In April 2016, I was asked to make a presentation to a workshop for Affordable Housing Nonprofit Corporation (501 (c)(3)). Those groups are interested in buying and possibly rehabilitating mobile home parks. There is money available from the State of California to assist in this task. But they have no clue as to how to proceed or what they are getting into.
I have included my presentation notes below.
HOUSING CALIFORNIA 2016
WORKSHOP DISCUSSION OUTLINE
I am not an attorney, and I am not affiliated with any non profit.
What I am is a finance/deal guy.
38 years in affordable housing – mostly in finance
1991-2 I was asked to look at a deal – Hooksett, NH
Mid 90’s I (more or less) finally declared my major and focused on getting mobile home parks into some form of benevolent ownership
Clients: 501c3, limited equity coops, resident mutual benefit corp.
Financing: HUD, bonds, credit enhancements, conduits, community development lenders, banks, Freddie Mac, Fannie Mae. Turn over rocks.
I have done about 40-50 over the last 20+ years in a bunch of places, mostly CA, but also OR, WA, AZ, NV, MN, etc..
All somewhat good news.
The less good news is that I have worked on probably 1000 deals that failed or never got off the ground.
I thought about what I could say to this group and decided that I would try to point out the problems in these deals. I explained this to my Workshop Leader.
His reaction: Damn Deane, you’re going to talk them out of doing this stuff.
I actually don’t want to do that, so we’ll talk solutions or at least how you can try to avoid some of the problems.
PROBLEMS WITH MHP ACQUISTIONS
PARK OWNERS – Hard to generalize (50,000 parks, 5000 in CA – large corporations, Mom & Pop), but safe to say they are NOT great humanitarians, and they (or their attorneys or brokers) usually DO NOT want to work with you – deals are hard to do, take a long time, often fail. Basically, don’t think you can do it and don’t want to waste time. Remember, OWNERS DON’T NECESSARILY TELL THE TRUTH.
1. Throw money at them
Owners respond to money
Convince them that you can make them more money than their alternatives
Example: Municipal consulting
2. Solve their problems
Violations – Code, MRL
Example: Country Villa Purchase
3. As a last resort (maybe), coercion
Municipal/State pressure – code violations/MRL/county
This is a delicate area – park owners don’t like to be coerced. And they especially don’t like to be sued.
But lawsuits for Failure To Maintain the park have worked for some resident groups, and they ended up buying the park.
Sometimes Municipal/State pressure can possibly convince the owner to sell.
Lately, Eminent Domain has gained new legitimacy when a CA Housing Authority indicated an interest in using their authority to acquire a park. (I’ll have more on Eminent Domain in another article.)
Example: Blue Pacific Purchase
MONEY – need lots of other peoples money ( I assume you have no equity) Remember: Lenders Lie
Develop a Financing Budget
Explore funding sources
Make sure you understand the ‘strings’ attached to the money
Make sure all your financing sources work well together and can meet the timelines.
EXAMPLE: SC County Pre-development loans
Determine if you NEED them, or just want them around
Bell Curve of residents – experience, income, ability
wary, suspicious, fear of change,
Some community development money demands residents vote on the deal; some require residents provide you with income/expense information.
Pick your target carefully; be wary; don’t spend any money unless you absolutely have to. [pre-development funds]
Playing down the food chain so the deal probably isn’t going anywhere (meaning if you decide to ‘pass’ today, it will likely be around tomorrow.) Some stuff IS NOT OBVIOUS
EXAMPLE: South County Housing
FIGURE OUT HOW TO GET CONTROL OF THE DEAL
EXAMPLE: Tar Baby –
Develop a “PLAN”
REMEMBER – Everything is negotiable