I will have made far less than if I had bought and sold manufactured home communities as an investment. I have been very happy on the consulting side. It’s been more personally fulfilling.

MHMSM: Anything you want to add?

GFA: What is not widely known is that through most of that 30-year period of time I have been involved in the industry, there have been individuals involved with portfolios of manufactured home communities who have contributed significant financial support to what I’ve accomplished, who have by choice remained unidentified to this day. I feel they deserve a lot of credit that they’ve not received, and probably will never receive, at their preference. I’m happy with what I’ve accomplished; I just regret that they’re unsung heroes, to whom individuals and companies who own a land lease community in this country and in Canada owe this debt of gratitude, but will never be able to express it. It bothers me, because they made it possible for me to do what I am doing, with money and otherwise. I keep the communities as a separate business, but it could never have supported me in doing what the individuals did quietly, behind the scenes. That may change later in the summer. Stay tuned.

MHMSM: Thank you for your time.

Reporters note: GFA could have retired 20 years ago, but found the consulting work more satisfying than even a zillion dollars. # #

Click here to read Part I

Click here to read Part II

Click here to read Part III

George Allen Sounds Off in Exclusive Interview on Key MHC and Industry Issues

March 15th, 2011 2 comments

Part I:  Are Manufactured Housing Communities (MHCs) a Good Investment?

Editor’s Note:  This is the first in a four-part series of the exclusive interview George F. Allen gave MHMSM.com Industry in Focus Reporter Matthew J. Silver.

MHMSM:  You’ve stated that an estimated 15 percent of all manufactured housing communities are in the hands of portfolio operators. What is your guesstimate of the total number of manufactured housing sites in the U.S.? Given this number, how many sites would be in the hands of portfolio operators and how many with independent ‘mom and pop’ owners?

George F. Allen (GFA):  The generally accepted number of manufactured home communities is 50,000. For several reasons we may never know the exact amount, mainly because that type of property is regulated in only about a dozen states. It goes back to the early days when bathrooms were not required to be in ‘trailers;’ therefore, if you were going to have a trailer park*, you would have to have a gang shower and a gang bathroom. The board of health would inspect to make sure these facilities existed for the general health of the public.

That is a law that’s been around for many years in these 12 states that’s never sunsetted [been taken off the books]. In other words, once they started these inspections, they didn’t want this source of revenue to dry up. But once manufactured homes started having bathrooms inside, the major need to inspect mobile homes* no longer existed.

The problem is, from state to state, the threshold, or what constitutes a mobile home park*, varies. It could be as few as three or four sites in Indiana, which is not really an investment size property, and a different threshold in Ohio or Illinois. So if you have a different baseline in every state, you are never going to know. And since 38 states don’t have a list of the communities, we’re never going to really know.

When I was writing my second textbook about the development, marketing and operation of manufactured home communities in 1992, I went to the state board of health to get their list of the 1100 manufactured home communities in Indiana. 

What I came up with was – and I compared it to other states – because of the extremely low number of sites that constituted a manufactured home community, 85 percent of the properties in most states were properties of 100 sites or smaller, with a few exceptions. And that’s important because those are referred to as ‘mom and pop’ operations, because they lack the economies of scale to be a really strong source of passive investment income. It’s not until you get to 150 or 200 sites or larger that the economies of scale will support a remote property management operation. The average size property in portfolios today is around 222 sites, because it takes that many to support a centrally located management operation. The exceptions I referred to earlier are Florida, Arizona and California, where the percentage is more like 78 percent, because there are a larger number of retirement properties in the Sunbelt states. So, of the remaining 15 percent in the other states, six and a half are over 200 sites. This remaining 15 percent is in the hands of 500 individuals, partnerships, and corporations.

According to the Allen Report, the average portfolio is estimated to be 24 properties for each player. Granted, you could have five little communities or one big 500 site community to get on my list. But at the other end of the spectrum is Sam Zell, who owns three or four hundred communities. He’s the biggest player in the world. When Buffett bought Clayton, he acquired 60 communities, but he owned them for only a couple of years and then sold them. They are now owned by a company called YES!  Any properties over 200 sites we call institutional or investment grade properties, because the return on the investment is so great, that’s what the big money goes after. The 100 to 200 site owners I call the young wealth builders. They want to play in this arena, and they are bigger than the ‘mom and pop’ operators, but they can’t compete in the same field as the Sam Zells of the world, so they content themselves with two properties, ideally in the same town, so they can have one management team look after them.

