This issue of the MobileHomeParkStore.com Newsletter
includes:
-
Important updates, news, and new features
of MobileHomeParkStore.com
-
New Service: Due Diligence For Mobile
Home Park Investors
-
Get the Dirt on Investing in Mobile
Home Parks, by Anita Bruckner, Commercial Real Estate Consultant, CHARTER
Real Estate Brokerage
-
Overcoming Financing Obstacles: by
Tony Petosa and Nick Bertino of Wells Fargo Commercial
Mortgage
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Tell us what you think!
In the past 30 days, there
have been over 80 new mobile home parks listed for sale on
MobileHomeParkStore.com and at least 14 confirmed sales. Here
is our most recent comment:
Mr.
Reynolds:
I would like to remove the ad we have posted at this time. I am
getting so many inquires I can't handle any more. If we do not get a
sale from the people who have contacted me at this time I will post
another ad.
Thank
you,
Gloria N
(December 11, 2006 - 5 days after park for sale ad
posted!)
Our new order of 2006
Mouse Pad calendars are in. If you would like your own
FREE MobileHomeParkStore.com
mousepad, send an email to
dave@mhps.com
with the address to mail it to and we will get it sent to you!
MHBay.com is off to a fast
start. In the first month we have added over 200 homes for
sale and are looking to triple that this month. It is FREE to
list your homes and lots for sale or rent. So if you are
looking to connect to potential residents and sell or rent more
homes, then place your FREE listings on
MHBay.com.
If you provide services to
the manufactured home industry then this is another great place to
connect with those seeking your services as well!
Due Diligence
on Mobile Home Parks
Gorial Realty LLC will respond with terms,
conditions and a flat fee for a professional bullet proof due
diligence service. In the case of due diligence, no
one performs a more thorough study. We approach the project as
if it was our own. We currently manage several communities of
all sorts, shapes and sizes. We understand them all. We will
uncover everything, the good, bad and everything in between. For
each problem we will propose a remedy and solution to the
problem if there is one.
We will perform a preliminary
due diligence within the first week to ten days. In the event
the property does not pass the initial test we will make a
recommendation to turn your back and run and never look back. In
this case you will have the opportunity to identify up to three
more properties at no additional cost. At this point you will
have up to a total of three preliminary due diligence studies
and one full due diligence study.
You may identify multiple
deals simultaneously, both in the case of time constraints
related to 1031 exchange guidelines and or purchasing a multiple
income producing property package. Due diligence can be
performed rapidly as we know which questions to ask and when to
ask them. We can perform the due diligence at the speed which
information is delivered to us. We are proud to say we have an
overwhelming wealth of experience with respect to Mobile Home
Communities. We will use our experience from real deals that
have closed and that have not closed.
Our efforts in due diligence
will qualify or disqualify your transaction. We will save
you a ton of time and stress. Your due diligence will include
Financial, Physical, Demographical, Ease of Operation,
Economical, Future Value, Market Saturation and Vacancy Rate
Sustainability Studies and much more.
We are happy to negotiate on
your behalf as the result of what is discovered from our due
diligence may require some price negotiation. You may elect to
negotiate on your own or with the assistance of legal council.
In any event you will be satisfied, that's our promise to you.
For More Information on this Service
Get the
Dirt on Investing in Mobile Home Parks…
By Anita Bruckner
It may be a great time to invest in Mobile Home Parks. Why? As
interest rates continue to rise, many experts expect the need for affordable
housing to increase. Have you considered adding one to your investment
portfolio? Many investors, when considering an investment in multi-family,
will typically think only of apartments. Mobile Home Parks have come along
way from the stereotypical “trailer parks”. In fact, the standards of factory
built housing units have evolved from a “mobile home,” which is a unit built
prior to June 15, 1976 before the Housing and Urban Development (HUD) code came
into effect, to the “manufactured home” of today.
