Marcus & Millichap

Manufactured Housing Research Report

National Report, Second Half 2016

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Demand for Manufactured Housing Listings Soars; Buyers Get Creative

Broad-based employment strength elevating demand for housing. As apartment rents and single-family home prices increase, some residents seek out the affordability of manufactured housing communities, compressing vacancies in most parts of the country. Demand in the Midwest pushed local rates lower. In Texas markets, shifts in the energy sector haven’t largely impacted occupancy in manufactured housing communities, perhaps even improving the rate as more people seek out affordable living options. Strong apartment markets in California and Florida have similarly robust demand for manufactured home communities. In addition, warmer climates continue seeing older households seeking 55-plus resort-style locations for the winter months. While some of these markets have large numbers of seasonal residents, communities in these locations also serve a large pool of permanent residents, too. Nationwide, many retirees choose to reside in the smaller and older mobile-home parks as the tight-knit communities offer socialization and security. This trend has helped tighten vacancies in second- and third-tier communities, with both double- and single-wide tie-ins, contributing to rising rents in manufactured home communities in a majority of markets.

Buyer motivation and creativity support trades in all tiers. Strong revenue growth generated by manufactured housing communities is intensifying buyer demand, especially in the central and western U.S. An overall moderation in quality listings is requiring investors to become creative in purchasing assets in desirable locations and layouts. This includes obtaining older or smaller stock in urban locations, assumption of seller debt and ground leases. Some investors are looking at reconfiguring older parks near coastlines and increasing value by adding amenities. Other buyers are filling newly empty spaces by replacing them with rental homes, which they will quickly sell on note to new residents. As many investors continue to seek traditional five-star communities, other tiers with upside potential are actively being sought compared with previous years. Investors are increasingly showing interest in the Midwest and South where entry costs are often lower. Trades in Texas are growing as the state’s manufactured housing communities maintain relatively low vacancy and further positive net absorption is anticipated as employment fluctuations in the energy market stabilize. Moving farther west, coastal properties are receiving multiple offers, compressing cap rates. Here, competitive bidding has raised prices for two- and three-star assets, particularly in urban locations. The handful of smaller trades that occurred off market are often brought back within the year, after being exposed to multiple buyers and exchanged again with cap rates 100 to 200 basis points lower. This is supported in part by financing that is readily available for lot rental parks, with buyers footing cash up front to cover the park-owned home portion of communities.

2016 Manufactured Housing Outlook by Region

East: Vacancy was the tightest in the East among all regions, moving rents forward. Mid-Atlantic vacancy plummeted for a second year while Northeastern vacancies tapered at a moderate rate. Rents were relatively stable in the recent yearlong term.

Midwest: Above-average rent growth in the Midwest region was led by gains in the East North Central subregion, which also had the highest vacancy rate among subregions due to a large amount of inventory. Robust yields brought a large number of new buyers.

South: The highest rent growth was posted in the South, where senior resort communities dot the coast in Florida. Vacancies are moderate in the area, generating investor demand. Investment opportunities are available in first- and second-tier assets.

West: Intense rent growth is occurring in response to some of the lowest vacancy rates in the nation. The area also has above-average rents as demand outpaces supply. Investors are keen to obtain local properties, maintaining tight cap rates.

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