September/October 2021 Finance & Brokerage Edition by MHInsider

THE FINANCE & BROKERAGE EDITION

THE MAGAZINE FOR MANUFACTURED HOUSING PROFESSIONALS

THE EVOLUTION OF MOBILE HOME PARK BROKERAGE MHI NAMES EXCELLENCE AWARD WINNERS

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CONTENTS

MHI NAMES EXCELLENCE AWARD WINNERS

The annual honor recognizes leaders from every sector of manufactured housing, including manufacturers, suppliers, communities, retailers, lenders, and designers.

HAPPENINGS 6 Industry Happenings EVENTS 10 Manufactured Housing Industry Events INDUSTRY NEWS 12 Industry Donation to SECO Committee Assists U.S. Military Veterans 14 A Primer on the HUD Code, Part II: Amending the Code FINANCE 20 MH Advantage®-eligible Subdivisions Pave the Way for Stronger Industry Growth 25 Harvard Housing Study Looks at Home Ownership Rate, History of Housing Finance 30 The Secondary Market Adds Vitality to Domestic Home Sales 35 Get Out of the Zone

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VOLUME 4 • EDITION 5 SEPTEMBER / OCTOBER 2021 MHInsider.com

PAGE 25

Publisher

This single statistic – currently running about 65% – is regarded as one of the most important comprehensive measures of how well the country’s socioeconomic system is “delivering the goods” for the typical American family.

MARKETS 39 MH REITs Report: A Quarterly Review of Manufactured Housing Real Estate Investment Trusts MHI AWARDS 46 MHI Names Excellence Award Winners BROKERAGE 55 The Evolution of Mobile Home Park Brokerage 63 Why All the Hype Over the Manufactured Housing Asset Class? MARKETING 68 Building a Positive Online Reputation

Patrick Revere patrick@mhvillage.com

Senior Graphic Designer Merit Kathan merit@mhvillage.com

Contributing Editor George Allen gfa7156@aol.com

Editor

Sean Vichinsky sean@mhvillage.com

Contributors

Paul Barretto Nick Bertino James Cook Michael Dixon Kevan Enger Devin Leary-Hanebrink Matt Herskowitz Darren Krolewski Alex Pettee

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Cover Photo Courtesy of Champion Homes

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Disclaimer

Although we make every effort to ensure that the information in this issue was correct before publication, MHVillage, Inc. and the publisher do not assume and hereby disclaim any liability to any party for any loss, damage, or disruption caused by errors or omissions, whether such errors or omissions result from negligence, accident, or any other cause. Opinions expressed are those of the author or persons quoted and not necessarily those of MHInsider or the publisher MHVillage, Inc.

Copyright ©2021 MHVillage, Inc. All rights reserved. Reproduction of MHInsider content, MHI or other contributor content, in part or in whole, is prohibited without written authorization from MHVillage, Inc.

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FROM THE

We Stand Alone

As an industry, we stand alone. We stand alone as the only portion of the housing market to operate under comprehensive federal rule-making and guidance. We stand alone as the leader in off-site built homes. We stand alone in the diversity of product. The manufactured housing industry stands alone as the dominant provider of affordable housing. And the industry’s lending institutions that support home sales stand alone as the all-too scarce type of organization that offers low- to middle-housing loans. Industry lenders — particularly those that finance homes — are picking up the tab. One might think our industry leaders feel a great burden shouldering the tremendous need for affordable housing all across our country. But that’s far from the case; the home builders, community owners, lenders, brokers, and the many valued product and service providers know we all can do more. Each day is a grind, but that’s the way we work. There is no time for complaints — about market forces or the myriad challenges on our streets — when we know we stand alone in delivering the best, the most timely, and the most cost effective residential solutions available. Between these pages, and in talks with industry colleagues, you will find recollections of where the industry stood a decade or more ago. In that light, each one of those days grinding out the industry work has unmistakably paid off. Manufactured home communities are highly valuable and productive properties that draw praise from Wall Street as well as Main

4 | SEPTEMBER / OCTOBER 2021 EDITION

Street. Each week there’s news about a municipality changing its zoning rules to allow for more manufactured homes. Shipments are increasing again, and builders are investigating ways to be more efficient and produce more homes. More brokers and lenders are entering the marketplace, increasing competition and providing an increasingly diverse array of services, product lines, and platforms. The availability and cost of lumber and other housing products continues to stabilize. It’s a good thing, too, because orders are coming in at an impressive rate. But who’s answering the phone? The manufactured housing industry is far from alone in regard to labor woes, but it stands to lose as much as anyone if we fail to recruit and retain the needed talent. The manufactured housing industry is a great place to be. It has a rich history and promising future, and is the hidden gem that needs to be found. If we’re to recruit well, and fill all those orders, the broad shoulders of this industry needs to grow wider and stronger for the benefit of every resident and every homebuyer.

Patrick Revere is associate vice president of publications for MHVillage and publisher for the MHInsider magazine and blog for industry professionals. His background is in print news, language, and communication.

the american dream Joshua Mermell Senior VP of Acquisitions Email jmermell@rhp.com Cell 248.508.7637 I Office/Direct 248.538.3312 rhp.com

INDUSTRY happenings Transactions Ownership Group Buys 20 Acres in Kansas for Community Expansion Green Courte Partners acquired a 20-acre land parcel adjacent to Conestoga, a land-lease community it owns in Gardner, Kansas, a suburb of Kansas City, to develop an added 98 homesites for the community, bringing the property to 757 homesites. Green Courte owns and operates 7,000 homesites nationally. The new section is in development as “Lakeside at Conestoga” and offers a lake, walking paths, and a pavilion, in addition to the clubhouse, pool, playground, and other amenities at Conestoga.

Patrick Industries to Construction La Porte, Ind., Factory One of the leading employers from Elkhart, Ind., Patrick Industries, will open a new plant in La Porte, Ind., creating approximately 30 new jobs during the next four years. The 60,000 square-foot-facility in the Thomas Rose Industrial Park will help support its supply and distribution to several industries, including marine, RV, and manufactured housing.

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Yale Advisor’s Realty Division Closes 1300 Spaces Across the Nation In roughly two months Yale’s real estate division has closed on the sale of nine communities with a total of about 1,300 hundred spaces from Florida and Georgia, to Missouri and Oregon, with transaction sizes ranging from $2.5 to $61 million. “The geographical and asset diversity of these recent closings emphasizes Yale’s reach and national teams’ position in the market,” Yale founder James Cook said.

Maverick Commercial Mortgage Finances Parks in Texas, Washington Leisure Living Manufactured Housing Community in Fort Worth, Texas, has received a $6.15 million loan through Maverick Commercial Mortgage. Benjamin L. Kadish, president of Maverick, said the 10-year, non-recourse loan has a fixed interest rate, and amortizes over a 30 year schedule. Proceeds from the loan were used to pay off the first mortgage lender, paid for closing costs and returned equity. Leisure Living has 124 homesites, off-street parking, a clubhouse with a gathering room, dining area, and kitchen, as well as on-site management, boat / RV storage, and a swimming pool. The second

park, in Sequim, Wash., received a $9.8 million loan originated by Maverick that covers about 70% of the development of Lavender Meadows, a new 55+ community with 217 homesites. The initial phase of home installation is planned for fall 2021.

Chicago Portfolio Owners Refinance in Four States

two- and three-bedroom homes. Each home has oil-fired baseboard heat. The property is attached to city water and sewer billed directly to the homeowners and is near outdoor recreation and big box shopping.

Great Brook Village, a manufactured home community near Tillton, N.H.

Hometown America refinanced a portfolio of properties consisting of five communities and 1,731 homesites in Massachusetts, New Jersey, Illinois, and Florida. PGIM Real Estate provided $178 million in fixed-rate debt for the refinancing of the properties that are 99% occupied, and include amenities such as pools, fitness centers, putting greens, clubhouses, bocce ball courts, and dog parks.

New Hampshire Community Sells for $4.26 Million Great Brook Village, a manufactured home community near Tillton, N.H., sold for $4.26 million, a 6.61% cap rate. Will Peck, Dennis Kelleher, John Pentore of Horvath & Tremblay arranged the sale, representing the seller and procuring the buyer. The community has 65 homesites, all occupied by homeowners, on lots for

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Happenings Elevation Capital Buys First Community of Fund 8 Orlando-based real estate investment company Elevation Capital Group has completed the first acquisition with its eighth round of funding. The initial offering amount for Fund 8 was set at $50 million and already has received commitments in excess of $28 million. The purchase is a manufactured housing community in the Washington, D.C. metropolitan area, and May marked the beginning of monthly distributions for investors in the fund, estimated at 5% monthly. Elevation, through its affiliates, has acquired properties worth more than $600 million and has owned more than 200 assets in more than 30 states. “The team at Elevation is especially excited to add to our existing footprint in the D.C. metro area,” Ryan Smith, at Elevation Capital Group, said. “We were awarded the deal, even though we were not the highest bidder, due to our track record of high-quality management of manufactured housing communities.”

Personnel Cavco Industries Names New Executive Allison K. Aden started in her new role as executive vice president and chief financial officer for Cavco Industries in late August. She oversees accounting, tax, trea-

8 | SEPTEMBER / OCTOBER 2021 EDITION

sury, information technology, and finance-related operations. Additionally, Aden will serve as a member of the executive leadership team and will report to Cavco President and CEO Bill Boor. Previously, Aden served as executive vice president and CFO of Diversified Technologies, an industry-leading technology solutions provider.

FHFA Names Acting Director Sandra L. Thompson has been named the acting director of the Federal Housing Finance Agency. She served as deputy director of the Division of Housing Mission and Goals overseeing housing and regulatory policy, capital policy, financial analysis, fair lending, and mission activities for Fannie Mae, Freddie Mac, and the federal home loan banks.

FHA Nominee Awaits Confirmation FHA nominee Julia Gordon continues through confirmation hearings that will determine if she is to oversee the federal manufactured housing program. Gordon is the current president of the National Community Stabilization Trust, a nonprofit organization that promotes neighborhood revitalization and housing affordability. Previously she served as the housing director at the Center for American Progress and managed the single-family policy team at the FHFA.

Chief Industries General Manager Retires Dan Fitzgerald, a general manager for Bonnavilla, a division of Chief Industries, retired in August after exactly 50 years in the manufactured housing business. He started in the industry on Friday, Aug. 13, 1971 and retired on the same day and week of the month in 2021. “I have had the opportunity to work with some great employees and customers during my career, but none better than the employees and customers at Bonnavilla and Chief Industries,” he said. Fitzgerald said he plans to remain in Nebraska, travel with his family, and work on his golf game.

Industry News Tennessee Lender Launches Hispanic Home Loan Program First Community Mortgage of Johnson City, Tenn., has launched HOLACASA, a home opportunity loan program breaking down barriers to homeownership for Hispanic homebuyers and homeowners. The program is open to foreign nationals and non-resident immigrant status with ITIN/W7 U.S. tax return filings; applicants must have filed taxes in the U.S. for the previous year. The loans may be used for primary residence, second home, and investment properties, and are also available for non-warrantable condos, manufactured homes, 1–4-unit properties, townhomes/PUDs, and vacant land. Loans are available up to $6

the success at Park Lane over the last five years,” Park Lane President Rick Cason said. “With his years of experience in the manufactured housing industry, serving in the finance, community, and retail sides of the business, he has developed a unique skill set that enables Park Lane to further its financing programs aimed at helping community retailers fill vacant lots, sell rental inventory, and create affordable homeownership opportunities for individuals and families in communities.”

