Archive

Posts Tagged ‘young man’

Exhaustion Sets In

August 8th, 2014 1 comment

I’m exhausted, Jerry, exhausted I tell you. “Exhausted, Marty Boy, why?” Well there are many reasons, and in trying to sort it all out, I’ve exhausted my feeble brain.

I speak of course about the state of the industry. It starts with L. A. ”Tony” K, the MHProNews impresario, whose boundless industry enthusiasm doesn’t quit. Now all this, mind you, as we scrape along on an annual shipments level which in the past we equaled and surpassed in a single month.

Getting your head around that enthusiasm is hard to sort out. So many reasons why MH should be great but woeful results, that’s what is exhausting me.

Story Time

Let me tell you a little story. Sometime along the mid 2000’s, say 2006 or 2007, I was invited to join Urban Land Institute, ULI, a well-known and respected real estate trade association/think tank. It is populated by some of the largest and most powerful real estate interests, a pretty awesome “who’s who” of the Big Boys in real estate.

Inside Trailerville then were people who had come to our industry from the real estate industry and thought manufactured housing communities was a land use that should be represented at ULI. An MH council was formed and I was invited, along with 30+ others, to join and was frankly flattered to accept. ULI has a great reputation.

I started going to the ULI meetings and the MH luminaries were everywhere in the council. My consulting assignment at Fannie Mae at the time profited from my attendance as I was at the industry’s train of thought at the highest level. All good, right?

First Class

Now, understand something, ULI is not MHI or MHARR. ULI goes first class only, no Motel 6’s here. They meet at the very highest level venues, read this to mean “Expensive,” and invite powerful and well-known guests and speakers. Contrasting this with the MH world is eye-popping. If one spends an average of $1,000-$1,500 to attend an MHI convention, ULI seems to come in at $4,000-$6,000 per conference, a not inconsiderable sum for poor boys like me who peeled those dollars out of my own back pocket to attend.

I don’t really mention the cost of attending an MHARR meeting, as long distance phone rates are so low that the occasional MHARR meeting takes little time and virtually no expense. Networking is not really what MHARR is all about.

Lacking Candor

Back to ULI. I found most of the early meetings of the MH council, or whatever its name, a poor version of MHI meetings. While the intent was to foster an exchange of ideas and information from the very highest level of MHdom, the Big Boys were there, but they were all wearing vests so they could keep thoughts and information close to their vests. Even when we were to break for lunch seemed to be a secret. The lack of candid response from participants, who seemed to be going through the motions, disappointed me.

Here we had the greatest minds in MH, but I could gain better industry knowledge and information from the third string attendees from the same companies at an MHI meeting, at 1/3rd to 1/4th the price. I was beginning to waiver about my continued involvement in ULI.

Excited

Then, a ULI conference was announced, where the MH council was to feature a housing study by a prominent economist whose expertise was in housing demand. Whoa! Here’s something I could get my head around. Maybe after the study was presented I could relearn the words to “Happy Days Are Here Again” which in ’06 or ’07 I hadn’t sung since that 1998 post-HUDcode record of 373,000 home shipments. The best industry performance since the 1973 573,000 homes shipped, which had occurred when I was a young man and before the HUDcode.

The economist came, the lights went out, and the demand charts started to flow. Holy craps, Robin, get that song out! It was back. So I kept following the economist’s report carefully and he said the same things then we are still saying today: low cost housing demand, high conventional housing costs, factory built quality, yada yada yada, it was all falling into place, Jerry. Music!

But despite the obvious buy-in by most participants there, their choirboy gleams revealing, I had the uneasy feeling that, just as I do today, of an unfinished report.

Finally, biding my time, as I was as insignificant a participant as there was there, I screwed up my courage and asked the following: Yes, of course, I understand the demand side of the MH equation, but can you tell me, Mr. Eminent Economist, how your exuberant MH sales expectations will be financed?

What?