MHMSM:  You have a good idea of how many people it takes to manage and maintain a manufactured housing community (MHC). While it would certainly vary, based on the size of the community, based on your experience, from the community manager or owner, to maintenance, sales and support people who might work on an as-needed basis, what do you think a typical MHC employment would look like? Given this number, how many do you think are employed by MHCs nationwide when there are an estimated 50,000 MHCs in the U.S.?

GFA:  The answer to that is counter intuitive. If we were talking about apartment communities here, the more people living in the apartments, the larger the staff has to be. Statistics show there is a 60 percent turnover rate in apartments, which means you have to paint the rooms when someone moves out, clean the carpet, maintain the appliances and mechanical parts, have a leasing staff and maintenance. Plus you have to mow the grass. At an MHC, there’s only five to ten percent turnover every year. But people own their homes, they are responsible for taking care of everything in their house, inside and out, and they cut their own grass. That means a lot less staff. Proportionally, the larger a community gets, the fewer staff people necessary. I would say a 200 site community would require a full time manager, a part-time assistant, and one and a half guys working outside, mostly maintaining sites not occupied and policing the trash. It would take only half that many people to operate a 100 site community. I would estimate there are fewer than a thousand full time employees of manufactured housing communities.

MHMSM: How many people do you estimate live in MH Communities?

GFA:  Ask Thayer Long.

MHMSM:  How many vacancies do you estimate there are in MHCs?

GFA:  Just under ten percent vacancy.

MHMSM:  How difficult do you think it would be to mobilize these residents and employees of MHCs into following an agenda the “protects and promotes” regulations and laws that govern the purchasing, financing and overall well being of their communities?

GFA:  That’s a loaded question. It depends so much on whether or not they already have landlord-tenant legislation. In California and Florida, that bridge has already been crossed. But if you’re talking about the Midwest, the answer becomes more germane, because it depends on two things: How bad the abuses are by the landlords, and how intelligent, socially conscious and activist-oriented the tenants are in those properties. Those are two very subjective factors. Without an answer to those, I can’t give you an answer to your question.

MHMSM:  Some operators focus only on used and repossessed homes for their sales. Why is it important for community operators to sell new homes?

GFA:  Someone’s making an assumption. Some operators prefer to buy used and repossessed homes and I ‘m one of them. The reason is, there’s a greater margin for profit. If I can buy a slightly used home for five or ten thousand dollars, put in a couple of thousand dollars in new carpet, new appliances, and turn around and retail it for 18 or 20 thousand dollars, that’s a good return. Then I give the buyer terms they can afford so I make money on the interest and money on the ground rent as well. The main advantage to me of a new home is it upgrades the community. The biggest problem I have with buying new homes is, unless you buy a half dozen or a dozen at a time and get a significant discount on the price, you’re going to take a hit on the depreciation. It’s like an automobile. If it’s not attached to the ground, it loses its value instantly. We don’t like to talk about that in the industry, but that’s what happens. Over time, it will hold its value, and the community will look nice and be worth more. But the general trend is a new home will depreciate, because the homes are still considered ‘mobile.’

MHMSM:  What makes an MHC a good investment?

GFA:  Look at page nine of my Allen Report.

Number one is scarcity. There is no money available to develop new ones, there’s no money for third party financing for homes, and local planning commissions are beset by NIMBY – ‘not in my back yard.’
Stable occupancy. Thirty years ago you could back your pickup truck to your 12 x 40 factory-built home and move it out. Today it costs thousands to move your home from one side of town to the other.
Stability, competitive homesite rent.
Low operating expense.

Let me take you through an example. If you and I each had $75,000 to invest, we could either buy a 100 unit apartment building with that $150,000 or buy a three hundred homesite factory-built community. First of all, each one would return about the same amount of income. Secondly, 60 percent of the tenants in the apartment building won’t be there a year from now. In a landlease community, only ten percent of the residents will move in a typical year (five percent of the home). The consequences of people moving out of apartment communities is the manager has to repaint the unit, clean the carpets, service appliances, and advertise widely, to find and attract prospective tenants. Staff winds up working seven days a week. However, in a land lease community, when your occupancy rate reaches 90 percent or higher, it’s hardly necessary to advertise at all.