Park Lane Promotes Luke Foster to Vice President

New MH Consulting Group Launches

Park Lane Finance Solutions, a regional home-only lender, has promoted Luke Foster to Vice President. Foster has been a champion for the industry his entire life, growing up in the family business, Foster’s Housing, a former North Carolina-based retail chain, to donating his time by serving on various boards and committees. He always is happy to connect people with sources of information and other industry experts. “Luke has been an integral part of

Mike Scheffler and Justine Natalie created Dynamic MH Solutions, a manufactured housing consultancy that provides guidance to small and midsize park owners, operating nationally from Highlands Ranch, Colo. Scheffler has 25 years of experience in the development of community finance operations, and Natalie has been building full-service sales operations for more than a decade. More information is available at www.dynamicmhsolutions.com.

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Happenings

million. The HOLACASA website includes other facts, opportunities, and guidelines about the program. “This is the branding and consolidation of the many initiatives we offer for the Hispanic and Latin communities,” FCM Executive Vice President of Multicultural Business Development and Chief Diversity Officer Miguel Vega said. “We wanted to wrap everything we’ve been doing under an official name as we continue to refine and expand the initiative.”

Events

MANUFACTURED HOUSING

Industry Events

NCC Fall Leadership Forum

Biloxi Manufactured Housing Show

Monday, Nov. 8 — Wednesday, Nov. 10. Chicago, Ill. — Chicago Marriott Magnificent Mile The NCC Fall Leadership Forum held each year draws more than 400 attendees and is the only strategic executive-level event of the year for national community owners. The meeting is geared toward professionals involved with manufactured home communities as an owner/manager, manufacturer, service provider, broker, lender, or consultant. Organizers and presenters will explore new ideas, examine trends, and offer a unique industry perspective.

Monday, March 28 — Thursday, March 31, 2022 Biloxi, Miss. — IP Casino Resort and Spa Formerly held in Tunica, the South Central Manufactured Housing Institute has moved its annual manufactured home show to Biloxi, Miss. Each year, SCMHI hosts North America’s largest indoor/outdoor manufactured home trade show. The 2022 show features exciting new homes on display, an impressive exhibit hall that showcases the newest features from industry suppliers, and educational training to help build a business.

Louisville Manufactured Housing Show 2020

MHI Congress & Expo

Wednesday, Jan. 19 — Friday, Jan. 21, 2022 Louisville, Ky. — Kentucky Exposition Center The Louisville Manufactured Housing Show is the nation’s largest indoor show for manufactured home professionals. The annual gathering is organized by the Midwest Manufactured Housing Federation, supported by the state associations of Illinois, Ohio, Michigan, Indiana, and Kentucky. The show brings out an array of new manufactured home designs, the latest in technology, the best in supplier offerings, and a look at all the newest amenities and offsite-built options.

Monday, April 11 — Thursday, April 14, 2022 Orlando, Fla. — Rosen Shingle Creek Resort The national trade show where manufactured housing professionals can obtain the knowledge and resources necessary to excel in today’s housing marketplace. Choose from attending top-quality educational programs with powerful speakers, networking with the industry’s most successful professionals, developing new business strategies, and visiting the exhibit floor to see the latest products and technologies.

If you have an event or gathering — virtual or in person — you would like to have listed with MHInsider, please contact us at: www.mhvillage.com/pro/manufactured-housingindustry-trade-shows/

10 | SEPTEMBER / OCTOBER 2021 EDITION

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Industry News

INDUSTRY DONATION TO SECO COMMITTEE ASSISTS U.S. MILITARY VETERANS

Dave Jackson of NAI G2 Commercial Real Estate presents a check to the Warrior Outreach program.

In August, at the Georgia Manufactured Housing Association’s annual meeting, a pair of $5,000 donations from SECO went to Comfort Farms and Warrior Outreach, both Georgia-based volunteer organizations that work with veterans. SECO, a non-profit annual event and philanthropy organization for and by manufactured home community owners, raises funds to support retired service members. Representatives from SECO and NAI G2 Commercial Real Estate met with Warrior Outreach to tour their facility and present a check. Warrior Outreach supports veterans, service members, and their families through a variety of equine activities. It offers a way for participants to build confidence, reduce stress, and interact with horses in a relaxing way. “Our main focus is to assist soldiers and families in transitioning and adjusting to life after traumatic occurrences and family separation due to deployments,” Warrior Outreach founder Sam Rhodes said. Dave Jackson is an associate broker for NAI G2 Commercial Real Estate in Columbus, Ga., and serves on the board for SECO. He also served in the Army for 30 years.

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Mobile Home Park Brokers donated more than $6,000 to SECO’s efforts to aid soldiers.

Organizers from Comfort Farms receive a $5,000 donation from SECO.

Mobile Home Park Brokers Support SECO Veterans Assistance Program In June, The Mobile Home Park Broker, a business owned and operated by Maxwell and Kathryn Baker, donated more than $6,000 to the SECO fund. “We were all immediately motivated to help out, so we pledged a percentage of broker commissions involving SECO members to the organization’s Vets Assistance Program,” said Max Baker, who served with the U.S. Marines.

“It’s hard to imagine anyone, much less an honorably discharged U.S. vet, having to struggle through difficult times after arriving back in our country,” Baker said. “Our entire team was eager to help improve the quality of their lives. Semper fi!” The SECO Veterans Assistance Program Committee includes retired members of the U.S. Marines, Army, Air Force,and Navy. The committee reviews all applications from community owners who submit assistance requests for residents in need who also are honorably discharged U.S. veterans.

The Start of SECO’s Veterans Assistance Program The initiative was established after SECO co-founder David Roden learned of a U.S. veteran in his community in Georgia who used an oxygen machine and needed a room air conditioner for cooler air to withstand the summer heat and help him breathe. The idea of helping retired U.S. Veterans who live in manufactured housing communities then grew into helping not only Veterans, but helping first responders during COVID. Those interested in attending SECO21 or joining the organization’s effort to improve the lives of retired U.S. service members living in manufactured home communities are encouraged to visit SECO at www.secoconference.com. MHV

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“One of the critical lessons you learn when becoming a sergeant is to take care of your troops, something I have carried with me since my retirement, through my career, and now with SECO,” Jackson said. The other $5,000 donation funded by NAI through SECO was facilitated by the Georgia Manufactured Housing Association. GMHA sponsored the delivery and setup of a pair of multi-section homes at Comfort Farms, an agrarian setting for veterans to reintegrate, connect with land, and study sustainable farm and food practices. The organization and setting is the work of Jon Jackson, who founded Comfort Farms in honor of Kyle Comfort, Jackson’s friend and a fellow soldier who was killed in combat in 2010. “The idea is to give them a fully furnished, walk-in and be-able-to-stay experience,” GMHA Executive Director Jennifer Lassen said. SECO and the Veterans Assistance Program collaborated with the association’s gift of two homes by providing $5,000 that will go toward any remaining furniture needs, linens, kitchen utensils, or a washer and dryer.

Industry News

A PRIMER ON THE HUD CODE Part II: Amending the Code by Devin Leary-Hanebrink

14 | SEPTEMBER / OCTOBER 2021 EDITION

Industry News

In Part I of this two-part piece a few months ago, we laid the foundation for the HUD Code amendment process by summarizing the National Manufactured Housing Construction and Safety Standards Act of 1974, as amended, and introducing the Manufactured Home Consensus Committee(MHCC). This column will focus on the HUD Code and the process for amending it, from an “initiating event,” the submission of a proposal to the MHCC for review, to final rulemaking.

The HUD Code All manufactured homes are built to comply with federal standards established and maintained by HUD and the MHCC. These standards, which implement the objectives of the 1974 Act, are collectively known as the HUD Code. However, the HUD Code is more than a building code; it includes model installation standards, procedural and enforcement regulations, certification and testing provisions, and a dispute resolution program, among other requirements. Given its component parts, the HUD Code is more comprehensive than the 1974 Act and more robust than a typical building code. Further, while it is true the 1974 Act has undergone few revisions since inception, the HUD Code is frequently updated — roughly a half-dozen times over the last decade alone. Admittedly, not every update is a comprehensive revision. For example, roughly eight years span the time between publication of the “second set” and “third set” of HUD Code amendments. However, during that time, HUD » MHINSIDER.COM | 15

Industry News

and the MHCC updated the requirements for ground anchor installations, introduced Subpart M, amended the RV exemption, and revised the formaldehyde notice requirement. Most recently, with the “third set” final rule, manufactured housing officially transitioned to the 2021 HUD Code, which is more current than virtually any other contemporary building code or standard adopted by a U.S. jurisdiction.

Gathering Proposals to Update the HUD Code Like any standard-setting organization (SSO), HUD is not only responsible for reviewing proposals to update the HUD Code but also for establishing the framework and cadence of review. Generally, a SSO will update its codes and standards every three, four, or five years. For example, the International Code Council updates its family of International Codes on a three-year cycle and the National Fire Protection Association updates its standards every three to five years. However, instead of a three, four, or five-year cycle, HUD has implemented a rather ambitious two-year plan.

16 | SEPTEMBER / OCTOBER 2021 EDITION

Technically, there is no statute or regulation that specifies how frequently the HUD Code must be updated. The 1974 Act only requires HUD to convene the MHCC not less than once during each two-year period to consider revisions. HUD has interpreted this as requiring it to solicit and collect proposals for revising the HUD Code, and then assemble the MHCC as frequently as necessary, but no less than once every two years. However, unlike SSOs, which strictly adhere to their development cycles, just because HUD and the MHCC review proposals on a two-year cycle does not mean the HUD Code is amended every two years. Sometimes it is updated more—or less—frequently. Currently, HUD and the MHCC are in the middle of their 2020-2021 cycle. The submission deadline was June 30, 2020; proposals to amend the HUD Code received after the cutoff will be reviewed as part of the 2022-2023 cycle.

Preparing a Federal Register Notice to Update the HUD Code After the close of a review cycle, the next step is assembling the MHCC. However, to ensure the public has ample opportunity to participate, HUD must publish »

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advance notice of every MHCC meeting in the Federal Register. (At publication, the MHCC most recently met via teleconference on June 10, 2021). During these meetings, the MHCC will review outstanding proposals, approve, modify, or reject each one, and then prepare for HUD a report summarizing its recommendations. HUD will review the MHCC’s recommendations and work with its Office of General Counsel (OGC) to develop them into a proposed rule for publication in the Federal Register. As part of this step, HUD is also responsible for ensuring the rule complies with several federal requirements, including the Administrative Procedure Act (APA), Regulatory Flexibility Act, and the Paperwork Reduction Act. Further, the proposed rule must be reviewed by the Office of Management and Budget (OMB), the largest office within the Executive Office of the President. OMB will confirm that the proposal is consistent with the Administration’s broader policy directives. Given that HUD is a United States federal executive department and the HUD Secretary is nominated by the President, rarely — if ever — will a rule be published without OMB approval. Once approved by OMB, the proposed rule is then published in the Federal Register and open for public comment, which usually runs for 30-60 days. After the window closes, HUD will review any comments received and, at its discretion, incorporate or reject them, with an explanation of its decision. (HUD might even withdraw or abandon its efforts, as it did with its interpretive bulletin regarding frost-free foundations). Assuming HUD moves forward with its proposal, it will prepare a final rule for OMB review. After another round of approvals, the final rule will be published in the Federal Register with a future effective date for the new requirements.