Huh? He was a housing demand expert. not a finance guru. He hadn’t the slightest idea as to how it would be done. Note that as you hear all the reasons today why MH should be kicking housing azz, that question remains unanswered for the most part.

I could see narrowed eyes around the room directed at me, the thought clear on its face; how dare you, you F’ing Azzhole, challenge Mr. Eminence? He just returned from Mt. Sinai with this report! I though it a fair question to ask, just as I do today.

In 1972 I came into the industry. By the time of the ULI economist meeting I had been kicked around HUDville 35 years. Even with my extraordinarily thick cranium, some knowledge had managed to creep in. By the early 2000’s I had seriously begun to question whether the 1998 shipments top and heavy decline thereafter was a “normal pullback” as had happened frequently in the past. Ah, it will all be back soon was the industry refrain. If I believed that early on, by 2002 there were clear signs to me this time was different, very different.

Not This Time

Working against the industry grain, my study of MH loan performance, the horrific losses suffered by lenders and their investors, got me to thinking the industry had real, long-term problems, from which recovery would be difficult, at best. Did I envision a drop to 50,000 annual HUD shipments? No, I was not born in swaddling clothes.

Further, and this was hard to grasp and accept, since the industry’s real volume emergence in 1969 to the 1998 top, the great volume the industry enjoyed was based on faulty lending losses by most lenders during that period, averaging close to 250,000 annual shipments. I then did the presumptive math on what volume might be with a rigid, but survivable lending regimen, and the numbers were scary low. Not as low as they got, but low.

If you don’t understand the preceding paragraph, read no further until you do. Every time you hear of glowing future prospects for HUD Code homes ask the predictor “How will they be financed?”

Huge industry volume subsidized by huge lender losses. It was an illusion, and it went on so long we all believed it would always continue. When I wrote about this early on in my Newsletter, “Marty’s News and Notes,” I can say the concept was neither generally accepted nor was my writing and lecturing about it well received. Let’s just say I was not the industry’s Favorite Son.

The Book

Fast forward to the present. I just plowed though “Dueling Curves; The Battle for Housing” by Bob Vahsholtz. This is a prodigious work, with the slant from a man well familiar with much of the industry’s early years and a home designer with great home building knowledge. His book is worth reading for the history lesson and for his ideas for reviving the industry going against the site builders.

I sought the answer from his book to my “How will it be financed?” and found in his multiple step program to improve the industry the following on finance:

Accept the penalty of chattel financing or leasing and use it to include such necessities as skirting and exterior storage. Repos should result only from family disasters and crooks. Even better financing – even from local small-town banks – will come with a proven track record. Good affordable homes need no subsidies. Earn a solid reputation from performance rather than waiting for the government to enforce its arguable notions of engineering and financing.”

Very little to argue with there, but will that guide us back to 150,000 to 250,000 HUDcode homes? Annually? I wouldn’t hold my breath.

Phewff

Exhausted, Jerry, exhausted, I say, that questions just exhausts me.

Let’s be clear here, whether I was writing my newsletter, on my consulting assignments, at ULI or MHI, reading Vahsholtz’s book, or discussions with L. A. ”Tony” K and others, THE question which must be answered is to find a way to finance the demand for our housing, at a 150,000 to 250,000 annual sales level. The present sales level just won’t create a stable, growing industry.

So what is it that causes such low sales volume with such high demand? It is because a great part of our demand comes from a tier of people whose credit capabilities make them unfinanciable. Yah, Marty, no big secret there. And when we can finance some of our demand, it comes with a high tariff, an interest rate generally applied by Guido in his transactions These rates, often more than twice and even three times the present rate for site-builds, are needed to ameliorate our high default rates and high losses on defaults.

How?

Let’s deal with the most important reason for this missive; how does MH create demand that has a greater chance of being financed, assuming stupid lending money is not stage left, waiting to enter? How, indeed?

