the future of manufactured housing · 2013-01-09 · dream” of home ownership, there was a mass...

Vol. 23, No. 1January-February 2013

Manufactured HousingThe Future of

Looking at the

next 10 years of

Manufactured

Housing

Communities

Through the Eyes

of Industry Leaders

?Thinking About Selling YourManufactured Housing

CommunityWE CREATE FLEXIBLE TRANSACTIONS

TAILORED TO MEET SELLER OBJECTIVES

GreenCourtePartners®

Recapitalizations • Tax Deferrals • Earn OutsEstate Planning • Succession Planning

Bill Glascott, Managing [email protected](847)582-9420www.GreenCourtePartners.com/MHCA

Be sure to visit michaelparhamlaw.com, the website established by Attorney Michael Parham. Read the updates on the Web Log regarding legal and legislative issues which may affect your business! Read through his articles on fair housing and the mobile home parks residential landlord tenant act. A great source of information!

www.michaelparhamlaw.com

A Great Source of Information!

MHCA . . . Keeping Arizona Community Owners Informed

Manufactured Housing Communities of Arizona, Inc.2012-2013 Board of Governors

PresidentNeal T. Haney . . . . . . . . . . . . . . . . . . 480-649-3531

Senior Vice PresidentMerlyn W. Ruddell . . . . . . . . . . . . . . . 808-828-9891

Vice PresidentGreg Johnloz . . . . . . . . . . . . . . . . . . . 480-951-1686

SecretaryKirk Saunders . . . . . . . . . . . . . . . . . . 520-623-7687

TreasurerKeith Vanderhout . . . . . . . . . . . . . . . . 480-767-3541

Members-At-LargeCindy Ashton . . . . . . . . . . . . . . . . . . . 520-623-6376

Randy Johnson . . . . . . . . . . . . . . . . . 480-595-7417

Mikey Lares . . . . . . . . . . . . . . . . . . . . 602-992-3473

Chris Seifert . . . . . . . . . . . . . . . . . . . . 303-601-6169

Nate Nelson . . . . . . . . . . . . . . . . . . . . 801-228-9702

Kerin MacWilliams . . . . . . . . . . . . . . . 480-380-3000

Melvin Comstock . . . . . . . . . . . . . . . 480-905-8115

Unit PresidentsUnit 1 (Apache Junction)

(To be announced)

Unit 2 (Phoenix)(To be announced)

Unit 3, 8 & 9 (Northern Arizona)Kathleen Austin . . . . . . . . . . . . . . . . . 928-526-0372

Unit 4 (Metro Mesa)Michael Andrzejek . . . . . . . . . . . . . . . 952-922-8497

Unit 5 (Southern Arizona)(To be announced)

Unit 6 (West Valley)(To be announced)

Unit 7 (Yuma)Rick Sanders . . . . . . . . . . . . . . . . . . . 928-726-4922

Unit 8 (Sedona-Verde Valley)(To be announced)

Associate Members CouncilPresident: Fred Rice . . . . . . . . . . . . . 602-274-1030

Manufactured Housing Communities of Arizona Office2158 N. Gilbert Road, Suite 116 • Mesa, AZ 85203

Phone: 480-345-4202 or 800-351-3350Fax: 480-345-4205 • E-mail: [email protected]

www.azmhca.comSusan Brenton, Executive DirectorNancy Kling, Membership Services

Today & Tomorrow is the official publication of the Manufactured Housing Communities of Arizona, Inc. (MHCA) a non-profit organization representing park owners and operators. Today & Tomorrow, as well as all other publications, forms and books published by the MHCA, is copyrighted under Federal and State copyright laws. Use of these materials by persons not purchasing them from MHCA is strictly prohibited. Reproduction of these materials is prohibited without prior written permission of MHCA.

Today & Tomorrow is intended for a wide audience to alert members to matters of possible procedural, legal, legislative or property management interest. It should not be relied upon, nor is it intended, to provide legal, insurance or accounting advice. Members should consult with their own attorneys, agents and accountants before taking any action in response to this publication, as the opinions expressed herein might be completely altered by the member’s actual facts.

President’s Message

The State of the IndustryBy Neal Haney, President of MHCA and NTH Property Management, Inc.

When we stop to consider where the industry may be headed over the next ten years, it might be helpful to look at where we have been over the last thirty years or so. Those of you who were around in the eighties can remember communities with 99% occupancies and dealers looking to reserve spaces for the homes they were selling. The age restricted communities were primarily filled with retirees who came to Arizona for the winter months. The all age communities were populated with younger working families who wanted a better lifestyle than apartment living but were not yet ready for the financial obligations of site built housing. They regarded our communities as transitional housing that they expected to be in for five to seven years. More often it ended up being over ten years.

Over the course of the next twenty years or so, several things changed that combined to produce the stagnant situation we now have. The manufactured housing industry was built on two things, affordability and quality of lifestyle. It was affordable for those retirees who wanted to get out of the harsh winters. It was an affordable alternative to apartment living that allowed young families to begin building some equity. In both cases, the lifestyle was far superior to any alternatives in the same price range. As manufactured housing became more accepted as quality housing, manufacturers began building bigger, fancier homes. While the vaulted ceiling, garden tubs, tape and texture walls and Jen-air kitchens made for a very nice product, it also began driving the price upward.

Not only were manufacturers upgrading their product, communities began to offer more amenities with nicer appointments. Both conditions contributed to a rise in cost. While it was still a demonstratively better overall value, the contrast between community living and alternate choices was less pronounced. What had been cash or near cash purchases became financed transactions. Lenders entered the market and tried to apply the same practices as they used with appreciable assets. It did not work. That was the first major hit our industry took. Between poor lending practices and a government wanting everyone to realize the “American Dream” of home ownership, there was a mass exodus from communities. Many of our clients took advantage of the opportunity to get 100% plus financing to buy their own part of the American Dream. This left lenders and communities holding the bag and manufacturers with no place to sell their product.

When the product of this situation resulted in the most recent housing collapse, we initially thought that perhaps we would again become the affordable alternative. Turns out we were mistaken. Many of those displaced did not seek a more affordable housing alternative, but resorted to the most affordable alternative. Many households became multi-generational. Parents moved in with children or children moved in with parents. Very few moved back into communities buying manufactured homes. Lenders who took losses from earlier years did not come back into the market. Those who are still in

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the market are much more careful with their lending practices and few buyers are able to qualify for new housing. At the same time, government interference has increased. Recent legislation, the Safe Act being the most onerous, is making it almost impossible to community owners to fill the gap.

So where are we now? To address this, I would make distinctions between types of properties. The first type of property is the senior, destination resort kind of community. These are generally your larger communities with amenities that provide a vacation resort atmosphere. It usually has large, higher-end homes. Because these communities cater to a select group, they remain steady. I don’t see that there will be much of an increase for them, but I don’t expect a decline either.

We have seen a shift in the last twenty years in other age restricted communities. At one time they were primarily occupied with retirees who spent the winter in Arizona. Often less than twenty percent of these residents were year round tenants and the vast majority were retired. Today, it is more common to see more than fifty percent in residence year round. Many of the new tenants in these communities are working seniors. As these communities are re-populated with working seniors, they are less interested in the level of amenities and more concerned with affordability. (What was it that initially built the industry?) These new tenants are less interested (if at all) in pot lucks, cribbage, shuffleboard, etc. While they are looking for some activities in which to participate, the community is no longer the center of their world. This type of community might well be served by carefully considering the costs of providing amenities that do not meet the needs of their tenants. Perhaps by curtailing some of the amenities to maintain a lower cost of living

for their tenants, they may appeal to a broader base. All age communities seem to be in a world of hurt. Vacancies are higher than they have ever been, particularly in southern Arizona. The young working families have been hit hardest with unemployment and underemployment. It has become almost impossible for them to get financing. This demographic is still looking for what they have always wanted, a quality of lifestyle that they can afford. Communities that are committed to providing amenities geared toward younger children while keeping the costs as low as possible are managing to survive. Those that have committed to deferred maintenance (neglect) are having difficulty attracting new tenants. Those that they do attract would be unqualified in better times. By accepting unqualified tenants, the community continues to decline due to evictions and repossessions. It is a downward spiral that is difficult to stop.

The last category applies to age restricted as well as all age. Those are the communities that I often refer to a “truly affordable housing”. Most were built before the modern age of big homes and communities with pools and clubhouses. They are primarily an inexpensive place to locate your own home at a relatively low cost. Most of these properties are aging and located in areas that have changed dramatically around them. Most are functionally obsolete. The land on which they are located would be more profitable and better suited for almost anything else. As a rule, most of these properties are less expensive than anything else. The residents are from the lower socio-economic strata of our society. This is all they can afford. In even these truly affordable communities there is the need for a quality of life. Affordable does not equate to slum. While the homes and infrastructure may be old, it does not have to appear neglected. There are many quality tenants who are looking for this most affordable type of


housing. In this category, it seems that the properties that are committed to maintaining their infrastructure, qualifying tenants and enforcing rules are doing much better than those who have a more cavalier attitude. The big question is where are we going? Will we be relevant in ten years? I expect the higher end, resort style communities to continue on a steady pace. They provide a particular lifestyle that caters to a select group of individuals. For the resort lifestyle they provide, they are the most affordable option. That is not to say that they will not need to keep the affordability factor in mind.