The ‘Third Set’ Final Rule HUD’s “third set” final rule illustrates the complexities of the regulatory change process. In January 2020, HUD published its proposed rule, which started the clock on a 60-day comment period. However, given that HUD’s “second set” final rule was published in late 2013, the “third set” proposed rule is actually the culmination of no fewer than six years of MHCC recommendations over three HUD Code review cycles. HUD ultimately received over 40 public comments, which is a lot for a manufactured housing initiative. 18 | SEPTEMBER / OCTOBER 2021 EDITION

(Although, for perspective, it is not uncommon for other federal rulemaking initiatives to receive hundreds of comments). It then spent the next nine months reviewing these comments and coordinating with its OGC to develop a final rule that incorporated the public’s feedback. Next, HUD had to secure a second OMB approval to make sure

Unfortunately, critics have latched onto this, turning it into a common refrain: the HUD Code is never updated. While it may not be updated as routinely as other codes and standards, inconsistency is not a proxy for inferiority.

-Devin Leary-Hanebrink

everything was still aligned with the Administration’s objectives. Finally, on January 12, 2021, a year after publishing its proposed rule — and seven years since it published its “second set” final rule — HUD published its “third set” final rule. Six months later, on July 12, 2021, the final rule went into effect. In conclusion, the HUD Code is not an antiquated system that trails behind other codes and standards in terms of safety and technical proficiency. Instead, amending it is a deliberately methodical process. By HUD’s own estimation, it takes 10 steps (and usually a few years) to get from an “initiating event” to publication of a final rule. Unfortunately, critics have latched onto this, turning it into a common refrain: the HUD Code is never updated. While it may not be updated as routinely as other codes and standards, inconsistency is not a proxy for inferiority. MHV Devin Leary-Hanebrink practices with McGlinchey Stafford PLLC. He helps clients navigate the alphabet soup of state and federal government agencies that regulate a wide range of industries, including banking, consumer financial services, housing, and construction. McGlinchey Stafford PLLC is a multi-service law firm with a national presence, serving clients from offices in Alabama, California, Florida, Louisiana, Massachusetts, Mississippi, New York, Ohio, Tennessee, Texas, and Washington, D.C.

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Finance

MH Advantage®-eligible Subdivisions Pave the Way for Stronger Industry Growth by Michael Dixon

20 | SEPTEMBER / OCTOBER 2021 EDITION

Finance Photo Courtesy of Clayton Homes

Average U.S. home values have increased nearly 70% since 2011. While some segments of the economy struggled during the COVID-19 pandemic, increased demand continued to drive home prices up. Unfortunately, these trends put homeownership further out of reach for low- and moderate-income homebuyers who rely on affordable housing options to build equity and wealth. It’s Fannie Mae’s mission to provide affordable housing opportunities across the country, and we recognize the critical role manufactured housing plays in fulfilling that mission. The high-quality, affordable housing segment is needed now more than ever before

as rising prices put site-built homes out of reach for more and more borrowers.

Manufactured Homes Have Come A Long Way In the decade between 2010 and 2020, shipments of manufactured homes have almost doubled in the United States. Despite that fact, manufactured homes represent only 6.3% of the nation’s housing stock, and 10.4% of new houses sold. These numbers, while modest today, represent a great opportunity for growth. With aesthetic features like higher-pitched rooflines and low-profile foundations, durable »

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Finance

siding materials, and high-end interior finishes, we can see great potential for incremental sales of today’s modern manufactured homes, which is why we launched MH Advantage® financing in 2018 to support this new and growing market. MH Advantage financing is different from traditional manufactured home mortgages in several critical ways. Homebuyers purchasing eligible homes may qualify for home loans with as little as 3% down and lower interest rates than other manufactured home loan options. What’s more, if there aren’t other MH Advantage homes available as comparables, appraisers use the best available comparable home, which may include site-built homes. With similar features and similar financing to site-built homes, MH Advantage-eligible homes are positioned to appeal to homebuyers who might not have considered manufactured homes before, growing market share and increasing sales of this home type. And new sales channels can help replicate the site-built buying experience as well.

MH Advantage-Eligible Homes In Subdivisions Picture a homebuyer driving down the road. She sees a sign advertising new homes and decides to go check it out. The homebuyer meets with a sales rep, who takes her on a tour of a model home, maybe several, and talks through all the customization options she can choose from. This could describe someone visiting a manufactured home retailer, or it could describe someone visiting the sales office of a homebuilder starting a new community. The 22 | SEPTEMBER / OCTOBER 2021 EDITION

...a site-built home in a subdivision will often be more expensive and take longer to build than a manufactured home. It’ll be subject to weather delays and involve significantly more waste.

consumer experience in these two situations has a lot in common. And the end result, a brand new, high-quality, customized home permanently affixed to a plot of land, is the same as well. But there are a number of big differences to consider. For example, a site-built home in a subdivision will often be more expensive and take longer to build than a manufactured home. It’ll be subject to weather delays and involve significantly more waste. And with material and labor costs skyrocketing, every bit of efficiency can make real impacts on the bottom line. With MH Advantage-eligible homes maintaining the aesthetic and durability features of site-built homes, they are an ideal fit for builders and developers to consider in their next subdivision model when looking to offer a more affordable

product to customers, without sacrificing the quality their customers expect. Industry stakeholders are already seeing some positive results as they begin to realize the value of including MH Advantage-eligible homes in subdivisions.

Seeing Early Successes: High-Quality Housing To Meet Growing Demand Strong economic activity in the surrounding regions has sparked an interest in Oroville, California, as an appealing, affordable destination for homeowners in recent years. While the Butte County city experienced a 10.7% population growth between 2010 and 2019, it reported a growth of 20% between August 2019 and August 2020. This city has a substantial need to quickly ramp up its affordable housing supply. A partnership between Skyline Champion Corporation and westcoast builder W&R will deliver 134 MH Advantage-eligible homes, with the first model units being installed in a new subdivision in 2021. These newly built MH Advantage-eligible homes are estimated to cost nearly $100,000 less than comparable existing site-built properties in the Oroville area, lending credence to the idea that newly constructed manufactured homes are cost-effective, without compromising on quality or aesthetics.

Traditional Retailer Changes Business Model to Capture New Market In the Cordell Oaks subdivision, located in Guadalupe County, Texas, the population continues to grow, and home prices continue to

The project is a result of the work of Spark Homes and Champion Home Builders.

Manufactured Homes Are The Affordable Homes Of The Future Manufactured homes already provide an affordable source of housing to 22 million Americans. Still, as home prices increase and borrowers continue to be priced out of the site-built market, there remains a gap that manufactured housing is poised to fill. Particularly with MH Advantage-eligible homes, getting these high-quality products in front of consumers is the first critical step to breaking down mental barriers that stand between a buyer looking for a site-built home and considering a manufactured home.

MH Advantage-elig ible subdivisions g ive consumers that opportunity to see manufactured homes with all of the must-have features and finishes in an affordable package in the same environment they’re used to seeing site-built homes. These subdivisions will help site-built homebuyers see that a manufactured home is a solution that puts the house that they want within their reach. MHV Michael Di xon is on Fannie Mae’s Environmental, Social and Governance team as part of Impact and Engagement. He manages the manufactured housing initiatives to support Fannie Mae’s Duty to Serve Plan.

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increase. The metro area population of nearby San Antonio saw a 2.07% increase between 2020 and 2021, while the average sales prices for new and existing homes increased 5% during the 12 months ending July 2020. One of the home builders who developed this community chose MH Advantage-eligible homes to offer affordable housing with prices substantially below comparable homes in the area. The resulting Cordell Oaks subdivision features 21 one-acre lots, and it serves as the first full MH Advantage-eligible community in Texas. The home prices start at $201,995, while similar sitebuilt homes on an acre of land are at a $300K price point in that area.

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HARVARD HOUSING STUDY LOOKS AT HOME OWNERSHIP RATE, HISTORY OF HOUSING FINANCE by Don Layton

Among the thousands of statistics that the government produces to describe the country’s economic and social health, the homeownership rate has an exalted place among policymakers in Washington. This single statistic – currently running about 65% – is regarded as one of the most important comprehensive measures of how well the country’s socioeconomic system is “delivering the goods” for the typical American family. A high homeownership rate reflects that many families have income large enough not only to cover monthly living costs but also to generate enough cash surplus to save for a down payment and then to sustain homeownership. It also indicates that the cost of purchasing a house and financing a mortgage on it is affordable. In addition, homeownership is regarded as causing an improvement in the quality of life of a typical family. It is the most common method for such a family to build wealth: by paying down mortgage principal each month and participating in the long-term appreciation of home values, a family can build net worth that can be used for retirement or other needs, including helping the next generation. Such wealth creation therefore provides a major social as well as economic benefit. Add in protection against being forced to relocate » MHINSIDER.COM | 25

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by a landlord due to unaffordable rent increases or other actions, and homeownership is validly seen as a source of family stability. Not surprisingly, politicians and policymakers are therefore often focused on finding ways to sustainably push the homeownership rate higher. As a participant in the housing finance policy community since 2012, when I became CEO of Freddie Mac, I have heard often how crucial housing finance was in creating the much higher rate of homeownership that evolved after World War II – roughly 65%, compared to less than 50% prior to the Great Depression. I have also heard frequently from housing advocates how a specific proposed change in housing finance would result in many more families (the phrase “millions” is sometimes used) becoming homeowners. Astonishingly, despite such claims, through decades of the government implementing various programs in housing finance aimed at increasing the sustainable rate of homeownership, it remains today at almost exactly the level achieved over 50 years ago – about 65%. It thus seems time to step back, take stock, and look for fresh ideas. As such a step, my newly-published paper “The Homeownership Rate and Housing Finance Policy: Part 1 – Learning from the Rate’s History,” reviews the history of the U.S. homeownership rate over roughly the past 130 years to learn what policies will or will not work.

A Summary Of The History Of Home Finance, As It Is Related In The Full Paper, Is As Follows: The Pre-Depression Era: 1890-1930 The U.S. homeownership rate 26 | SEPTEMBER / OCTOBER 2021 EDITION

was at 46.5%, plus or minus 1.5%, from when records began to be kept in 1890 through to the end of the Roaring ‘20s four decades later. During this time, modern life began to take hold: the percentage of the population that was urban, rather than rural, went from 35% to 56% and the number of registered automobiles went from zero to almost 24 million. In fact, by 1930, seventy percent of American households were electrified to support the light bulb, and then-modern electric marvels - such as the radio, record player, and telephone - were starting to become common in homes. Yet, despite this massive change in daily life, surprisingly the homeownership rate remained almost unchanged, Of course, as this was an era of small government, housing issues were largely left to market forces, so there was no government effort aimed at increasing the rate to 50% or more. The Transition Era: 1930-1970 Through the early years of the Depression, more than one third of the country’s 25,000 banks disappeared and the unemployment rate rose to a staggering 25%. It is assumed the homeownership rate dropped during these years as well, but there is no readily available data to know for sure as the statistic was only collected every ten years via the census. However, by the 1940 census, the homeownership rate sat at 43.6%, down only about four percentage points from its 1930 level of 47.8%, despite the breadth of decline in other parts of the economy. The federal government, first under President Hoover but mainly then President Roosevelt, initiated massive govern-

ment intervention efforts, including in housing and housing finance, to aid American families and to dig out of the Depression. In fact, there was a virtual revolution in how the mortgage system worked, with the creation of the “American” mortgage - with a long term (now 30 years), a fixed rate, full self-amortization, a loan-to-value ratio of 80% or more, and free prepayment at any time for any reason. Prior to 1930, the typical mortgage was for only 50% of a house’s value, the term was a maximum of 10 years, and there was little if any amortization. By 1940, of course, the country was starting wartime production, greatly aiding in the recovery. After the war was won, the homeownership rate emerged at 53% in 1945, and then continued to climb to 60% in 1955, and on to better than 64% by 1969.This was totally unprecedented. The causes of this incredible achievement are many. The change to housing finance engineered during the 1930s played a major role, but there were other fundamental changes in American life that were significantly responsible as well. These included the GI Bill helping to create a much larger middle class, as well as the invention in the late 1940s of the modern suburbs that were, and still mostly are, centered around the ownership of the traditional single-family home. The Modern Era: 1970 to Today During the 50-year era beginning in 1970, the homeownership rate remained stable at around 65%, give or take 2 percentage points, echoing how it had not changed much in the forty years of 1890 to 1930. In fact, it

tainable basis: about 6 to 13 million more families (respectively) would become homeowners, with all the economic and social benefits that increase would generate. But, after so many programs designed to do just that have failed for the past half-century, it obviously isn’t an easy thing to accomplish – in fact, one inescapable conclusion from history is how incredibly hard it is. The stubborn racial homeownership rate gap also plays a prominent role in how to increase the aggregate rate, as will also be described in next part. In particular, Part 2 will include an examination of the proposal made by the Biden campaign to establish a large and generous down payment assistance program with Federal government funding. In my view, that proposal, which represents a

significant change in the thinking that has dominated policymaking for many years, does indeed have the potential to be a major component of a successful effort to, at long last, materially and sustainably raise the homeownership rate materially above its long-standing 65% level. MHV Don Layton is a senior industry fellow with the Joint Center for Housing Studies of Harvard University and previously served as CEO of Freddie Mac. He worked for nearly 30 years at JPMorgan Chase and its predecessors, starting as a trainee and retiring in 2004 as one of its top three executives. The full publication of his homeownership research can be found at www.jchs.harvard.edu.

