Chateau is the nation's largest manufacturing housing real estate investment trust.

The downgrades are a result of the challenges facing the overall manufactured home industry, they say.

"Although the manufactured housing REIT stocks are off slightly more than the overall REIT sector since the beginning of the quarter (down 8% vs. down 6.7% for the RMS REIT index), we believe the downgrade is still warranted based on the likelihood of secular issues in related but different segments of the manufactured housing industry worsening before they improve and on the expectation that these stocks will likely trade sideways for at least another couple quarters," they wrote in their REIT Report.

They note that each of the three REITs have "very different prevailing valuations, strategies, portfolios, and abilities to deal with the markets issues."

Their report compares the three REITs. One of the key issues facing the industry is that manufactured home lenders have been struggling for several years from the "overhang" of excessive credit extension in the late 1990s, they note.

"It now appears the restructuring process for the manufactured housing lending industry is entering a more difficult phase, with much hope, but plenty of uncertainty, for a positive near-term resolution to the sector's issues."

In recent years, they add, several significant lenders have left the business, loan delinquencies and manufactured housing repossessions have increased significantly. Also, new loan underwriting criteria--credit scoring, down payment, and interest rate--have tightened, they note.

"Many industry participants believe that 100,000 homes have been repossessed, and many other owners now occupy units currently worth less than the mortgage taken on a few years ago," they say.

The repossession estimate contrasts with an annual new manufactured home shipment level of about 350,000 units in the peak years of the late 1990s, and about 175,000 units this year, they note.