Sometime in the mid 2000’s, the industry commissioned a market study by Roper Associates to ascertain the public’s view of MH. Let me cut through the bull pucks, they reported they had never compiled a study where the industry had such a negative public perception. Oh, man, we finally were the best at something!

A lengthy industry discussion set in, mostly at MHI, meeting after meeting, innumerable committees, and finally a joint meeting with the RV boys to discuss the merit and results of their “Go RVing” campaign. The RV’ers were exuberant about their campaign and urged us in the strongest terms to do our own campaign.

The RV industry had a different problem than MH, just the opposite. Their customer demand came from buyers with good credit, they just weren’t seeing enough of them. On the other hand at MH, we see many customers, enough to fuel many more sales, we just don’t see enough customers with sufficient credit capability. We needed to find a way to get more credit capable people tromping our sales locations. The intent of the Roper study and the follow-up presentation was to lead to a campaign to induce more credit capable buyers to our stores. You know, a campaign to boast the image of the industry and consumer acceptance through increased positive knowledge.

Embarrassment

So meeting after meeting, discussions aplenty, and finally two outcomes, one embarrassing the other catastrophic. The first result was the campaign presentation meeting should have climaxed in a buy-in to move forward with the pros.

The initial presentation was hardly a finished campaign, but the MH Yahoos raised such a ruckus about their vision of what the campaign should be, that it turned into a bitching session of the first water. I saw MOBES who can’t spell “campaign” reaming the pros, turning into a bewildering babble of conflicting ideas. I found that in their other job, sales lot operators and LLC managers, carried out image campaigns, professing to know more than the pros, howling with authoritative criticism. The pros didn’t know MH. They, on the other hand, are the folks who brought you the 40-50,000 annual sales volume, so yes, they know MH.

I met one of the leaders of the campaign presentation after the meeting and he could only shake his head. Yes, not everything they had ever done for others went smoothly, but this was a different order of foolishness. He wondered why they had been hired, as the industry appear to have all the answers. Why, indeed?

Worse

But bad as that was, and yes I was embarrassed to see all of the negative comments I had heard about the industry from outsiders played out before me, the following was worse.

I don’t think I spill any secrets saying a small coterie of individuals run the industry associations. A cocked eyebrow from one of these Brahmins effectively ends any discussion. So the industry opportunity at salvation, already fleeting as all this occurred, tumbled completely due to the well-engrained industry principle, “never do anything that might help a competitor.” And the industry moment when there was still barely enough $$$ muscle to fund an image campaign passed, and with it the last of the passing life rafts.

Succinctly stated, so no one misses my meaning: The industry must find a way to attract a far more capable buyer to our sales locations, or what you presently see is what is likely to prevail. Chances are the image campaign train has left the station and another does not follow close behind.

Bear in mind that some people are prospering under the present scenario. Not too many, but a few, especially those with eyebrow power. Reduction of competition can be salubrious, even if it only consists of a larger portion of a smaller industry. I can only assume as the image campaign was eye browed down, people would know that, or at least suspect it.

No Mojo

So we now find ourselves as an industry with insufficient muscle to fire up any sort of campaign. Some have wondered whether social media or other Internet driven endeavors might substitute for the traditional media campaign we can no longer fuel as an industry, being a real block buster campaign driven by a $20-30 million effort, one that can successfully reach a broad segment of American consumers and educate them about the many advantages we claim for our housing, to attract those folks we so sorely need. Whether the vaunted Internet driven efforts can succeed, I have no knowledge, but I’ve seen no evidence it is being much attempted or positive residue therefrom.

Phone Call

Would it be that in 5 years someone calls me and says “Yah nana nana, you F’ing jerk. See I told you the ad hoc campaigns could work.” I’m not staying up nights in fear.

