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Responding to Negative News About a trashy Baytown “Mobile Home Park”

August 27th, 2016 No comments

Stories like this are the kind of thing that generally helps cast such a negative light on our industry.  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.

As in most types of reporting, the stories that get the most traction are the ones that focus on negative aspects, and a quick look at mainstream media in this election year only bolsters this.

I am a firm believer in the notion of two sides to every story albeit in this case it would appear to be hard to justify the opposing side.

Admittedly I have had limited experience in communities, as my experiences has been 25 years in retail and a little over a year in quality control at a HUD code manufacturer.

NotAllCommunities5starLocations-NeedAffordableHousingKarlRaddeSoutherComfortHomes

However, recently we had an experience purchasing and taking over two communities similar to the one in this article.  In our case, this involved the removal and demolition of approximately 20 old homes.

We had to jump several hurdles to obtain permits to make needed repairs, convince city planners and staffers that while their experiences from the prior owner we in fact negative, our desire was to take something decrepit and turn it once again into a source of affordable housing for residents of the city.

Not all communities can be “5 star” resort type destinations, but there is a strong need for basic, secure, well-kept communities to serve affordable housing.

Ultimately we decided our expertise was more in retail and sold the communities and I am happy to say that the first one is up and running, nearly full, and fulfilling that housing need.

It would seem to be worthwhile to know how the community got in the state it is in.  Obviously neglect in maintenance was a contributing factor, but it would also seem there is possibly some oversight by city officials for whatever reasons.

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.  Our product is a good one and I for one will do all I can to promote it. ##

(Editor’s Note, this Op-Ed is in response to the Daily Business News story, linked here, in which Karl Radde was quoted. Radde is the past Chairman of Texas Manufactured Housing Association (TMHA), and is currently the Chairman of the National Retailers Council of the Manufactured Housing Institute (MHI).)

KarleRaddeSouthernComfortHomesBryanTX-postedDailyBusinessNewsMHProNews-Karl Radde, President & GM
Southern Comfort Homes
979-778-8224

 

Will California Park Owners Begin Heading For the Exits?

July 10th, 2013 5 comments

With the political changes in Sacramento, the tenant advocates are pressing their agenda with new vigor in 2013. Once again, they are pushing to amend the subdivision conversion statute (Government Code § 66427.5). They are advocating for changes which would allow local governments to deny conversions not supported by a majority of residents and which would give such governments authority to implement their own “conversion” regulations. There are even rumblings for statewide rent control for mobilehome parks.

Conversions under Section 66427.5 have been a favored exit strategy for park owners, resulting in related litigation all over the state. Recent decisions applying Section 66427.5 have been a "mixed bag." The decision in Sequoia Park Associates in 2009 was the “high water mark” for limiting the interference of local governments in conversions since the Ordinance was amended in 2002 to add the requirement that tenants be surveyed regarding their support. Based on that decision, many local governments and lower courts have approved conversions despite resident opposition. Subsequent reported decisions by different appellate courts have chipped away at and offered different interpretations of Section 66427.5. The 2010 decision in Colony Cove v. Carson held that local governments could "consider" the resident survey results, but the Court did not provide any guidance as to how local governments could consider or use the surveys. The Court did acknowledge, however, the lack of resident support in and of itself could not block a conversion.

The worst decision for park owners, Goldstone v. County of Santa Cruz, was decided in early 2012. Goldstone held local governments could deny subdivisions if the subdivision was not supported by a majority of residents. Although not explicit, the Court seemed to adopt the view that a "bona fide" or “non-sham” conversion is, by definition, one supported by a majority or at least a large percentage of tenants. Chino MHC v. City Of Chino, decided in late October 2012, took a decidedly more pro-park owner view, concluding that a local government was required to approve a subdivision unless there was overwhelming opposition by the tenants. The Court also made clear its view that a bona fide conversion was one in which the park owner truly intended to convert it to tenant ownership. Unfortunately, the Chino decision still encourages tenants to attempt to block subdivisions or extort favorable terms in exchange for support for the conversion.

Late last year, the California Supreme Court issued a decision directly relevant to conversions in coastal zones, Pacific Palisades Bowl v. Los Angeles. The Court in that case held that local governments did have some authority to review conversions for compliance with the Coastal Act requirements (and other state laws). The ultimate impact of this holding is not entirely clear, but it makes clear that local governments can impose conditions relating to the replacement of affordable housing in a coastal zone.

Under the existing statute which has been relatively favorable to park owners, there still has been substantial resistance to subdivisions in many local communities, in some cases, even where no rent control exists. The processing of a subdivision for Pacific Mobile Home Park in Huntington Beach is a good example.

Articles.000/4819-2353-3075v.1

Pacific initiated a subdivision in 2010 with the support of a majority of the residents in the Park. The City fought Pacific’s subdivision Application. Pacific had to file a lawsuit after the City denied the Application. The City not only aggressively defended the lawsuit, but attempted to extort a favorable result by filing a cross-complaint seeking immediate physical removal of homes owned by park tenants who the City claimed were “trespassing” on an unused City right of way for decades.

