US mobile homes’ affordability slips as corporates move in

When Russ Watson decided to move to a mobile home community in Florida in 2011, it was to be near his father and in a space that was affordable. “He said it was a great place to live and you can live here cheap,” Watson said of the community, called Park Place. But over the next few years, ownership of Park Place - which has about 475 homes - changed hands, Watson said: first to an investment group and next to one of the country’s largest owners of mobile home parks, Sun Communities.

Mobile homes - what the industry calls manufactured housing - provide the largest unsubsidised form of affordable housing in the United States, said Esther Sullivan, a University of Colorado sociologist. In 2018 they housed about 22 million people, according to the Manufactured Housing Institute (MHI), a trade group. The rise in corporate interest, Sullivan said, has been years in the making. “The only other commercial real estate that is as lucrative as mobile home parks is self-storage,” she said.

‘Hottest arena’

Park Place is located in Sebastian, on Florida’s Atlantic coast, about 230 km north of Miami. It was one of nearly 60 such developments that Sun Communities bought in 2014 and 2015. After that, Watson told the Thomson Reuters Foundation, things changed. The company made improvements, but it also negotiated new five-year leases with residents that included a 4 percent annual rent hike, he said. And, he added, managers became less responsive. Watson eventually moved out - as did others, he said. He found an opening at a family-owned park a half-hour away, where rents were two-thirds of what he had been paying. Neither MHI nor Sun Communities responded to requests for comment.

Watson’s experience echoes a pattern seen across Florida and the country: Because of their unique legal and financial structure - in which residents own or rent their home but not the land it sits on - mobile home parks have drawn major interest in recent years from corporate investors. That includes a rapid recent rise in attention from global private equity firms, which are now “piling into the sector”, according to a report released last week by the Private Equity Stakeholder Project, a watchdog group, and others.

One program aimed at potential investors, Mobile Home University, lists “buying mobile home parks” as the way investors can “harness the affordable housing trend”, which it calls the “hottest arena in commercial real estate right now”. In its video, it notes that demand for mobile home parks far outstrips supply, and that moving a mobile home is expensive - “So nobody ever leaves. Occupancy is always high!”

For potential investors, the video cites “very high” returns of 15 percent to 40 percent. The draw, said Sullivan, is that “you don’t have a tenant - your tenant is a homeowner,” she said. “The property owner simply needs to own the land and make investments in maintenance, and everything else is passed on to the homeowner.” But for a resident, having what is often an expensive home sitting on land owned by someone else makes for a tenuous situation, Sullivan said - and creates a lucrative opportunity for what she calls “captive income” for investors. “That divided land tenure is why this is interesting. At the root of these residents’ housing insecurity is the divided legal right,” she said.

Safety net

The rise of corporate interest is a big change for a sector that was for decades dominated by family-run establishments that, Watson emphasized, provided a key safety net. That safety net factor has become more important in the past decade, as cities and rural areas continue to deal with a major shortage of affordable housing, according to the National Low Income Housing Coalition - with Florida among the states with the lowest available proportion.

But many corporate owners, keen to make a profit, now aim at a more middle-class clientele looking for vacation or retirement homes, said Watson, who advocates on behalf of the Federation of Manufactured Home Owners of Florida, a consumer advocacy group. “(Investors) take what was a relatively affordable community, throw a few million dollars into restoration and bump the rents up to resort-like levels - forcing out those who can no longer afford to live there,” he said.

In Florida, Watson estimated, three-quarters of mobile home parks are now owned by investors or investment companies. Dave Anderson, executive director of the National Manufactured Home Owners Association (NMHOA), pointed to MHI’s annual data noting a “huge jump” of about 26 percent in the number of sites now controlled by the 50 largest operators in the three years to 2018. Sun Communities’ website, for instance, shows the number of sites it owns climbed from 6,000 in 1993 “to over 117,000 sites today”.

Anderson, like others interviewed for this story, noted that there are upsides to corporate ownership of mobile home communities. For one, he said, many appeared keen to keep communities running, thus offering some stability for residents. But he also expressed concern that a significant portion of these communities were being “clearly viewed as properties to wring as much value out of as possible, and then dispose of for redevelopment”. — Reuters