From an
investment point of view, owning a Mobile Home Park or Manufactured Home
Community may be more appealing than owning an Apartment Project for a number of
reasons:
·
Manage the Land. This is one of the most
appealing aspects to investors. Basically, Mobile Home Parks and
Manufactured Home Communities provide land leasing in the housing market
providing for ease of ownership for the resident. As a result, for the landlord
there are no walls to paint, stoves and bathrooms to clean and so on.
o
It should be noted that a number of parks do include
park owned “rental units.” This works for some; however, most would agree
that the ultimate goal is to manage the “dirt.” In fact, a high number of
rental units may increase the transient nature of a park which is an ongoing
concern with apartment ownership.
·
Pride of Ownership. Definitely, a major plus
for an investor versus owning an apartment project. Residents that own
their own home will tend to take better care of their personal investment and
its surroundings. In fact, many residents take pride in “their community”
and may assist in “overseeing” the park as they also have a vested interest in
maintaining “your investment.” Comparatively, some apartment owners
continue to struggle with the issues associated with tenants who could care less
about a unit that they do not own.
·
Management. If the investor does not want to
self-manage, for the smaller parks they can often engage an on-site park manager
compensated by free lot rent and/or a salary for handling the day-to-day duties.
For larger parks, multi-family fee management firms are the recommended choice
as they have the systems, resources, expertise and back-up to provide the owners
piece of mind that their investment is being properly protected. The
former will tend to involve more owner oversight than the latter.
·
Zoning. Quite frankly, there are some
local municipalities that just do not like Mobile Home Parks or Manufactured
Home Communities. They may not promote the establishment of new parks or
expanding existing ones by enforcing strict zoning ordinances. From an
investor’s point of view, there may be an advantage to local governments having
tough zoning ordinances. Basically, in many municipalities where there is
opposition to new parks, the competition is typically limited to the parks that
are already established versus new parks coming on line in the future.
·
Stability. Due to the cost of
transporting and setting up a home, the residents remain in the community for a
longer period of time versus an apartment’s average tenancy. If the
resident desires to relocate, typically, the home will be sold to another
individual providing an uninterrupted income stream to the park owner.
·
Affordability. From the tenant’s
perspective, due to the rising cost of living, this housing type provides an
opportunity for home ownership. This type of affordable housing is
attractive to those on a limited budget ranging from the first time home buyers
to the senior citizens investing in a “summer home.”
o
This can be achieved by conventional financing or the
park owner could provide financing utilizing a “rent to own” program. By
acting as the “Bank”, the park owners use this program to provide a reasonable
payment plan to a prospective resident in which to purchase their home.
This is a win-win scenario for the owner as this increases occupancy while
providing a reasonable return on the initial investment of the home.
·
Return On Investment. From the perspective of
the investor/owner, the entry cost to invest will appear palatable as per lot
prices are dramatically lower than per unit apartment costs, yet the returns are
generally higher.
Mobile Home Parks and Manufactured Home Communities may be an
investment to be considered for your portfolio. Now that you have the
“dirt” on these investments, there are qualified professional brokers available
to help you “dig” for the right park for your investment needs.
Anita Bruckner
Commercial Real Estate Consultant
CHARTER Real Estate Brokerage
130 Linden Oaks
Rochester, NY 14625
Ph: (585) 419-7000
Fax: (585) 381-1895
Email: AB@CharterBrokerage.com
Overcoming Financing Obstacles
By Tony Petosa and Nick Bertino
Just as you prepare to take advantage of the low
interest rate environment and decide to refinance your
existing property or pursue an acquisition with debt,
you find that obtaining the level of financing necessary
isn’t as neat and simple as initially imagined. As
you start to dig deeper into the transaction, you find
that there are potential obstacles to your financing
objectives. You may find that there is a lack of
cash flow sufficient to support the necessary debt, that
the existing loan has a prepayment penalty attached to
it, or that the property you wish to purchase sits on
leased land.
Though each of these obstacles can be
daunting, options are available to a borrower that may
help you reach your financing objective. The best
way to address these obstacles is to understand what
they are, how they affect the financing process and then
explore the various ways to deal with them.