The remainder of the industry is a little less certain. So much will depend on factors outside the industry. If government taxation and overregulation continues unabated, I don’t see much hope for an economic recovery. During normal economic times, there is a natural order in the housing industry in which we play a vital link. In a stressed and uncertain economy, we are viewed a little differently. For winter visitors, we become an unnecessary luxury. Those who continue to look for winter homes are looking for the least expensive accommodations they can find. This will continue to depress home prices and precludes purchases of new homes.

The mid-range working senior and all-age communities will continue to struggle for some years to come. The same factors that are depressing the overall housing market will continue to plague our industry as well. Lending guidelines will undoubtedly be stricter than in the past. There will be fewer lenders available to our clientele than the general housing market. As new tenants are unable to qualify for new home loans, we will all continue to chase the dwindling supply of resale homes. Manufacturers have returned to building more

affordable homes without all the bells and whistles. Unfortunately, very few of our customers will be able to pay cash and will not qualify under current lending guidelines. A large percentage of the site built housing that was on the market in the recent housing debacle were purchased by investors for the express purpose of turning them into rentals. These will be competing with us for the same customer base. As some of the multi-generational households again separate, these people will have a third option to renting an apartment or moving into our communities. Unless we can distinguish ourselves with affordability coupled with lifestyle, we will be hard pressed to make any gains in housing market share. When the economy stabilizes and has sustained improvement, we will again see growth in our industry. Until then we will continue to be in survival mode, hanging on until things out of our control get better.

While there are many strategies that we can pursue to optimize conditions within our own business, some things are beyond our immediate control. The biggest threat to the health of our industry, both community owners and manufacturers, is the continued over regulation coming from the government. We only have to look at the last few years at the Safe Act, the Red Flags Rule, HUD requirements and other onerous government actions to see how detrimental government can be to the industry. Individually it is very difficult to have an impact. Collectively, we can make a pronounced impact on what is happening at both state and federal levels. It is more important now than ever before that we join together to take stands against some of these government intrusions. If you are not a member of and participating in the local association representing your industry, you are making a mistake. We need to join forces and stand strong against continued overregulation by the government.

“The more things change, the more they stay the same.” In many ways, it is easier to describe what will not change about the manufactured home community of the future. Of course, home design, construction, amenities, and so forth will adapt with the times. But, the fundamental premise – and promise – of an affordable and quality lifestyle will continue to hold true.

In October 2012, the national median existing home price was $178,600 while in 2011 the average new home price was $267,900. Meanwhile, in 2011, the overall average sales price of a manufactured home was $60,600 and $40,600 for a single section home. The average cost per square foot to build a manufactured home is $41.22 versus $83.38 for a new site built home. This industry offers a quality lifestyle – at half the cost – with no signs of losing such an economic advantage. In fact, given the pricing compression that occurred with the economic crisis and the recent signs of recovery in the site built housing market, our value advantage should only improve from today.

Consider the following trends. The force of the wave of aging Baby Boomers will continue with 10,000 Boomers turning 65 every day. Although 65 was declared the official age of retirement in 1934 in the United States, the landscape for retirement is changing. The recent financial crisis has also impacted the notion of retirement for many individuals. A recent study by Wells Fargo shows that many retirement eligible individuals are choosing to delay retirement. According to the Gallup organization, today’s average nonretired American now expects to retire at age 67, up from age 63 in 2002 and age 60 in the mid-1990s.

While as many as 40% of Baby Boomers expect to “work until they drop,” fully 74% of workers believe they will need to work during retirement.

The same research shows a new low of 38% of nonretirees saying they will have enough money to live comfortably in retirement. A poll conducted by the Pew Research Center mirrors those findings and cites that 38% of adults are “not too” or “not at all” confident that they will have enough income and assets for their retirement; a significant increase from 25% in 2009. Other studies suggest just over one-third (36%) of Americans are not saving for retirement, while yet other research shows 30% of today’s workers currently have zero in retirement savings.

What do all these facts and figures mean for manufactured housing communities of the future? Whether for first-time homebuyers with modest incomes or retirees looking to trim expenses, the data shows the traditional competitive advantage of affordability, combined with the consistently improving quality of manufactured homes themselves, will continue to encourage customers to consider living in a community. But, the challenge will be delivering the service and experience that an increasingly informed and sophisticated consumer will expect.

Our industry is certainly not immune to the forces of market transparency created by the ubiquitous influence of the Internet. Over 80% of housing searches start on the Internet and we should expect nothing less from our customers. We need to pay careful attention to avoid falling prey to “industry identity theft” where a potential customer goes online to learn more about a

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Evolving the Model for Continued ImprovementJenny Hodge, Vice PresidentNational Communities CouncilManufactured Housing Institute

community only to discover pictures and stories of old-style, aging and unkempt “trailer parks”. Do you have a Google search set up for your manufactured home community to monitor what is being said about your locations? Are you optimizing your website’s search results? These questions are intended to reinforce the point that residents (past, current, or prospective) are already likely talking your community today.

Focusing on the future, all manufactured home communities will need to have an Internet and social media strategy. Through these tools, our industry can promote the many attractive, safe and well-managed communities and combat the lingering negative perceptions.

Another aspect of the transparency created by the Internet is how our industry will continue to face the market realities of competition. Our residents and customers have choices when it comes to selecting a place to call “home.” We need to continue to improve our operations, our service and how we manage our communities if we are to compete successfully with home builders and apartment operators. For example, long-term, CPI-indexed leases can help eliminate what are perceived as arbitrary rent increases that may, in the worst cases, contribute to eroding home equity and, at a minimum, perpetuate frustration with outmoded industry practices.

Another trend likely to continue is the increasing regulatory burden that has hurt the smaller, independent operators of manufactured home communities and resulted in continued industry consolidation. As the saying goes, “All real estate is local.” Smaller operators can be every bit as good as large operators when they are similarly focused on the customer, believing it’s a privilege to be able to sell a home and

then own the neighborhood around it and recognizing they can impact people’s lives in a positive way every day. Regardless of size, the owner/operators who “get it” are those who accept these things as a special responsibility that derives from the unique business model of the manufactured home community.

With our obvious cost advantage, the demographic and economic trends that are moving our way, and a relentless focus on customer satisfaction, positive business results will draw into our industry what is most needed: capital. As more and more loan portfolios are seen (and documented) to perform well, capital will reenter the space. Community owners will facilitate this process by sharing some of the risk on new home loans and helping the capital do the things capital cannot do efficiently – such as processing and rehabbing repossessions, marketing the homes after repossession, etc. – all of which will significantly mitigate potential losses of the lender. Lending will be a partnership between lender and community owner because there are many parts of the asset recovery process for which the community owner is better equipped and more physically proximate to the collateral.

Manufactured home communities have a proud legacy. What will not change over the next ten years is the outstanding value for the dollar that we offer our residents. What will change is how we collectively lead, manage, and improve our respective operations with a singular focus of serving our customers and residents with the highest possible quality and respect. If we provide great value that can be demonstrated consistently, customers in search of quality affordable housing options will come to us, and as our market grows, so too will loan capital return.


As federal regulators in Washington, D.C. continue their assault on manufactured housing, needlessly pushing up prices and limiting choices for consumers, much of the industry clings to outdated, ineffective ideas that prevent the type of national representation needed to stop this onslaught for the good of both the industry and its consumers.

Over the past decade, Congress has passed good laws designed to increase the availability of affordable manufactured homes, such as the Manufactured Housing Improvement Act of 2000, with its focus on completing the transition of manufactured homes from the “trailers” of yesteryear to legitimate “housing” for all purposes, and the Housing and Economic Recovery Act of 2008, designed to expand availability of consumer financing in both the private and private sectors. Federal regulators, however, have made a mockery of these laws, ignoring them at will or twisting their meaning beyond recognition through actions that continue to this day.

These regulators have been able to get away with defying Congress and the law because the structure of the industry’s national representation in Washington, D.C. does not allow for decisive positions and decisive action. Its lowest common denominator, “umbrella” structure, as well as its historical pattern of domination by the industry’s largest corporate conglomerate at any given time, means watered-down positions on abuses that should be unacceptable to the entire industry.

As an industry that lives or dies in Washington, D.C. -- being comprehensively regulated at the federal level and significantly impacted by federal policy in other

areas, such as financing -- manufactured housing needs strong, aggressive representation in the nation’s capital. A robust and effective national organization dedicated to representing the views and interests of manufactured housing producers in Washington, D.C. already exists. What is needed in addition, is dedicated, independent, national representation of the post-production sector to effectively advance its interests in the nation’s capital -- working in cooperation with the producers’ national representation – especially because the post-production area is where many of today’s most difficult and vexing problems (such as financing availability, Dodd-Frank and SAFE Act restrictions, just to name a few) are focused.