The years go by, the same silly things are repeated endlessly, about industry promise, the quality of the homes, the future of all homes to be factory built, the far lower cost, and on and on. All great stuff of course, but how do you sustainably finance 150,000-250,000 HUD homes annually? On that, which is the number one issue, the industry is remarkably silent. ##

marty-lavin-posted-on-mhpronews75x75MARTIN V. (MARTY) LAVIN
attorney, consultant, & expert witness
350 Main Street Suite 100
BURLINGTON, VERMONT 05401
802-660-8888 office / 802-238-7777 cell
marty@martylavin.com

Rent Control in MHCs

September 4th, 2013 1 comment

Tony,

The phone rang one morning and a young man returned my call to him, we'd been playing phone tag. I had left a message with his wife in Oregon earlier, and he was calling about two Vermont MH communities I have listed for sale. From the voice of each, I guessed they were both far younger than I.

Speaking with him, as I answered his questions, it was obvious this was not his first call on LLCs for sale. In a knowledgeable way he wound thru the obvious questions, finally asking whether Vermont LLCs are rent controlled. Yes, I explained, they are. I went on to explain Vermont allows CPI, about 3% annually presently, without concern, and a big one, allows provable capital improvements in addition, annually. I told him that as a former VT LLC owner I had found the scheme fully workable, as do many of my contemporaries.

The next day I got an email message saying he and his partner/wife had decided not to invest in any locale where rent control is in force. OK, I get it, but that removes quite a swath of locales, many which are hot purchase markets. This philosophy allows investment in say Mississippi or Alabama, but negates purchases in Florida or much of California. Oh…

After that, my mind wondered over my experiences of the dangers of rent control and lack of it. Yes, I said the danger of the lack of it. I actually was pretty young once, had hundreds of apartments and almost 2000 MH/RV sites. With the exception of a Florida LLC, I was in no jurisdiction where rent control was in effect. And when rent control was threatened in a jurisdiction, I was the first to the battlements opposing its imposition. I was and am a capitalist, and rent control seemed an anathema to my beliefs. I'm not alone, right?

But time went by, slowly the days passed, and some of my beliefs at 40 years of age made transition to a more measured understanding as I aged and acquired experience I previously lacked. Let me be frank, I was an accomplished and notorious rent increaser, which in my twilight years brings me no acclaim by others, and more importantly, myself.

What I found was that in apartments, and we're not speaking of New York City here, the market rents in an area kinda act as rent control. You find yourself as the top dog in rent rate for your 1000 sq. ft three bedroom apartment in your area. What you are very likely to find, as I did, your apartment rents last and less, staying empty longer than it should. Recovering the lost time and money brings you back to Earth and unless your calqy is busted, your late debt payments slap Hai Karate hard. I found apartments very self correcting as to rents.

Now, on to LLCs. We all know the reasons we invest in communities; they own the dwelling unit, they can't move the house, etc. All good stuff, of course. So as I bought LLCs from original owner/developers, I found that as longtime owners they had allowed their rents to slip behind the market, keeping their management easy, with many long term residents.

Of course, the purchase price always reflected the oft unspoken premium of raising rents to market. "Hell, they can pay a lot more than that!" So I paid more than cash flow to get the community, not real unusual, right? Then the rent increases started. Often stiff and early increases happened shortly after closing.

The first few increases were swallowed, albeit with plenty of bitching by residents. We raised rents as much in two-three years as the former owner did in 10 years. Note that in some instances the increased rent still didn't pay for the capitalized investment costs. I knew that, they only knew and cared their rent had doubled in short order. No esoteric explanations of cap rates and other MH investor jargon seemed particularly persuasive to the LLC residents.

Who was it, Newton, who theorized every action has an equal and opposite reaction? I raised rents, they moved out. And I acquired a reputation in that community as a rapacious rent increaser. And these reputations are hard to escape. I wouldn't really care that much except the reputation had a very bad impact on homesite rentals. That, I did care about.

At first I did the calculation I see many others doing. Yah, I had 100 homes at $100 per month, and even though I'm quickly down to 90 homes at $111 per month, hey, I'm getting the same money with less work and expenses. And it keeps going this way as rents increase, residents fleeing like a torrent, out the MH Paradise Estates gates, which has turned into Hell Bent Acres.  And as vacancies mount, you lose control of the community, no longer able to count on the desire to live in your LLC to keep people in line. And that desire includes pricing.