The City’s denial of the subdivision Application was reversed in July 2012, which resulted in the City approving the subdivision in November, 2012. However, on December 3, 2012, the newly elected City Council voted to rescind the approval. Pacific then obtained a court order invalidating the vote and barring reconsideration of the subdivision Application by the City. That court order still did not stop the City two weeks later from voting to confirm their illegal December 3 vote. This did not sit well with the Judge who issued the order. The Court granted Pacific’s Application to set a trial for Contempt of Court for 6 of the 7 Council Members and the City Attorney. Finally, with the threat of a criminal trial hanging over their head, the City Council abandoned its challenge of the subdivision.

If Section 66427.5 is amended, which seems likely given the current political environment, then park owners can count on more local opposition to subdivision. The sad reality is that while local politicians often talk about how important affordable housing is to them, they often really do not want to see mobilehome park uses become permanent, particularly in coastal or other “upscale” locations.

If the door to subdivisions is closed, the final path of escape for park owners trapped in confiscatory rent control is closure. The U.S. Supreme Court has made clear that governments cannot stop closures in Yee v. Escondido. Yee recognizes that the right to go out of business is one of the crucial “sticks” in the “bundle of property rights.” Of course, the crucial issues become the cost of closure and the viability of alternative uses. Government Code 65863.7 limits payments to tenants to the “reasonable cost of relocation.” The common sense interpretation of “reasonable cost of relocation” limitation means the cost of physically moving a mobilehome and the tenant’s belongings. Certain local governments have adopted requirements that exceed this limitation, but we do not have any appellate decisions directly addressing the question. If conversions are made more difficult, it is likely we will get binding authority, hopefully confirming a “common sense” interpretation of Section 65863.7. We can count on the courts for common sense, right?

mark-alpert-hk&c-law-manufactured-home-professionals-mhpronews-com-75x75-.jpgMark Alpert is a partner with Orange County law firm, Hart, King & Coldren. He focuses much of his practice on manufactured housing issues, and has a particular expertise in rent control, subdivision conversions and park closures. Mark can be reached at (714) 432-8700 or at malpert@hkclaw.com.

When Eminent Domain Becomes Eminent Injustice

July 18th, 2012 2 comments

Jefferson Lilly MHProNewsSeizing private property through eminent domain for the gain of private individuals is clearly unconstitutional, yet given a recent Supreme Court decision and the newly-announced plans of a venture capital firm, you may one day have your property seized by a politically well-connected investor.

Let’s be clear, by 'unconstitutional' I mean what the Constitution actually says, not, unfortunately, what the current Supreme Court says it says. Today’s Supreme Court is running 5-4 against the constitution. I won't get into Obamacare. For those of you not familiar with it, consider reading up on the Court's 2005 decision in Kelo v. City of New London. http://en.wikipedia.org/wiki/Kelo_v._City_of_New_London

Please also consider reading up on last week’s announced plans by Mortgage Resolution Partners, a venture capital firm, to seize home mortgages through eminent domain.

http://realestate.msn.com/can-your-city-seize-your-mortgage?_p=16ff831b-8667-4491-80e7-c9b0250d12ed

Quick details on Kelo: The City of New London, CT seized a single mother's home (along with others) through eminent domain and sold them to a developer to build Pfizer's new corporate headquarters. The private property would not become part of an airport, bridge, dam, or other public *use* as the Fifth Amendment's eminent domain clause requires. The private property would become part of a for-profit corporation's investment portfolio.

The Supreme Court deemed this seizure to be a constitutional use of eminent domain because it agreed with the government's (the City of New London's) argument against the people that expanding government's revenues (higher taxes on improved land) was in the public interest.

The Fifth Amendment states the seized property must be put into public *use.* It does not say something vague, like the seizure must be in the public 'interest' regardless of what is done with the land, and it certainly does not say that enabling government to grow larger is necessarily in the public interest, nor that it is constitutional for one private citizen to use eminent domain vs. another citizen. Yet this is how the Court interpreted the Fifth Amendment.

http://en.wikipedia.org/wiki/Fifth_Amendment_to_the_United_States_Constitution

Given the unconstitutional tendencies of the Supreme Court, and given the disparity in lobbying power and financial resources of a well-connected real estate developer backed by a Fortune 500 Corporation vs. that of a single mom, it is perhaps not surprising how this decision turned out.

The Supreme Court has opened the door to ending private property rights in America. Anyone more politically connected than you can seize your home. The implications haven't 'trickled down' into society yet, but Mortgage Resolution Partners' bold and unconstitutional plan to ‘partner’ with government to seize mortgages for their own profit is a first step toward a plutocracy in which only the politically well-connected will own property.

Not surprisingly, Mortgage Resolution Partners' Chairman, Steven Gluckstern, is a well-heeled and well-connected fundraising bundler for the Democrats. But make no mistake, there is nothing to limit abuse of eminent domain to the Democrats.

Ms. Kelo’s property was a traditional site-built home. As such, it was a significant improvement to the land upon which it was built, and increased the City’s tax revenues. If such already-improved land was not generating enough money to satisfy the well-meaning bureaucrats of New London, CT, think now of how government will view mobile home parks. Most mobile homes are not permanently attached to land. As such, they are not considered improvements, and the underlying land is taxed as unimproved property. Perhaps some other well-meaning, politically-connected financier is hatching a plan right now to help government help themselves to your mobile home park next.

