New supply in the manufactured housing
industry is extremely low. In the last two decades, only 10 mobile home parks
have been built in the US; that’s roughly one new community every two years!
Ironically, demand for affordable housing is increasing daily. Not only are
low-income families exploring the options of all-ages, tight-knit communities
but with more than 10,000 Baby Boomers retiring every day to a slow, steady
income of $14,400 per year, retirees are absolutely driving demand for
communities with age restrictions.
Green Street Advisors analyst Ryan Burke
states: “Nowhere else in real estate do we see this complete lack of new supply
and the favorable demand dynamics. It’s a pretty good story.”
Manufactured housing Real Estate Investment Trusts
(REITs) had a total return of 28.5% in 2016 compared to the 18.2% total return
for apartment REITs and the 12.8% return for single-family homes. The
FTSE/NAREIT All REITs Index was ranked at 9.3%. “As (manufactured housing)
continues to outperform other sectors, particularly in the private market at
the property level, there’s no way the outperformance will go unnoticed,” Burke
says.
REITs in the mobile home park field generally
own higher-quality communities. Although REITs only own ~1% of the 50,000
manufactured housing communities nationwide, they amount up to 15% of the
institutional-quality stock. According to Drew Babin, an R.W. Baird analyst,
existing park-owners and manufactured housing REITs currently have a “chokehold
on the market”.
With little supply and a high drive to
expand, REITs tend to enlarge their portfolios through acquiring, not only just
manufactured home communities, but entire portfolios. The most recent example
was in 2016 when Sun Communities, Inc. purchased a portfolio of more than 100
communities for $1.7 billion from Carefree Communities, Inc. However, even
though a gold nugget like Carefree’s portfolio with several high-quality
communities existed, most expect to see those deals as smaller transactions.
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