Investors are discovering the modern manufactured housing (MH) and ‘off site’ home building industry in a variety of ways. Some appear to be from negative media coverage (a pair of recent examples shown below), others in print, online or TV are clearly positive.
Some non-profits are also interested-to-focused on manufactured homes and communities.
International factory (manufactured, modular, panelized or “off site”) home builders are looking gleefully at the U.S. market too.
Bloomberg follows the New York Times in an unflattering-image article using outdated terminology. Both still have investor-enticing elements boasting of the upside opportunities possible from turning around distressed “mobile home parks” and ‘trailer courts.’ “Double wide returns” and 20-25% annual profits are among what is found in those mainstream media articles, linked above.
No wonder the current Manufactured Housing Institute (MHI) Chairman, Nathan Smith, told MHProNews in our exclusive video interview, no you don’t want to enter this business, I want it all for myself, before laughingly admitting what a great industry we have.
But for those who have the guts, gold, grit and want the glory, it is far more doable than the struggling in MH ranks believe.
The fact that some are profitably doing what the mainstream media – or those that MHProNews interviews – reports is proof others could too.
Plus, the returns are far sweeter than other options found in an often challenging U.S. economic landscape.
Let’s stress there is no need to buy into the negative side of what some MHC success stories shared with Bloomberg or the New York Times. Experience on the consulting side of our parent company’s operations clearly suggests pros can make healthy returns and do so while building the image of our industry and those investing in it.
We are are from alone in such views. Serious players in our industry are building image while building profits.
Opportunities Knock
Quoting from the ManufacuredHomeLivingNews’ exclusive ‘response’ to the New York Times,
“Canadian firm Tricon Capital (TCN) has stated they plan to spend up to $670 million in the U.S. for acquiring manufactured home “land lease” communities. TCN Chief Operating Officer (COO) Gary Berman said, “If you look at the U.S. population, it’s definitely growing, it’s definitely getting older, and it’s probably getting poorer. What single-family rental and manufactured housing do is they provide very affordable housing for people.” He says manufactured housing is a $400 billion business within the overall single-family U. S. market worth $2 trillion to $3 trillion.”
In less than 48 hours, the article with the quote linked above had 30,000+ hits. Zoikes! That means it isn’t just MH Industry pros reading that report, because ours is an industry that MHI said 2 years ago had an estimated 100,000 full time workers or owners in it.
So even if thousands of industry owners, managers and professionals have read this response to the NYTimes, it means they are also being joined by thousands more in the public – no doubt including investors – keen on reading that Manufactured Home Living News report.
Serious investors and researchers understand the meaning of due diligence. They take their time and dig for more facts.
The facts herein and the implications are that new capital is seeking and finding our industry’s opportunities.
More New Blood (and Capital) Coming? Duh!
We anticipate a report from a seasoned MH veteran on just how much new capital is targeting entry into the manufactured home community space. The number being tossed about in some MH circles is $1 billion, but others whisper double that, or perhaps still more.
For those who ask, how big is the opportunity? Or, are all the good deals with upside opportunity like those reported in the NYTimes and Bloomberg gone? Let’s look at some facts.
Darren Krolewski, Vice President of DataComp and JLT Associates, tells MHProNews:
We estimate the total number of homesites to be a little over 3,000,000.”
Another well informed and well know source tells us off the record that their estimate is 45,000 MH Communities or all sizes nationally.
Clearly there are plenty of acquisition opportunities available, in MHCs alone.
For investors and researchers new to our industry, the reason there is a lack of more specific numbers is because not every state keeps a data base of communities.
Some ‘mom and pop’ communities may be as few as 8 home sites or ‘pads,’ with perhaps 15% of all communities being in the 200 site or more size. Many MHCs range from 50 to 150 home sites. Using Datacomp’s estimate, the ‘average’ sized park would be around 66 to 67 sites.
Another Industry Expert’s Perspective
“The acquisition & management for income and appreciation of Manufactured Home Communities in California and throughout the western U.S. has become one of the hottest real estate trends in recent years.” said Bill Hart, JD, a founding partner of Hart King Law, which specializes in MHC related legal work from their base in Santa Ana, CA.
“We believe that interest has been driven by an increasing number of families being priced out of traditional single family housing but still wanting to own their home. We expect this trend to continue.“ Hart stated.
What’s the typical occupancy in MHCs?
The downturn that hit our industry early in the 2000s was due in part to the “no-doc” and “liar loans” that created the conventional housing bubble, which sucked away some of the ‘traditional’ MH customers. That and other factors started a series of events that some MH pros more-or-less successfully adapted to, while others haven’t.
So those interested in acquisitions will see some MHCs that have essentially near-capacity occupancy, while others look like ghost towns with 50%, 60% or even 70% vacancy rates.
We asked Darren Krolewski for additional insights on national average vacancy rates in MH Communities, and learned that:
“According to JLT & Associates’ National Manufactured Home Communities Rent Surveys Summary published in November 2013, the national combined occupancy rate of “All Ages” and “55+” communities is 86%. This summary is based on JLT Rent Survey reports for 72 markets nationwide, encompassing 1,254 communities and 353,796 homesites.“
A link to their detailed sample Michigan MHC rental and occupancy trends report, is found here.
