Investors eye the evolving manufactured housing sector

 —  Article by Megan Dolan

investors-eye-the-evolving-manufactured-housing-sector

Marble counter tops and hardwood floors. Swimming pools and walking trails. A high-end clubhouse.

Many of today’s new Manufactured Housing Communities (MHCs) have the same qualities, enhancements and amenities as a neighborhood of luxury multifamily high-rises.

Across the U.S., they’re often home to seniors who are looking to downsize and enjoy their retirement years. Many MHCs also address the country’s critical need for workforce housing, which generally serves families and households earning more than 60 percent of area median income.

As the design and function of manufactured housing adapts to 21st century expectations, it’s not only Americans looking for affordable homes who have become involved in the sector. MHCs have also caught the eye of a growing number of investors who, faced with record-high pricing for prime “trophy” multifamily properties and intense competition to secure a foothold in primary and top secondary markets, are looking to niche housing sectors as a means of securing higher returns.

JLL International Director Brian Kelleher says: “Manufactured housing supply is limited and necessary capital expenditures for communities are modest, giving the sector plenty of investment merit. Ownership primarily used to be small private funds and families, but increasingly the asset class catches the attention of institutions and foreign investors, as these groups are now more familiar with the sector and view it as an effective way to secure higher yield.”

Global investors enter the sector

In August, Singapore’s sovereign-wealth fund GIC purchased a 71 percent stake in YES communities, an owner of 178 MHCs which The Wall Street Journal reported to be worth more than $2 billion. According to GIC:, “the manufactured housing sector is a unique and highly-attractive niche in the U.S. residential market, which [we] have been exploring for some time.”

And earlier this summer, an affiliate of a real estate fund managed by Brookfield Asset Management Inc. purchased 135 MHCs from NorthStar Realty Finance Corp. for $2.04 billion.

There are two factors driving the uptick in MHC investment activity, says Kelleher: high demand by renters and low operating costs.

The demand for homes in manufactured housing communities is high because they often provide a more affordable housing option, compared to single-home ownership or renting, while having amenities that the communities did not previously offer.

For those who want to own a home, manufactured housing survey data shows that the national average sales price for a manufactured home was $69,800 as of March 2016. In comparison, the national average single family home sales price at the same time was $367,700. Meanwhile, renting takes a larger chunk of a tenant’s take-home pay every month. JLL data shows five consecutive quarters of national rent growth at or above 4 percent, without a like increase in wages during the same period.

Unlike other types of real estate, the operating costs for MHCs are low because investors only own the land and common use buildings. The actual homes typically are owned individually and any upkeep, updates or utility charges for the home are then paid by the homeowner.

“For MHC investors, there aren’t many tenant improvement costs associated with MHCs,” says Kelleher. “Investors only need to invest in upgrading or adding amenities, and in the common infrastructure.”

While the concept of manufactured housing is still working on reinventing itself as an affordable and desirable housing option, the interest of global investors hints at a more profitable future for all parties.

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