Issue link: https://read.dmtmag.com/i/420183
DECEMBER 2014 18 THE JOURNAL I recently attended the National Communities Council's Fall Leadership Forum in Chicago, along with a diverse mix of community owners, lenders, appraisers, brokers and other industry folk. For those who were unable to devote the time and money to being there, here's a rundown of the major trends I spotted at the event. The industry is extremely hot right now A common theme of the event was that there's a lot of capital chasing this industry. Es- sentially, a large number of investors and private equity groups are circling the business, wanting to deploy big chunks of money. One panelist in a discussion session told a story about an Australian investor who wants to invest $300 million imme- diately in the affordable housing industry, but can't find a seller of any magnitude. And there were rampant stories of some of the biggest names in the private equity world scouting out this real estate sector. Of course, the industry has been primed for consolidation for years, offering higher returns than its real estate peers while, at the same time, being highly fragmented. There will soon be a huge wave of portfolio consolidation, and the number of community owners will shrink – as found in any industry roll-up. The an- nouncement by SUN of their purchase of Amer- ican Land Lease only stokes the fires hotter in this regard. The industry is making the right moves to really enhance value As Bruce Nell pointed out in his speech, our closest relative is self-storage. Self-storage was able to elevate itself from goofy to mainstream. As a result, cap rates declined and values in- creased overnight. That's exactly what this in- dustry needs to be doing. Forget whether you call the product "trailer", "mobile home", or "man- ufactured home" -- changing the way that cus- tomers think is not that important. What's really important is the perception that Wall Street and the investing public have of the industry. And they are focused on the money. They want to see professional management that knows how to pro- tect the interests of the investor and achieve maximum returns. The title of the event re- flected that new spirit with "Future Forward, Customer First". Having the Ritz Carlton speak was genius as far as elevating opinions. Having the event at the Drake and the dinner at the John Hancock was the right way to break out of our perception as a "second-tier" real estate class. And the fact that almost everyone in attendance was wearing a suit sealed the deal. This is the kind of P.R. that really pushes the value of our assets. I look forward to the day that the man- ufactured home community business becomes main stream and can enjoy cap rates similar to the apartment and self-storage industry. And I don't think that it's too far off into the future. Concern about laws and lawsuits If the SAFE Act and Dodd-Frank are not bad enough, now there are lawsuits arising from water bill backs and late fees. It seems as though the government and personal injury lawyers are run- ning amok. However, that just goes with hav- ing the asset class more popular and visible. Celebrities complain about the paparazzi, but they would rather be popular and endure it than waiting tables at Denny's. Much of the legal woes come from uncertainty, not larceny. Every oper- ator I know is diligently trying to follow the rules, but cannot keep track of all the changes. I think it was a good moral that everyone needs to dou- ble-check that they are 100% in compliance with the basic rules in their state on late fees and water/sewer billing. Dan Weissman, one of the panelists on a discussion section, said that the two greatest risks to the industry are global warm- ing and class action lawsuits. When those are your two biggest concerns, then you know you're in the right industry. Can you imagine the an- swer if they were asking most any other business category? It would be sales, sales, sales. With the demand for affordable housing far outstrip- ping the supply, we are lucky to be in the posi- tion we're in. But it still does not mean that every community owner should not spend some time performing recent diligence on the laws. The end of B.S. – thank heavens What was notable at the event was the ab- sence of many self-styled gurus who people used to listen to. They have been discarded as the in- dustry has grown up and the professional owner/operators demand concrete qualifications of their experts. I was impressed that nobody gave me any grief for my New York Times article in which the word "trailer" seemed to be the writer's favorite expression. Nobody cares any- more about trivial nonsense. The industry is poised for a major shift for the good, and child- ish arguments have been cast aside to make way for more important adult topics and negotiations. Still impressed with Jenny Hodge and the MHI team This was my second trip to the Chicago NCC, and I was impressed as I was last year. Sometimes the sequel is weaker than the original. Not in this case. Attendance appeared to be up, and the event was well conceived and executed. I will definitely be back next year, and urge you to do the same. And bring your spouse – they will not believe how classy community owners have be- come. I'm excited to see what they can dream up for next year. Perhaps lobster at Sam Zell's house? Frank Rolfe has been a manufactured home community owner for almost two decades, and currently ranks as part of the 10th largest community owner in the United States, with more than 13,000 lots in 20 states in the Great Plains and Midwest. His books and courses on community acquisitions and management are the top- selling ones in the industry. To learn more about Frank's views on the manufactured home community industry visit www.MobileHomeUniversity.com. The NCC Event In Chicago Gives A Good Pulse On The Industry BY FRANK ROLFE COMMUNITY CONSULTANT T J