A Foundation for Housing Policy The objective of this Part 1 historical review is to establish a foundation for determining what policy choices, especially in the field of housing finance, would likely be successful in finally and sustainably raising the homeownership rate past the 65% range to 70% or even more – which will then be explored in Part 2. It would indeed be a major socioeconomic success for the United States if the homeownership rate could rise to 70% or 75% on a susMHINSIDER.COM | 27

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started the era at 64.3% and ended up almost unchanged a full fifty years later at 65.3% when the pandemic hit. In the late ’90s the rate did increase to 67%, and then in the early 2000s nearly hit 70% - which was beginning to look like a sustainable increase beyond the 65% range. However, this at least in part reflected the early days of the mortgage bubble, and its bursting was so overwhelming that the homeownership rate then began a long-term decline. It eventually reached its bottom of 62.9% in April of 2016, a full ten years after the house price peak in 2006 and six to seven years after the end of the recession. During this 50-year period, there were signature programs in housing finance that were designed to increase the homeownership rate, such as the Community Reinvestment Act and later the GSE obligation to meet certain “affordable goals.” Unfortunately, it is clear from the data that none of these programs moved the needle at a sizeable level, although they might have in smaller numbers.

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The Secondary Market Adds Vitality to Domestic Home Sales by Paul Barretto

30 | SEPTEMBER / OCTOBER 2021 EDITION

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What is the secondary mortgage market? Have you ever wondered how home lending works? Most of us are familiar with going to our local bank, credit union, or financial institution to take out a loan to buy or refinance our home, but have you ever thought about how your lender goes about providing you the funds? When you finance your home, you and your lender are doing business in what’s considered the primary mortgage market. The secondary mortgage market is where banks, credit unions, other financial institutions, and investors trade their mortgages, servicing rights, and mortgage-backed securities. Most lenders sell their mortgages to raise money to run their lending business. The secondary market defines how we get a mortgage loan, the interest rates and loan terms, and standards we must meet. »

MHINSIDER.COM | 31

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Secondary Mortgage Market Makes American Housing In the early 1900s, loans to buy a home were 3- or 5-year adjustable-rate balloon mortgages, which meant you paid interest for those first three to five years and then paid the full amount of the loan. Your options were either pay your lender for the remaining loan amount in cash or refinance your home into

another balloon mortgage. In those days, all of lending was local, meaning the interest rates, loan terms, and source of money was specific to where you lived. When our country went through the Great Depression, nearly one in four homeowners lost their homes to foreclosure as they couldn’t pay for their mortgage loans without a job. Lenders stopped offering

Today, Fannie Mae and Freddie Mac are the largest buyers of conventional mortgage loans, which can be as high as $548,250 for a single-family home in 2021.

-Paul Barretto

mortgage loans as they didn’t have any money to lend. This created a national housing crisis and had a damaging effect on the economy. In 1938, Congress created the secondary mortgage market when they formed the Federal National Mortgage Association, also known as Fannie Mae. Its sole purpose was to buy mortgage loans from the Federal Housing Administration (FHA) and the Veterans Administration (VA). This allowed lenders to offer mortgage loans to their borrowers regardless of the economic environment, make money, and pass the risk of non-payment to Fannie Mae. This arrangement created a reliable, steady source of funding for housing and introduced long term fixed rate mortgage loans, national interest rates, and affordable housing programs.

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ondary mortgage market and the U.S. housing market is the ability to offer investors a guaranteed payment of principal and interest throughout the term of the bond. The consistent, predictable payment and uniformity of the loans backed by housing in the U.S. is guaranteed by Ginnie Mae, Fannie Mae, or Freddie Mac. In 2020, Ginnie Mae issued $450 Billion in MBS, and Fannie Mae and Freddie Mac issued $3.3 Trillion in MBS. While creating access to mortgage loans despite the economic environment is the purpose of the secondary mortgage market, the Federal Reserve, or “the Fed”, uses MBS as a tool for economic recovery. By purchasing MBS in large quantities, they can keep mortgage interest rates very low. For example, 30-year fixed-rate loans remain below 3%. Buying MBS and other bonds to keep borrowing rates for housing and other loans was a key part of the Quantitative Easing strategy used to help our country recover from the Great Recession. In March 2020, the Fed began buying MBS again to support the economy through the COVID-19 pandemic.

mortgage-backed security.

As the consumer market begins to understand the value of today’s manufactured homes, the opportunity and potential for manufactured housing is unprecedented because of the growing housing gap in our country. Traditional site-built home construction is not the answer as manufactured housing is more efficient and scalable in its ability to produce quality homes with less waste and at a more affordable price.

It’s All About MortgageBacked Securities (MBS) A major innovation that transformed the secondary mortgage market in the United States also happened in 1968 with the creation of the residential mortgage-backed security, or MBS. An MBS is a bond made up of home loans. What makes MBS an important part of the sec-

Making Manufactured Housing Great Again Through The Secondary Mortgage Market

The U.S. secondary mortgage market gives the manufactured housing industry the ability to scale its growth. Ginnie Mae, Fannie Mae, and Freddie Mac have no limits on the amount of loans they can buy, and they want to buy as much as they can. They are working with the industry to have more of their lenders sell them manufactured home loans. However, to take advantage of this opportunity, the manufactured housing industry needs to evolve and transform by growing its land and home, or real property business attracting the homebuying population priced out of new and existing sitebuilt homes. While we are already seeing innovative approaches to expand the market, such as retailers and lenders partnering with developers and city planners to build and expand subdivisions, there’s still a long way to go. MHV Paul Barretto is the Executive Director for LearnMH where he is responsible for the organization’s growth and strategic development as a resource for positive change in the offsite factory-built housing industry. He is recognized as an influencer in factory-built housing and authored Fannie Mae’s first Manufactured Housing market plan for the Duty to Serve.

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In 1968, Cong ress converted Fannie Mae to a privately-owned, government-chartered corporation limiting its purchase of mortgage loans to conventional mortgages, FHA and VA loans. It also created the Government National Mortgage Association (Ginnie Mae) as a government agency that buys mortgage loans from other government agencies such as FHA, VA and USDA/Rural Development. In 1970, the Federal Home Loan Corporation (Freddie Mac) was created to buy conventional, FHA and VA loans like Fannie Mae to boost competition in the secondary mortgage market. Today, Fannie Mae and Freddie Mac are the largest buyers of conventional mortgage loans, which can be as high as $548,250 for a single-family home in 2021. The loan limits can change annually. In 2008, we experienced the Great Recession which was our generation’s version of the Great Depression. While the housing industry suffered greatly, our nation managed through it because of the secondary mortgage market’s ability to serve the U.S. housing market. The secondary mortgage market was also instrumental in the recovery of the U.S. economy thanks to the

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What a Community Owner Can Do If a Property is Designated a High-Risk Flood Zone by Nick Bertino and Matt Herskowitz

There are many things that might keep a manufactured home community owner up at night, and experiencing a flood certainly is one of them. The increased frequency and severity of flooding in the United States has been making headlines in recent years, catching the attention of real estate lenders, insurance companies, and politicians. According to a 2020 National Flood Risk Assessment Report published by the nonprofit First Street Foundation, 10.3% of all properties in the United States are located in a high-risk flood zone. A high-risk flood zone designation might not only impact a property’s required insurance coverage and related premium cost, but may also diminish the property’s value »

MHINSIDER.COM | 35

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GET OUT OF THE ZONE

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and access to financing. For the MHC owner whose property is located in a high risk flood zone as defined by the Federal Emergency Management Agency, there may be steps you can take to change your property’s flood zone designation. Flood zones are geographic areas that FEMA classifies according to varying levels of f lood risk. Any property located in an “A” or “V” zone, often referred to as a 100-year flood zone, is defined by FEMA as being a “high-risk” area. Many real estate and chattel lenders are re-evaluating flood zones related to the existing loans they are servicing to ensure compliance with federal guidelines, which require lenders to obtain a flood zone determination. When properties are determined to be located in a Special Flood Hazard

Area, the high-risk zones defined above, the Flood Disaster Protection Act mandates financial institutions to require f lood insurance when loans are secured by those properties. This flood insurance usually is available through the National Flood Insurance Program and applies to any permanent structures within manufactured housing communities, including sheds and other accessory buildings. These provisions also typically apply to residents if they are financing their homes with an external lender. In August 2021, FEMA completed flood maps for approximately 80% of the U.S. While FEMA aims to use the most accurate flood hazard information available when developing flood maps, there are instances in which a property, or portion thereof, may be

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incorrectly shown as lying within a high-risk flood zone. This can be due to limitations of detail within the source maps utilized. One of the resources FEMA uses to map elevations and topography is satellites equipped with Light Detection and Ranging technology. This technology is not perfect, and may inaccurately reflect the exact elevation or topography of a property. FEMA refers to such cases as “inadvertent inclusions”. FEMA continues to map flood zones, as well as make continuous updates to existing maps to reflect changes in water flow and topography. Because errors and changes occur, FEMA has established administrative procedures to change the flood zone designation for properties that may be inadvertent inclusions. An official change would be addressed through the issuance of a Letter of Map Change. There are two primary types of flood map changes that can be made: a Letter of Map Revision and a Letter of Map Amendment. A LOMA is often used for a single property while a LOMR typically covers a larger geographic area such as changes impacting the entire subdivision. In order for FEMA to issue a LOMR or LOMA, an owner must submit mapping and survey information as a way to provide evidence as to why the property should be removed from the high-risk flood zone. As a starting point, a property owner should contact a licensed land surveyor or registered professional engineer to obtain an initial professional opinion as to whether the property is a good candidate for a LOMA or LOMR. If the property is deemed to be a good candidate, the

Because errors and changes occur, FEMA has established administrative procedures to change the flood zone designation for properties that may be inadvertent inclusions.

the Base Flood Elevation (BFE) of the flood zone, MHC lenders will often allow those flood zone sites and their rental income to be included underwriting. Furthermore, home elevation certificates are helpful to the individual residents if they have loans on their homes because chattel lenders may otherwise enforce the requirement for these residents to obtain f lood insurance for their homes. As previously stated, a high risk flood zone designation often will have an adverse effect on a property’s value, as well as options for financing. The good (and bad) news is that FEMA flood maps may contain inadvertent inclusions, so all is not lost if your property is currently shown in a flood hazard area. By working with a qualified and experienced surveyor or engineer, a property owner may be able to change the designation. Even if you are not financing or selling your community at the moment, it

is a good idea to be proactive in pursue all options to move your property “out of the zone.” MHV Nick Bertino and Matt Herskowitz are loan originators a t Wel l s Fargo Multifamily Capital, specializing in providing financing for manufactured home communities through their direct Fannie Mae and Freddie Mac lending programs and correspondent lending relationships. If you would like to receive future newsletters from them, or a copy of their Manufactured Home Community Financing Handbook, call (760) 438.2153 or email matthew. herskowitz@wellsfargo.com or nick. bertino@wellsfargo.com. Matt Herskowitz is a Vice President at Wells Fargo Mult ifamil y Capital, based in San Diego, California. Matt specializes in Conventional Multifamily and Manufactured Home Community financing through Fannie Mae and Freddie Mac programs. Matt originates loans nationally and supports the underwriting process from quote to close. Matt lives in Carlsbad, CA, and enjoys surfing, fishing, and diving.