Were I the only one to have followed the raise-rents protocols, then only I would have suffered the residue, but of course, such was not the case. The MH industry's then flawed model, subsidized for years by flawed lenders, finally collapsed, dropping from 373,000 shipments in 1998, then tantalizing us into believing the hurricane-inspired 135,000 shipments of the mid 2000s was the stopping point, to the grim reality of 50,000 homes in the 2010s. Yah, I hear 60,000 homes could happen any day now.

I sat in on some very contentious MHI committees in the late 2000s era trying to formulate a chattel long term lease the GSEs could swallow. In concert with this I reviewed many LLC profiles showing monthly rent and occupancy. It probably won't surprise you that the vacancy was truly scary, yet rents occurred steeply and frequently.  I had already tried that, and even with the generous retail financing by GreenTree, CIT, The Associates, Security Pacific, Chase and their ilk, it didn't work. Now we were dealing with the GSEs, who I did not find stupid, and we were trying to equate rents in LLCs to the capitalized valuation of single family conventional real estate lots. Any thought of sharply limiting rent increases to gain long term and low rate financing being the trade-off, got serious push back. Such was not to be and by then as the effort lost all bouyancy, the GSEs woke up to far bigger challenges.

As a post script I am the very first to admit that some major figures in that committee have since come far closer to the rent restraints advocated in the long term lease effort as their stated belief for industry resuscitation.  Will that be enough? I greatly doubt it, but I sure think it is an indisputable industry wide measure in the road back to something other than Warren Buffett's table scraps.

So to my young friend in Oregon, rent control, other then confiscatory NYC apartments or some California cities in MH, can be a useful LLC owner restraint, quieting some of the early animal spirits we can all exhibit before experience shackles us. Did I like going to the rent hearings in my community in Florida and taking phallus down the throat to the gag control center? Oh, I loved it.

Still, Florida LLCs are and have long been highly prized acquisitions, not greatly injured by the relatively manageable process for raising rents.  With the relatively benign rent control such as in Florida and Vermont, you and the industry are actually protected from many of the practices employed in the industry, leading to so much push back against us.

Before you believe I'm asking you to petition your jurisdiction for rent control, let me disabuse of that notion. Nothing could be further from the truth. I rail against governmental intrusion in to my affairs daily. Everyday the beast grows larger, only a financial collapse likely to abort its growth. The only point I am making is that one must practice rental increase restraint on your own. Sometimes laws can help a process.

The flip side is that lack of restraint causes lack of residents at a time LLC vacancy nationwide forebodes another step down in industry size. In places like Vermont and Florida and others, rent control, which one should practice on their own, is instilled by statute. Perhaps not the best solution, but the record says the world did not end there.

Yes, we tell a great story which seemingly has legs of truth about our affordable housing heritage. But for whatever reason, even though its great dog food, the dogs won't eat it. Perhaps a legacy of rapacious rent increases, closing parks, high default rates and high home value depreciation could be a good place to start the industry resurgence. We build great homes, but my friends, that, by itself is not enough. ##

marty-lavin-posted-on-mhpronews(MARTIN V. LAVIN
attorney, consultant & expert witness
350 Main Street Suite 100
BURLINGTON, VERMONT 05401-3413

802-660-8888 off / 802-238-7777 cell
marty@martylavin.com

(Editor's note: The hot link was added by us, not Marty, nor was the link requested in any way by Marty. We think it is good for others to realize that while Marty is 'retired,' he is still involved in this industry and clearly cares about manufactured housing deeply. That is why he sounds off on issues, because he cares enough to raise them for discussion, thought and action.

As always, letters and articles by you or your colleagues that may agree or take other perspectives are encouraged. Send them to latonyk@gmail.com with Industry Voices Guest Column in the subject line. )