High demand bolsters
investments in manufactured housing
Real estate investors interested in capitalizing on affordable-housing needs might not look to purchase or build a
manufactured-housing community (MHC), but demand is consistently high for these properties.
According to the Manufactured Housing Institute, the 93,000 manufactured homes built in 2017 represented
9 percent of all single-family home starts in the U.S. The average sales price of a new manufactured home — without factoring in land-acquisition costs — is $70,600, considerably less than the average sales price of a traditional
A first-half 2018 report from Marcus & Millichap, a national commercial real estate services company, said that nationwide vacancy rates for MHCs reached a 10-year low in 2017, and rent prices grew 5 percent or more year over
year in markets like Baltimore, Denver, Houston and San Antonio. Scotsman Guide spoke with Jonathon McClellan
of Marcus & Millichap to gauge the climate for MHC investments.
What is happening with the market for manufactured-housing communities? Are they a viable means for
creating more affordable housing and addressing inventory shortages?
First off, the investor demand right now is, I’d say, at an all-time high in terms of buyers. I think Wall Street
uncovered [MHCs], I don’t know, probably three or four years ago, and since then we’ve just seen a flood of activity,
a flood of new funds coming to the market. Maybe that’s because it’s looking a little more recession-proof. …
We didn’t really see much of an occupancy decline. We didn’t really see rents drop at all during the recession last
Where should commercial mortgage brokers look for financing — conventional loans or alternative
financing, such as private money?
Typically, your $3 million-and-under deal size, you’re going to be looking more at a regional or local bank.
You’re going to see an LTV (loan-to-value ratio) of anywhere from 70 to 75 percent. [Interest] rates will be a little bit
higher. … You get into that $3 million to $10 million [range], you’re starting to look more at the CMBS (commercial
mortgage-backed securities) market, nonrecourse debt, 30-year [amortization], 10-year fixed [rate debt].
Rates are … right around 5 percent, low 5s. Obviously, that’s continuing to pick up. And then, we’ve seen a lot
of institutional-quality, larger assets trade recently, where Freddie [Mac] and Fannie [Mae] have been heavily
involved. Freddie has really come on strong recently in terms of debt quotes and whatnot, which has been a huge
help to investors.
Which areas of the country are ripe for potential investments in this sector because of
A need for affordable housing, obviously, is important. We’ve seen a lot of [MHC] communities being shut down
and sold to developers. … We’re starting to see a little bit more of a push to try and help lower-income people
with affordable housing. … California, Arizona, Texas, Florida, kind of up the East Coast, those [MHC] communities
that we look at are going to be 90 percent occupied, up to 100 percent. [In the] Midwest, it drags a little bit behind
but, again, average occupancy, certainly around major metros, is still going to be around 90 percent. Again, we’re
seeing occupancy either stay stagnant or rise. We haven’t really seen a dip in occupancy, just because the demand
for affordable housing is so high.
Is the growth opportunity for manufactured housing in new construction or rehabilitation projects?
I’d say rehabilitation. To build a community from scratch, one, it’s expensive, trying to get a local jurisdiction to sign
off. I don’t know if it’s a stigma that cities just don’t want … what they think are trailer parks, but in reality, they’re
really nice manufactured-housing communities. We’ve seen a lot of operators recently who’ve been looking for
the 50, 60, 70 percent occupied park that they can go into, pull the old homes out and bring in new homes, and
definitely bring the aesthetics up in the community.
Is this sector similar to senior housing in terms of an older population driving demand?
I think the big talk in the industry is the amount of baby boomers that are coming into retirement. That’s going to
accelerate rent [prices], especially down in Florida, where a lot of people like to retire to. With that baby boomer
population coming up to retirement, a lot of operators are thinking that owning a 55-plus (age group) park is
beneficial, because the demand is always going to be there. n
Neil Pierson is editor of Scotsman Guide Commercial Edition.
Reach him at (800) 297-6061 or firstname.lastname@example.org.
Jonathon McClellan is a senior
vice president of investments and
a senior director of the national
(MHC) group at Marcus & Millichap.
He specializes in the sales and
marketing of MHCs nationwide.
Since 2005, his MHC group has closed
more than 200 transactions valued at
more than $1 billion. McClellan has
successfully served as an owner and
operator in the disposition of MHC
investments, sharing local market
knowledge with property owners and
reaching out to a national platform to
deliver investment sales to qualified
buyers. Reach McClellan at
(216) 264-2023 or jonathon.mcclellan@
Senior vice president of investments, Marcus & Millichap
By Neil Pierson