Issue link: https://read.dmtmag.com/i/672763
MAY 2016 20 THE JOURNAL Why This Industry Needs A Third Classification BY FRANK ROLFE COMMUNITY CONSULTANT We all know that the star system was a fail- ure. Nobody could ever figure it out, and there was nobody to regulate it even if they did. To this day, I have community owners that tell me have a three-star property when it's more like a one-star, and others who think they have a three-star when they have a five. We all know that is more than one type of manufactured home community. To date, the industry has basically been divided into two macro cate- gories: 1) lifestyle choice and 2) affordable housing. Lifestyle choice vs. affordable housing "Lifestyle choice" are communities in which the residents are largely upscale and the property has superior amenities and, typically, a coastal location. To many investors, these are looked upon as mostly retirement communities in Cal- ifornia and Florida. Sam Zell's ELS is the dom- inant player in this niche, with Carefree Communities a smaller copy. Most of SUN's communities also fit into this dynamic. On the other end of the spectrum are the "affordable housing" communities, which offer a clean, safe place to live at a low cost. These are found in the states between California and Florida, and mostly in those states, as well. The biggest competition to affordable housing communities are apartments, while lifestyle choice tend to compete more with single-family homes. The problem with this system There are roughly 44,000 manufactured home communities in the U.S. Of this num- ber, only around 2,000 could be construed as "lifestyle choice". So it seems crazy to lump the other 42,000 into one single classification. I think part of the reason that this is what hap- pened is that the three public REITs are all fo- cused on the lifestyle choice arena, so nobody much cared about what happened to the parks that did not fit their criteria. However, we now have many large players that are operating com- munities that clearly do not fit the lifestyle choice classification, but are clearly something more than affordable housing properties. Of the top ten owners of manufactured home commu- nities in the U.S., only three are lifestyle choice. And those three operators own less than 400 total communities. The third classification that's needed While the bulk of communities twenty years ago were simply affordable housing, there has been an evolution in this sector. Over time, many of those affordable housing operators have groomed their properties into a higher level of quality and professionalism, which in many cases mirrors that of lifestyle choice properties. For example, we have a community in Bloom- ington, Illinois that is all double-wide homes with detached garages. It has concrete streets and attractive landscaping. It is identical to the residential subdivision next door. But it does not have a clubhouse or pool and is not located in California or Florida. This community clearly does not fit into the affordable housing classifi- cation, nor does it fit into lifestyle choice. I call this type of property "affordable lifestyle". What is "affordable lifestyle"? These are properties that offer lifestyle choice attributes at an affordable price. An "affordable lifestyle" community is one that has an attrac- tive entry, solid roads, well-maintained com- mon areas, solid and uniform enforcement of rules, and a quality location in a superior school district. Other names for this type of property could be "lifestyle choice lite" or "affordable housing plus". But I think "affordable lifestyle" is more descriptive, as these are a blend of the best of both asset types. I'm pretty sure that anybody who owns a manufactured home com- munity, or has been looking at properties to buy, knows exactly what I'm talking about. The net benefit By adding a third basic classification, you give status to the superior affordable housing communities, and you help clarify those insti- tutional portfolios that have the appearance of lifestyle choice but are not located in California or Florida. My bet it that around 5,000 of the 42,000 affordable housing communities could be worthy of classification of affordable lifestyle. But I also see that number growing over time, as more properties are purchased by professional owners and taken to the next level. With most of the investment dollars in our industry going into the affordable segment going forward, we need to put a far greater focus on bringing clar- ity to its classification system for the investing public. Conclusion Affordable lifestyle communities are going to be the growth segment of the industry in the years ahead. The number of lifestyle choice properties is extremely limited, and most have already been acquired. But there are a large number of affordable lifestyle properties to be consolidated, and even more that are currently just affordable housing, but have strong loca- tions and can be taken to the next level with professional management. I see this transfor- mation every time I inspect a market, as I'm sure everyone does. Our industry is slowly transforming into something we can all be proud of, and we need to trumpet that evolution with a better, and more accurate, classification sys- tem. Starting now. Frank Rolfe has been a manufactured home com- munity owner for almost two decades, and currently ranks as part of the 6th largest community owner in the United States, with more than 19,000 lots in 23 states in the Great Plains and Midwest. His books and courses on community acquisitions and man- agement are the top-selling ones in the industry. To learn more about Frank's views on the manufac- tured home community industry visit www.Mobile- HomeUniversity.com. T J