Private equity firms rapidly investing in mobile home parks
This April 5, 2019, photo shows the West Branch Village mobile home park in West Branch, Iowa. Mobile home owners who for years have enjoyed some immunity from rising housing costs are increasingly finding themselves subjected to massive rent increases, not just in Iowa, but across the country. (Joseph Cress/Iowa City Press-Citizen via AP)
IOWA CITY, Iowa (AP) Mobile home owners who for years have enjoyed some immunity from rising housing costs are increasingly finding themselves subjected to massive rent increases, not just here in Iowa, but across the country.
Havenpark Capital, a Utah-based real estate investment firm, raised eyebrows along with rents after it purchased parks in the Iowa City and Des Moines metro areas and immediately announced plans for rent spikes. In North Liberty, rents at Golfview Mobile Home Park will rise 58% and in Waukee, rents at Midwest Country Estates will rise 69%. Havenpark Capital recently purchased two more mobile communities: Iowa Citys Sunrise Village and West Branchs West Branch Village. And as it turns out these are just the tip of the iceberg, theIowa City Press-Citizenreported.
There is a growing trend among some of the largest private equity firms and institutional investors to acquire assets in the manufactured housing sector, according to a 2019 report put together by three housing advocates groups: Private Equity Stakeholder Project, Manufactured Housing Action and Americans for Financial Reform Education Fund.
The top 50 manufactured housing community owners together own 680,000 home sites a 26% increase between 2016 and 2018, according to data from the National Manufactured Home Ownerss Manufactured Housing Institute. The authors of the report note that the need to produce greater profits is leading to cost increases for park residents nationwide.
Manufactured home communities are interesting communities, said Kevin Borden, co-director of Manufactured Housing Action, a Washington D.C.-based nonprofit that organizes residents of mobile home parks to pursue housing affordability and resident protections. They are relatively affordable for low income workers immigrant workers and seniors on fixed incomes. They provide folks with a sense of a home community.
In 2018, there were approximately 8.5 million manufactured homes in the United States, accounting for nearly 10% of the nations housing stock, according to the Manufactured Housing Institute. This has been a source of affordable housing, in particular for rural and low-income residents.
These are affordable homes for low income folks, said Liz Voigt of Manufactured Housing Action and a co-author of the 2019 report. Thats what the market has been for a long time. It hasnt really occurred to people that they could gouge them for 80% of their Social Security check. Thats the analysis that these companies have seen: they could make a very big increase in profits based on rent increases in nearly any conditions.
In a statement to the Press-Citizen in reference to their rent increase in North Liberty, Havenpark Capital said the previous owners rent prices had not kept pace with the market. They wrote that if it were not for Havenpark stepping in, the property might have been taken over by commercial retail developers. But even if the land remained a park, seniors on fixed incomes, low-wage earners on limited incomes may not have much of an option in the end.
Part of the issue is residents commonly own their mobile home but not the land underneath it. If lot rents become unaffordable, residents may have no other option but to try and sell their home to the park or abandon it all together. Moving homes to another park can cost thousands of dollars and moving often means sustaining damage to the home, further depreciating its value.
The 2019 report quotes material from Mobile Home University, a project of RV Horizons aimed at educating aspiring mobile home park investors on the revenue model: The fact that tenants cant afford the $5,000 it takes to move a mobile home makes it easy to raise rent without losing any occupancy.
Compared to larger private equity firms like YES! Communities, which own 54,000 home sites, Havenpark Capital is relatively small. But Voigt and Borden said the private real estate firm benefits from the same investment strategy.
To create protections for these communities, there are three buckets of policy solutions Voigt pointed to that she said localities and states should pursue to add protections for manufactured home owners in their communities.
There is a regulatory environment in which (these firms) operate that has created an enormously profitable business on the backs of poor people, Voigt said.
The first strategy would be to find some consistent means of regulating rent. Voigt emphasized that these regulations look different in different places.
One example is in Humboldt County, California where voters passed an ordinance to regulate rent increases for spaces in mobile home parks with ten or more spaces in the unincorporated area of Humboldt County. Rents can only legally be increased to keep up with the consumer price index; to afford capital improvements with approval of a majority of tenants; or in the case of a new resident, at a maximum of 5%.
In Delaware, property owners can raise rent above the consumer price index provided they have not received any violations that threaten the health or safety or residents that persists for more than 15 days and the increase is directly related to operating, maintaining or improving the manufactured home community.
There are different ways to get there, Voigt said. But the idea is (property owners) shouldnt just have total control over setting these arbitrary rent increases.
The second strategy is for residents to have a say in how the park they live in is improved, and an avenue for making complaints if it is not being taken care of properly.
(Large firms) dont seem to have a long term investment in the communitys ongoing infrastructure and communities sustained health, Voigt said. There are laws in most places about basic code standards, but making those clear responsibilities for the community owner would incentivize investment.
In addition, Voigt said it is important for residents to have a clear path to report problems with health and safety risks, management, lease provisions, invoices and other problems. When the owner is out of state, this might mean site managers and mandated grievance procedures.
The third strategy is more complicated. Even if there are limits on the amount rent can be increased and residents have the ability to reliably file grievances, an investment firm is in business to generate revenue. While this doesnt necessarily put them at odds with residents, a 58% tax increase does.
There needs to be a clear path toward alternative forms of ownership, Voigt said.
They ask states to enact laws that give mobile park tenants and associations a chance to buy their park if property owners are approached with an offer. Voigt said that if our goal is to keep these parks affordable in the long term, drastic changes in ownership might be one of the few ways to keep the needs of tenants at the heart of decision making.
As this trend picks up and bigger and bigger private equity groups with huge access to capital buy more and more of these communities, it is going to put increasing pressures on mom and pop parks to sell out, Voigt said.