You may have to pick up some loose trash around a homesite, but the responsibility is a lot less. Now how does that translate into dollars? According to national averages, in an apartment community, 55 percent of all the rent that comes in has to go back out for operating expenses. Seven days a week, mowing the grass, extra maintenance guys painting the walls, cleaning the floors, advertising expense. If we leverage that apartment building and pay interest on the loan, 40 percent of that 45 percent left over goes for interest on the loan. That means we will split five cents of every dollar we take in. For the factory-built community, for every dollar we take in, 40 cents goes for operating expenses. That’s 15 cents more we make, and we don’t have to work seven days a week. But if we’re talking about the Sam Zells of the world who have 400 or 600 home site communities, that expense figure drops to about 20 cents. So if the 150 site community doubles to 300 sites, our expenses don’t really increase. So, on the bigger communities, if we have the same leverage of 40 percent, we would split 60 percent.

*Terms used by GFA.

Next week:  Part II:  The Allen Report on Manufactured Housing Community Portfolio Operators: Then, Now and Tomorrow # 

Why I Belong

March 9th, 2011 No comments

As far back as 1830, the French statesman and author Alexis de Tocqueville observed in Democracy in America that … Americans of all ages, all stations of life, and all dispositions are forever forming associations.  There are not only commercial and industrial associations in which all take part, but others of a thousand different types ­religious, moral, serious, futile, very general and very limited, immensely large and very minute. And you know, he was right then and remains so today.  How many folks don’t belong to one or more social, religious or business groups?  Very very few.  But the issue here is, how many of you are not maximizing the profitability of your business because you don’t belong to a state, provincial or national manufactured housing trade association or institute?

 

The has identified 22 features that attract businessmen and women to join various assemblies of like-minded individuals and firms.  And the nearly two dozen features have been grouped into four areas of emphasis: activities, information, publications, and benefits. The following paragraphs take a closer look at ten of these feature areas (i.e. reasons) that are particularly germane to manufactured housing industry aficionados.

 

1.      To support and advance a personal, business and other common and important interest to the individual or business involved.  For example, manufactured housing, finance, real estate investment or management, OEM suppliers (i.e. original equipment manufacturers), and on and on.  The purpose to all this?  To capitalize on the very real concept that there is greater strength in numbers of like-minded folk than always going it alone.

2.      To meet, network and share ideas, frustrations and lessons learned, with peers who have similar personal and professional interests.  A good example of this is the periodic meetings we attend on local (i.e. chapter), state (i.e. convention or annual meeting) and national levels to do just that.

3.      To acquire information and access resources key to one’s business survival, even prosperity.  Venues for these opportunities?  Regularly scheduled meetings, trade and professional publications subscription, trade show attendance, even recreational activities like golf outings.  Furthermore, unique and helpful resources are oft available from association staff contacts and their experience, familiarity with research results, etc.

4.      To develop new business through and with people met at association events and activities.  When I started my manufactured housing-related business two decades ago, visiting local manufactured housing association chapter meetings was essential in developing contacts and future business relationships throughout the locale in which I was working.  And now, twenty years later, the pattern repeats itself on a national and international level relative to the very same reasons.

5.      To increase and update one’s skills and knowledge base.  How?  By attending association-sponsored seminars, training programs and other related activities.  Frankly, there are no other opportunities to obtain the specialized knowledge we often need in manufactured housing than to be intimately involved with our state, provincial and national trade associations and institutes.

6.      To keep abreast with changes to industry rules, regulations, statutes and standards.  For that matter, association involvement is oft the only way one has to input the process to begin with, to express one’s support of or displeasure with pending legislation, rules changes, etc.  For that matter, sharing a practical Code of Business Ethics with one’s peers is an important feature of this particular reason for joining.

7.      To learn of and access latest worthwhile business products and services.  Vendors often contact trade associations first to ‘test the waters’ relative to market (i.e.  association member) acceptance.  This is an especially common phenomenon at our regional MH trade shows.

8.      To interface with professional association staff for answers to strategic business questions -and learn where to go for further information.  This could well include access to the association’s attorney for legal opinion and initial guidance in sensitive business matters.

9.       To increase clout in local, regional and national political and regulatory arenas.  Politics is obviously a fact of business as well as personal life.  Why not enhance your opinions in this arena by uniting with trade associations that share your concerns?

10.  To take advantage of group purchasing and/or member discounts for certain products and services.  There’s a very wide range of possibilities here: printing, advertising, travel discounts, group health and liability insurance, banking services, long distance telephone services, association -sponsored retirement plans, etc.

Convinced yet to join?  I surely hope so.  Here’s what Teddy Roosevelt had to say on the subject: ‘Every man owes a part of his time and money to the business or industry in which he is engaged.  No man has a moral right to withhold his support from an organization that is striving to improve conditions within his sphere.’  So won’t you join me?  As a matter of principle, I maintain trade association memberships in every state or province in which I have ongoing business interests, plus the national association that lobbies in my behalf at that level.