With the election now behind us, the industry will have fresh opportunities to advance significant changes at HUD and other federal agencies to seek equality for manufactured housing in the nation’s housing opportunity and home financing programs. For the industry to have its best chance, though, the post-production sector needs to mobilize and be vigilant in protecting its needs and interests with a clear understanding of the concerns of consumers. To do this, it needs to finally take the bull by the horns and aggressively advance its issues in Washington, D.C. Such a change is essential for the future prosperity and growth of the manufactured housing industry.

The Manufactured Housing Association for Regulatory Reform is a Washington, D.C.-based national trade association representing the views and interests of independent producers of federally-regulated manufactured housing.

A National Representation Structurethat Would Help Communities

By The Manufactured Housing Association for Regulatory Reform (MHARR)

Dys*to*pi*a – noun – a society characterized by human misery, as squalor, oppression, disease, and overcrowding.

That may be overstating my view of the future for the MHC industry but not by much. I have been a lawyer for some 45 years. For the past 25 I have been the legal counsel for MHCA. During that time I have seen a lot of changes in the laws affecting our industry and the trends in my view are nearly all bad.

Private property rights are the main area where valuable legal protections have eroded, endangering the industry. “Perhaps the most important value of the Founding Fathers,” a prominent scholar once observed, “was their belief in the necessity of securing property rights.” Stable property rights are vital for the creation of wealth and prosperity, and are necessary for successful self-government. As Edmund Burke once declared: “A law against property is a law against industry.”

Liberty is also dependent on property rights. John Adams stated: “Property must be secured or liberty cannot exist.” Private property ownership has acted as a safeguard of liberty because it limits the reach of government. As Justice Joseph Story explained in Wilkinson v. Leland, 27 U.S. 627, 657 (1829):

“That government can scarcely be called free, where the rights of property are left solely dependent upon the will of a legislative body. The fundamental maximums of a free government seem to require, that the rights of personal liberty and private property should be held sacred.”

Consider the erosions in private property rights in Arizona laws affecting MHC’s in the time I have been a lawyer. In 1967 the MHP Landlord Tenant Act did

not exist. Local zoning did not effectively prohibit the creation and operation of MHC’s. There were no limits on what rent a landlord could charge or in how it could be charged. Operators were free to close their parks and redevelop them as they deemed fit.

Now, 45 years later, there is a landlord tenant act protecting tenants from the free exercise of private property rights by park owners. Those laws tell landlords they cannot force tenants to move except under narrow circumstances, and guarantee tenants the right to remain on that land in perpetuity if one of those circumstances does not exist.

Those laws restrict park owners’ ability to close down and penalize them when they are able to do so. They restrict the ability of landlords to increase rents when leases end and require them to advise tenants they have the right to move at the expense of the government if they impose a “large” rent increase.

This is not limited to the State level. County and municipal governments now have land use laws that heavily restrict the ability of existing MHC’s to operate. New setback requirements applied to older parks make it impossible to fit newer homes onto existing lots. Many parks are limited to old obsolescent homes to fit onto spaces. But a lot of local governments prohibit the importation of older homes into their localities.

Maybe the answer is to close old parks and build new ones. But once again land use restrictions effectively prevent new MHC’s from being developed in many areas.

As parks age and cannot get refreshed with new homes, they deteriorate triggering actions against them by code enforcement agencies.

A Dystopian Future?By Michael A. Parham, Attorney

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Couple the erosion of private property rights and the increasing dominance of government control of property with developing cultural changes and the situation worsens. We have seen in recent years an increase in the percentage of the population dependent on the government for support.

Of course seniors on Social Security have been around for 80 years. But more recently we have seen an increase in people living on disability income, unemployment benefits stretching into years instead of months, mushrooming numbers of people on food stamps, increases in federally underwritten loans, and of course, fully paid retirement from government jobs by people in their 50’s.

This is called wealth redistribution and represents the transfer of income from the productive segment of society to the dependent sector. It creates a sense of entitlement on the part of those receiving the transfer payments.

It is this mindset of entitlement and the need for “fairness” that can and often does result in additional government redistribution programs like rent control. Arizona faced a rent control threat in the MHC industry in 1997 and we are likely going to see another in the near future.

The idea of rent control is that landlords are charging more than is fair and more than what they need, and government needs to intercede to limit what tenants can be required to pay. This is the biggest threat of all to private property rights—taking away the ability of the landlord to determine what to charge for the use and occupancy of his property.

In the next few years, I see the likelihood of increasing government land use controls causing greater park maintenance expense, increasing restrictions on the ability of MHC owners to close their parks, some form of rent control limiting what landlords can charge, and increasing limits on how landlords can get rid of undesirable tenants.

On top of this is the economy. If it does not improve, if job creation does not pick up, and if incomes do not increase, pressures on landlords to subsidize tenants will increase. And with major tax increases looming and increasing federal business regulations going into effect, I do not see how the economy can possibly improve.

Is There a Silver Lining in this Cloud?

Maybe. Obviously there will be an increasing demand for affordable housing. As long as parks can keep total home payments and space rent competitive with other forms of housing, demand should still be there. Finding homes to put on vacant spaces to meet that demand will of course be a challenge.

Government controls and hostility to MHC’s means there will not be many new parks built thus keeping competition against existing parks down. And some existing parks will continue to close due to their land being suitable for more productive uses. That will reduce competition.

New technology can mean more desirable communities. New manufactured home designs include several environment-friendly features. One is an innovative home that includes a roof adaptable for rainwater catchment or solar energy collection, energy-wise windows and bamboo floors. The home’s decking is made from recycled material. I have had a picture of this home on my website the past year and believe a park featuring them could become popular with a young affluent class of buyers.

New home owners are better able than before to customize their home design. According to MHI, new home designs include modular configurations as well as upscale exterior finish elements. These combine with popular interior features such as vaulted ceilings, higher-end kitchens and energy-efficient appliances. In many cases, manufactured homes appear very similar to other subdivision homes. Parks able to figure out how to attract such homes and people affluent enough to own them may do well.

Renovated manufactured homes can provide an innovative purchase option for budget-conscious consumers. One company back east is reported to completely renovate older manufactured homes and to offer buyers a choice of configurations and interior features. In July 2010, home sizes reportedly ranged from 980 to 2,400 square feet, with prices from $7,000 to $46,000.

Of course even these bright spots require that parks be able to find tenants able to afford the homes and

that they be able to navigate the increasing maze of government impediments to continue to operate.

I am gloomy about the future but still have some optimism that with innovation and hard work this industry can survive and perhaps prosper. But we need to recognize what is happening around us and be nimble enough to act to avoid the bad consequences and take advantages of opportunities presented by all of these new developments.



Past as Predictor of the Future –or Just Another Crapshoot?

George Allen, CPM®Emeritus, MHM®Mmaster

I.

The Paradigm Shifts of Mobile & Manufactured Housing, subtitled ‘Serving the shelter needs of newly weds & nearly dead, for seven decades’; characterizes year 2002, a decade past, in this succinct manner:

“Only 168,491 new manufactured homes = the worst shipment year since 1963! A no so ‘tongue in cheek rallying cry’ that year, among independent ‘street’ MHRetailers and their ‘company store’ counterparts, was “Be a stud, sell a HUD!” However, year 2003 turned out to be even worse, as only 130,937 new homes were shipped, and the Manufactured Housing Institute (‘MHI’) began counting modular units, prompting industry wags to tag it as the ‘Year of the Hudular!’”

Causes one to wonder; ‘What would we, or our peers at the time, have predicted, ten years out in for year 2012? Do you think, for one minute, we or they would have estimated a paltry 50,000+/- new HUD – Code manufactured homes to be shipped throughout the U.S. this year? My guess is, a resounding ‘NO’. Neither we or they would have done so. Why? Because the harsh reality that independent, third party chattel (personal property) capital was leaving our industry en masse – and wouldn’t return even after ten years, hadn’t settled into the minds and business models of MHRetailers and land lease lifestyle community owners/operators nationwide.

What else happened during year 2002 that served as ‘prologue for years to come’? Well, the following paragraph is quoted in its’ entirety, from the book, Landlease Community Management (debuted in 1988 as Mobile Home Park Management):

“(Year) 2002 was the year of Need to Know!, a short – lived monthly newsletter targeting (disappearing) MHRetail salescenter owners, managers and staff.

By the end of the year, Oakwood Homes declared bankruptcy, as well as did CONSECO (formerly Greentree Finance); and a major management shakeup occurred in the top ranks of largest REIT, Chateau Communities, Inc.; and, SUN Communities, Inc., another REIT, absorbed the income – producing property assets of Forest Communities. Not a good year for anyone!” p. xi.

A slightly more detailed description of year 2002 can be found on page # 14 of Landlease Communities, Manufactured Home Communities, Mobile Home Parks, Trailer Courts & Camps, and Affordable Housing, PMN Publishing, Indianapolis, IN., 2011. *1

Now, here’s an additional sidebar commentary that plays to ‘what happened between years 2002 & 2010 and on to 2012’. It has to do with a conversation that occurred during a chartered plane flight between the East coast and Las Vegas, NV. Present were Louis Vela, Greg Harmon, MHM®, and George Allen, guests of Randy Rowe, founder and head of Green Courte Partners. At the time, Randy opined the then booming site – built housing industry too was going to flounder, in a few years, by dint of its’ own sub – prime lending binge - just as manufactured housing was suffering at the time, due to its’ patently undisciplined lending practices. And manufactured housing’s recovery, in terms of new home shipment volume, would be delayed until site – built housing sells through an inventory overhang of more than 240,000 (Some say 500,000) unsold, foreclosed upon, devalued homes! Randy’s predictions have been confirmed by history, and they continue to unfold. So, here we sit today, manufactured housing businessmen and women, impatiently waiting for site – built housing finally to hit its’ stride again.

