Issue link: https://read.dmtmag.com/i/283550
COMMUNITY MANAGEMENT PERSPECTIVE Why the Manufactured Housing Community Business Model "Isn't Fair" During the Great Depression in the 1930's, any- one who was not broke was considered to be part of the conspiracy. The Rockefellers received so many death threats that they burned them for heat in their New York apartment – about three giant bags per day. Some real estate investors, in other asset classes such as retail, have told me that our business model "is not fair". Well, I take that as a compliment. I would much rather be doing well than having a lot of friends to com- miserate with. So why is the manufactured community business "un- fair" in the eyes of other real estate sectors? The tenants cannot afford to move their manufacture homes, so they're trapped The first thing about our industry, that drives other people nuts, is that our customers have to pay $5,000 or so to leave, in the form of moving costs for their home. No other real estate sector has this barrier. For them, the only barrier is the price of a moving van or pick-up truck rental. The reason for this is the unusual arrangement in which the tenant owns their own home, but does not own the land. We didn't invent the concept, but we sure like it. The leases are mostly month-to-month, so owners can raise them whenever they want I'm not sure who invented the idea that manufacture home com- munity tenants would be happy with month-to-month tenancy when all other forms of multi-family are stuck with annual or semi-annual leases – but there's no denying that it makes our sector able to change rents as often, and as fast, as we like. The demand grows as the economy declines By being in the affordable housing segment, with every layoff and wage decrease, our occupancy goes up. We are the ultimate counter- cyclical form of real estate investing. Back when times were prosper- ous – like in the 1960's – we were criticized for being on the wrong side of the curve (some even speculated about our extinction). So what's wrong with being on the right side of the biggest trend in the U.S.; the continual economic decline? The internet has no impact I'd be the first to admit that the fallout from the in- vention of the internet is much larger than anyone ever expected. You don't need to rent office space, as you can work from your computer at home or at a Starbucks. You don't need to go to the mall, you can order online (at less money and without sales tax). You don't need to book a hotel because you can have conferences on a webinar line, and face-to-face meetings on skype. Manufactured home communities just happened to be one of those niches that the in- ternet has no impact on. Sorry, that was just luck. Seller financing is plentiful We are the second youngest asset class in real estate (self-storage being our only younger sibling). Most of the communities out there are being sold by the orig- inal mom & pop developers. As a result, they own them free and clear and can offer seller carry. You could have had the same opportunity in apartments in the 1970's. Many niches are more fluid and nobody holds them until the final note payment and the deed is handed over by the bank. Manufactured home communities are unique in this as- pect. Caps are high It's not our fault that we have the highest cap rates in all of real es- tate. Blame that on the financial markets, that could not see beyond the stigma of the "trailer park" industry. Without larger, more well-funded players in our space, we have not had to compete with giants that offer higher prices and B y F r a n k R o l f e A \ 21