Issue link: https://read.dmtmag.com/i/60637
COMMUNITY CONSULTANT What HappensWhenWe All Get Full? BY FRANK ROLFE I never thought I'd write an article on this topic, because ten years ago it would have been impossible to even imagine. Butmore andmore of our communities are reaching 100% occupancy. We have about 5,000 lots, and less than 800 are vacant. We are filling vacant lots at the rate of around 200 lots per year through aggressive pro- grams of bringing in homes and renting themout. In four years, we'll be 100% full. And I'm seeing this same phenomenon happening with other community owners. So what's wrong with being full? Absolutely nothing. But we're still getting 50 to 100 calls per week for people wanting homes in the parks that are full. So the demand is giant and there's nothing to offer the caller. Eventually, the way things are going, all the decent lots in the U.S. will be at full occupancy. So what will happen with the demand? Affordable housing is booming right now. 20% of Americans have household income of $20,000 per year or less. They only have a housing budget of $500 permonth.Andmanufactured homes are the only option that meets this budget, and offer a satisfactory form of residence. Warren Buffet gave an interview a while back in which he ad- dressed the whole concept of household formation in the U.S. versus the number of new homes being built. Clearly, we are heading for a train wreck of housing forAmericans who cannot afford the nearly $200,000 average price for a new stick-built home in the U.S. Where are these customers going to go – and how can I profit from this situation? These customers only have two options: 1) a low-cost apartment or 2) a manufactured home set up in a manufactured home community. A third option, which Buffet described, is living with relatives – but, as he pointed out, that's not a long-term solution. And anybody who has ever manned the phone and sold amanufactured home can tell you, in a game of low-cost apartment vs. APRIL 2012 22 THE JOURNAL manufactured home, the home always wins. No- body wants to live in a situation in which your neighbors are banging on your walls and ceiling, and you have no yard and no privacy. And let's be honest, apartments are just not always very safe or friendly places to be at a $500 price point. So if the demand is constant and growing, how do you make profit from it? The answer – as scary as it may seem based on how things were only a few years ago – is to start buying communities with vacancy and filling themup. I was among the first people to publicly announce that vacant lots in existing manufactured home communities were worthless as far as pricing the buying of a prop- erty. But that concept was based on the period following the "great chattel meltdown of 2000" in which the supply of manufactured homes far out- weighed the demand. But the facts are that we're flat out running out of vacant homes and lots. So what can you pay for vacant lots? Certainly not as much as you can for occupied lots. When you fill a vacant lot with a manufac- tured home, you have to invest a huge amount of capital to make that lot income producing. I don't think I'm really even talking about putting a value on them. It's more of a perception of communities with occupancy issues. What we're starting to think is that communities that are sit- ting at 50% and 60% occupancy are maybe not as unattractive as they were a few years ago. If we know we can sell or rent every single home that we bring in, the terror of buying a "non-stabi- lized" property grows weaker. It's really in the hands of the lenders and appraisers The whole concept of "stabilization" came from lenders, who figured that any community that isn't at least 80% occupied must be a higher risk than the ones that are.While that logic may not be far off, maybe this number should be altered in wake of the new reality. It used to be that a good way to weed out the weaker communities was that the demand was not there if they had less than 80% occupancy. Now that the demand is everywhere, maybe 70% is just as good as 80%. The only reason almost all parks are not at 100% has been the collapse of chattel, and the inability for the public to buy homes with reasonable terms and credit scores. Now that the community owner is talking the proactive role of filling that demand and moving the homes in, maybe the way that bankers and appraisers look at parks should be different. Not necessarily from a value standpoint – giving value to vacant lots – but as a mechanism in which communities with vacancy are not shut off from traditional lending. Are vacant lots a bad thing? When you limit parks to 20% vacancy or less, you are effectively saying that vacant lots are bad – why else can two loans with the same net in- come be considered differently based only on the concept of vacancy? Wouldn't a community that has more vacant lots actually be worth more, since those lots can be fairly easily filled at some point in the future? I think that the that rapid fill- ing of all manufactured home communities may test the old logic andmaybe open the door for new ideas. Conclusion We're approaching a time in which all decent manufactured home communities have a "no va- cancy" sign out front.We need to start thinking about what that new reality means and act ac- cordingly. T J Frank Rolfe has been a manufactured home community investor for almost two decades, and currently ranks as part of the 32nd largest owner in the United States. He currently owns communities in 17 states throughout the Great Plains and Midwest, and his books and courses on community ac- quisitions and management are the top-selling ones in the industry. To learn more about commercial real estate, please visit http://www.nicheinvest- mentnetwork.com.