With that said; Anyone in the HUD – Code manufactured housing industry think chattel capital is going to return in volume, and accessibility by 600 credit score


customers, anytime soon? Didn’t think so. So much for history being a prelude to our business future.

II.

Now, turning our attention to the future, or ‘ten years out’. Are we able to predict what’ll be going on at the time, among various segments of the manufactured housing industry; or will it simply be another happenstance crapshoot? Well, here’re three disparate philosophical views about the future, beginning with one we all hope isn’t true:

“Cheer up! The worst is yet to come.” Philander Johnson. Then this, from Edmund Burke, warning against using our industry’s ‘past as predictor of its’ future’: “You can never plan the future by the past.” OK; I’ll buy into that, and suggest we heed Athenian orator Aeschylus’ advice: “The future you shall know when it has come; before then, forget it!” So, with all that said, let’s take a cursory look at what some present day folk think our inter – segment business futures might hold….

HUD – Code home manufacturing. We know the 20th century auto industry was prescient to trailers cum mobile homes cum manufactured housing. You know; how manufacturers are inclined design, produce and ship ‘What they believe customers need and want.’ Proof of this? Here’s how Bob Vahsholtz, author of King Midget describes a similar mindset within our sister auto industry, during its’ early years:

“In the late 1930s, at about 75 years of age, the senior Ford still had a clear picture of what an American automobile should be, and set out to make it. Never mind market research; he concentrated on building the car he deemed right for the market.” P.57 *1 And frankly, so does manufactured housing, to this very day! Time for a change?

Who’s Bob Vahsholtz? A semi – retired veteran of the factory – built housing industry, who’s researching and authoring the first exhaustive review, in more than 20 years, of the manufactured and modular housing industries.

In any event, back to ‘Time for a change?’ Sure! And let’s hope HUD – Code home manufacturers will soon be enlightened to finally sit down together, critiquing where they’ve been during the past 60 years, then strategically plan how to ‘get off their collective nadir of only 50,000 home shipments per year’, and head back towards that oft - voiced Ideal of 250,000+/- new manufactured homes SOLD each year! Did you catch that? No longer shipments, but new homes SOLD. And how might they accomplish this hat trick? By using Market Research of the sort virtually unseen during manufactured housing’s past; followed by exciting new product design, in response to what’s learned from past, present, and future home buying customers needs and wants, rather than manufacturers’ unfounded preferences.

What else might (should) happen? After 60+ years, certainly by year 2022, manufactured housing must be willing to borrow a page from the contemporary automobile industry playbook; specifically, general cum brand promotion on national and regional scales! One can almost (hope to) see an industry promo as straightforward as this:

‘One House, Your Home; Anywhere, Anytime! (Manufactured) Housing!’

Hey, I don’t know ‘bout you, but I’d sure like to see that, over and over again, on my TV screen at home, and in every household across the U.S.! Only outstanding question being: ‘What descriptive word to use in that parenthesis instead of ‘manufactured’?’

In closing this segment commentary, know there’s precedent for HUD – Code home manufacturers sitting down together to solve a major marketing challenge. On 2/27/2009, 100 manufacturing executives and land lease lifestyle community owners/operators, from throughout the U.S., caucused at the RV/MH Heritage Foundation’s Hall of Fame, Museum & Library facility in Elkhart, IN., to solve this challenge cum opportunity: ‘How to Sell More Manufactured Homes into Land Lease Lifestyle Communities?!’ Know what? That’s where the Community Series Home, designed for LLLCommunity infill, was



conceived – in part supplanting the behemoth ‘big box = big bucks’ Developer Series Homes of the late 1990s. Now, five years later, CSH model homes are relatively commonplace among most HUD – Code home manufacturers!

And maybe ten years from now, by year 2022, HUD – Code manufactured housing will be commonplace shelter marketing fare not only online, but on prime time, major network national TV as well.

Manufactured Housing Retailing or MHRetailing. Industry veteran, Bill Carr, of Rainmaker Associates, puts it this way.

This major segment of the manufactured housing industry is on the cusp of significant consolidation nationwide. The number of independent ‘street’ MHRetailers has shrunk from 11,500, at the turn of this century, down to maybe 4,000. By year 2020, look for there to be 50 – 70, maybe a few dozen more, mega – sized independent ‘street’ MHRetailers, owning/operating dozens of satellite locations apiece, and corralling more than 80 percent of the new manufactured home sales business, focused on land lease lifestyle community infill, land & home package contracting, as well as private placements on realty conveyed fee simple. Company stores? Look for them to mirror their respective HUD – Code housing manufacturer owners; which might be new explosive growth and profitability, or 2012 – like, lackluster ‘business as usual’ in performance.

Land Lease Lifestyle Communities or LLLCommunities, previously known as manufactured home communities, and before that ‘mobile home parks’. During the past 30 years, this unique realty asset class of income – producing properties has undergone a massive consolidation, as thousands of 1970s era Mom & Pop – developed properties, were acquired by limited partnership syndicators in the 1980s; real estate investment trusts (‘REIT’) and imitators, during the 1990s; and now, new equity fund firms. Since 1989, when we knew of only 25 property portfolio owners/operators, this number has swollen to 500+/- today (i.e. a LLLCommunity portfolio owns and/or fee

manages a minimum of five LLLCommunities and/or 500+ rental homesites). Going forward? Since most U.S. LLLCommunities containing 150 or more rental homesites are now consolidated into these 500+/- portfolios, expect to see ‘some’ smaller properties absorbed, but otherwise, the pace of consolidation to slow, and ‘trading of properties’ among portfolio owners/operators to increase. Of course, ‘the great unknown’, today, is how many more property portfolios are going to shrink in size, or disappear altogether, as foreclosure casualties? *2

There has been little development of raw land into new land lease lifestyle communities since the mid to late 1990s. Blame this on manufactured housing’s chattel finance misadventure; NIMBY zoning discrimination and worse; and, lack of raw land development financing.*3 Don’t see any of this changing, to any significant degree, between now and 2022, except if 1) HUD – Code housing manufacturers revamp their business model and cooperatively market their affordable housing product nationwide, as described earlier; and where, 2) owners/operators of existing LLLCommunities increase their number of available rental homesites, by developing new sites on contiguous realty appropriately zoned.

How ‘bout the land lease lifestyle community Business Model going forward? Well; remember the popularity of ‘vertical integration’ within manufactured housing – related firms, of a few years ago? Best example then, was Clayton Homes – when still owned by industry icon, Jim Clayton. There you had home manufacturing, home sales, home finance, and access to manufactured home communities all nicely packaged in one firm. Since then, the latter quarter of that vertical business model has been sold off, and is now part of the property core of YES! Communities, based in Denver, CO. The only other contemporary firm known for (partial) vertical integration, is Charles Fanaro’s huge and exemplary SaddleBrook Farms community in Grayslake, IL., and his factory, Hi Tech Housing, in Elkhart, IN., that manufactured and shipped all the homes sited in that property – and continues to do so. With that said, how ‘bout ‘horizontal integration’ in the land lease lifestyle community?



Again, Randy Rowe, says it best: “Community owners (now) ‘horizontally integrate’ to include, 1) new home sales; 2) used home refurbishment and sale; 3) home brokerage; 4) rental homes; and, 5) direct lending. While this requires community owners to be in a number of new businesses, it in fact helps the community owner to have more control over delivering a high quality resident and prospective resident experience. Change is always stressful, but is necessary as we all adjust to new challenges.” Yet other community owners have added 6) the sale of aftermarket products to residents, as well as installation and servicing of same; and, 7) other types of home finance (e.g. lease option, ‘captive finance’, and most recently the C.A.S.H. Program, alternatives *4), to this eclectic and timely Business Model mix. Tomorrow? More ‘change’ of the same – depending on what it takes to achieve and maintain high rental homesite physical and economic occupancy.

I’m often asked; ‘Is today’s land lease lifestyle community business dying or poised to prosper?’ Like most overly general questions; one’s answer here, can be as wrong as it is right. And as close to an accurate answer I can deliver is to remind the questioner, ‘We all know real estate is about location, location, location’; well, a variant of that truism is this: ‘Land lease lifestyle communities are local housing market sensitive’, in a variety of ways (e.g. availability of housing product, and access to chattel finance to support home sales, for starters), and are either professionally managed, or on the way to being out of control. Year 2022? Still 50,000+/- LLLCommunities nationwide, with maybe more rental homesites, if existing properties can justify the demand to develop more sites.

Affordable Housing. No discussion regarding the past, present, and future of HUD – Code manufactured housing would be complete without more than a nod to what put this unique type of factory – built housing ‘on the map’ 50+ years ago; but now, more often than not ‘appears to go begging’ for recognition and application in new home sales, home financing, and land lease lifestyle community site rent rates.