Final ironic note: Ms. Kelo's home and land were seized and sold to the developer. The home itself was moved with private funds to a nearby location to serve as a memorial to the injustice of the Supreme Court’s decision. The CT developer was ultimately unable to secure financing, and went broke. The land Ms. Kelo’s home once sat upon is now abandoned and unimproved. It generates less tax revenues for government than it did prior to government getting their hands on it.

My plea: Vote for pro-Constitution candidates. ##

Jefferson Lilly MHProNews IndustryvoicesJefferson Lilly is a private investor, manufactured home community (MHC) owner and MHC consultant. www.lillyandcompany.net That government is best which governs the least, because its people discipline themselves.” – Thomas Jefferson (1743 – 1826)

What is the the future of independent Manufactured Home Communities?

October 22nd, 2011 1 comment

A question brought up by an individual at a real estate investment group meeting in  Tacoma, WA did not get answered at that time so thought I would attempt to put my perspective on it and then get feedback as to other people’s opinion.

The question:   Where do you think the MHP industry (a.k.a. Manufactured Home Park, Manufactured Home Community, Land Lease Community) is headed?

To start, I will explain some of the chatter on the internet on this subject.

Many are under the impression that within 5-7 years the MHPs will fade into history. Manufacturers are not listening to MHP Owners and are not building the types of manufactured homes needed to fill the lots available in the older MHPs.

The MH Retailers have such a high markup from the factory price that the end users cannot afford their homes.

Banks & Mortgage Companies are not interested in financing a “mobile home” that is not attached to land.

So MHP Owners have had to step in and do the financing for the individuals looking to buy. Politicians are trying to over-regulate the industry by passing new laws dealing with financing, rent control, maintenance issues. Their interference with the free market is killing the industry overall.

On paper in WA (lip service?) some politicians have made efforts to extended benefits to help Owners maintain and develop MHPs as the last form of affordable housing. Yet they did not provide funding to support their magnanimous ruling on paper.

On top of all this the taxes keep going up – calculated as a commercial operation according to the Pierce County Assessor’s Office instead of as multifamily residential. That is where it stands. In order to bring some relief to the overall picture all parties need to get together and work out a solution.

There are numerous summits and all of the above are represented, except there are no representatives from Mobile Home Park Owners that count. The ones who have 500 -1000 units are there, but they do not represent the ‘mom and pop’ MHP Owners as a whole.  Community Owners need to get their input into these meetings in some way.

Another problem that will arise is that many Owners are from out of state and depend on a mismanagement company to run their operations. They do not have an office on site – their office is 5-10 miles down the road or more. These MHPs fall into a state of disrepair and then the city officials step in and close them down.

The tax base from the personal property taxes are not very much. By closing the MHPs down, then they can build a new car dealership or motel that brings in more taxes for the city. Watch over the next 3-7 years to see how many MHPs are closed by city officials and not a developer Buyer.

As for the smaller operations – business will continue as usual. A home is abandoned – take it over, rehab it or have a Lonnie Dealer do it for you with you providing concessions for them. Sell the homes and finance it with a note. Same with those that are selling their homes: Buy it at a discount, rehab it, sell it on a note – never RENT a MH. If repo homes come available in another MHP – the Owner of that MHP should jump on the opportunity of keeping the home in their MHP. If they do not and it is available, you need to buy it, relocate it to your MHP and get it occupied.

Several of the trainers for the Washington State Mobile Home Community Owners Association have provided classes explaining to all in attendance that for each home that comes into your MHP you increase the overall value of your MHP.

For example if lot rent is $400/month and you bring in a home to fill a vacancy. The rent for one year is increased by $4800 (12 X $400). Dividing this by 0.10 (10 CAP) the value of your MHP just increased by $48,000.00. As long as you have the frame in your MHP, the mobile home can be rebuilt and your income stream will continue to flow in.

One MHP can be considered a pretty decent retirement plan. Most people who get involved in the industry are not satisfied with just one and may have more. Just be careful not to get overextended. Why?  The scuttlebutt on the internet is that the commercial loans will have the same problems as the residential loans. One cause is that loans are not being made. The financial institutions are saving their funds for when interest rates climb to 11-12%. (A rumor was started that this was supposed to happen in November 2009). The main cause will be that the banks and mortgage companies will be sticking their noses up in the air and looking down on financing or refinancing of MHPs. Many MHP Owners have 3-5-7 or 10 year balloons that will be coming due soon.

Last year at the convention I brought this up and one of the instructors stated that one of his clients was in this type of predicament. One solution is for the use of Private Money to bail out fellow MHP Owners. The elimination of the banks and mortgage companies would be a great relief to many. Yet, who has deep enough pockets to take them out of the picture?

Email me your thoughts as to where you see the MHP industry going in the future. The above is my own personal observation of where things are going.   # #

Dale Osborn
Owner of 1 MHP in CO and 2 in WA.
dale_w_osborn@msn.com

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 #