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Alternative Mobile Home Park Financing
September 24, 2008
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In this environment of tight
lending practices and a limited variety of funding
sources for mobile home parks, we are beginning to see
some lenders fill in where traditional financing has
fallen off. These lenders are both banks seeing an
opportunity and investment funds recognizing the strong
cash flows in mobile home parks. With higher CAP rates
and an unending need for affordable housing, mobile home
parks are the property of choice for some of these
lenders.
One of the products we now
offer is for shorter term financing on parks where the
park-owned homes can be used in the valuation and
underwriting. The minimum loan amount for this program
is $1,500,000 and a maximum of $15,000,000. The maximum
loan-to-value is 70% and the typical terms are one to
three years. Interest-only is available for parks with
20% or less in park-owned homes and amortized over 20
years for parks with a higher density. This type of loan
would be used where a borrower would not need more than
a three year term and has an exit strategy that makes
sense for a shorter term. There are no pre-payment
penalties, so the ability to sell or refinance the park
in a fairly short period makes this attractive. The rate
would float for the term at 1 to 2% over WSJ Prime.
Another program where park-owned homes are taken into
consideration has even more flexibility. The minimum
loan amount would be $1,000,000 and there is no set
limit on the maximum. For purchase transactions, the
loan-to-value may go as high as 80% and 75% for
refinances. The combined loan-to-value may go as high as
90% where a seller is willing to hold some financing and
the numbers will support the additional debt. The loan
term will vary from 3, 5, 7, or 10 years and may be
amortized up to 30 years. The rates are very
competitive, sub 7% at this time, but the lender is
making up for the rate in fees. A minimum of 3-4% is
charged at closing, which in many cases works well for
the deal, but can be an additional cost to consider when
choosing the best financing option. Both stabilized
properties and those in need of additional funds to
complete additional improvements or expansion to a park
are considered. A lower occupancy level is acceptable on
a case-by-case scenario.
A third option is one where the
park-owned homes are not included in the park value, but
this lender will finance the homes in a separate loan.
The terms for the loan on the park would be a 5 year
balloon with the initial two years as interest only and
the remaining term amortized over 20 years with a
5,4,3,2,1 declining pre-payment penalty. The maximum
loan-to-value is 75% and interest rate around 7%. In
addition to financing the park, the park-owned homes may
be financed on a 10 year amortization, 5 year balloon,
at 75% of the cost of the units. This financing can also
be arranged for additional units to be brought into the
park. The interest rate would float at Prime + 2%.
For value added opportunities
with loan amounts in excess of $1,000,000, there are
options that traditional lenders are steering clear of
and alternative lenders are aggressively pursuing. With
sellers seeing the credit crunch continue, now may be a
great time to take a closer look at some of the parks
with strong potential. As would be expected, these
lenders are looking for borrowers with healthy balance
sheets and some experience in commercial properties.
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