In brief, generally high quality, energy efficient, attractive, ‘green’, transportable, non – subsidized, full - featured manufactured homes continue to be fabricated at approximately 50 percent, per square foot, less cost than site – built housing, without underlying realty value figured into the comparison. This distinct advantage must continue to be an integral part of every HUD – Code manufactured housing marketing and promotional program to revive the industry by year 2022.

Germane to this, is the calculation of new and resale housing Price Points. Somehow, the manufactured housing industry has gotten away from ensuring their home – buying customers are purchasing homes they can truly afford, based on Annual Gross Income or AGI, the widely – used 30 percent Housing Expense Factor or HEF, and when going into land lease lifestyle communities - the prevailing rental homesite rate. Unless MHRetailers and LLLCommunity salescenters include annual household expenses (i.e. electric & heating fuel, water & sewer – if not covered by rental homesite rent rate) in the 30 percent HEF, along with the usual PITI (loan Principal & Interest, Taxes & Insurance premium), they are originating ‘risky’ mortgages, depending on amount of down payment, for their customers. On the other hand, when said household expenses (not including telecom expenses) are included within the 30 percent HEF, then the mortgages are ‘affordable’, barring unforeseen future personal and family issues. Point again? Household expenses must be paid by the homeowner/site lessee. If paid as part of the 30% HEF, a housing transaction is ‘affordable’; however, if paid in addition to the 30% HEF (PITI only), the housing deal is ‘risky’ at best.

So, will all new and resale manufactured home mortgages, whether of the chattel (personal property) or realty – secured basis, be ‘affordable’ or ‘risky’, by year 2022? Only time will tell!

And finally, there’re the rental homesite rates in land lease lifestyle communities, and two ways of viewing them. The traditional view is to keep one’s rental



homesite rent at roughly 1/3rd the rent of 3BR2B apartments or townhouses in the same local housing market, and ‘proofed’ once or twice a year with comprehensive and separate Market Surveys of 1) conventional 3BR 2B apartment units – ensuring rent composition is similar for both types of property, e.g. where water & sewer charges are concerned; and, 2) competing LLLCommunities in the same local housing market – the more the merrier, to avoid unintentional (?) skewing of site rent rate averages when only institutional grade properties (i.e. larger, portfolio owned/operated) are surveyed. The non traditional view, in vogue today in some locales, is to simply focus on one’s property or properties in the local housing market, then set rental homesite rates based on what the traffic will bear at the time – and or what the property must have, to pay its routine operating expenses and debt service each month.

Summary? Affordability is what brought HUD – Code manufactured housing to the ‘housing dance’. To walk away from it today would be self – defeating. On the way to year 2022, all three manifestations of affordability should be, must be, continually evaluated and effected, first to the benefit of the prospective homebuyer/site lessee, then to the home manufacturer, mortgage originators, and LLLCommunity owner/operator. For a very helpful tool to this end, calculating Price Points based on AGI and local housing market Area Median Income or AMI, obtain a copy of the strangely named – but widely used ‘Ah Ha! & Uh Oh! Worksheet!’ *5

State and National Manufactured Housing Associations. This segment is a ‘toughie’!

For starters, we know state MHAssociations, for the most part, are shadows of their past presence and influence within their region and respective local housing markets. Much of this steep decline in membership number, dues revenue, and leadership presence, can be laid at the feet of land lease lifestyle community portfolio consolidators, who maintain but one, or a few, dues - paying state MHAssociation memberships, versus the dozens of past paid community memberships held by their portfolio properties before acquisition and consolidation. And, during the past

decade, we’ve seen annual home shipments (Think floor dues paid to state MHAssociations) plummet from the 1998 renascence high of 372,843 homes to but 50,000+/- per year during the past five years! The future for state MHAssociations? Dismal; unless they hire capable and charismatic executives, experienced at effective lobbying, and motivated to organize and facilitate regular, exciting training and networking events for all their membership categories. And they must be able to communicate frequently and well online and in print, with members wanting to know what’s going on at state and national levels. Today, more than ever before, MHAssociations cannot afford expensive deadwood staffing. And, most important of all, everyone, from members to execs, must become active membership recruiters!

Then there’s the national scene. This has been a sorry scene of internecine squabbling since 1985, marked with only occasional, short - lived compromise and cooperation, between the two national Advocacy bodies. Some feel ‘unity is on the horizon’. We can only hope this is true – and if indeed it materializes, even as soon as year 2013, that it lasts longer, this time around, than just 30, 60, or 90 days. There’s also cautious optimism, with new leadership in place at most top elected and salaried positions at the Manufactured Housing Institute, the revolving door of the past 20+ years - seeing no fewer than five different presidents/CEOs in office, will finally stop spinning. So Advocacy unity and leadership consistency should paint a better future for manufactured housing going forward.

But there’s a rub or two. The National Communities Council division of MHI has been effective since 1 January 1996, or 17 years. It’s generally recognized as the Advocacy presence for land lease lifestyle community owners/operators nationwide. And that’s a good thing. But two concerns spark controversy today and going forward. First; while 85 percent of the estimated 50,000+/- LLLCommunities in the U.S. contain 100 and fewer rental homesites apiece, making them ‘smaller’ Mom & Pop – sized investment properties, all the elected offices of the NCC are held by salaried executives from four mega – size portfolio owners/operators, raising serious concerns


about ‘even representation of information, training, networking, and communication needs among all sizes of LLLCommunities’. Then there’s the question of ongoing statistical Research and ‘comprehensive Resource servicing’ for the realty asset class. While the first of the two ‘Rs’ might, in time, become the purview of the newly formed Center for Manufactured Housing Studies or CMHS, the second ‘R’ is in imminent danger of completely disappearing from the business scene in the near future, unless the NCC, or some other entity, steps forward to continue providing educational, communication, peer networking, professional property management training & certification, and realty deal – making opportunity for LLLCommunity owners/operators nationwide! The future here? Advocacy role depends on membership parity and leadership quality at the NCC, going forward. Anticipated Research presence of the CMHS. And maybe even a new, national ‘comprehensive Resource servicing’ not for profit entity, possibly even a Manufactured Home Communities Association of North America or MHCA.

Summary.

If ever HUD – Code manufactured housing needed strong leadership, with wide – eyed vision, uncommonly good business sense, and consensus building talent – going forward, that TIME is NOW or NEVER. Or, as more than industry observer has opined of late, there simply won’t be a 2022 presence for the MHIndustry, certainly not as we know it today! Land lease lifestyle communities? Well, they’re not going anywhere! Just as they morphed from ‘manufactured home communities’, siting ‘mobile homes’ & manufactured housing in the 1980s & 90s; to now routinely siting modular and stick – built homes, as well as ‘park model RVs and ‘RVs for a season’, to become ‘land lease’ communities, they’ll continue to adapt - siting whatever type housing fits, and fills vacant rental homesites, to ‘pay the rent’.

End Notes:

1. King Midget, Bob Vahsholtz.

2. Information cited from 23rd annual ALLEN

REPORT, a.k.a. ‘Who’s Who Among Land Lease Lifestyle Community Portfolio Owners/operators Throughout North America!’ Available FREE with Allen Letter professional journal subscription by phoning the MHIndustry HOTLINE: (877) MFD-HSNG or 633-4764

3. NIMBY = ‘Not in my backyard!’ Also LULU = ‘Locally Unwanted Land Use!’, & BANANA = ‘Build Absolutely Nothing Anywhere Near Anybody!’ The three prominent attitudes that mitigate against affordable housing for U.S. citizenry.

4. National experts and contacts relative to 1) lease option: Spencer Roane, MHM® via [email protected]; ‘captive finance’ alternatives: Ken Rishel via (217) 971-3968; and 21st Mortgage Corporation’s C.A.S.H. Program: Lance Hull via (800) 955-0021

5. Available FREE by phoning the above – referenced MHIndustry HOTLINE. And while there, inquire about the newly – released book titled: Book of Formulae, Rules of Thumb, & Helpful Measures for LLLCommunities, HUD – Code manufactured housing, commercial real estate investment, affordable housing, and realty – secured mortgage origination. PMN Publishing, IN., 2012. $19.95

George Allen, CPM®Emeritus, MHM®Master Consultant to the Factory – built Housing Industry, The Land Lease Lifestyle Community Asset Class & Affordable Housing Purists & Enthusiasts NationwideBox # 47024, Indianapolis, IN. 46247 (317) 346-7156

First North American Rights OnlyCopyright 201220 November 2012


Imagine the following. What if you knew for a fact that there was a product that would be in big demand. There is already a current need, which would grow dramatically in the years ahead. You could get in on the ground floor or were already "in." Would you do everything needed to capitalize on that opportunity? You should, because this isn't a fantasy! It is real and coming our way.

By 2030, America will need some 20 million new housing units, plus those which will need to be replaced due to weather, fire or other loss causes.

10,000 baby boomers are retiring in the U.S. daily.

Incomes are down, yet 2 out of 3 Americans still want the dream of home ownership.

We could cite more such facts but the point is that quality, affordable living is more needed than ever in America! We sell one of the basic necessities of life, shelter!

Since this is all true, why do some struggle for occupancy in their manufactured home communities?