Again, the bottom line is that some markets like Michigan have more upside potential, others less, but 14% vacancy suggests that those willing to invest in, turn around and fill a community have plenty of opportunities.
It also means that those who want to invest in a community that already has good occupancy and management will find those opportunities as well.
Why Investors see Dollar Signs
When professionals are talking about annual returns of 15%, 20%, or 25% – and with cap rates that will improve as the properties are filled – the circumstances suggest that serious short and long term rewards are available.
The growth options aren’t limited to MHCs. These facts bode well for much if not all of the industry’s businesses and suppliers too.
Using Krolewski’s numbers, there aren’t 250,000 vacancies in MHCs – as some observers say – but rather 420,000!
If you are a manufacturer or investor in HUD Code manufactured homes or a retailer,
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a lender,
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vendor,
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installer,
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transporter,
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insurance company
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or others who work in or supply this industry,
that 420k new homes needed figure alone is the start for a recipe for growth from today’s manufactured home sales levels, which last year hit 60,000. These are among the reasons why there are those who believe the return to 6 figure annual shipments of new manufactured homes is close at hand.
Another reason is outlined by Next Step’s CEO, Stacey Epperson, in her popular article, Dirty Laundry.
Consider the figures Epperson uses. She says some 2,000,000 pre-HUD Code mobile homes need to be replaced.
Take 2,000,000 and the 420,000 using Krolewski’s data. Combing those two yield 2.42 million new manufactured homes needed.
“But wait! There’s More…”
As a Ronco TV ad might say, ‘But wait! There’s more’ that hasn’t been considered in that 2.4 million new manufactured homes needed estimate.
Those calculations don’t take into account the wider housing market, which U.S. Census Bureau figures suggest will require nearly 20,000,000 new housing units by 2030 to keep up with population growth. If even 15% of that were MH – far less than the twenty year average of 21% that MHI touts that modern manufactured homes are of new housing starts – we’d see orders for another 3 million new homes.
And what if lower incomes push that percentage higher? Census Bureau’s projections don’t count the replacement units needed among conventional and multi-family housing.
Just as Ms. Epperson identifies the need for 2 million pre-HUD Code mobile homes that need to be replaced, conventional housing experts point to the need for tens of millions of aging conventional and multi-family housing that need replacement now or in the near future.
In addition, there is the shortage of affordable housing and rentals, which the Harvard report available at the link here has studied.
When you start ‘doing the math,’ we could see as many or more manufactured homes built in the next 16 years as we saw in the first 60 years of our industry.
To sum up, let’s return to the quote found in Manufactured Home Living News, Gary Berman said, “If you look at the U.S. population, it’s definitely growing, it’s definitely getting older, and it’s probably getting poorer…”
The bottom-line conclusion of many mirrors what Berman suggests. These facts read like a recipe for the future growth in manufactured housing. The Motley Fool thought so last year, and while they had a fact-error in their report, which we pointed out to them, their broader analysis still has validity.
MH Retailers turning into MHC owners too
Even within our industry’s ranks, we are seeing a trend of more retailers becoming community owner/operators. At the recent Louisville and Tunica Manufactured Housing trade shows, industry newcomers as well as veterans of ‘boulevard’ retail operations came to learn more about the attractive investment opportunities that land lease communities provide.
Reasons Why Addressing External and Internal Negatives are Important
A similar point needs to be made about the professional naysayers within our industry’s ranks.
Some self-promoters in MH routinely cry ‘the sky is falling!’
Their answer, of course, is to get you to open your check book or give them a credit card number, so you can pay them to tell you why the sky is falling. Then, they want to get people to pay for meetings so they can continue to collect from their followers, as they continue to say, the sky is falling.
Yeah, right.
A major player told MHProNews off-the-record, ‘From time to time, these guys are found by investors researching our industry. We then have to walk back their fact-errors and self-serving conspiracy theories. How much more capital would find us, if they were not spewing fear tactics and venom?’
Because of the law of supply and demand, more capital coming in could benefit players of all sizes. More demand means higher prices for MHCs, if, the pros who are selling know what’s truly taking place.
Just Imagine…
If you were:
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age 70 and wanted to sell your MHC,
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your kids had no interest in running ‘the park,’
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and you had 30% vacancy, a few years back, you were simply (pardon me for quoting a pro) “screwed.”
But today, that same 70 year old owner may get decent dollars from their property because demand is increasing as knowledge and understanding of the MHC and manufactured housing world is growing too.
But those under the sway of a few professional naysayers are arguably the most harmed by what their supposed nay-saying saviors. The circumstances are improving, and the chance to make a better exit is growing for those wishing to do so along with improving market conditions.
The Rising Tide and the need to Spotlight What’s Good
As was previously suggested, the factors noted and others can broadly benefit a wide range of professionals in manufactured housing.
When I ask audiences of professionals in live meetings how many believe that our industry’s image hurts or slows sales, almost every hand goes up.