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property owner would then engage the surveyor or engineer to prepare an “elevation certificate” for the property, and complete a formal application package for submission to FEMA. With respect to MHCs, we recommend that the property owner work with a surveyor or engineer who has experience with the property type. If multiple homesites are shown as lying within a high-risk flood zone, for instance, ground level elevations will need to be determined for each of those sites, not just for physical structures such as a clubhouse. Upon receiving a complete application, FEMA normally will complete its review and issue its determination within four to six weeks. If FEMA approves the application, they will issue the LOMA or LOMR that will evidence the property is removed from the flood zone. If, after exploring all available options, it is still determined that improvements or homesites at a property are located in a high-risk f lood zone, the property owner can overcome the challenge from a financing perspective. Many MHC lenders will, at a minimum, remove any flood zone sites and their rental income from the underwriting of the property’s overall cash f low. A lower underwriteable cash flow will typically result in a lower loan amount and/or higher interest rate. However, if it can be evidenced through documentation (ideally, elevation certificates) provided by a surveyor that the f loors of any manufactured homes located on the flood zone sites are elevated above

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MH REITs Report: A Quarterly Review of Manufactured Housing Real Estate Investment Trusts

by Alex Pettee

The research team at Hoya Capital Real Estate is excited to continue our quarterly column published in partnership with MHInsider to provide insight and commentary on publicly-traded manufactured housing stocks. Every quarter, we’ll publish an update to discuss the stock performance, earnings results, and major news and events reported by manufactured housing real estate investment trusts, or MH REITs.

Overview of MH REITs There are three U.S. exchange-listed Manufactured Housing REITs which collectively account for roughly $40 billion in market value: Equity Lifestyle (ELS), Sun Communities (SUI), UMH Properties (UMH). Additionally, newly-listed Flagship Communities (FLGMP) trades on the Toronto Stock exchange. Manufactured Housing REITs collectively own roughly 350,000 manufactured housing and RV sites across the United States with a portfolio skewed toward higher-end

communities with a more “retiree-oriented” demographic than the all-ages community. Through a series of acquisitions, Equity Lifestyle and Sun Communities have recently expanded into boat marinas as well while the smaller UMH Properties and newly-listed Flagship Communities focus on traditional manufactured housing communities. Manufactured housing REITs have emerged over the past decade from relative obscurity into several of the largest publicly-traded owners of real estate in the world. Beneficiaries of the lingering housing shortage across the United States resulting from a decade of underbuilding, manufactured housing REITs have been the single-best performing REIT sector since the start of 2010, delivering an incredible 22% annual compound total returns from 2010 through 2020. Manufactured housing REITs outperformed the broadbased Equity REIT Index for a remarkable eighth-straight year in 2020, the longest streak of outperformance for »

MHINSIDER.COM | 39

Markets any property sector since the dawn of the “Modern REIT Era” in the early 1990s. From an investment perspective, despite their high growth rates, MH REITs are a traditionally defensive and countercyclical sector due to the “sticky” nature of MH demand and cash flows. While these REITs are not known for their high dividend yields, these REITs have delivered some of the strongest rates of dividend growth of any REIT sector.

Third Quarter 2021 MH REITs Performance MH REITs soared nearly 15% in the weeks following their stellar second-quarter earnings reports - and were briefly the second-best-performing REIT sector on the year - but have given up some of these gains in recent weeks given the recent concerns over rising rates and inflation. Despite the roughly 10% correction from recent highs set in early September, MH REITs are still higher by 27.1% this year, still outpacing the 23.0% gains from the market-cap-weighted Vanguard Real Estate ETF (VNQ), and beating the 18.0% returns from the S&P 500 (SPY) and 18.0% gains from the Mid-Cap 400 (MDY).

40 | SEPTEMBER / OCTOBER 2021 EDITION

Consistent with the trends across the residential REIT industry over the past quarter, MH REITs significantly boosted their growth outlook over the last quarter, citing strong rental housing demand and substantial upward rent pressure. Same-store Net Operating Income (“NOI”) growth continues to accelerate following a brief pandemic-related slowdown as property-level growth is now expected to rise by more than 9% for full-year 2021, up from the prior outlook which called for roughly 6% NOI growth. Growth in funds from operations – the earnings per share “equivalent” for REITs – is driven by the combination of same-store “organic” growth and by external growth through acquisitions and new development. Forward guidance over the past quarter was particularly impressive as ELS and SUI project growth in Funds From Operations (“FFO”) of nearly 19% this year – up from their prior outlook of 14% growth last quarter - which would surely be one of the strongest growth rates in the REIT sector. Utilizing a strong cost of equity capital, these REITs have continued to grow externally by adding units to existing sites and by growing via acquisitions and site expansions. MH REITs acquired just shy of $2 billion worth of properties over the last year, largely in one-off

Manufactured Housing Industry Data Points MH REITs’ amplified focus on analogous asset classes – RV parks and marinas – was perfectly-timed, providing an added external growth tailwind. “Work-From-Anywhere” has fueled soaring RV, boat, and vacation home sales. The RV Industry Association expects RV wholesale shipments to climb to their highest historical total ever. While the RV industry has faced similar supply chain issues as traditional homebuilders, the RVIA sees shipments rising

to 577k units in 2021, which would be a 14.1% gain over the current comparable record high of 504,600 units in 2017. The National Marine Manufacturers Association, meanwhile, reported that powerboat sales are also poised to set record-highs this year despite inventory levels that are “the leanest they’ve ever been.” With SUI’s major investment in Safe Harbor Marinas, these MH REITs are now the two largest owners of marinas in the United States, an asset class with nearly identical fundamental characteristics as their large portfolio of RV parks. Marinas offer substantial operating parallels to the company’s RV business and that there are roughly 4,500 marinas in the US, of which 500 would be considered “institutional quality.” Earlier this year, ELS also expanded its marina »

MHINSIDER.COM | 41

Markets

acquisitions while disposing of just $10 million in assets. The most significant deal in 2020 was Sun Communities’ $2.1B purchase of Safe Harbor Marinas, which owns and operates 101 institutional-quality boat marinas.

A Guided Approach to MHC Financing

GREG RAMSEY Vice President of Lending

904-864-3978 | Greg@yaleadvisors.com

CHRIS SAN JOSE President of Lending

850-443-4580 | Chris@yaleadvisors.com

here has never been a better time to be in the market for financing, and most especially for MHC’s. I began my career of financing MHC’s in 2011 and have seen an improvement in the loan products available to our industry every year since. Coming out of the recession of 2008, MHC’s were primarily being financed with local or regional banks. The norm out of these banks were recourse loans, 5-7 year terms, 20-25 year amortizations and 6-8% interest rates. Due to this, MHC’s were still not on every investment groups radars. Fast forward a few years, and CMBS was back in action, Fannie Mae redefined their program to allow for more MHC’s to qualify, and PROUDLY AWARDED PROUDLY BY: A Freddie Mac launched a new division finance MHC’s altogether. Those developments, as well as a deeper understanding for the resilience of MHC’s and combined with historically low US Treasuries have resulted in the most advantageous environment to be in the market to finance your MHC. Fortunately, our team has been at the forefront of not only keeping track of the changing landscape but helping direct it by working closely with who are now many of the industry’s top lenders and government agencies. Through education and demonstration, there is now a wider understanding of concepts that were not previously accepted. Lower occupancies, higher percentage of park-owned homes, private utilities, and many more “issues” are now widely accepted. There are plenty of options to consider in the current market and being well-advised through the process will save you money, time, and set you on the right course. Whether you are looking for a long-term fixed rate agency loan, or a flexible and low-cost balance sheet loan, our finance team is ready to help you navigate through these options.

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Markets portfolio with a purchase of 11 marinas, containing 3,986 slips, for $262.0 million.

MH REITs Key Takeaways Low supply and strong demand have driven stellar fundamental performance for MH REITs over the past 44 | SEPTEMBER / OCTOBER 2021 EDITION

half-decade, and the MH sector continues to deliver sector-leading NOI and FFO growth. Consistent with the trends across the residential REIT sectors over the past quarter MH REITs significantly raised their growth outlook, citing strong rental housing demand and substantial upward rent pressure. Despite reporting stellar results

MH REITs REPORT Terms Defined FFO (Funds From Operations): The most commonly accepted and reported measure of REIT operating performance. Equal to a REIT’s net income, excluding gains or losses from sales of property and adding back real estate depreciation. AFFO (Adjusted Funds From Operations): A non-standardized measurement of recurring/normalized FFO after deducting capital improvement funding and adjusting for “straight line” rents. NOI (Net Operating Income): Typically reported on a “same-store” comparable basis, NOI is a calculation used to analyze the property-level profitability of real estate portfolios. NOI equals all revenue from the prop-

Markets

throughout the year, manufactured housing REITs' remarkable streak of eight straight years of outperformance over the REIT Index will come down to the wire in 2021 as the sector has been pressured over the past month by concerns over rising rates, inf lation, and the broader rotation from growth into value. Beneficiaries of the lingering housing shortage - creating a compelling backdrop for companies across the housing industry – we believe that the recent pull-back could represent the long-awaited buying opportunity for these dividend growth champions. Looking ahead, MH REIT earnings season kicks off on October 18th with results from Equity Lifestyle. Over the subsequent three weeks, we’ll hear results from Sun Communities, UMH Properties, and Flagship Communities, in that order.

erty, minus all reasonably necessary operating expenses.

Hoya Capital Disclosures I am/we are long ELS and SUI. I am not receiving compensation for it. It is not possible to invest directly in an index. Index performance cited in this commentary does not reflect the performance of any fund or other account managed or serviced by Hoya Capital Real Estate. Nothing on this site nor any published commentary by Hoya Capital is intended to be investment, tax, or legal advice or an offer to buy or sell securities. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and should not be considered a complete discussion of all factors and risks. A complete discussion of important disclosures is available on our website www.HoyaCapital.com. MHV Alex Pettee, CFA, is the director of research at Hoya Capital Real Estate, a research-focused Registered Investment Advisor based in Rowayton, Conn, and founded with the mission of making real estate more accessible to all investors. Hoya is among the most widely-read and cited publishers of real estate commentary

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MHINSIDER.COM MHINSIDER.COM | 45

MHI Awards MHI Excellence Award winners include three design awards for Skyline Champion Corporation. 46 | SEPTEMBER / OCTOBER 2021 EDITION

Last month, the Manufactured Housing Institute named its annual Excellence in Manufactured Housing Award recipients. The awards exemplify the determination, commitment, and innovative approach that defines the manufactured housing industry, MHI stated in its awards announcement. The annual honor recognizes leaders from every sector of manufactured housing, including manufacturers, suppliers, communities, retailers, lenders, and designers. »

MHINSIDER.COM | 47

MHI Awards

MHI NAMES EXCELLENCE AWARD WINNERS

MHI Awards

Skyline Champion was recognized by MHI as an industry leader with three awards in manufactured and modular home design. These awards demonstrate excellence in design, quality, and innovation across Skyline Champion’s portfolio of brands. “Delivering great homes, and a great experience for our customers are core to our operating principles, and these MHI awards reflect that commitment. That starts with listening to and engaging our customers, to design and deliver, purpose-built homes,” Skyline Champion President and CEO Mark Yost said. “We humbly appreciate this recognition on behalf of our team of employees, distributors, and suppliers. We are inspired to bring even more customers and communities, innovations and new experiences that further expand factory-built housing.”