It starts up top

Some think of me as cutting edge in marketing and sales, but call me old fashion!

"Whatever the mind can conceive and believe, the mind can achieve."

- Napoleon Hill

That quote captures the essence of what moves us ahead - or holds us back - as an industry and in the MH Communities world. This one is like it:

"Whether you think you can or whether you think you can't, you're right."

- Henry Ford

Some see the future, get it and are profiting. Others see only head aches and heart aches. Retailers no longer fill MHCs for their owners. SAFE and Dodd-Frank make us feel Un-Safe and frustrated. No wonder they struggle.

The reality is that we have to make the best of what we have, or we will get the worst results. It all starts with our thinking and our outlook.

There are good reasons why Sam Zell's ELS, Green Courte, Zeman, Sun, UMH or others are actively buying.

Yet others are struggling and looking for a sound exit...

We have to recall all that made manufactured home communities great in the first place!

Land lease MHCs - properly done - allows a home buyer to invest fewer dollars up front and provides them with a good location, amenities, activities and a sense of neighborhood. Because you can screen out individuals with certain criminal histories, a well run MHC offers enhanced peace of mind in an often troubled world. We have a lot to sell.


The Future of the Industry and MHCsby L. A. 'Tony' Kovach



We have to teach - or re-teach - our front line mangers, sales and leasing agents the magic behind the facts of manufactured housing! We have to turn them into passionate believers, and when we do, they in turn will pass that along to those who seek what we have to offer.

It all starts up top, in our minds. Is the glass half-empty, or half full? Are we looking at the problems and focusing on solutions, or are we focused on the negatives and 'oh, woe is me?'

Those focused on solutions and willing to do what it takes are making more money now than ever before. It is not as easy as it once was, but it can still be profitable.

Corn Fields and Big Boxes

A well known, successful community operator has told me that if we aren't careful, the land lease MH Communities of today will turn back into the corn fields, will be bought out by big box stores or "higher and better use" developers. We have natural advantagesbecause we do offer quality, affordable homes and living. But that doesn't mean that we don't have threats.

Subsidized housing

Subsidized housing - often apartments that get federal, state or local funding - has become a challenge that we can't afford to ignore. Associations, MHC owners, managers and staff have to actively promote the value of our lifestyle. We must also lobby against the use of our tax dollars that create a competitor that wouldn't naturally exist absent public funding.

Imagine if those tens of billions of dollars annually that are going into subsidized housing we're flowing to MH and MHCs. We would be in the biggest boom our industry has ever seen! Instead, we are competing against those subsidized units.

Only active engagement by associations and their members can hope to turn those lemons into lemonade. We offer so much more than an apartment, where people have to share a wall, ceiling or floor and get their car doors banged up in the packed parking lots.

But we have to aggressively create and support a pro-industry vision and message. We have to define ourselves or others will define us to our detriment.

The keys to a brighter future

Individual companies - yes, even many mom and pop operations - can do more today to market themselves positively than in years past. The Internet and tools such as YouTube has given us the ability to do online what it used to cost big bucks to do in print or via broadcast or cable TV.

Ideally, associations could partner with their members and marketing and sales professionals to create robust campaigns that are market specific. It would pay farmore than the modest costs. Antique malls and 'auto malls' exist because 'competitors' team up under one roof or along one stretch of road. It is so much easier for 'competitors' to team up online and then drive people to their own websites! Everyone involved would win.

But you don't have to wait. Individual companies can do market cost effectively too. The ROI (Return on Investment) for good internet marketing is amazing, yet way too many MHCs have no website or one so out of date that it turns viewers off at a glance.

Training

Sad to say, way too many in the MHC world have little to no formal training or the wrong kind of training. I've seen office and service staff that bad mouth their own homes and their own 'parks.' "I'd never pay to live here" is something I've heard in the offices of some


big, 'professionally run' properties. Unbelievable, but true.

So if staff has a the wrong or bad attitude, is it any surprise that vacancies exist or grow?

Take a Shower

Zig Ziglar famously observed that you need regular doses of motivation just like you need to shower or bathe regularly too. We need to motivate and train our front line teams. We need to market and sell professionally too. We have to be actively involvedin our associations, and not just hope that the executive director and tiny staff can do it all for us.

Our potential future for MHCs is bright, but only for those who do the right things, the right way at the right time. It won't fall in our laps. But if we are willing to work for it, the rewards are more than worth the efforts. If we don't work to make the best of it, outside forces will punish us. So the future is in our own hands.

L. A. "Tony" Kovach began his career in manufactured housing in 1981. He wears many hats today, including publisher of the MH Industry's largest trade publication - MHProNews.com - and has done a number of turn-arounds for communities - see MHC-MD.com. Call 815-270-0500 or email [email protected].

JOHN A. BURICATTORNEY AT LAW

WARNER ANGLE HALLAM JACKSON & FORMANEK PLC2555 East Camelback Road, Suite 800

Phoenix, Arizona 85016Telephone (602) 264 7101

Fax (602) 234 0419www.warnerangle.com

A full service law firm focusing on the needs of manufactured home and recreational vehicle communities.Proudly serving individuals and businesses for over 50 years.

• Mobile Home Law• Recreational Vehicle Law• Residential Landlord-Tenant Law• Commercial Landlord-Tenant Law• Purchase and Sale Transactions• Corporate and Business Law• Administrative Proceedings • Financing and Refinancing• Custom Rental Documents• Governmental Disputes

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For almost 25 years, I have been involved in assisting the mobile home, manufactured home, and RV industries. I have had an opportunity to see and experience many things in our industry, including economic downturns, the ups and downs in the housing market, changes in the laws, more and more government regulations affecting our industry, and changes in demographics. Our industry today is far different than the one that existed 25 years ago. I anticipate that our industry will look even more different 10 years from now. Although my crystal ball is no guaranty of the future, I would like to share some of my thoughts, observations, and predictions with you so that you are thinking about the next 10 years and planning for it.

During my career, one of the key items that I have focused on with my clients is planning for the future. What attracts people to your community and how can we improve on it? Where do you want your community to be 5 or 10 years from now? What do you want it to look like physically? What do you anticipate it will look like demographically? Where do you want your community and investment to be financially? Although the answers to some of these questions may, in the past, have come about as a result of no planning, sheer luck and merely going with the flow, others of you, particularly those with whom I’ve worked, have implemented game plans so that the answers to these types of questions are more predictable and more likely to be obtained. Planning for the future of your community is essential. The way your community looks, feels, operates, and stands financially in the future is more likely to be the way you want it if you start planning now, and implementing policies to promote such results.

To remain strong, our industry, as a whole, will need to band together and market itself in a more effective

manner. The news continues to refer to our communities as “trailer parks,” and treats our communities like second-class citizens. Such treatment is unwarranted, but we allow the media to do it anyway. In order to move our industry forward, it will be incumbent upon us to educate the ignorant, including the news media and our local governments. For example, even though we may be located in a zoning district designated as “mobile home” zoning, we are, indeed, single family residential communities. As such, we need to demand similar treatment as that afforded to subdivisions and tract home builders. We should not take a back seat to such developments, since our housing and lifestyle offerings are comparable or better in most circumstances. Our communities may have a better sense of community, and our residents have the ability to vote in mass to effectuate change. No politician wants to have a block of hundreds or thousands of voters from manufactured home communities rally against them. Our industry can have much more influence if it sticks together and works in a cohesive manner. I believe that MHCA will continue to be the glue that holds our communities together, and help advance the interest in our industry.

One of the most problematic aspects of the next 10 years may relate to financing for the purchasing of individual homes. This has been a problem in our industry for decades and may continue to be a problem in the future. Lenders have, traditionally, felt unsecure lending on “mobile homes” which are not a part of deeded property and can, theoretically, be moved, thereby increasing a lenders risk in the collateral. Some lenders never figured out how the market works and made foolish moves when it came to financing in our industry, making too many loans to individuals who were not qualified borrowers, making loans that exceeded the value of the homes, and undertaking

John Buric's Industry PredictionsFor The Next Ten Years

By John A. Buric, Attorney



other foolish actions that eventually drove the lenders out of business and created a vacuum in the lending market. Nevertheless, when the housing market picks up, I anticipate that lenders will once again enter our niche in an effort to make a profit. Obviously, the ability of tenants to purchase their own homes, and to obtain financing to do so, will have a profound effect on our industry.

From what I have seen, manufactured homes and park models themselves will continue to increase in quality, energy efficiency, and amenities. Already, many manufactured homes meet or exceed the quality, energy efficiency, and amenities of many site built homes, for a fraction of the price. This cost advantage should benefit our industry as a whole when the current housing market stabilizes.

Our nation is getting older as a percentage of the population. However, today’s retirees and baby boomers are a far cry from the retirees from 25 years ago. Today’s baby boomers and retirees are generally in better health, desire a more active lifestyle, and are unlikely to be satisfied merely watching T.V. and playing shuffleboard. For those of you who cater to older residents or desire to do so, you will likely need to focus on the unique needs of our aging population if you desire to attract and maintain older residents.

