It’s been quite the year for manufactured housing.
The post pandemic performance of parks has strengthened the thesis that high quality MHPs carry bond risk with equity returns.
As we close out 2022, here are a few 2023 predictions that may or may not pan out, but might be useful to your strategic planning.
1. Slowing But Still Healthy Rent Growth
If you modeled 3-5 years of double digit rent growth in an average market you might need to reevaluate those assumptions.
However, the good news is the largest operators are already out with 6.0%.- 6.5% rent increase notices for 2023.
Unlike some markets that are seeing apartment rents plateau & even decline, we are still forecasting growth in 2023.
However, it’s probably not the time to get too aggressive if you’re already near market (or creeping up on 3 bedroom apartment rents of similar quality).
Assuming you’re not looking to flip a park, we believe the key to maximizing portfolio value is not to maximize rent in any given year, it’s to optimize for sustainable, steady growth.
2. Mobile Home Shipments + MH Values Cool
MH shipments were higher in 2022 despite big price jumps the last couple of years.
At ~115,000 / year, MHP shipments are roughly double the amount when we first started investing in the space.
This is great, but we suspect lower shipments in 2023 as interest rates are impacting affordability.
If we were the casino (Man o man, do I wish we owned a casino), we’d handicap the over vs. under betting line at 95,000 homes shipped next year, which is roughly on the trend line of shipments in 2019.
3. Quality Pricing Gap Widens
While park transactions are a bit muted (thus less clarity on real time pricing), value-add deals (lower quality, higher vacancy, softer markets) are starting to see discounts vs. peak pricing earlier this year.
However, based on recent comments of both brokers and the public MH REITs, pricing for 4-5 star parks in great markets seems to be holding for now.
Stabilized parks whose appearance wouldn’t make a private equity buyer blush, are still seeing extreme demand from institutional investors (regardless of the recent spike in interest rates).
4. Greater Federal Agency Involvement
UMH recently announced it had secured financing with Fannie Mae for a large infill park with two capital buckets: a “Park” bucket & “Homes” bucket.
Both loan buckets have a loan term of 10 years with the Park bucket amortizing over 30 years and the Home Bucket amortizing over 17 years. Interest is at a fixed rate of 5.24%. Not too shabby all things considered.
The agencies have already stated that manufactured housing will play a large role in addressing the country’s severe lack of affordable housing (it’s about time). However as of today, most of these funds still focus on mobile homes that come with land (land homes) vs. homes residing in parks.
Given Washington’s emphasis on affordable housing solutions and the likely success of this “pilot program” with UMH, we suspect the agency to start rolling out more mobile home debt programs for park owners and tenants in 2023.
5. Continued Consolidation
Same as it ever was. Industry consolidation will keep plodding forward in 2023. Inch by inch, manufactured housing is become an institutional asset class.
Plus, I think sellers of quality parks will still be pleasantly surprised with the pricing they can secure in a fully marketed process today, which should lead to continued transactions.
And once the private equity acquisition guys return to the office (from the ski slopes) in January, they will start putting more money to work once they realize interest rates are stabilizing and quality park prices are not tanking.
Happy Trails,
MHP WEEKLY