Skyline Champion earned 2021 MHI awards in the following categories: Manufactured Home Design – Multi-Section The Odyssey, a Champion model built in Topeka, Ind., is a 3-bedroom, 2-bath multi-section ranch home. Odyssey’s 1,813 square-foot open design begins with a contemporary living room featuring a built-in entertainment center with floating cabinets and shiplap accents. The unique cooking station is equipped with stainless steel Whirlpool® appliances including a wall oven/microwave combo with smart home technology, side-by-side refrigerator, and island range. The home also includes a cozy dining room with modern electric fireplace and offers multiple floor plan configurations to accommodate an additional bedroom or home office. Manufactured Home Design – Single-Section The Diamond D1662C, a Champion model built in Mansfield, Texas, is an 819 square-foot, two-bedroom, one-bath, single-section home. The packaged home brings an elevated number of finishes and conveniences not found in most manufactured housing, such as, a 6/12 roof pitch, Galvalume® metal roof, Trex® composite decking, and clerestory dormer with transom windows. Inside the home, a built-in floating entertainment center provides storage and room for a large TV while a wooden plank beam extends through the vault in the living room.

48 | SEPTEMBER / OCTOBER 2021 EDITION

MHI Awards

A Champion single-section home has two bedrooms and a single bath in 819 square feet.

Modular Housing Design Built under the Skyline Champion Excel® brand in Liverpool, Pa., and installed in nearby Selinsgrove by River Valley Builders, the Ashley is a three-bedroom, two bath, single-story modular home featuring an open concept floor plan with luxury vinyl plank flooring. At 1,825 square feet, there is plenty of living and storage space. The custom kitchen features grey cabinetry with an oversized island and a quartz countertop and backsplash. Adjacent to the kitchen is a large pantry with a wine bar and beverage refrigerator. The primary bedroom features an en suite with a walk-in tile shower, black and white

mosaic tile floor, and a walk-in closet. The oversized living room features built-in shelving and a fireplace. Other features include a laundry room with a folding counter. “This year MHI received over 80 entries from companies providing superior products and services in the manufactured housing industry,” MHI President Mark Bowersox said. “This year’s award winners show the expertise and professionalism of our industry and demonstrate the depth of options MHI member companies provide to consumers. On behalf of MHI, I’d like to congratulate all of this year’s winners.” »

MHINSIDER.COM | 49

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MHI Awards A multi-section home from Champion with more than 1,800 square feet is made in Topeka, Ind.

The honorees were chosen by their peers and an independent panel of experts for their accomplishments throughout the last year. MHI is honored to showcase their products and their companies.

Manufacturer of the Year Awards Clayton Homes was named manufacturer of the year for organizations with three or more plants, a distinction it’s captured now for several years running. Adventure Homes again won the award for manufacturer of the year with two or fewer plants.

A Pair of Awards for UMH Properties UMH Properties won MHI’s Excellence in Manufactured Housing awards for community operator of the year, as well as retail sales center of the year in the east region for its efforts at Redbud Sales Center in Anderson, Ind. “UMH is incredibly proud to receive these two awards. I would like to thank our managers, maintenance staff, regional managers, vice presidents, directors and officers, and all other staff members for our outstanding achievements,” UMH President and CEO Sam Landy said. “We have acquired, improved, and expanded many communities over the years, which has provided access to

quality affordable housing in each market that we serve. We are dedicated to continuing this mission.” The east and west region communities of the year were The Foley Grove by Heiler Communities, in Foley, Ala., and Laguna Terrace by Hometown America Communities, in Laguna Beach, Calif. The retail sales center of the year for the west region is Clayton Homes of Chino Valley. “Each time we hand over the keys to a new home we want to know we’ve done everything possible to make that homebuyer’s journey as exciting as possible,” Clayton Homes of Chino Valley General Manager Dave Roe said. “We are thrilled our team is being recognized for our commitment to providing the best experience possible while always searching for ways to improve.” Roe also serves as chairman for the Arizona Department of Housing and the vice chairman for Manufactured Housing Industry of Arizona, and earned a governor’s appointment to represent the off-site built housing industry on the Overdimensional Permit Council. In 2020, the Chino Valley team organized a new development where CrossMod™ homes were sold. CrossMod homes blend off-site and site-built construction processes while offering forward-thinking designs, energy-efficient » MHINSIDER.COM | 51

MHI Awards

features, and high-end materials – all without sacrificing the efficiency, quality and construction speed that comes with off-site built homes. “We are incredibly proud of our team at Clayton Homes of Chino Valley,” Clayton Homes Retail President Danny Warrick said. “They are elevating our industry and providing attainable homeownership opportunities with manufactured housing through their dedication to customer experience and showcasing quality housing.”

Winning Suppliers, Lenders, and Broker Photo Courtesy of Clayton Homes, Chino Valley

Blevins, Inc., based in Nashville, Tenn., won the Excellence award for manufactured housing supplier of the year. 21st Mortgage Corporation won honors for floor plan lender of the year and national lender of the year. Credit Human won for regional lender of the year, and Yale Realty & Capital Advisors won the award for manufactured home community broker of the year. In a statement on the award, Yale said its success can be attributed to the 10 regional directors across the country who work relentlessly to establish and maintain relationships with community owners and operators on a local level. “We want to ensure their legacy is carried on,” Yale founder and managing partner James Cook said. “The Yale team would like to thank our incredible clients for the opportunity to work together and the Manufactured Housing Institute for its recognition of our dedication to the industry.” MHV

Dave and Lanae Roe of Clayton Homes

National Manufactured Housing Property Management Company We manage communities as small as 30 pads and as large as 1,100 pads throughout the United States and Canada. • Over 1,000 homes sold in 2020. • Currently operating in 33 states. • We manage communities as small as 30 pads and as large as 1,100 pads. • Multi-State MHI Association Member.

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How Owners Have Gained the Upper Hand During the Last 10 Years by Kevan Enger

Fractured. Scattered. Unorganized. That’s where the mobile home park landscape was 10 years ago. When I first entered the commercial real estate industry just a little over a decade ago, I was looking for one thing... opportunity. When I looked out into the marketplace, the retail, office, residential, and multifamily asset classes were in full swing, organized, and with well-established marketplaces. However, one property type caught my eye — mobile home parks. »

MHINSIDER.COM | 55

Brokerage

The Evolution of Mobile Home Park Brokerage

Brokerage

Living in one of the states with the most mobile homes in the country, Florida, I quickly realized there was incredible opportunity right in front of me, and no one else was paying attention. In addition to being fractured, scattered, and unorganized, the landscape also was primed.

The Opportunity of Mobile Home Parks I’m fascinated by the evolution of the mobile home park brokerage landscape. It’s a case study of the capitalistic forces at play that can birth a marketplace where none existed. Back then, there was nothing even resembling a marketplace. I remember speaking with owners that wanted to sell their property to get a first-hand understanding of the process from the seller’s point of view. Almost all transactions were off-market with many buyers using the phone book to find mobile home parks, and driving around to talk directly to owners. The more tech savvy owners were sharing a Word doc with property information and highlight, while others may have a folder or had to gather the information when

requested. Because many of the properties had been family-owned and generational, many parks didn’t have formal record-keeping or tracking systems in place. Owners who wanted to sell their properties, whether to retire or cash out and invest in something else, would either sell to a buyer who approached them, a person they had approached, or they’d list with any real estate agent they knew. Sometimes the agents sold commercial properties, often they sold residential, and every now and then you’d find a broker that had some multifamily experience or had previously sold a manufactured home community. However, in many parts of the country, brokers often had to sell other property types to make any real money in the business. The lack of a marketplace — what was essentially an off-market environment — put owners at a huge disadvantage as sellers. There was no real credible data by the owners themselves or the market to obtain fair pricing based on comparable sales or even yield since information on market rents, park rent rolls, and occupancy rates were scarce. As a result, owners didn’t have the data to »

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Brokerage

substantiate a higher price. In addition, programs to finance manufactured buyers were scarce, so when one did home communities. Much of this Sniffing out the show interest, they had the upper was driven by the lack of affordable tremendous valuehand. Here’s why: housing and the need to find suitable add opportunity • Bad Rep housing alternatives. This move alone Back then, mobile home commuchanged the landscape and we now had manufactured housing nities were known as trailer parks. a legitimate asset class. CMBS followed communities represented, Images of run down parks in blighted suit and the industry was ready. new capital from areas on the outskirts of town were Suddenly it was easier to buy and sell institutional investors what was popularized in the media, so mobile home parks, more brokerage put manufactured that was the common concept of them. firms started adding manufactured housing communities • Lack of Financing home reps, and we suddenly had on everyone’s radar. Blanket mobile home community the makings of a mobile home lending took a huge hit during and community marketplace. after the recession. According to Even though at our shop we were -Kevan Enger Fannie Mae, after peaking at close selling properties on-market and creatto $3 billion in 2007, lending volume ing a competitive bidding process from dipped below $1 billion in 2010. Most day one, many owners and brokers community owners, however, had to were still following the old, off-market hold paper —offer seller financing — model. However, in those earlier days, to sell their property. brokers would approach sellers as buyer From the brokerage standpoint, the lack of financing representatives. While transaction volume increased, it made it difficult to scale the business, prompting many didn’t do much for the property values or pricing — and to stay out of the game altogether. as a result, the seller. • No Competitive Bidding The informal, off-market nature of the landscape Enter The Institutional Buyers meant that there was no mechanism for a competitive Things started heating up in 2018, when institutional bidding process. money made its biggest dive into the industry. Sniffing Buyers either directly approached sellers or they used out the tremendous value-add opportunity manufacbuyer-focused brokers to approach sellers. This meant that tured housing communities represented, new capital there was one buyer, not multiples competitively bidding from institutional investors put manufactured housing to win the property. Cap rates were somewhere in the communities on everyone’s radar. Suddenly, buyers were range of 10 or 12% making it a buyers’ market. coming out of the woodwork. Recognizing the disadvantaged position of sellers at the In 2019, we had the clear makings of a seller’s market time and the fractured landscape, I saw an opportunity as buyers competed for on-market properties driving to change the mobile home brokerage landscape with a values and prices up and cap rates down to historically low seller-focused approach. That’s when I joined Capstone levels. Often described as a “recession proof” asset class, Companies, a native multifamily brokerage founded in institutional interest seemingly justified that positioning. 2008 in the middle of the Great Recession. As founder Institutional capital made waves again last year with and then director of the manufactured housing division, a resurgence in investments mid-pandemic placing the it was exciting to be one of the first companies to treat capital source second only to private money for the mobile home parks like a multifamily asset class. year. Further enhancing the asset class’s recession proof reputation are 2020’s high-occupancy rates and increased Something From Nothing inbound capital from REITs, cross-border, and users. Then, the game changed. In the late 2010s, Freddie Last year, the pandemic certainly reinforced Mac and Fannie Mae got in the game with focused that concept. »

58 | SEPTEMBER / OCTOBER 2021 EDITION

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Brokerage

The COVID Test Ma nu factured housing wa s without question one of the best performing property types over the last year. The latest Green Street Commercial Property Price Index places the asset in the top spot in terms of change in commercial property values since pre-Covid with +25%. Self-storage follows with +24% and the much-touted industrial coming in third place with +21%. During the last year or so, dating to Aug. 2020, manufactured home parks tied self-storage for first with +30% a piece. Industrial followed with +27%. MH REITs also performed exceptionally well during the last year. In 2020, according to Hoya Capital, “the combination of robust earnings growth and a favorable ‘Goldilocks’

macroeconomic backdrop of lower interest rates and slow-but-steady domestic-led economic growth has lifted the MH REIT sector by another 12% since the start of the year.” If that doesn’t pass the pandemic test, I don’t know what does. On top of that, Hoya Capital noted that “Manufactured Housing REITs were the best-performing real estate sector of the past decade, and it wasn’t particularly close. “The sector produced cumulative returns that nearly doubled the next closest REIT sector. MH REITs outperformed the REIT average for a remarkable seventh straight year in 2019, surging nearly 50%.”