Insufficient Cash Flow
During a financing transaction, you
discover that the net operating income of the property
is not sufficient to service the desired debt. You
wish to proceed with the financing, however, and do not
want to (or may not be able to) wait until the property
reaches a stabilized or optimum income level before
financing. The reasons for this may vary:
maturation of an existing loan; locking in an attractive
interest rate; expansion or renovation to compete with
other properties; repositioning of the property for sale
or increased lease rates/rent; or other capital
requirements.
Knowing this, the capital markets
have developed several bridge-financing programs for
properties that have upside potential in the near
future. These are often referred to as structured
loans and are usually loan amounts of $3 million and
above. The three structures discussed below are
just some of the methods the capital markets are
utilizing to help “bridge the gap” from current
financing needs until the property reaches a stabilized
level whereby permanent long-term financing can be
placed on it.
Interest-only Financing
during the initial years of the term allows an owner
to have a more reasonable monthly payment that can
provide the property with a sufficient debt service
coverage ratio while it re-stabilizes.
A Debt Service Reserve is a
fund in which moneys are set aside by a borrower to make
entire or partial loan payments in the event that cash
generated by operations is insufficient to satisfy the
debt service payments. The debt service reserve
fund is usually funded at the close of the loan or it
can be structured as an accrual that increases the loan
balance. Debt service reserves are common with
construction loans but may also be used with renovation
or expansion properties that have not stabilized.
A Holdback
is an effective way to lock in an attractive
interest rate and a full loan amount. The lender
commits to the full loan amount but only funds that
portion of the loan that is supported by the current net
operating income of the property. As the
performance of the property improves and begins to reach
or surpass certain performance tests, such as debt
service coverage ratios or loan-to-value thresholds, the
lender begins to fund the remaining debt until the full
loan amount has been issued.
With interest rates remaining
relatively low and an abundance of available capital,
you have many different options to pursue in order to
secure an attractive loan. However, in order to
get the lender comfortable with doing the loan and
finally securing it, the borrower must be able document
and support the loan request with operating statements,
projections, improvement plans, market and economy
information, sponsorship information and a well-defined
exit strategy.
Prepayment Premiums
In this low interest rate
environment, you are faced with a dilemma: should
you refinance now and pay the prepayment penalty on an
existing loan, or should you wait until the end of the
prepayment penalty period and hope that interest rates
are still attractive when you refinance at that point in
time? To better answer this question, you need to
understand a common prepayment penalty: yield
maintenance as well as what type of loan normally has
yield maintenance, how to overcome it, and how it can
benefit a borrower to pay the prepayment premium.
What is Yield Maintenance? Yield
Maintenance is a prepayment penalty that allows a lender
to attain the same yield on a loan as if the borrower
had made all scheduled mortgage payments until maturity
in the event the borrower pays off the loan before
maturity. Yield maintenance premiums are designed
to make lenders whole in the event of an early
prepayment by a borrower.
What type of loan requires Yield
Maintenance? Generally speaking, fixed rate
loans are the loans that require yield maintenance or
its proxy, defeasance. These types of loans are
often pooled with other loans and then “securitized”,
meaning that there has been an issuance of a new
publicly traded financial instrument, such as bonds,
which are secured by the pooled assets. This
process allows these loans to often provide more
aggressive terms than traditional portfolio loans.
These loans are popular due to favorable fixed interest
rates, longer amortization, higher leverage/less
required equity, and limited personal liability.
In exchange for these favorable traits, these loans
require that they attain the yield that was originally
agreed upon at the inception of the loan.
How to overcome yield maintenance?
There are a couple of methods that can help you
overcome the prepayment penalty. The penalty could
be added to a new loan and spread out over the term of
the new loan, or a new loan could be structured where
the interest rate is locked in advance to match the
maturity of the prepayment period.
What are the benefits of financing
before the Yield Maintenance period expires?