The Right Words at the Right Time
Investors doing well using outdated terms are buying, improving and filling up distressed communities and thereby improving the lives of those who live there. We give credit for that, because they’ve earned it.
But a question I ask home owners in those communities who may call their house a ‘trailer’ or ‘mobile home’ tells an interesting tale industry pros should also consider. Here it is, “Which do you think a home buyer will pay more for, a trailer house or a manufactured home?”
The light bulb goes off for those selling their ‘mobile home’ almost instantly.
We respectfully suggest to them or those who think like them they are wise in using the words manufactured home, and they get it.
GIGO Applies in MH Marketing and Image Building
Back in the days of WANG Computers, programers would say GIGO; Garbage In, Garbage Out.
In marketing, a similar principle applies.
We passed a major MH retailer recently that had a big banner on the side of a major highway. It proclaimed a message we will paraphrase as ‘Damaged Credit? We Give You Second Chance Financing.’ To be fair, they are far from alone in this advertising approach.
In marketing, you tend to get what you advertise for, so why is it a surprise that so many in our industry see customers with 550 credit scores? Meanwhile the RV Industry with their GoRVing campaign is selling 5 times the volume as MH is and they are seeing customers with 700+ credit scores.
By contrast, we and our clients, along with others in MH, use marketing methods that reach out to those with cash or good credit and naturally see more of those buyers. Is that a surprise? Of course not. Is it a surprise that the homes we and others sell often command more profit or have a faster-turn rate? Of course not.
Correcting the Record
Starting at the industry’s grass roots and going up, there is a routine need to correct the record on modern manufactured homes.
We are doing our part daily at improving the image in many ways. One way is by showcasing the good on ManufacturedHomeLivingNews or here on MHProNews, while tackling the problematic.
draws hundreds of hits monthly. While we can’t say how many in the media are putting the proper terminology to work, some clearly are doing so, while others are stuck on the stereotypes they think move more (digital) paper and ink.
Once industry pros make a planned effort to form an industry version of an anti-defamation league that has worked well for minority and religious groups in the U.S., the natural result will be more respect and more sales.
The fact that some of the rich-and-famous already get it about our industry’s homes is showcased in published articles like this one:
Newcomers to the manufactured housing industry’s ranks could play a significant – and profitable – role in this.
If there are opportunities in an industry where a legend like Sam Zell has to remind potential investors, “Pencil head, its not a trailer park,” what could the opportunities be for those who get it that image building, professionalism and positive messaging would be profitable for all involved?
The Walmart of Housing
To be or become the Walmart of housing would be a great thing. That’s just how some entry level community operators describe their offer to home shoppers, the Walmart of Affordable Housing.
Walmart is widely seen as a low price leader. They’re the largest bricks and mortar retailer on the planet.
While Walmart dominates in many ways, that doesn’t keep others from positioning themselves above and even below them in price. There is Dollar Tree, Dollar General, Dollar Store and a bevy of others in that retail space.
In Florida and the Southeast, Publix grocers competes robustly with Walmart. Publix tends to be higher priced, so how do they manage to compete against huge Wally World?
Superior service is the Publix way! We are new to living in Florida, and we aren’t looking for fans of Publix. So it’s amazing how often that company comes up in conversation. Service is what people brag about when they speak to us about the popular and growing Publix grocery chain.
The point is that manufactured housing pros or investors don’t have to fear the mega-corporations or other competitors! We don’t have to fear the bigger ‘competitors’ in conventional real estate. In fact, those so called competitors ought to be joining us in droves.
Reasonably, all that’s needed is the truth well told. Don’t hide from the past, celebrate it. Then showcase the modern reality, and the industry will grow more rapidly than it already is expanding.
By creating that unique value proposition for customers and delivering on it, success follows. Publix or the dollar stores profitably position themselves above and below Walmart using that concept.
What Every Man Owes
At MHProNews, we preach that Teddy Roosevelt was only partially right in the quote shown in the poster below. We also owe our profession some of our talent and treasure.
As soon as our industry – and investors – buy into the idea that good customer service, image building and professionalism yield more profit, we’ll see sustained advances that will rapidly take us beyond the modest levels we see today.
As part of that effort, we have shown how video and other interviews can be used to make a difference.
The link to the full interview – and both the short and long version of the video above – A Cup of Coffee with Chet Murhpree, is linked here.
More examples of video interviews with industry professionals are found linked here.
Opportunities in Disguise
There are many needs and challenges facing the MH Industry, but for those with the vision and chutzpah, we believe each represents an opportunity in disguise.
You may or may not be or become the Walmart of Affordable Housing. But you can make a fine living in this industry, as the NYTimes, Bloomberg and readers of MHProNews all know. ##
L. A. ‘Tony’ Kovach
ManufacturedHomeLivingNews.com | MHProNews.com |
Business and Public Marketing & Ads: B2B | B2C
Websites, Contract Marketing & Sales Training, Consulting, Speaking:
MHC-MD.com | LATonyKovach.com | Office 863-213-4090
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