A Potential Catch to the Case for Manufactured Housing

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Blackstone Reportedly in Talks to Buy Manufactured Home Portfolio

Institutions are increasingly interested in prefabricated houses.

To name just one current example: The Blackstone Group is in exclusive talks to acquire around 40 parks from Summit Communities For roughly $ 550 million through its REIT, Blackstone Real Estate Income Trust, according to Bloomberg.

These investors are drawn to the sector's resilience and upside valuations. However, there are some possible clouds in this otherwise good business model, namely the disproportionate share of low-paying jobs lost in retail, hospitality and leisure. In a recent market comment, Tanya Zahalak, senior multi-family economist at Fannie Mae, pointed out that these job losses “could have a negative impact on Manufactured Housing Communities (MHC) and investor interest. So far, however, this does not seem to be the case. "

The volume of transactions in the industry appears to remain healthy. After growing 25% to an estimated $ 13.0 billion in 2019, MHC recorded $ 6.9 billion in transactions in the first half of this year, according to Real Capital Analytics. That was more than double the transaction volume of $ 2.7 billion in the industry in the first half of 2019.

Again, there is reason to pause: The transaction volume was determined by owners who refinanced their properties, not by sales to new owners. Retail sales fell nearly 60% in the second quarter of 2020. Equity Lifestyle (12 properties with 4,500 locations), Sun Communities (10 properties with approx. 3,700 locations) and Yes! Refinanced communities (22 properties with more than 5,400 locations) were among the large companies that refinanced their properties through Fannie Mae in the first half of the year.

Since only a few new builds go online and investor interest in MHC is strong, the average cap rate of 5.8% in the second quarter of 2020 rose by only 0.1% above the average of the fourth quarter of 2019, according to RCA Location increased 2.6% quarter over quarter to an estimated $ 60,000 per location in Q2 2020.

Although there are questions about hard job losses at MHC, the occupancy has held up so far. According to Datacomp / JLT, the occupancy rates for MHCs of all age groups remained constant in the second quarter. Occupancy increased in some states.

While the loss of jobs for MHCs could be a headwind, the sector should remain attractive to investors. "Given the lack of affordable housing across the country and the fact that few new MHCs are likely to be built in the near future, we expect investor interest in the asset class to remain stable in 2020," Zahalak wrote.

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