The manufactured housing sector has experienced tremendous growth since the onset of the pandemic, building on an ever-growing need for affordable housing combined with a severe lack of new supply. Generally considered a niche asset type, the industry faces unique challenges, from an outdated public image to difficult building codes that make new communities challenging to build.
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Mike Callaghan, managing partner at Four Leaf Properties, talked to Multi-Housing News about steps that can be taken to grow the manufactured housing stock, a complex problem that requires several solutions. The company recently announced the launch of a new business unit aimed at supporting investors in developing new manufactured housing communities.
How has the industry changed since the onset of the pandemic?
Callaghan: We have become more digital than ever. Universally, we are utilizing tools like Docusign to enable remote lease and home transactions, and we are all using online resources to interact—in a meaningful way—with prospective residents.
While there are plenty of horror stories related to the pandemic, the silver lining is that it served as a catalyst to advance the industry’s ability to interact and transact from a distance. Long term, this will pay huge dividends.
How do you think the recent influx of capital will impact the sector in the coming quarters?
Callaghan: We are in unprecedented times as it relates to the receptivity and acceptability of manufactured housing as an “institutional” asset class. That brings with it a lot of very savvy people who understand the acute need for attainable housing and have the means to expand the market with alarming speed.
We are already seeing an unprecedented amount of development and expansion activity, with some areas of Texas and Florida seeing 8-10 projects getting underway within only a few miles of each other.
The new money in the business is patient, deep and a lot more directed than in the past. With few options to buy existing properties at reasonable cap rates, the lion’s share of new capital is going directly into new development. We are going to see unprecedented levels of new community development in 2022.
What are the biggest roadblocks in developing new communities?
Callaghan: By a long shot, building codes are our greatest challenge. Between all the various local and state commissions, boards, utility providers, environmental agencies, etc., building a new manufactured housing community now takes 2-3 years and can easily exceed $500,000 in engineering costs. While the value of new developments is unchallenged, the process to get there is not for the faint of heart.
What do you think local authorities can do to help the development of new manufactured housing communities?
Callaghan: Local banks are stepping up to the plate, particularly where population growth is exploding, and we are seeing 60-70 percent leverage on land/development packages at reasonable rates. We are still in dire need of larger agency and national lender support, as pricing for one project can easily exceed the lending limits of smaller lenders.
Freddie and Fannie played a huge role in the post-recession expansion of manufactured housing, and their participation proved invaluable for residents, property owners and taxpayers. We need their support again in this next phase of the market expansion.
The manufactured housing industry is still struggling with decades-old stigma. What do you think community operators and property management companies can do to improve the sector’s reputation?
Callaghan: Here’s the simple truth: If we want to get rid of the “trailer park” stigma we need to get rid of all the trailers! The greatest threat to this industry is the owner/operator who is still retaining residents in 14-foot wide boxes made of metal and leftover RV parts. Those are trailers and they reside in trailer parks.
The notion that upgrading communities require displacement is totally false and with valuations of communities at an all-time high are we really asking too much for operators to incrementally invest back in their assets? I know it is provocative to say this, but we need to start pressuring the old guard to step up or step aside.
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The other driver of a shift in perception will be new manufactured housing community developments. Done right, manufactured home communities provide quality housing and amenity packages that deliver an amazing lifestyle experience. Many developers and operators have that in their sights, but now they need to deliver. Quality community experiences will drive the industry forward.
How do you think the industry will evolve in the short and long term?
Callaghan: The housing industry is experiencing disruption as the pandemic catalyzed how we think about home. Customer expectations have evolved with a greater mix of generations in the home. Housing decisions are not as tightly linked to work proximity.
Concerns have increased over density in traditional apartment living and the need for more living space as remote work persists. And, there is a surge in first-time Millennial homebuyers entering the market as household formations accelerate. What hasn’t evolved is a solution to the housing shortage which is even more acute “post” pandemic.
Home prices have surged 20-30 percent in the last 12 months. That confluence of trends has put factory-built housing communities back on the radar. If the industry can meet demand by breaking through barriers to develop quality communities, adding housing stock en masse, the industry will be propelled forward for the longer term.
In the short term, we’re still fighting the good fight to develop. We need a “win” for the sake of the industry and the future of affordable housing.
