Commercial real estate industry insights.

Manufactured Home Communities Emerge as a Hot Investment Class

by Eric Hanson, MAI | Oct 16, 2020

In recent years, manufactured home communities (MHCs) — also known as mobile home parks — have emerged as an attractive investment class, and 2020’s COVID-induced recession has only served to strengthen their allure. That’s due to high rates of return and consistent reliability from a product that is not only recession-proof but tends to perform even better when the economy softens.

The dearth of affordable single-family homes and multifamily units in many markets steers demand to the MHC sector. Demand for affordable housing, coupled with the perennially low supply of MHCs due to zoning restrictions, creates a supply-and-demand dynamic in favor of MHC owners. MHCs, compared to apartment buildings, tend to have dramatically lower tenant turnover; lower operating and capital expenses; and less volatile rents.

MHCs provide owners with high cash flow and, at the end of the investment cycle, large equity payouts.

MHCs are also tax-efficient. Much of the purchase price can be allocated to capital improvements, which depreciate over an accelerated 15-year time frame versus the standard 27.5 years for residential real estate or 39 years for commercial real estate.

In bad times as well as good, the MHC sector also benefits from relatively large lending volumes. Most MHCs comprise affordable housing stock, so they’re an essential industry that lenders tend not to retreat from.

It should be noted that there are two basic types of MHCs — the affordable housing model as well as four- or five-star MHCs that consumers opt for as a lifestyle choice rather than financial reasons. These parks are often gated with paved streets and amenities. REITs and other major corporations are focused on the top end of the market, while the remainder is attracting an ever-widening range of new and experienced private investors.

Current economic and demographic trends enhance the investment allure of both types of MHC. Over the next decade, more than 20 million single-family homes will come on the market as Baby Boomers downsize and settle their estates. The MHC industry provides a great source of replacement housing. Along with Boomer interest comes an elevation in the quality expectations for manufactured and mobile homes and their communities, which will, in time, help improve the image of MHCs.

Generally, competition to buy MHCs is robust due to the limited supply of listings. However, an aging population also means that many original developers of MHCs are looking to retire and sell their properties, increasing buying opportunities in coming years.

Due to current market demand for these properties and the highly attractive growth potential for this asset class in the years ahead, BBG this month announced that it now offers valuation and assessment services for MHCs as well as recreational vehicle parks and campgrounds, all fast-growing sectors in the commercial real estate industry. These service lines are led by Erik J. Hanson, MAI, who, prior to joining BBG, specialized in appraisal and consulting for hundreds of MHCs, RV parks and campgrounds throughout the Midwest and Great Plains. As Managing Director and National Practice Leader-MHC, Hanson’s new role will be national in scope.