Many of my clients are seeing an increase in seasonal residents. These are typically more affluent individuals who reside elsewhere in North America, but want to enjoy the benefits that Arizona has to offer during the winter season. This will likely increase, particularly with Canadian winter visitors, since the economy in Alberta, Canada (1,000 miles directly north of Arizona), which is rich in oil and oil revenue, has not been hard hit by the economy, and the Canadian dollar has been strong against the U.S. dollar. Many of these individuals, as well as residents of the Midwest, are focusing on park model homes, where they can have a simple but nice living environment, a lock the door and leave experience, and a fun and active experience when residing in Arizona for part of the year. There is a good chance that many of our communities will increase their focus on park model living in order to fill

vacancies and increase revenue, thereby benefiting the community financially and allowing it to thrive. Personally, I have recommended to many of my clients that they focus some of their marketing activity in Alberta, Canada and the Midwest.

The current housing demise of site built homes will eventually come to an end and will affect our industry. When the inventory of foreclosed homes disappears, as our population increases, and as there is a renewed demand for individual site built homes, the market will dictate that new site built homes be constructed. Having been involved in the legal side of the construction industry for most of my legal career, I can comfortably state that the current cost of building a new home exceeds the price of buying a comparable pre-owned home. Therefore, when the existing inventory of pre-owned homes becomes low, as the population increases, as demand for new site built homes increases, and as new homes are built at higher and higher prices, it will pull up the cost of existing site built homes. Thus, the overall cost of purchasing a site built home will increase. I believe this will benefit our industry, particularly family communities.

As the price of site built homes increases, homes in our communities will again be viewed as quality housing at more reasonable prices. Many families and individuals will be unable to afford traditional site built homes, but will be able to afford manufactured homes at more reasonable prices. Even low and moderate income individuals will see the benefit of living in our communities, if we properly market our industry to promote its virtues. For example, a family living in an apartment cannot decorate as they desire, paint the walls, install fixtures or have many of the freedoms and opportunities that a homeowner possesses. On the other hand, individuals living in manufactured homes can decorate and remodel as they chose, have their own personal outdoor space, have private designated parking, and enjoy the amenities and benefits of home ownership at a price that might be equal to the cost of renting an apartment. Further, for about the same price, the owner of a manufactured home can build equity in their home, providing them with a financial return when they ultimately sell.



The foregoing factors should make our industry more attractive to families. But, what else might you do to encourage families to move into your community? Do you really know what your residents like or dislike about your community? Have you solicited input from your residents? Have you taken any surveys? Have you looked at your competitors in both our industry and the apartment industry to determine what tenants like or dislike as renters? You will need to do your homework to succeed.

Our industry also needs to be aware of the large influx of immigrants into our country. While there has been much publicity over various laws and policies designed to address immigration issues, the reality is that hundreds of thousands of immigrants are living in Arizona, and the number will likely increase in the future. Immigrants are coming here because our nation has a lot to offer, including job opportunities, educational opportunities, a safe living environment, a better quality of life, and the list goes on and on. Whether or not you are in favor of our government’s immigration policies, the reality is that as a housing provider you will need to deal with the influx of immigrants. Some of you have capitalized on this opportunity to fill vacancies in your communities. Even if this has not been a focus of your business plan, some of you will be forced to deal with immigrants because of the location of your community. Don’t overlook this opportunity to improve your community.

A segment of our industry will also continue to cater to lower income individuals, providing necessary housing to those who might otherwise be unable to afford decent housing. While many outsiders tend to bash our industry and some of its low end housing, the reality remains that such communities are an economic necessity and provide housing to individuals who could not otherwise afford a decent place to live.

If our government continues as it has in the past, it will adopt more laws affecting our industry. Some of the laws may be good, while others may be unnecessary or otherwise troublesome. We have already seen in the past couple of decades a massive increase in legislation pertaining to our industry, from fair housing,

to disabilities, to swimming pools and beyond. I don’t anticipate seeing our government dial back its desire to interfere in our ability to operate our communities. Unfortunately, the government always seems to believe that it knows best, even when it enacts laws that are confusing, that make no sense for our industry, or that actually harm our industry. Frequently, our law makers don’t expressly consider our industry when they enact broad based laws, adding confusion and expense to your ability to operate.

I anticipate that with increased laws and regulations, there will continue to be an increased need for manager and owner education. Twenty years ago, owners and managers, could, on their own, figure out most of the do’s and don’ts for owning and managing a community. Now, the plethora of laws and their corresponding ambiguities and complexities have required our industry to seek more legal advice. While I have always welcomed the opportunity to serve our industry and provide legal analysis and advice, my job has always been made easier when our industry is kept well educated. Thus, I foresee an ongoing need in our industry for continuing education so owners and managers can stay on top of the issues. As if you have no doubt figured out from the countless articles and seminars I have presented, I am a strong advocate of education within our industry. The more you know, the better you perform your job, the fewer problems you encounter, the more money you make or save, and the healthier our industry. It’s a win-win for everyone. So, where do you want to be in 10 years? What do you want your community to look like, physically? What do you anticipate your community will look like demographically? Where do you want your community to be economically? To some, the answers to these questions will come merely by happenstance, without any planning, and merely going with the flow. Such communities will be like a sailboat without a rudder, adrift without direction, and subject to many perils and pitfalls that might otherwise be avoided. With a random approach, some of you will get by out of sheer luck, while other communities will suffer. Wise community owners and managers will start planning for the future and how they want their community to be in the future.


I’ve sat down with many community owners and managers over the years and helped them develop plans for the future. To me, it should be a no brainer that every community should be adopting a game plan for where it wants to be 10 years from now. You wouldn’t go on a vacation without first planning how to get there, would you? Likewise, how can you expect your community to thrive in the future if you don’t plan how to get there? If planning is implemented, it greatly increases the likelihood for meeting your objectives. If you fail to plan, no one can predict where you will be 10 years from now. Why take the risk?

Many communities have documents, policies, and rules that are outdated and problematic. If there are policies and rules that are outdated, no longer applicable, or that you no longer enforce, then it’s time to get rid of them or modify them. If there are new issues, problems or matters that need to be addressed, then it would be wise to implement updated policies and rules to address such matters. Nothing can last forever, including your documents and policies.

No industry is immune from challenge nor the reality of the current economy. Fortunately, our industry has not been hit as hard as many other industries during the recent economic downturn. I’ve observed a noticeable lag time between bad economic events and their effect on our industry. For example, when the real estate and financial markets crashed, our industry did not see an immediate increase in delinquencies and abandonments. However, as the bad economy languished, we subsequently began to see such events occurring. Hopefully, the converse will not be true when the market improves. I would prefer to see our industry have an immediate benefit when the market improves, rather than lag behind it.

I remain bullish and positive on our industry, whether it’s a mom and pop community, or communities owned by large investment groups or real estate investment trusts. After all, we are all in the same industry and face similar challenges. Although we will likely continue to endure a number of years of stagnant times until the economy and housing market rebounds, I anticipate positive things to come in the future. However, a

positive future will not occur by accident. Our industry will need to stick together as a group and market our industry in a positive manner. Individual communities will need to put together business plans for the future so that they have a target on which to focus and a plan for getting there. Further, our industry will need to stay strong in promoting the virtues of our industry, promoting continuing education, educating the media, and lobbying for and against legislation affecting our industry.

Yes, I still plan on representing our industry 10 years from now and beyond, and I will pull out this article 10 years from now and see if my crystal ball was on target. If there is anything I can convey to each of you, it is to plan, plan, and plan some more. Update the concepts you are employing in your community. What do you need to do to keep your current residents? Who is your target market for the future? How will you attract them? Update your documents and policies. Focus on where you want to be 10 years from now. Focus on your economic realities. Don’t let the next 10 years go by without a game plan, or it could be catastrophic for you. If you need help, seek out those individuals who are knowledgeable in our industry.

__________________________________________

John A. Buric is an attorney and MHCA member who has represented the mobile home, manufactured home, and RV industry across Arizona since the 1980’s. He also serves as a Superior Court Judge Pro Tem. For additional information, Mr. Buric can be reached at (602) 264-7101. __________________________________________

The content of this article is for informational and educational purposes only, contains the current opinions of the author, and should not be considered as rendering legal advice. The specific facts of a matter, legal interpretations, and changes in the laws could materially affect the opinions contained in the article. Current legal advice should always be sought on any particular matter.


Manufactured housing communities and mobile home parks sometimes get a bad rap. Unfortunately, as we all know, when some think of mobile home parks they think of run-down, slum-like places filled with trashy people, drug addicts and criminals.

On the other hand, among the young, “Millennial” generation, mobile home parks—or at least the concept of mobile home parks—may be making a comeback. Recently Sunset magazine featured a few different “hipster trailer parks” in its online “Westphoria” blog. These parks are made up of vintage travel trailers that have been either beautifully restored to their original appearance or remodeled into attractive, modern spaces. One, in San Diego, is not so much a “trailer park” as it is a collection of restored and remodeled trailers that a woman rents to travelers through a bed and breakfast website. Another, located in Bisbee, Arizona, is the Shady Dell—a park full of vintage trailers from the 1950s and on, all of which have been beautifully restored and which feature 1950s and 60s décor including black and white televisions. The trailers include copies of old movies, like The Long Long Trailer. One reader commenting on the Westphoria blog post about the Shady Dell exclaimed, “I wish there was a trailer park where we could all live like this…what a fun way to commune!”

