CLEVELAND-Mention the words “manufactured housing” and what might come to mind are dubious jokes about “double wides” and visions of trucks flying down interstate highways with pieces of houses on their flatbeds. But in recent months, manufactured housing, and the sites on which these houses are being placed, are offering some pretty good returns for commercial real estate investors interested in portfolio diversification.
According to Marcus & Millichap Real Estate Investment Services’ 2H Manufactured Housing Research Report, an improving economy, combined with a resurgence in financing and a steadier housing market is making this particular niched commercial real estate sector an attractive investment, depending on the region.
Manufactured housing – also known as “factory housing” – is built in communities in which an owner has possession of multiple homes. That owner might, in turn, rent those homes to tenants or sell them. Michael Glass, vice president and regional manager of Marcus & Millichap’s Cleveland and Columbus offices likens manufactured housing to the multifamily sector, especially as rentals are common on such sites.
“The sector was hard-hit during the economic downturn,” explains Glass, who was recently named national director of Marcus & Millichap’s National Manufactured Home Communities Group. “The ability for a tenant to purchase a home, and finance through a financial institution put a lot of strain on these park owners. It meant that if they wanted to fill their parks, they’d have to buy the actual home and offer them on a rent-to-own basis. The capital of bringing those homes in was high, not to mention the overall issue of buying a manufactured home park.”
These days? “We’re seeing a lot of capital jumping into commercial real estate as a whole, but when to comes to manufactured housing, we’re seeing buyers really fighting for those A assets in prime locations,” Glass says. He goes on to tell GlobeSt.com that, for example, age-restricted manufactured housing communities in prime markets aren’t offering unlimited supply. As a result, some of the capital is starting to trickle into B and C classes in B and C markets. “A lot of REITs are coming into the game and investors are becoming more sophisticated and looking to diversify,” Glass says. “Once they learn about manufactured housing and the returns, a lot of them realize they can diversify their portfolios and go into manufactured housing.”
But care needs to be taken not to apply blanket optimism of this sector to the rest of the country. Glass and Marcus & Millichap senior associate Kyle P. Baskin caution that demand, ROIs and yields for the CRE product can vary, depending on geography, class of asset and other factors. The vacancy figures differ, depending on region – compare Salt Lake City’s vacancy of 4.4% to Detroit’s vacancy of 23.6% and you get the picture.
The Marcus & Millichap report also points out that investor demand varies widely by geographic region. For example finding buyers for properties in areas with higher foreclosure rates, such as Las Vegas and Phoenix, is more difficult because of the amount of personal property debt accrued to such communities. Meanwhile, in states such as western Pennsylvania, eastern Ohio and Montana, locations known for natural gas and oil extraction, mineral rights beneath the land are attracting top dollar – and a lot of competitive bidding.
Still, Glass says that, for the near- to mid-term, he’s anticipating seeing continued demand for manufactured housing ownership and not much more supply coming online. That, combined with continued low interest rates will lead to sales increases and stronger operations.
Glass, who recently replaced Jeffrey M. Mishkin as national director of the NMHCT, says his goal is to help position the group to take advantage of the increased interest in this commercial real estate sector. To that end, he wants to grow the current team of 24 people to 35 and boost geographic coverage of Marcus & Millichap’s national services in the manufactured housing sector to better represent clients in acquisition, disposition and refinancing of assets, as well as sourcing capital.
Glass goes on to explain that, about a month ago, he attended a manufactured housing conference in San Diego. “The sentiment across the board; from lenders, to owners and operators, to manufacturers who build the houses is bullish,” Glass says. “For the first time since 2005, we saw an uptick in the number of manufactured houses shipped and purchased in the marketplace.” Even more interesting, going back to the report, is that the shipment of new manufactured homes remains 65% below the high of 2005. That uptick, combined with a decline in vacancies, “bodes well for current owners and people looking to enter the market,” Glass observes.
Though manufactured housing is coming back nicely as an investment vehicle, according to Marcus & Millichap’s 2H report about the sector, vacancies, yields and investments can vary widely across regions.