Alternative Mobile Home Park Financing

September 24, 2008

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.