Manufactured Housing Comes Out of the Shadows
Written by John Salustri
An increasing number of major institutions are recognizing the upside of manufactured housing—challenges and all.
CLEVELAND—If you define a sexy real estate deal as a shimmering glass tower in a gateway city, read elsewhere. If, however, you see a sexy deal as one that virtually guarantees yield driven by rock-solid fundamentals, then manufactured housing is as sexy as it gets.
So says Michael L. Glass, national director of Marcus & Millichap’s manufactured home communities group. “The amount of demand still entering the space is at an all-time high and pricing has followed,” he tells GlobeSt.com. “In what many see as the lowest form of affordable housing, vacancies are incredibly low, and what was once a hidden secret has now been identified by major REITs and institutions and so major capital is chasing yield.”
Indeed. The Carlyle Group has been a player for years, and this year, Blackstone threw its hat into the ring with its $172-million purchase of 14 communities from Tricon. Sexy is as sexy does.
It’s the coastal regions—connecting the dots to form what Glass describes the smile of the United States—that are “on fire, from Seattle and San Francisco to San Diego, Texas, Florida and up into the East Coast. Vacancies are tight, so rents continue to push up where rent control is not in place.”
Specifically, the tightest vacancies are found in the West, hovering around 5.1 percent, according to the firm’s second-half manufactured housing research. What’s more, “in cities where housing prices are beyond the means of many potential homeowners, such as Long Island or Seattle, vacancy has stayed persistently beneath three percent,” the report reveals. Not surprisingly, the hottest markets are also experiencing some of the nation’s largest population spikes.
The West also has boasting rights in terms of rents with an average of $557 per month; meanwhile the South has registered the biggest year-over-year advance of 3.9 percent. For investors, cap rates have been compressing steadily, hovering on a national basis at or below a four and putting upward pressure on pricing.
But newcomers to the market (and Glass reports that he gets as many as six calls a week from interested parties, primarily from multifamily investors seeking to diversity) must look out for some pitfalls not associated with other housing types. “Let’s say you just bought a community in the Midwest and want to bring in another unit,” he says. “On the low end, you’re looking at $30,000. On the high end, it may be $60,000. Then there are transportation fees and hook-up costs. Remember, each market has its own codes and regulations for how the home needs to be hooked up to utilities.” Relatively speaking, he says, it’s a capital-intensive venture.
But that apparently won’t stem the growing tide of interest, and Glass expresses his bullishness for the coming year. “Even with interest rates moving in the direction we know they are, it hasn’t affected pricing,” he says. “We continue to see more buyers coming in, and our pipeline has never been stronger.”