What is Next? The next evolutionary phase for the industry is a greater demand for

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data, more consolidation, and more professionally run operations. Now squarely in front of investors as an accessible investment opportunity through publicly traded REITs that have outperformed other categories, demand for more data and transparency is inevitable. There are certainly companies out there, like Datacomp with its JLT Market Reports, its sister company MHVillage, which produces this magazine, that are recognized as leading and credible sources of proprietary data on the industry. Expect to see the demand for independent third-party research to increase. In add ition, we’l l a lso see continued consolidation and acquisitions and not just by REITs and institutional investors. Be on the lookout for regional consolidation as professional management starts to implement technological and operational efficiencies and community improvements across assets. Ten years ago, I was looking for opportunity. Now, 10 years and hundreds of seller-focused sales later, I can say I found it. I can’t wait to see what the next 10 years brings the industry. MHV Kevan Enger is a partner and manufactured housing director for Capstone MH. He specializes in helping mobile and manufactured home park property owners across the country successfully position, market, and sell their properties to maximize their returns. Capstone has seven offices in five states throughout Florida, the Southeast, Midwest, and Mid-Atlantic.

No One Else Comes Close Reach Over 39,000 Manufactured Housing Professionals with the MHInsider™ Magazine! With the country getting back to business, it is more important than ever to get your products and services in front of potential buyers to keep your sales pipeline full. As the premier news source for manufactured housing professionals, the MHInsider™ is the perfect vehicle to carry your advertising message to industry decision makers at communities, retailers, manufacturers, suppliers and service companies nationwide.

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Why All the Hype Over the Manufactured Housing Asset Class? Manufactured Housing Community Cap Rates Explained by James Cook

As an 18-year-old, newly licensed real estate agent, I stumbled across the manufactured housing asset class. Like most agents, I started in residential but quickly realized that it wasn’t nearly as rational or logical as I wished. On the other hand, I was very attracted to income-producing real estate investments and analyzing returns. When I started prospecting commercial real estate owners, I came across an owner with a small portfolio of single-family rentals and a mobile home park. At the time, he was considering selling the park and moving out of Florida, so I started analyzing his property. My broker at the time, who had influenced me to get into real estate, was handling mostly local deals, but also had experience as a developer. As soon as he saw the mobile home park designation, he immediately started trying to run change of use scenarios to multi-family. The curiosity in me forced me to » MHINSIDER.COM | 63

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ask the owner “how did the property perform when the economy wasn’t as strong?” to which he responded, “it was full.” It was at that moment that I discovered what I would later learn was “Asymmetrical Investing”. In other words, in a good economy he was full and there was a potential for even a higher and better use, but in a bad economy the investment was still performing well. As I have stated many times, I was young and naive with no real perspective, but the older I get,

institutions. As I touched on in a former article, when I started you could count on your hands, maybe even one, the number of true institutional players in the industry. We had the REITs, GE Capital, and a couple smart pension funds and private equity shops. But to most folks in the mainstream investment world, “mobile home park” was a “four-letter-word”, and those of us in the industry were somewhat embarrassed to admit we were in it. Now, it is almost every week my firm

Between the overregulation on home construction and home setup, as well as the discrimination against any new MH community development, it is becoming more difficult for our industry to operate efficiently.

-James Cook

the more the world changes, the economy evolves, and the black swan events continue to happen, the smarter I look. I worked with my first MHC transaction in 2005 and was focused full-time on the asset class by 2007. Since the economy crashed in the second half of 2008, we have consistently seen a confluence of trends and constantly attacking of the four main food groups of commercial real estate. Through it all, the MH asset class has continued to perform making it more relevant and driving higher demand from even bigger 64 | SEPTEMBER / OCTOBER 2021 EDITION

is contacted by a new billion-dollar, or even trillion-dollar, money manager looking for an entry point into the industry. Meeting the investment demand has been tough, but there continues to be a stream of families reaching the tipping point and concluding that their next generation is better off going their own way than trying to split this asset 2, 3 or 6 more ways. Inherently, one family member is asked to run the business for the benefit of them all but only receives 5-10% of the upside, which they determine isn’t worth the additional effort and

work they are putting in. So, the trend of seeing the founding families, who built these great communities, sell and more and more institutions acquiring them has continued. Today, there are more than 60 billion/ trillion-dollar family offices, money managers, sovereign wealth funds, PE firms, REITs, etc. all actively trying to grow their footprint or portfolios in the industry. With this trend, and newfound love, we have seen the asset class as a whole essentially get a “credit upgrade.” We have gone from being in most funds’ “opportunistic” bucket to essentially a “core” investment bucket. When I entered the industry, there were still individual investors calling me to buy their first park because they had heard it was a “cash cow”. Today, those investors don’t even waste their time trying to buy the larger communities because they have gotten so competitive, and the juice has been mostly squeezed out. To be more technical, we have seen cap rates go from 6-7% in primary markets fifteen years ago to, in some cases, below 3%. I am involved in multiple deals in the 2% and 3% cap rate range today. I used to say the game was how close to a 4% cap rate a quality, institutional asset could sell and today it seems it is how far below a 4% cap it can go depending on the upside. Realistically, there is no one “best buyer” either. We find that every time we run a process, even for similar assets, a different group justifies paying more than the one that won the last deal. There are so many motivations, from 1031s to freshly raised capital, to economies of scale with another property in the market, to just seeing the potential

the government and unemployment. These challenges combined with threats of increasing capital gains tax rate to nearly half of all you have worked for, in many cases a generation or two of effort, and threats of eliminating 1031 exchanges have created a difficult environment to navigate. It seems from every angle, Rick was right; the government is our biggest competitor. Somewhere along the way if interest rates finally rise, and do so precipitously, many of the deals being done today could be deeply underwater. For example, the effect of going from a 4% cap to a 5% cap on $1,000,000 in NOI is a reduction in value from $25,000,000 to $20,000,000. For now, as long as interest rates stay low, wages keep rising, and state and local governments continue to be anti-MH,

communities will continue to be more and more valuable. MHV James Cook is the national director of brokerage for Yale Realt y and Capital Advisors. He entered the manufactured housing and RV property asset class in 2005 as a licensed agent listing homes for a local investor. In 2012, he founded the fully integrated finance and brokerage shop and has accumulated transaction exceeding $1 billion in value. He offers perspective at a national level, providing insight into the niche industry.

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or value where the last group doesn’t. So, we have learned the only way to know the true value is to do a proper call for offers, and we are often surprised at how aggressive the bidding gets. There are many challenges facing operators of all sizes – primarily, the continuous threat of increased government regulation. Sadly, I believe that if the current trend of “big government” solutions continues, we will eventually have rent control in almost every market in almost every state. You realize quickly in this business that government is the biggest driver of costs, which creates the very environment for rising rents they will eventually use as the excuse to regulate the industry. Between the overregulation on home construction and home setup, as well as the discrimination against any new MH community development, it is becoming more difficult for our industry to operate efficiently. As the old Governor of Florida, Rick Scott, once told me, government is your biggest threat and competition as a private business owner. The second area where operators face challenges is in the labor market. Since the pandemic started, people have been disincentivized from re-entering the workforce by the increased amount and availability of unemployment benefits. I have heard of plenty of cases where a former employee is being paid $40-50k on an annualized basis in state and federal benefits by remaining unemployed. I remember not long ago that was a good living. This means in order to find the staff to build our homes or manage and maintain our communities, we are having to compete with

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by Darren Krolewski

We’ve all heard the adage, “Rome wasn’t built in a day”. Whether referring to grand civilizations or a nice soufflé, it’s a reminder that all great things take time to come together. Reputations are no exception. In an age of influencers, social buzz and viral videos, there’s still no substitute for a good, old-fashioned reputation. It’s a public perception that’s carefully earned through years, if not decades, of positive consumer experiences, trustworthiness and integrity. Yet, as with empires, reputations can also fall. »

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BUILDING A POSITIVE ONLINE REPUTATION

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American founding father Benjamin Franklin once said, “It takes many good deeds to build a good reputation, and only one bad one to lose it.” That’s as true today as it was two centuries ago. The court of public opinion is an unpredictable place, and the prevalence of social media and online reviews has only

transitioning from a print catalog to an email database. Along with my sales colleagues, I was tasked with collecting as many customer email addresses at the point-of-sale as possible. As an incentive, the company promised a $1 spiff for each email obtained. Needless to say, when I submitted over 1,000 customer email

Managing your online reviews and publicity takes time, but with a proactive approach, you too can build a sustainable online reputation that can stand the test of time. -Darren Krolewski

heightened the risk of potential business-ending cataclysms. So when online reviews can make the difference between prosperity and failure, how does one build a reputation, specifically an online one, that can weather the occasional storm without taking on too much water? Read on.

Ask for Reviews Ethically and Organically Early in my business development career, I worked at a retailer that was 70 | SEPTEMBER / OCTOBER 2021 EDITION

addresses there were great allegations of deception, fraud, and scandal. It got so serious that the district manager came in to interrogate me. When I was asked how I could possibly collect so many more email addresses than my co-workers, I replied quite simply, “I asked”. While many companies use dubious tactics and potentially illegal activities to collect positive online reviews, the most effective strategy is simply to ask. Review sites like Google and Yelp have no issue with

you soliciting reviews, as long as you do so in a manner that is ethical and organic. Don’t be tempted to game the system. Offenders have been delisted from search engines, banned from directories, and had embarrassing disclaimers placed at the top of their listings notifying consumers that they have been caught manipulating reviews. Not to mention the receipt of unpleasant letters from the state attorney general or worse, the Federal Trade Commission. It’s not worth it. One of the best things you can do to insulate your company against the occasional hit to your online reputation is to have many, many more documented positive experiences than negative ones. The easiest way to do this is to focus on the low hanging fruit. Put a review link or pop up on your website or blog. This code can be generated by reputation management platforms like our MH.Reviews service, making it easy for your customers to access the popular review sites. Why not place a link for reviews in your email signature as well? And of course, consider sending email surveys to your prospects and closed transactions. You’ll get some great feedback and you can invite them to share their comments online.

