Issue link: https://read.dmtmag.com/i/106888
DEVELOPMENT MARKETING Ask Eddie BY ED HICKS "Greenfield"* Communities: Happening Now? Is it true that there are actually some new m/h land lease community developments now underway? David B., Tampa, FL. Yes, perhaps so in a few markets. Surprised? Not me! During the past few years from time to time I am contacted by various prospective clients from around the US who are either seeking to purchase existing communities, or in their absence at viable prices (which is the case in most markets at present) rarely have considered new developments. Why? First, primarily because finding financing to leverage capital costs has been difficult, if not impossible with the exception of two of the FHA Loan Guarantee programs (207m and 221d4) both of which can take up to 6 months or longer for funding. Secondly, the lack of competitive financing for home buyers in the context of todays very low interest rates on 30 year single family site built homes, makes even low home priced home payments much higher. Even the newly revised FHA Title I financing program which provides for 20 year loans with only 5.0% down, at interest rates now from 6.5% to 8.5%, in combination with the monthly homesite lease payment, brings the total often above that of apartments in a given market area. So, in addition for entrepreneurs and their investors to have to support two simultaneous businesses: building and leasing new homesites, plus installing and selling new homes with somewhat non competitive financing, is seen as a daunting couple of simultaneous tasks. Contrarian** thinking is that with today's higher occupancy levels for apartments in many FEBRUARY 2013 20 THE JOURNAL markets and their associated much higher rents, many will turn their attention to m/h land lease communities. However, higher quality, investment grade communities appear to be way overpriced, and somewhat difficult to finance, even with relatively high occupancy rates, and historical good operating statements, with net operating income for good to excellent debt service coverage ratios. Perhaps it has been the weaknesses in the northern Midwest markets, where occupancy levels have fallen to all time lows, creating a wake of foreclosures by lenders including some notable conduits, and other securitized loan programs. Still, even with the uncertainties of the political system under way for Mr. Obama's second term, there seems to be some optimism on the part of a few developers. A new all ages m/h land lease community with over 400 homesites is planned for 2014 in Northern New Mexico, and a new 500 site age 55+ age restricted is planned for North Central Florida. A new smaller m/h land lease cooperative is opening in March in Central Florida, not too far from Orlando. Several existing communities have plans for expansion, in fast growing markets in Central and Southern Texas. Recently a large 300+ site m/h all ages community filled up in less than 18 months near the Baaken oil production activities in North Dakota, and several existing communities near the Eagle Ford production facilities in South Central Texas are expanding to take care of the strong demand for housing in those markets. As always, the key to success is based on a combination of healthy household growth rates, relatively high median household incomes, availability of viable home financing terms, and fair to good acceptance of manufactured housing as a sociably acceptable form of housing. It has proven to be more difficult to fill newly built age restricted communities near older, proven markets, primarily due to the competition from buyers who purchased their homes 15 to 25 years ago, and either have passed or are moving on to health care facilities. Often their homes are offered at prices while actually much higher than they paid for them, they are still available at prices which are significantly below those of new homes which are still being offered for sale in the same community or in a nearby one. In those markets with good household growth rates for the near future, low apartment vacancies and high rents, with combination home payment and monthly homesite lease payments which are at no more than 43% including long term debt, at income levels from 60% to 80% of the areas median household incomes, contrarian thinking may be a viable solution, and should be considered seriously for qualified/experienced developers. * A term often used by investors to refer to new residential Greenfield development is the creation of planned communities on previously undeveloped land. This land may be rural, agricultural or unused areas on the outskirts of urban areas. Unlike urban sprawls, where there is little or no proper suburban planning, greenfield development is about efficient urban planning that aims to provide practical, affordable and sustainable living spaces for growing urban populations. The planning takes future growth and development into account as well as seeks to avoid the various infrastructure issues that plague existing urban areas. Going for greenfield development is actually far more convenient than attempting to develop or modify existing urban areas. The process of revitalizing old or rundown neighborhoods, which is known as brownfield remediation, can be expensive, slow, and fraught with various social and political issues. Landlords, for instance, may not find development in their interest or profitable. If it is a rough neighborhood with dysfunctional school systems, people may not be willing to move into it even after redevelopment. Planning and developing new communities in new areas,