Not every financing transaction that has a prepayment
penalty should be automatically viewed as a non-starter.
It generally makes sense to prepay a loan if the
borrower is extending the loan term and/or refinancing
at higher loan proceeds. You may find it to be in
your best interest, literally, to refinance in the
current low interest rate environment and pay the
prepayment penalty. Refinancing while interest
rates are low may result in a short recapture period of
the prepayment penalty. You may be able to
generate equity retrieval, while reducing annual debt
service, thereby providing cash out and additional cash
flow. With some analysis and a little due
diligence, you may find that it is worthwhile to go
forward with the financing process and secure a new,
long-term, low interest rate loan.
Ground Leases
Once you have identified a property
and decide to purchase it, you may find that the
property sits on a ground lease. In a conventional
commercial real estate loan transaction, a borrower is
the fee simple owner of a piece of property and a lender
agrees to lend money to the borrower. A ground
lease, in addition to the various obstacles previously
mentioned, can complicate a mortgage loan.
What is a Ground Lease?
Typically, a ground lease is a lease whereby the owner
of the land (ground lessor) leases or gives the right of
use of land to a tenant (ground lessee) for a long
period of time (usually more than 30 years) to develop
the land in an agreed upon fashion so that both the
ground lessor and ground lessee share in the resulting
cash flows.
Why is it so important to
understand leasehold issues? To begin with, it
may affect your decision to buy. For example, you
should know the length of the remaining lease term, what
happens to the improvements at the end of the lease
term, and how increases in the ground lease payments are
determined. These are the main issues an investor
should understand before deciding to buy.
A leasehold may also affect your
ability to obtain financing on the property. Lease
provisions regarding such matters as future rent
increases and the expiration date of the lease may
impact the willingness of a lender to finance the
proposed acquisition, or, at the very least, affect the
loan terms. Generally, lenders prefer leases that
provide certainty as to what the future lease payments
will be. For example, a stated percentage increase
is preferred to an increase based on future reappraisal.
Loan terms such as the amortization
period are also a function of the length of the ground
lease, as the loan needs to fully amortize prior to
lease termination. Lease provisions such as lender
notification on default are also important to loan
underwriters. Lease terms may also affect the investor’s
ability to resell the property in the future as sale
capitalization rates can rise substantially as leasehold
properties near lease termination.
How to overcome
leasehold issues?
There are a few
methods to address leasehold issues. You could
investigate the option of obtaining a shorter-term,
fully amortizing loan to pay the loan off prior to the
lease expiration date. Or, the investor may
approach the
ground lessee/seller about financing the purchase with a
seller carryback in which the seller, in essence, acts
as the lender. The investor can also inquire
whether the ground lessor is willing to extend the lease
term. Finally, the investor can inquire whether it
is possible to purchase the fee interest and “merge” the
leasehold interest in a single transaction.
The situations described previously
are just a few of a myriad of potential obstacles that
may hinder your financing objectives. Before
deciding not to pursue the process, we recommend that
you consult with a mortgage professional to see what
options are available to you. With some analysis,
you may find financing alternatives that, though they
may be different from your initial goal, may end up
fulfilling your ultimate financing objective.
Tony Petosa is Regional
Director and Nick Bertino is Associate Director for
Wells Fargo Commercial Mortgage. They specialize
in arranging financing on manufactured home communities
and RV resorts, offering both direct and correspondent
lending programs. Petosa and Bertino can be
reached at 760/438-2153; 760/438-8710 fax; and via
email:
anthony.j.petosa@wellsfargo.com,
bertinn@wellsfargo.com.
Tell us what you think!
We'd love to hear what you think of this issue!
Please send your comments, questions, articles, and
ideas for upcoming issues to us at:
davemhp@gmail.com
Your feedback matters to us!
Wishing everyone a Merry Christmas and Happy
and Prosperous New Year!
Dave Reynolds
MobileHomeParkStore.com
18923 Highway 65
Cedaredge, CO 81413
PH: 800-950-1364
FX: 970-856-4883
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