Solicit Feedback Early and Often Good things may come to those who wait, but when it comes to building a sustainable online reputation it pays to solicit feedback early and often. Many businesses simply wait too long to ask. By then, either the positive feelings have passed or the negative ones have festered. We all »

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15th Annual Manufactured Home Community Financing Handbook

Wells Fargo Commercial Real Estate — Manufactured Home Communities We are excited to announce the release of our 15th annual Manufactured Home Community Financing Handbook. What started as a niche sector has quickly grown over the years into the tremendous industry we are proud to be a part of today. To learn more, please visit wellsfargo.com/mhc, where you can download the latest version of our Handbook.

Tony Petosa 760-438-2153 tpetosa@wellsfargo.com

Nick Bertino 760-438-2692 nick.bertino@wellsfargo.com

Don’t Be Tempted to Buy Your Reputation I recently purchased an obscure adapter cable from one of the many unrecognizable overseas brands that dot the major e-commerce sites. Shortly after my purchase, I received an email offering a $25 Visa® gift card if I left a confirmed positive

review for their product “for the benefit of other consumers.” Needless to say, I declined. While such a blatant approach is clearly wrong for a variety of reasons, it does underscore the point that there is really no legal and ethical way to boost your online reputation by offering compensation of any kind to the reviewer. It doesn’t matter if it’s the guarantee of a gift card or a contest for a chance to win something, you’re treading into treacherous waters. At minimum, you’ll likely be in violation of the terms of service of the platform hosting the reviews. Google, in particular, has cracked down hard on paid reviews in recent years, going so far as to remove positive reviews when they suspect they were earned under questionable circumstances, or most severely, booting the offenders from their search rankings. Which, given the dominance of Google, is pretty much the kiss of death. More importantly, unless careful procedures and documentation are followed, offering anything of value in exchange for reviews is illegal. While a few states have their own regulations, most defer to federal law which is very clear on the matter. Well, as clear as most government things can be. Rules regarding paid endorsements in advertising are found in the electronic code of federal regulations at ECFR. gov, specifically Title 16, Chapter I, Subchapter B, Part 255. Fire that up for some light reading the next time you’re having trouble sleeping.

Invest in Sites That Can Help Push Down Negative Reviews Negative publicity can be remarkably difficult to mitigate. Although »

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know that it’s far more likely you’ll hear about a negative experience than a positive one, don’t encourage it by inaction. That’s why you always have to work a little harder to stack the deck in your favor. Rather than waiting to reach out to the customer long after the transaction has closed, why not contact a prospective resident several times throughout the sales process? For example, how about reaching out right after you’ve responded promptly to the home they just inquired about on MHVillage? Or immediately following their first tour of the community? Or within the first week of moving into their new home when everything about the experience is still new and exciting? You can easily triple, if not quadruple, your opportunities to obtain favorable reviews simply by asking at different points in the sales process. Outreach efforts don’t need to be complicated or lengthy. One of the most popular email templates we have in the MH.Reviews system simply displays a thumbs up or thumbs down graphic. If the recipient indicates a positive experience, we ask for a review and provide links to the relevant websites. If it’s a negative response, we have a pop up that intercepts their negative experience so it can be addressed.

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UMH Awarded 2020 Sales Center of the Year by the Manufactured Housing Institute For more information, visit www.umh.reit or contact ir@umh.com

The Payoff of a 5-Star Online Reputation Let’s face it. You’re busy. If you’re lucky enough to have a marketing team, they’re busy too. Online reputation management is just one more thing to think about among a lot of things to think about. But look at it this way. A positive online reputation is an extension of your marketing that works for you 24/7 and helps stretch your budget without costing you a dime. Your online reputation is essentially free word-of-mouth marketing. Sure, it’s great for attracting quality residents, but it’s even more valuable if you’re raising money for your next acquisition or convincing a reluctant seller to place their legacy in your hands. As Inc. columnist Andrew Thomas points out, investors and partners will

unquestionably look at your ratings and reviews. A strong online reputation affirms you have a great organization worthy of investment, or their trust. Managing your online reviews and publicity takes time, but with a proactive approach, you too can build a sustainable online reputation that can stand the test of time. MHV Darren Krolewski is co-president and chief business development officer of MHVillage, the top website for manufactured homes, retailers, and communities, and leads efforts that generate 25 million annual visitors and home transactions of more than $3 billion.

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Google, Facebook and Yelp are the most dominant consumer review sites, there are countless others. Tripadvisor, Rip Off Report® and Pissed Consumer are just a few of the many review and advocacy sites that can appear in searches for manufactured housing and RV communities. While some of these consumer sites offer corporate programs that allow you to monitor and respond to reviews, the sheer number of forums for consumer grievances can make it a challenging endeavor to monitor them all without some type of reputation management service. You’ve heard the phrase that “the best defense is a good offense”. Whether you attribute the quote to Sun Tzu or George Washington, the point is that it certainly doesn’t hurt to take a proactive position when it comes to your online reputation. There are many websites such as the Better Business Bureau, your local Chamber of Commerce, press release services like PRWeb and Q&A sites like Quora that rank highly in search results and can help to push down negative results in the search engines. It’s certainly worth pursuing a presence on these sites due to their high credibility and rankings. Not to be overlooked are some of the more obscure social media channels. Facebook and Instagram may be the most relevant networks for housing but maintaining active profiles on other social networks and platforms can be helpful in outranking negative content. At last count, there were more than 500 social channels where you can register and manage your brand. While more than a handful of active profiles can be overwhelming, strategic use of additional social networks can be an effective tool for helping to push down negative rankings.

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Allen Legacy

My How Things Change Over the Decades! by George Allen, CPM Emeritus, MHM-Master

Between 2004 and 2014 there were two efforts, one by “group think” and one by individual effort, to document the evolution of trade terminology within the manufactured housing industry and then manufactured home communities nationwide. The first initiative occurred during meetings of the Urban Land Institute’s Manufactured Housing Communities Council, founded in 2004 as a quasi-think tank for matters pertaining to factory-built housing of the manufactured housing type. The result? Nothing published, but a working paper kept on hand for future reference. The MHCC functioned well for a decade, but ceased to exist in 2015. A second initiative, effected by California-based author Bob Vahsholtz, during research for his specialty text “Dueling Curves, The Battle for Housing” published in 2014 picked »

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up where MHCC left off. Vahsholtz ultimately produced a manufactured housing timeline: 1950s thru 2010, which can be found in Chapter 9 of his book held in reserve at the RV/MH Hall of Fame library in Elkhart, Ind. So, what does the evolution of manufactured housing and later land-lease community trade terminology look like today? Let’s begin with the housing product. Prior to 1960, they were “house trailers”; in the 1960s and early 70s “mobile home” became the popular term – continuing today in some circles. As of 1976, by federal edict, “manufactured housing” took center stage and continues there today – except for some contemporary efforts to talk of factory-built housing, off site-built, and simply “homes”. Then there’s the ever-changing descriptions of the common paired configurations of HUD-code manufactured housing. Early on, folks talked of “8 and 10 wides”, then “12 and 14 wides”. Eventually, “singlewide” and “doublewide” parlance, too, evolved into single-section and multi-section manufactured homes. How about the evolution of regulatory standards?

78 | SEPTEMBER / OCTOBER 2021 EDITION

Back in the 1960s and earlier, an ANSI standard (American National Standards Institute) was referenced to guide design and production of new homes. Then through the years 1974 and 76, the HUD-code, formally the National Manufactured Home Construction & Safety Standard, was passed and implemented. It continues in force to this day with the addition of the Manufactured Housing Improvement Act in 2000. Now there are rumors that outside influences, as well as initiatives within the Manufactured Housing Consensus Committee might be focused on altering the code’s performance-based standards. Here’s a fun one. Within the land-lease community business model, what many of us today refer to as “rental homesites”, have been labeled as “stalls”, “pads”, “spaces”, and “lots”. Individuals outside the realty asset class not really familiar with the demarcation between manufactured homes and communities oft misspeak and refer to these rental homesites as “units” in the matter of an apartment or condo, for instance.

While what you just read are the major trade terminology evolutions in manufactured housing, there are more, which we won’t describe in detail here, but include: · “Developer Series homes” of the “Big Box = Big Bucks” during the late 1990s Land & Home Package era, to the “Community Series Homes” debut in 2009 and continuing to this day. And most recently, introduction of CrossMod™ as next generation of “Big Box = Big Bucks” homes. · A decade-long paradigm shift beginning around year 2000 and continuing beyond 2020 with new home sales shifting away from individual (street) retailers to on-site marketing and sales within landlease communities nationwide – and then the recent resurgence of MHRetailers. · From 25 known property portfolio owners/operators of (then) MHCommunities in 1987 to more than 500 such individuals, corporations, partnerships, and REITs in 2021. This 35 years consolidation foisted changes on the realty asset class, such as need for professional property management, less support of state MH associations, and more. So, there you have it, many ways in which trade terminology associated with manufactured housing and land-lease communities has evolved during the past seven or more decades. Maybe next time I’ll tell you of a dozen or more things that once were germane to the industry and realty asset class, but no longer exist. For example: aluminum wiring in mobile homes, the Hitchball Social Club, South Bend MHShow, and many others. MHV George Allen has owned and fee-managed land-lease communities since 1978. He’s a former MHI Industry Person of the Year and a member of the RV/MH Hall of Fame. He has been designated a Certified Property Manager-Emeritus and a Manufactured Housing Manager-Master. He’s also a senior consultant and staff writer with EducateMHC. Allen can be reached at (317) 346-7156 and gfa7156@aol.com.

Reach Over 30,000 Manufactured Housing Professionals in Print and Online To Advertise Call:

1-877-406-0232

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Allen Legacy

How ’bout the income-producing properties proper? This has been a true and constant evolution over past decades. Trailer courts and camps were the lingo back in the 1950s, and “mobile home parks” prevailed during the 1960s and ’70s. Starting in the 1980s, then officially in 1992, following a national terminology survey by the Manufactured Home Merchandiser magazine, “manufactured home communities” became the term of choice, though some thought “manufactured housing communities” might be a more apt moniker. Today, MHCommunities (the abbreviation) remains the term of choice among some purists, but journalists and industry executives aware of the seven types of shelter now commonplace in the property type, use the more accurate “land-lease communities”. How have these housing units been transported over the decades? Way back when, as trailers, they were pulled behind automobiles, then by “trailer toters”, later shortened to “toters”. Today these large single-section and multi-section homes are moved by “transporters”. Those who’ve marketed and sold manufactured housing over the decades have gone from being referred to simply as “dealers” to now, “independent retailers” or “street retailers”. Housing valuation. Early on, the mobile home Bluebook was the value estimating standard. This was followed by the Kelley Blue Book. Then NADA Manufactured Housing Cost Guide – first in print, then online. All these were pretty much replacement value references, whose results were then adjusted in accords with available “comps” or comparable market values of similar, recently sold homes. Today, the Datacomp market-based valuation prevails in popularity and utility nationwide. So, what do we call folk who buy our homes and live in our unique properties? Some say “tenants” and others say “residents”. However, among enlightened land-lease community owners and operators, the descriptive term “homeowner/site lessee” covers both bases. Even on-site property managers, akin to mayors of small towns, have seen their job description title evolve over the years, from caretaker to park manager to administrator to resident manager. And in some locales, there’s an increasing preference to respectfully refer to them by their professional property management certification designation, e.g. ACM, MHM, ARM.

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September/October 2021 Finance & Brokerage Edition

Articles inside

My How Things Change Over The Decades

Why All the Hype Over the Manufactured Housing Asset Class?

The Evolution of Mobile Home Park Brokerage

A Primer on the HUD Code, Part II: Amending the Code

There’s Still Time to Refi

The Secondary Market Adds Vitality to Domestic Home Sales

Manufactured Housing Industry Events

Industry Happenings

Industry Donation to SECO Committee Assists U.S. Military Veterans

SECO21 Features

Get Out of the Zone