Other “parks” like these are scattered throughout the country. Mojave Oasis, located in Newberry Springs, California, features vintage trailers that visitors can rent, along with a lake and spaces for travelers to hook up RVs. The Starlite Classic Campground in Canon City, Colorado features vintage trailers that travelers can rent, along with a full-service RV park. These are just a few of many.

Many twenty and thirty-somethings have a fascination with all things retro and kitschy, like mobile home parks with vintage trailers, pink flamingos, and tikis. Indeed, people come from around the country and the world to visit the Shady Dell, which is regularly booked to capacity. Perhaps the “Westphoria” reader who excitedly declared that she wished there was a trailer park “where we could all live like this” was onto something. A park with vintage trailers and décor may be able to attract affluent Millennials to live or to visit (if short-term rentals of park-owned homes were made available).

Not only are many twenty and thirty-somethings attracted to all things retro and kitschy, but many are fascinated by modern design—think of the popularity of iPods, iPads, and all things Apple. Some manufacturers have attempted to seize on this and have designed modern units (which they’re often calling “prefab” homes rather than mobile or manufactured homes) like the Breckenridge “Glassic Flat,” designed by a well-known architect and featuring floor-to-ceiling glass windows that open the entire interior to the outdoors.

The University of Colorado undertook a project called “TrailerWrap,” in which participants stripped an old mobile home and completely renovated it as a modern, energy-efficient home with significant outdoor living space. The purpose of the “TrailerWrap” project was, in its director’s words, to “reexamine[] the mobile home park as a model for equitable, high-density alternatives to suburban sprawl” and to “create exciting, small scale, high density, and affordable architecture with a social and environmental conscience.”

Unfortunately, even if there is a theoretical market for retro and kitschy or modern mobile home parks,

What Could Attract Young PeopleTo Our Communities?

By Melissa A. Parham, Attorney


the money to create these parks would have to come from somewhere. The majority of mobile home park denizens chose their homes because of their affordability, and could not afford to upgrade to a modern home or to restore an older home to its former glory. Many homeowners would have absolutely no desire to do these things anyway because they have more pressing concerns. And, most park owners wouldn’t be willing to invest large sums of money in restoring old homes, installing modern homes in parks containing mostly older homes, or stripping and renovating older homes to make them modern when a payoff is uncertain. The possibility of a market exists but the reality would be difficult to create.

Yet the potential is there. There are hundreds of parks around the state filled with older single wide homes and vacant spaces that with the expenditure of money could be upgraded to clean, cool retro communities. Of course clubhouses and other facilities would need upgrading and somehow tenant owned homes would also need to be dealt with.

Within the past couple of years, the City of Phoenix contributed a large sum of money (about $3 million) to rehab an old abandoned hotel (The Caravan) downtown on Grand Avenue (in the Grand Avenue “arts district”). That project, called the Oasis on Grand Apartments, converted the old hotel into 60 units of studio and one-bedroom housing, which feature work/

art gallery space for renters to display and sell their crafts and artwork. It appears that this project has been fairly successful—according to its website, all apartments have been rented. Who knows how much money has been wasted on the project or whether it is actually profitable—but, at the very least, projects like this do attract young, creative renters. Perhaps an older, distressed mobile home park could be converted into sleek, modern, but affordable housing in a similar fashion—if a park owner was willing to take a big financial risk. Younger people who are financially comfortable, but not wealthy, might be attracted to such a housing option.

Arizona parks cater largely to over 55 residents and young lower income families. None that we are aware of are targeting the under 35 Millennial generation. These people are affluent, often single, and in search of smaller but unique housing. It would be interesting to see how a park with modern, or retro older homes would succeed in attracting them.

1 The TrailerWrap program is described in detail at http://www.trailerwrap.net/TrailerWrap.pdf and its website is http://www.trailerwrap.net/.

Melissa A. Parham, Attorney, is with Williams, Zinman & Parham, P.C. She can be reached at 480-994-4732 or [email protected].


Over the past few months, MHI has worked to represent the concerns of the manufactured housing industry in its comments to a number of proposed housing finance rule makings recently released by the federal Consumer Financial Protection Bureau (CFPB).

MHI is concerned that a number of new regulations currently being developed by the CFPB could further limit access to and the availability of credit in the already finance-constrained manufactured housing market. In addition to efforts to amend the Dodd-Frank law through legislative measures in the House and Senate (H.R. 3489 & S. 3484), MHI is actively advocating the industry’s concerns before key staff at the CFPB.

Below is a summary of selected rules MHI believes are of significant concern to the industry and a copy of comments submitted. MHI staff is working to ensure final rules adequately reflect the price sensitivities and unique challenges inherent to the manufactured housing market.

Appraisal Requirements for Higher-Risk Mortgages — Implements Dodd-Frank provisions that an appraisal (including a physical inspection of the interior of a home) be conducted on homes with mortgages considered “higher-risk.” Under the law, qualified mortgages (QMs) would be exempt from the “higher-risk mortgage” definition and thereby exempt from appraisal requirements. In general, if the loan is not a QM and has an APR that is 1.5 percentage points over prime, it is considered “higher-risk.” Based on input from MHI, the rules proposed by the CFPB and others would exempt any loan “solely secured by a residential structure,” such as manufactured homes, from the higher-risk mortgage definition. Based on the

unique difficulties of appraising manufactured homes, MHI is working to expand this definition to include any manufactured home loan secured by real property.

Equal Credit Opportunity Act Amendments — Requires creditors to provide consumers free copies of all written appraisals and valuations developed in connection with an application for a mortgage. The proposal would require creditors to notify applicants in writing of the right to receive a copy of each written appraisal or valuation at no additional cost. With respect to new manufactured homes, most lenders develop a maximum loan amount based on the manufactured home’s invoice price. In the proposed rule, the CFPB indicates that “valuations such as manufacturer’s invoices for mobile homes” would not be considered a “written appraisal or valuation” and would not have to be provided to consumers by lenders. In addition, publicly available valuation lists (such as published sales prices or mortgage amounts, tax assessments and retail price ranges) are not items considered that must be provided to consumers.

HOEPA High-Cost Mortgage Revisions — Dodd-Frank expands the types of mortgages subject to the protections of the Home Ownership and Equity Protection Act (HOEPA); revises and expands the triggers for coverage under HOEPA; and imposes additional restrictions on HOEPA “high-cost mortgage” loans, including a pre-loan counseling requirement. Because the fixed costs (such as servicing and origination) and the lack of secondary market access, low balance manufactured home loans are particularly susceptible to classification as high-cost under the revised HOEPA guidelines. Due to liabilities associated with a high-cost/HOEPA mortgage, lenders will not originate these loans—potentially further stifling the

MHI Weighs in on Waveof CFPB Housing Finance Rules


availability of credit in the manufactured housing market. MHI has urged the CFPB to significantly broaden the APR and origination points thresholds that define HOEPA high-cost loans and ensure that fewer low-balance manufactured home loans are captured by triggers that currently do not fully account for the price pressures in the manufactured housing market.

Loan Originator Compensation Rules — Implements changes made by Dodd-Frank to Regulation Z’s current loan originator compensation provisions, including a new additional restriction on the imposition of any upfront discount points, origination points, or fees to consumers under certain circumstances. The rule implements a very narrow exemption for manufactured housing retailers to “exclude employees of a manufactured home retailer who assists a consumer in obtaining or applying to obtain consumer credit, provided such employees do not take a consumer credit application, offer or negotiate terms of a consumer credit transaction, or advise a consumer on credit terms (including rates, fees, and other costs).” Unfortunately, the provision provides no meaningful relief to the industry.

MHI has maintained the position that the exemption for manufactured home retailers should be based upon the compensation received in the home sale. If the compensation received is no greater than what the

retailer would have received in an all-cash transaction, then the individual retailer/seller should not be considered a loan originator. Unless clarifications are made, MHI is concerned that lenders may be forced to consider sales commissions earned by a manufactured home retailer as compensation and gain for purposes of calculating a loan’s APR or points and fees. This may cause the loan to fail the test for a “qualified mortgage” or a HOEPA/high-cost mortgage.

RESPA & TILA Mortgage Servicing Guidelines — The rules implement Dodd-Frank provisions regarding mortgage loan servicing. Specifically, this proposal implements Dodd-Frank sections addressing initial rate adjustment notices for adjustable-rate mortgages (ARMs), periodic statements for residential mortgage loans, and prompt crediting of mortgage payments and response to requests for payoff amounts. The proposed rule would provide an exemption to small servicers—defined as those that service 1,000 or fewer mortgage loans and service only mortgage loans that they originated or own—for the periodic statement requirements.

Reprinted from the November 2012 issue of “MH News Wire”, an official publication of the national Manufactured Housing Institute (MHI). MHCA is a member of MHI.

MHCA thanks those who contributed their thoughts on whatthe next 10 years will bring for our industry to this special edition.We appreciate their time, energy, insights and all they do for our

industry. If you have any thoughts you would like to add,please submit them to MHCA at [email protected].

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