March 12, 2018

Hunt Mortgage Group Travis Gonzalez, Writer

Manufactured housing has evolved drastically following its popularity after World War II. In America’s most expensive cities, residents have found a more affordable pathway to homeownership: manufactured housing. While manufactured housing conjures images of box-like houses on wheels, its design has since evolved into affordable luxury. Residents lease the land but own the structure. Homes offer high-end finishes and the conveniences of a more traditional single-family residence that would otherwise be unaffordable.

Community amenities like fitness centers and green spaces have transformed mobile parks into micro-neighborhoods. On the investment side, owners are attracted to mobile home parks for their stable returns, long-term occupants and the relatively low capital cost required to maintain the properties. As more people view the parks as desirable communities for raising families or easing into retirement, manufactured housing presents a growing investment opportunity beyond conventional multifamily deals.

“These highly amenitized communities buck the stigma around mobile home parks that the lending world had in the past,” Hunt Mortgage Group Managing Director Josh Messier said. “Agency lenders love four- or five-star parks, and we have seen a shift toward them in the last five years because of baby boomers and young families.” Hunt Mortgage Group is a Delegated Underwriting and Servicing lender for Fannie Mae and a licensed Freddie Mac seller/servicer.

Fannie Mae has long offered and encouraged manufactured housing loans, and Freddie Mac announced in January that it increased its manufactured housing production goal. The average cost of a manufactured home, not including land, is $70,600 versus $287K for a single-family home, according to the Manufactured Housing Institute. Because of its affordability, manufactured housing falls outside of the institutional lending caps set for Fannie and Freddie. Interest rates have remained low, and borrowers have the option to shop around for the loan terms that best suit the mobile park and market. Hunt clients can choose between Fannie and Freddie while keeping Hunt as their dedicated seller/servicer.

“It is nice to have some competition among Fannie and Freddie, as well as CMBS loans,” Messier said. “The borrowers are benefiting from a competitive product with a low interest rate and a good return in a low-risk environment.” Brett VA/Flickr A modern mobile home park in Apache Junction, Arizona Risk is relatively low for manufactured housing investors. Second only to self-storage, the asset class has one of the lowest rate of default, Messier said.

It is also second to self-storage in terms of net operating income growth.  But finding a mobile home park on the market can be difficult. The stability of the asset encourages long-term ownership, and assets are often kept in the family. An opportunistic investor might be able to find a distressed property with 50% occupancy in need of repairs and new community spaces, Messier said.

Large companies also own a majority of the parks in the U.S., creating a barrier for smaller investors. Sun Communities, Equity Lifestyle Properties and RHP Properties are the top three owners in the U.S., with a combined ownership of over 200,000 sites.   Small balance loans through Fannie Mae and Freddie Mac offer an investment avenue for individuals or mom-and-pop investors interested in manufactured housing communities, with loans starting at $1M.

Manufactured housing has yet to draw the attention of millennials, who remain the top renters of conventional multifamily units, Messier said. With time, that could change. After an almost decade-long decline, U.S. homeownership rose to 64.2% in January, up from 62.9% in 2016. As more millennials get jobs and start families, homeownership has begun to come back into favor, but prospective homebuyers still have to reckon with rising interest rates and higher down payments on mortgages.

Manufactured homes could offer a more accessible alternative.  Demand for manufactured homes continues to rise. While Messier expects sales activity to remain the same, continued low-interest rates will encourage existing owners to refinance. Hunt has added over $600M in manufactured housing loans to its portfolio in the past four years through Fannie Mae and Freddie Mac, and plans to reach $1B in the near future.

“It’s on Fannie and Freddie’s radars, it’s on Hunt Mortgage Group’s radar,” Messier said. “As the asset class continues to grow, agency lenders and servicers remain committed to fulfilling their mission of providing affordable housing by increasing their ability to offer these attractive loan programs.”